CALGARY, ALBERTA--(Marketwired - Oct. 29, 2013) - Calmena Energy Services Inc. (TSX:CEZ) ("Calmena" or the "Company") announces an update on operations and its ongoing strategic process.
Mexico contract drilling is beginning to show signs of recovery. The curtailment of Mexico drilling operations in the second quarter by Pemex resulted in the termination of all of our drilling contracts which has had a material negative impact on Calmena's overall financial performance. Calmena's six Mexican rigs remained idle until early October, when our first rig was re-activated. That curtailment in activity resulted from a budget impasse between Pemex and the Government of Mexico which has since been resolved. Pemex is currently tendering ten large multi-year integrated project management contracts, as part of an aggressive capital program, which we expect will be awarded later in 2013 and should result in increased demand for rigs in the first quarter of 2014. Management expects utilization to improve with these positive market developments. EBITDA from our Mexican contract drilling business was $12.7 million in 2012.
In early October, Calmena received notice from its customer in Libya of its intent to renew the drilling contracts for the Company's two rigs. One rig re-commenced operations in mid-October, and negotiations continue to finalize longer term contractual commitments for both rigs.
In Canada, activity in our Frac Fluids Management and Equipment Rentals business improved in September after a slow start to the third quarter. Management is encouraged by this momentum and as we approach the seasonally more active winter period, anticipates this trend will continue.
In the US, second half seasonal activity increases for the Company's directional services business have not materialized and year over year job counts are still materially behind 2012 levels. Customers continue to provide assurances of meaningful increases in activity, but to date the Company has not enjoyed the positive momentum generally expected in the third and fourth quarters. Currently, the directional business anticipates improving activity levels in Q4.
Calmena's Brazilian rigs are not currently contracted. The Company continues to explore strategic opportunities to re-contract or divest of these rigs.
Due to current business conditions and the interruption in drilling activity in Mexico described above, Calmena has determined that it is currently in default of certain debt covenants under the credit facilities held with its senior lender ("Credit Facilities"). Accordingly, Calmena and its senior lender have entered into an agreement (the "Agreement") pursuant to which the senior lender has agreed to forbear from demanding repayment or enforcing its security under the Credit Facilities prior to the earlier of the expiration of a period of 45 days from the date hereof or a default as defined in the Agreement. The Credit Facilities consist of a revolving demand operating facility with a maximum borrowing capacity of $10.0 million (subject to a borrowing restriction based on the carrying amount of Calmena's Canadian and US trade receivables), and a revolving extendible facility with a maximum borrowing capacity of $24.6 million. The total owing under the Credit Facilities is currently $27.7 million. Calmena also owes $15.2 million to secured lenders under facilities that are subordinated and postponed to the senior lender. Under the terms of the Agreement, Calmena shall continue to be able to draw on the operating facility, with no further draws being available on the extendible facility. The interest rate under the Credit Facilities has been increased by 2% per annum to the Bank's prime rate plus 4%.
Management has undertaken cost reduction measures across the Company to reflect current activity levels. In parallel with initiatives to manage costs and rejuvenate Calmena's businesses, our strategic review process is ongoing. Calmena disposed of its Canadian wireline and contract drilling businesses in the second quarter and third quarter of 2013, respectively. Management continues to explore strategic alternatives to monetize under-utilized assets, and consider business combination opportunities.
ABOUT CALMENA ENERGY SERVICES INC.
Calmena is a diversified energy services company that provides well construction services to its customers operating in Canada, the United States, Latin America and the Middle East and North Africa. The common shares of Calmena trade on the Toronto Stock Exchange under the symbol "CEZ".
This news release contains certain forward-looking statements relating to Calmena's plans, strategies, objectives, expectations and intentions. Expressions such as "may", "anticipate", "expect", "believe", "intend", "will", and similar expressions and statements are intended to identify forward looking statements. Such statements represent Calmena's beliefs concerning, among other things, the Company's expectations for new drilling contracts to be awarded in Mexico and other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. These statements are only predictions and actual events or results may differ materially. Although Calmena believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause Calmena's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Calmena.
In particular, forward-looking statements included in this news release include, but are not limited to, statements with respect to the timing for Pemex to award drilling contracts in Mexico and anticipated effect of such contracts on demand and utilization for the Company's Mexican rigs, the intention of the Company's customer in Libya to renew the drilling contract for the Company's two rigs, management's expectations for improved activity levels in the Company's frac fluids and directional businesses in Q4 2013, the Company's plans to explore strategic opportunities to re-contract or divest its rigs in Brazil, to monetize under-utilized assets and consider business combination opportunities. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Calmena's control, including, but not limited to, the risk that the Company is unable to comply with the terms of the Agreement with its senior lender or refinance or extend the maturity date of the Credit Facilities; the failure to successfully negotiate and/or complete further transactions pursuant to the Company's strategic alternatives process; failure to achieve an increase in demand for the Company's drilling rigs and other product offerings; the impact of general economic conditions; industry conditions and changes in industry conditions; volatility of commodity prices; decreased demand for energy services; competition from other energy services providers; the lack of availability of qualified personnel or management; ability of Calmena to generate positive cash flow; failure of counter parties to perform on contracts; failure to successfully negotiate new contracts or renew existing contracts; failure to successfully deploy rigs; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry; risks associated with international operations, including, but not limited to, effect of civil unrest on the Corporation's operations in Libya; seasonality; loss of key customers; fluctuations in foreign exchange or interest rates and stock market volatility; supply and demand for oilfield services relating to the drilling, completion and maintenance of oil and gas wells as well as services related to, oilfield equipment rentals and production and ancillary services; liabilities and risks, including environmental liabilities and risks inherent in oil and natural gas operations; uncertainties in weather and temperature affecting the duration of the service periods and the activities that can be completed; ability to access sufficient capital from internal and external sources; failure to successfully negotiate contracts for drilling rig operations; and the other risks considered under "Risk Factors" in our annual information form for the year ended December 31, 2012 which is available on www.sedar.com.
With respect to forward-looking statements contained in this news release, Calmena has made assumptions regarding, but not limited to: current commodity prices and royalty regimes; availability of skilled labour; timing and amount of capital expenditures; ability of Calmena to re-finance or extend the maturity date of its senior debt; that the senior lender will comply with the terms of the Agreement and forbear from demanding repayment or enforcing their security under the Credit Facilities; ability of Calmena to renew existing contracts and enter into new contracts; rig utilization and pricing; future exchange rates; the impact of increasing competition; conditions in general economic and financial markets; industry conditions; supply and demand for oilfield services relating to the drilling, completion and maintenance of oil and gas wells as well as services related to oilfield equipment rentals and production and ancillary services; effects of regulation by governmental agencies; trends in Calmena's operations; and future operating costs.
Calmena's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Calmena will derive therefrom. Readers are cautioned that the foregoing lists of factors are not exhaustive.
These forward-looking statements are made as of the date of this news release and Calmena disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.
The TSX has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.