CanElson Drilling Inc.
TSX : CDI

CanElson Drilling Inc.

March 12, 2012 07:30 ET

CanElson Announces Fourth Quarter and Annual Financial Results and Declares Initial Dividend

CALGARY, ALBERTA--(Marketwire - March 12, 2012) - CanElson Drilling Inc. ("CanElson" or the "Corporation") (TSX:CDI) announces annual and fourth quarter financial results and declares initial dividend.

ANNUAL 2011 HIGHLIGHTS:

  • Services revenue $184.8 million (2010: $67.8 million)
  • Top decile Canadian utilization of 66% compared to an industry utilization level of 50%
  • United States utilization of 84%
  • Services gross profit of $76.7 million (2010: $18.3 million)
  • 2011 EBITDA of $66.1 million (2010: $13.9 million)
  • 2011 income attributable to shareholders of $31.3 million (2010: $4.8 million)
  • Two corporate acquisitions acquiring 12 drilling rigs operating in the Bakken resource play
  • Completed construction and deployment of 5 tele-double drilling rigs

FOURTH QUARTER 2011 HIGHLIGHTS:

  • Services revenue in Q4 2011 of $64.1 million (Q4 2010: $24.4 million)
  • Top decile Canadian utilization of 77% compared to an industry utilization level of 61%
  • United States utilization of 84%
  • Q4 2011 EBITDA margin of 39% (Q4 2010: 28%)
  • Q4 2011 services gross profit of $28.8 million (Q4 2010: $7.5 million)
  • Q4 2011 EBITDA of $24.8 million (Q4 2010: $6.8 million)
  • Q4 2011 income attributable to shareholders of $11.3 million (Q4 2010 of $3.3 million)
  • Completed construction and deployment of 1 tele-double drilling rig to Alberta

For the year ended December 31, 2011 CanElson achieved 375% growth in EBITDA to $66 million and 275% growth in diluted earnings per share to $0.45 per share which compares to the prior year EBIDTA of $13.9 million and diluted earnings per share of $0.12. Fourth quarter EBITDA was $24.8 million and diluted earnings per share was $0.15 which compares to 2010 fourth quarter EBITDA and basic and diluted earnings per share of $6.8 million and $0.07 respectively. The increase in these fourth quarter and annual financial measures compared to the same period last year is a result of strengthening EBITDA margins and significant growth in the average drilling rig fleet available for operation.

Contracted organic rig builds continue to be delivered as planned. During the fourth quarter CanElson delivered one "purpose-built" small footprint ultra-heavy-duty telescoping double drilling rig ("tele-double") to drill deep horizontal wells with expected measured depths of up to 5,500 metres. Subsequent to year end, CanElson deployed a tele-double to the Permian Basin of west Texas under a term committed contract and the Corporation is currently constructing an additional tele-double with deployment to the Permian Basin of west Texas expected for April 2012. CanElson has ordered long lead items for an additional tele-double which could be constructed and deployed in June 2012 if a satisfactory customer commitment is obtained. Completion of construction and delivery of any additional drilling rigs are dependent upon obtaining satisfactory customer commitments.

The majority of CanElson's rig fleet continues to be purpose built tele-doubles reflecting management's view that these are the most efficient drilling rigs from both capital and operating perspectives for resource plays that the Corporation targets. These tele-doubles are designed for minimum rig up and rig out times, lower cost transportation and highly reliable operation, especially for long-reach horizontal wells. This strategy allows CanElson to offer competitive rates through the full cycle, building long-term customer relationships while targeting top quartile returns for shareholders. For select resource plays CanElson will investigate customer enquiries for modern triple drilling rigs.

As a result of CanElson's growth in funds flow from operations and strong financial position, the Corporation's Board of Directors has approved the implementation of a dividend policy, which provides for the payment of a quarterly dividend. The Board of Directors has declared an initial quarterly dividend of $0.05 per share ($0.20 annually) for the three month period ended December 31, 2011, payable on April 12, 2012 to shareholders of record at the close of business on March 26, 2012. Management believes the Corporation can pursue disciplined but aggressive growth and return value to our shareholders through a dividend.

President and CEO Randy Hawkings states, "We continue our combination of effective capital deployment and efficient operations of good people and rigs, which in turn has given us a robust financial position, thereby allowing us to pay a dividend while simultaneously continuing our disciplined but aggressive growth plans."

Derrick Big Eagle, Vice President Business Development, has left the company to pursue exploration and production (E&P) opportunities. We wish Derrick all the best in his E&P ventures, and would like to thank him for his help integrating Eagle Drilling as well as championing various business development opportunities. We look forward to having Derrick as a valued customer in the future.

At the date of this press release, CanElson was operating 36 rigs: 21 drilling rigs in the WCSB, 7 (net: 6) drilling rigs in Texas, 4 drilling rigs in North Dakota, 2 (net: 1) drilling rigs and 2 (net: 1) service rigs in the Misantla-Tampico Basin of Mexico. Eighty eight percent of CanElson's owned drilling rig fleet is operating in oil resource plays and has an average age of less than 4.4 years.

Audited financial information extracted from the consolidated financial statements and management's discussion and analysis (MD&A) are included below. The full text of the audited financial statements and MD&A are to be posted on the SEDAR website at www.sedar.com.

FINANCIAL HIGHLIGHTS

(Tabular amounts are stated in thousands of Canadian dollars, except per share amounts and rig operating days)

Three months ended December 31, For the year ended December 31,
2011 2010 change 2011 2010 change
Services revenue $64,098 $24,409 163% $184,758 $67,825 172%
Rig construction revenue - 5,456 nm $4,377 $5,456 -20%
EBITDA (i) $24,779 $6,843 262% $66,067 $13,895 375%
Income attributable to shareholders of the corporation $11,324 $3,304 243% $31,329 $4,808 552%
Income per share
Basic $0.15 $0.07 121% $0.45 $0.12 279%
Diluted $0.15 $0.07 115% $0.45 $0.12 275%
Funds flow (ii) $20,665 $6,506 218% $60,357 $12,890 368%
Gross Margin (services) (iii) $28,831 $7,479 285% $76,654 $18,328 318%
Gross Profit (rig construction) - - nm $788 $1,115 -29%
outstanding 73,666 50,054 47% 69,536 39,242 77%

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Stated in thousands of Canadian dollars) December
31, 2011
December
31, 2010
ASSETS
Current assets:
Cash $ 10,424 $ 4,357
Trade and other receivables 46,123 21,986
Prepaid expenses and deposits 976 516
Inventory 49 2,425
57,572 29,284
Property and equipment 240,756 111,733
Deferred tax assets - -
Goodwill 25,944 5,251
$ 324,272 $ 146,268
LIABILITIES AND EQUITY
Current liabilities:
Trade payables and accrued liabilities 19,925 14,681
Advances for rig construction - 3,820
Deferred revenue 1,364 -
Current tax liabilities 4,724 91
Loans and borrowings 5,481 3,442
31,494 22,034
Deferred revenue 2,373 -
Loans and borrowings 9,051 3,667
Deferred tax liabilities 25,103 5,156
68,021 30,857
Equity
Share capital 205,139 105,209
Employee benefit reserve 2,482 1,368
Foreign currency translation reserve 2,371 (62)
Retained earnings 35,749 4,420
Equity attributable to shareholders of the Corporation 245,741 110,935
Equity attributable to non-controlling interest 10,510 4,476
Total equity 256,251 115,411
$ 324,272 $ 146,268

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three month period December 31, For the year ended December 31,
(Stated in thousands of Canadian dollars - except per share data) 2011 2010 2011 2010
Services revenue $ 64,098 $ 24,409 $ 184,758 $ 67,825
Cost of sales:
Other direct operating expenses 35,267 16,930 108,104 49,497
Depreciation 4,339 1,620 12,843 4,870
Stock based compensation 178 34 474 59
39,784 18,584 121,421 54,426
Gross profit 24,314 5,825 63,337 13,399
Rig sales - 5,456 4,377 5,456
Cost of rig sales - 4,341 3,589 4,341
Gross profit - 1,115 788 1,115
Total gross profit 24,314 6,940 64,125 14,514
Gain on disposal of property and equipment - 90 - 283
Expenses:
Administration expenses 4,022 1,751 11,375 5,548
Business acquisition transaction costs - - 1,289 640
Stock based compensation 340 142 1,173 536
Foreign exchange (gains) losses 361 134 (346 ) 242
4,723 2,027 13,491 6,966
Income before interest and taxes 19,591 5,003 50,634 7,831
Interest expense 236 95 1,057 434
Income before income tax 19,355 4,908 49,577 7,397
Income tax expense 7,378 1,604 16,076 2,589
Net income $ 11,977 $ 3,304 $ 33,501 $ 4,808
Other comprehensive income (loss)
Foreign currency translation differences for foreign operations (1,428 ) (48 ) 2,781 (62 )
Total comprehensive income $ 10,549 $ 3,256 $ 36,282 $ 4,746
Income attributable to:
Shareholders of the Corporation $ 11,324 $ 3,304 $ 31,329 $ 4,808
Non-controlling interest 653 - 2,172 -
$ 11,977 $ 3,304 $ 33,501 $ 4,808
Total comprehensive income attributable to:
Shareholders of the Corporation $ 9,820 $ 3,256 $ 33,762 $ 4,746
Non-controlling interest 729 - 2,520 -
$ 10,549 $ 3,256 $ 36,282 $ 4,746
Income per share
Basic $ 0.15 $ 0.07 $ 0.45 $ 0.12
Diluted $ 0.15 $ 0.07 $ 0.45 $ 0.12

REVENUE AND OPERATING EXPENSE HIGHLIGHTS

Three months ended
December 31,
For the year ended
December 31,
2011 2010 Change 2011 2010 Change
Oilfield services segment
Services revenue
Domestic $ 40,133 $ 14,310 180% $ 111,761 $ 37,887 195%
Foreign 23,965 10,099 137% 72,997 29,938 144%
64,098 24,409 163% 184,758 67,825 172%
Other direct operating expenses 35,267 16,930 108% 108,104 49,497 118%
Gross margin $ 28,831 $ 7,479 285% $ 76,654 $ 18,328 318%
Gross margin % 45% 31% 41% 27%
General and administration expenses 4,052 1,751 131% 11,375 5,548 105%
EBITDA 24,779 6,843 262% 66,067 13,895 375%
EBITDA % 39% 28% 38% 36% 20% 75%
Operating days (spud to rig release) 2,208 862 156% 6,694 2,603 157%
Revenue per operating day (Domestic) $ 27.95 $ 24.97 12% $ 25.77 $ 22.88 13%
Revenue per operating day (Foreign) $ 31.04 $ 36.33 -15% $ 30.97 $ 31.61 -2%
Other operating expenses per day $ 15.97 $ 19.64 -19% $ 16.15 $ 19.02 -15%
Rig construction and retrofit segment
Rig and equipment sales $ - $ 5,456 nm $ 4,377 $ 5,456 -20%
Cost of rig and equipment sales - 4,341 nm 3,589 4,341 -17%
$ - $ 1,115 nm $ 788 $ 1,115 -29%

NON-GAAP MEASURES

This press release contains references to (i) EBITDA, (ii) funds flow and (iii) gross margin. These financial measures are not measures that have any standardized meaning prescribed by IFRSs and are therefore referred to as non-GAAP measures. The non-GAAP measures used by the Corporation may not be comparable to similar measures used by other companies.

(i) EBITDA is defined as "income before interest expense (income), income taxes, depreciation, stock based compensation expense and foreign exchange." Management believes that in addition to Net and comprehensive income (loss), EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Corporation's principal business activities prior to consideration of how these activities are financed, how the results are taxed in various jurisdictions, or how the results are affected by the accounting standards associated with the Corporation's stock based compensation plan.
Three month ended For the year ended
2011 2010 2011 2010
Income (loss) before finance costs and taxes $ 19,561 $ 5,003 $ 50,634 $ 7,831
Transaction costs - - 1,289 640
Depreciation 4,339 1,620 12,843 4,870
Stock based compensation 518 176 1,647 595
Foreign exchange loss (gain) 361 134 (346 ) 242
Gain on disposal of property and equipment - (90 ) - (283 )
EBITDA $ 24,779 $ 6,843 $ 66,067 $ 13,895
(ii) Funds flow from operations is defined as "cash provided by operating activities before the change in non- cash working capital". Funds flow from operations is a measure that provides shareholders and potential investors additional information regarding the Corporation's liquidity and its ability to generate funds to finance its operations. Management utilizes this measurement to assess the Corporation's ability to finance operating activities and capital expenditures.
Three month ended For the year ended
2011 2010 2011 2010
Operating cash flow $ 14,196 $ 6,142 $ 56,107 $ 9,132
Changes in working capital 6,469 364 4,250 3,758
Funds flow $ 20,665 $ 6,506 $ 60,357 $ 12,890
(iii) Gross margin is defined as "gross profit from services revenue before stock based compensation and depreciation". Gross margin is a measure that provides shareholders and potential investors additional information regarding the Corporation's cash generating operating performance. Management utilizes this measurement to assess the Corporation's operating performance.
Three month ended For the year ended
2011 2010 2011 2010
Gross profit $ 24,314 $ 5,825 $ 63,337 $ 13,399
Depreciation 4,339 1,620 12,843 4,870
Stock based compensation 178 34 474 59
Gross margin $ 28,831 $ 7,479 $ 76,654 $ 18,328

The Corporation is engaged in the manufacture, acquisition, operation and sale of rigs into business relationships involving the Corporation for the oil and gas industry. The Corporation currently operates in the western Canadian sedimentary basin ("WCSB"), the United States and Mexico. The Corporation's WCSB operations are currently focused in Alberta, Saskatchewan and Manitoba. The United States operations are currently focused in the Permian Basin of west Texas and the Williston Basin of North Dakota. The Corporation's Mexico operations are conducted through a joint venture Company, Diavaz CanElson de Mexico, S.A. de C.V. ("DCM" or the "Joint Venture"), of which CanElson holds a 50% ownership interest, and is currently focused in the Ebano-Panuco-Cacalilao fields of the Misantla-Tampico Basin of Mexico.

FORWARD-LOOKING INFORMATION

This press release contains certain statements or disclosures relating to CanElson that are based on the expectations of CanElson as well as assumptions made by and information currently available to CanElson which may constitute forward-looking information under applicable securities laws. In particular, this press release contains forward-looking information related to the deployment of one drilling rig to the Permian Basin of West Texas in April of 2012; the possible deployment of a drilling rig in June 2012 and management's belief that the Corporation can pay a dividend and still pursue disciplined but aggressive growth. Such forward looking information involves material assumptions and known and unknown risks and uncertainties, certain of which are beyond CanElson's control. Many factors could cause the performance or achievement by CanElson to be materially different from any future results, performance or achievements that may be expressed or implied by such forward looking information. CanElson's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website at www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. CanElson disclaims any intention or obligation to publicly update or revise any forward looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

Contact Information

  • CanElson Drilling Inc.
    Randy Hawkings
    President & Chief Executive Officer
    (403) 266-3922

    CanElson Drilling Inc.
    Robert Skilnick
    Chief Financial Officer
    (403) 266-3922