Total Energy Services Inc.
TSX : TOT

Total Energy Services Inc.

November 04, 2009 11:22 ET

Total Energy Services Inc. Announces Q3 2009 Results

CALGARY, ALBERTA--(Marketwire - Nov. 4, 2009) - Total Energy Services Inc. (TSX:TOT) ("Total Energy" or the "Company"), announces its consolidated financial results for the three and nine-month periods ending September 30, 2009.



Financial Highlights
($000's except per unit data)


Three Months Ended Sept 30 Nine Months Ended Sept 30
(Unaudited) (Unaudited)
% %
2009 2008 Change 2009 2008 Change
---------------------------------------------------------
Revenue $20,004 $37,266 (46)% $ 79,211 $ 104,770 (24)%
Operating
Earnings (loss)
(1) 622 7,453 (92)% 8,619 19,898 (57)%
EBITDA (1) 4,145 11,993 (65)% 18,695 32,281 (42)%
Cashflow (1) 4,692 10,567 (56)% 20,664 28,737 (28)%
Net Earnings 2,185 6,080 (64)% 9,509 16,471 (42)%

Per Share Data
(Diluted)
EBITDA (1) $ 0.14 $ 0.40 (65)% $ 0.64 $ 1.09 (41)%
Cashflow (1) 0.16 0.36 (56)% 0.71 0.98 (28)%
Net Earnings 0.08 0.21 (62)% 0.33 0.56 (41)%

Sept. 30 Dec. 31
2009 2008
(Unaudited) (Audited) % Change
Financial Position
Total Assets $228,936 $ 247,515 (8)%
Long-Term Debt and
Obligations Under
Capital Leases 16,614 13,521 23%
Working Capital (2) 10,208 7,254 41%
Net Debt (3) 6,406 6,267 2%
Shareholders' Equity 153,630 147,376 4%

Shares Outstanding (000's)
Basic 29,080 29,057 nil
Diluted 29,080 29,057 nil

Notes 1 through 3 please refer to the Notes to the Financial Highlights
set forth at the end of this release.


Total Energy's results for the third quarter of 2009 represent continued challenging industry conditions in Western Canada. While activity levels improved somewhat from the seasonally weak second quarter, industry drilling activity remained weak by historical standards. Competitive industry conditions also resulted in continued pressure on pricing.

Total Energy's Contract Drilling Services division achieved 14% utilization during the third quarter of 2009, recording 172 operating days (spud to release) with a fleet of 14 rigs, compared to 772 operating days, or 65% utilization, during the third quarter of 2008 with a fleet of 13 rigs. Included in 2009 third quarter revenues was a $0.9 million payment received in consideration of the termination of a one year contract on the Company's newly constructed fourteenth rig. Competitive pricing resulted in lower rig utilization for the third quarter of 2009 as the Company determined not to reduce rates to the extent required to secure work. Excluding the one time contract termination fee, revenue per operating day decreased 4.5% in the third quarter of 2009 compared to the third quarter of 2008. The Drilling and Production Rentals division achieved a utilization rate on major rental equipment of 27% during the third quarter of 2009 as compared to a 55% utilization rate during the third quarter of 2008. The Gas Compression Services division generated revenues of $7.5 million for the three months ended September 30, 2009 compared to $9.4 million for the same period in 2008, a decrease of 21%. 2009 third quarter operating earnings margins in this division increased 35% from the second quarter of 2009 and 13% from the third quarter of 2008 due primarily to increased compression rental revenues. At September 30, 2009 the Gas Compression Services division had a fabrication backlog of approximately $8.4 million, compared to a backlog of $24.8 million at September 30, 2008 and $8.9 million at June 30, 2009. At September 30, 2009, approximately 16,800 horsepower of compression equipment was on rent compared to 10,800 horsepower on rent at September 30, 2008. The gas compression rental fleet operated at an average utilization rate of 84% for the first nine months of 2009 as compared to 73% for the same period in 2008.

During the third quarter, Total Energy declared a quarterly dividend of $0.03 per share to shareholders of record on September 30, 2009. This dividend was paid on October 30, 2009.

OUTLOOK

Industry conditions remain challenging with Western Canadian drilling activity levels currently well below prior years. However, a continued focus on unconventional resource plays, particularly in northeast British Columbia, is expected to benefit the Company as Total Energy is well established in these areas, many of which are winter access only. While industry overcapacity remains an issue in Western Canada, prolonged difficult industry conditions have resulted in capacity reduction through equipment relocation, industry consolidation and attrition. Within the Contract Drilling Services division, Western Canadian spot market rig day rates have recently increased since bottoming earlier this year and have generally stabilized at a level where the Company is willing to work its equipment. Total Energy's focus on the heavy double market is expected to positively impact winter rig utilization relative to the third quarter. The Drilling and Production Rentals division's quality asset base and extensive infrastructure in northeast British Columbia and southeast Saskatchewan is expected to benefit from increased winter activity in these areas. The Gas Compression Services division is focused on increasing its share of the Canadian natural gas compression market and increasing its exposure to foreign markets. Increasing market awareness of the NOMAD™ line of large horsepower natural gas compression and the substantial cost savings arising from the deployment of this proprietary technology is also expected to benefit this division despite a challenging natural gas market.

Total Energy's balance sheet remains strong with a long-term debt (including current portion) to long-term debt plus equity ratio of 0.15 to 1.0, $10.2 million of working capital and $6.4 million of net debt as at September 30, 2009. As at September 30, 2009, $22.5 million was available under the Company's existing credit facilities subject to normal margining requirements.

CONFERENCE CALL

At 2:30 p.m. MST today, Total Energy will conduct a conference call to discuss its third quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. If you wish to participate, call (866) 223-7781. Those who are unable to listen to the call live may listen to a recording of it by calling (800) 408-3053 (passcode 3205300). The recording will be available until November 12, 2009.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and nine-month periods ended September 30, 2009 and 2008 is attached to this press release. This information should be read in conjunction with the unaudited consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Corporation's third quarter report.



Consolidated Balance Sheets
(in thousands of Canadian dollars)

September 30, December 31,
2009 2008
----------------------------------------------------------------------------
(unaudited)

Assets
Current assets:
Accounts receivable $ 15,721 $ 37,274
Inventory 29,114 33,836
Income tax receivable 2,848 -
Prepaid expenses and deposits 2,746 1,319
-------------------------------
50,429 72,429

Property, plant and equipment 174,454 171,033

Goodwill 4,053 4,053

-------------------------------
$ 228,936 $ 247,515
-------------------------------
-------------------------------

Liabilities & Shareholders' Equity
Current liabilities:
Bank indebtedness $ 16,093 $ 24,830
Accounts payable and accrued liabilities 12,375 29,137
Dividends Payable 872 -
Distributions payable - 872
Income taxes payable - 2,336
Current portion of long-term debt 10,400 8,000
Current portion of obligations under
capital leases 481 -
-------------------------------
40,221 65,175

Long-term debt 16,018 13,521

Obligations under capital leases 596 -

Future income taxes 4,978 21,443

Deferred tax credit 13,493 -

Shareholders' equity:
Share capital 60,210 -
Trust Unit capital - 60,027
Contributed surplus 989 -
Retained earnings 92,431 87,349
-------------------------------
153,630 147,376

-------------------------------
$ 228,936 $ 247,515
-------------------------------
-------------------------------

Supplemental Information:
Number of common shares
outstanding (000's) - Basic and diluted 29,080 29,057


Consolidated Statements of Earnings and Retained Earnings
(in thousands of Canadian dollars except per share amounts)

Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $ 20,004 $ 37,266 $ 79,211 $ 104,770

Expenses:
Operating 12,386 20,943 47,659 59,807
Selling, general
and administration 3,308 4,478 11,287 12,915
Share based
compensation 231 - 989 -
Depreciation 3,094 3,847 9,552 10,154
Other interest 106 263 434 965
Interest on
long-term debt 257 282 671 1,031
-----------------------------------------------------------
19,382 29,813 70,592 84,872

-----------------------------------------------------------
Operating earnings 622 7,453 8,619 19,898

Reorganization costs - - (890) -
Gain on disposal
of equipment 66 148 309 233
-----------------------------------------------------------

Earnings before
income taxes 688 7,601 8,038 20,131

Income tax expense
(recovery)
Current (745) 733 (2,394) 1,315
Future (752) 788 923 2,345
-----------------------------------------------------------
(1,497) 1,521 (1,471) 3,660

-----------------------------------------------------------
Net earnings 2,185 6,080 9,509 16,471
-----------------------------------------------------------

Retained earnings,
beginning of
period 91,175 78,759 87,349 73,812

Dividends (872) - (872) -

Trust distributions - (2,651) (3,486) (7,952)
Repurchase and
cancellation of
trust units in
excess of stated
trust unit capital (57) (634) (69) (777)

-----------------------------------------------------------
Retained earnings,
end of period $ 92,431 $ 81,554 $ 92,431 $ 81,554
-----------------------------------------------------------
-----------------------------------------------------------

Earnings per share:
Basic and diluted $ 0.08 $ 0.21 $ 0.33 $ 0.56


Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)

Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash provided by
(used in):

Operations:
Net earnings $ 2,185 $ 6,080 $ 9,509 $ 16,471
Add (deduct)
items not
affecting
cash:
Depreciation 3,094 3,847 9,552 10,154
Share based
compensation 231 - 989 -
Gain on disposal of
equipment (66) (148) (309) (233)
Future income taxes (752) 788 923 2,345
-------------------------------------------------------
4,692 10,567 20,664 28,737
Changes in non-cash
working capital items:
Accounts receivable (3,334) (9,690) 21,553 (3,480)
Inventory 1,369 1,086 4,722 77
Income taxes receivable (624) 4,179 (2,848) 5,742
Prepaid expenses and
deposits (765) (361) (1,427) (175)
Accounts payable and
accrued liabilities (530) 5,741 (12,097) 3,362
Income taxes payable - 714 (2,336) 1,368
-------------------------------------------------------
808 12,236 28,231 35,631
Investments:
Purchase of property,
plant and equipment (2,519) (14,137) (14,858) (20,767)
Proceeds on disposal of
property, plant and
equipment 704 771 2,194 1,479
Transaction with
Biomerge Industries
Ltd. - - (3,639) -
Changes in non-cash
working capital items 5 3,376 (4,665) 3,813
-------------------------------------------------------
(1,810) (9,990) (20,968) (15,475)
Financing:
Advances of long-term
debt - - 12,000 3,000
Repayments of long-term
debt (2,600) (2,007) (7,103) (8,882)
Advances of obligations
under capital leases 80 - 1,523 -
Repayment of
obligations under
capital leases (133) (116) (446) (346)
Repurchase of common
shares (115) - (115) -
Repurchase of trust
units - (360) (27) (1,144)
Dividends to
Shareholders (872) - (872) -
Distributions payable 872 - 872 -
Distributions to
Unitholders - (2,651) (3,486) (7,952)
Distributions payable - - (872) (1)
Increase (decrease) in
bank indebtedness 3,770 2,888 (8,737) (4,831)
-------------------------------------------------------
1,002 (2,246) (7,263) (20,156)

Change in cash - - - -

Cash, beginning of
period - - - -

-------------------------------------------------------
Cash, end of period $ - $ - $ - $ -
-------------------------------------------------------
-------------------------------------------------------
Supplemental
information:
Interest paid $ 363 $ 537 $ 1,181 $ 2,127
Income taxes paid
(received) $ (121) $ (4,160) $ 2,790 $ (5,795)


SEGMENTED INFORMATION

The Corporation operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Drilling and Production Rentals, which includes the rental and transportation of equipment used in drilling and production operations and Gas Compression Services, which includes the fabrication, sale, rental and servicing of natural gas compression equipment.



As at and for the three months ended September 30, 2009 (unaudited)

Contract Drilling and Gas
Drilling Production Compression
Services Rentals Services Other (2) Total
----------------------------------------------------------------------------

Revenue $ 3,284 $ 9,219 $ 7,501 $ - $ 20,004
Operating earnings
(loss) (1) 534 340 660 (912) 622
Depreciation 458 2,245 385 6 3,094
Assets 68,809 100,769 54,758 4,600 228,936
Goodwill - 2,514 1,539 - 4,053
Capital expenditures 845 367 1,303 4 2,519


As at and for the three months ended September 30, 2008 (unaudited)

Contract Drilling and Gas
Drilling Production Compression
Services Rentals Services Other (2) Total
----------------------------------------------------------------------------

Revenue $ 11,292 $ 16,529 $ 9,445 $ - 37,266
Operating earnings
(loss) (1) 2,292 5,336 741 (916) 7,453
Depreciation 1,365 2,156 320 6 3,847
Assets 71,013 111,316 52,154 1,337 235,820
Goodwill - 2,514 1,539 - 4,053
Capital expenditures 1,852 9,480 2,805 - 14,137


As at and for the nine months ended September 30, 2009 (unaudited)

Contract Drilling and Gas
Drilling Production Compression
Services Rentals Services Other (2) Total
----------------------------------------------------------------------------

Revenue $ 11,169 $ 37,850 $ 30,192 $ - 79,211
Operating earnings
(loss) (1) 1,346 7,972 2,473 (3,172) 8,619
Depreciation 1,480 6,946 1,106 20 9,552
Assets 68,809 100,769 54,758 4,600 228,936
Goodwill - 2,514 1,539 - 4,053
Capital expenditures 5,668 2,228 6,958 4 14,858


As at and for the nine months ended September 30, 2008 (unaudited)

Contract Drilling and Gas
Drilling Production Compression
Services Rentals Services Other (2) Total
----------------------------------------------------------------------------

Revenue $ 27,219 $ 49,522 $ 28,029 $ - 104,770
Operating earnings
(loss) (1) 4,604 14,950 3,008 (2,664) 19,898
Depreciation 2,968 6,237 926 23 10,154
Assets 71,013 111,316 52,154 1,337 235,820
Goodwill - 2,514 1,539 - 4,053
Capital expenditures 4,732 11,633 4,402 - 20,767

(1) Operating earnings (loss) are earnings before reorganization costs,
gain on disposal of equipment and income taxes.
(2) Other includes the Company's corporate activities and in 2009 "Assets"
includes income taxes receivable of $2.8 million


Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, drilling and production rentals and natural gas compression equipment fabrication, sales, rental and service. The shares of Total Energy are listed and trade on the TSX under the symbol TOT.

Notes to Financial Highlights


(1) Operating earnings are earnings before reorganization costs, gain (loss) on disposal of equipment and income taxes. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to earnings before income taxes plus interest on long-term debt plus other interest plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). Management believes in addition to net earnings, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Corporation's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Corporation's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Investors should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of Total Energy's performance. Total Energy's method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.

(2) Working capital equals current assets minus current liabilities.

(3) Net Debt equals long-term debt plus obligations under capital leases plus current liabilities minus current assets.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

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