CanElson Drilling Inc.
TSX VENTURE : CDI

CanElson Drilling Inc.

August 11, 2011 07:02 ET

CanElson Announces Second Quarter Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 11, 2011) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA

CanElson Drilling Inc. ("CanElson" or the "Corporation") (TSX VENTURE:CDI) announces second quarter financial results.

SECOND QUARTER 2011 HIGHLIGHTS:

  • Services revenue in Q2 2011 of $25.1 million (Q2 2010: $11.1 million)
  • US and Mexico contributed $16.0 million (Q2 2010: $7.7 million) of services revenue with 84% utilization during the seasonally slow Canadian Q2
  • Q2 2011 services gross margin of $8.2 million increased from $2.2 million in Q2 2010
  • Q2 2011 EBITDA of $6.6 million increased from Q2 2010 EBITDA of $1.1 million
  • Q2 2011 Income of $2.7 million increased from a loss of $0.6 million during Q2 2010
  • Announced and closed the acquisition of Redhawk Drilling, LLC ("Redhawk") (June 2, 2011 - operating 4 drilling rigs in North Dakota)
  • Completed construction and deployment of 1 tele-double drilling rig to west Texas

The Corporation achieved strong financial results during the seasonally weak second quarter as foreign operations in the US and Mexico made significant contributions to revenue while much of the domestic rig operations were curtailed due to exceptionally wet spring conditions, including flood conditions in south east Saskatchewan. Second quarter EBITDA of $6.6 million and basic and diluted earnings per share of $0.04 compares to 2010 second quarter EBITDA and basic and diluted loss per share of $1.1 million and $0.02, respectively. The significant increase in second quarter EBITDA and EPS from the same period last year is a result of growth in the drilling rig fleet to 26.5 (net: 24.5) average rigs available for operation compared to an average of 8.1 (net: 7.1) drilling rigs and of revenue rate increase to an average of $28,400 per rig operating day compared to $26,500 per rig operating day in 2010.

During the second quarter the Corporation continued to focus its growth on rigs capable of drilling horizontal and resource play wells with the acquisition of 100% of the outstanding units of Redhawk Drilling, LLC ("Redhawk") for approximately $19 million. Redhawk operated four drilling rigs in North Dakota which were primarily drilling horizontal wells which aligns with our focus on rigs capable of drilling resource play wells and adds operations in a region that is focused on oil-based drilling activity.

In June 2011 as part of the 2011 drilling rig construction program, the first of five "purpose-built" small footprint ultra-heavy-duty telescoping double drilling rigs ("tele-double") was deployed to west Texas and the second is scheduled to move to a location in Alberta during the month of August. From the date of this press release, the remaining three tele-doubles are expected to be constructed and deployed for over the next five to six months. Currently the Corporation has contracted or received contract advances on three of the four remaining tele-doubles to be constructed and anticipates receiving a contract advance and/or a contract on the fourth tele-double drilling rig. Management continues to focus its rig fleet on purpose built tele-doubles as it believes these drilling rigs are the most capital and operating efficient rigs for the majority of resource plays we target. Our tele-doubles are designed for minimum rig up / rig out time, lower cost transportation and highly reliable operation. This strategy allows us to offer competitive rates through the full cycle, building long-term customer relations while targeting top quartile returns for our shareholders.

President Randy Hawkings states, "The strong second quarter results during the seasonally slow Canadian spring is largely due to developing strong performance based west Texas operations which are not subject to the same seasonality as Canada. We continued to focus our growth on oil and liquids weighted resource plays with the acquisition of Redhawk in June. The addition of Redhawk combined with our west Texas operations provides exposure to approximately 56% of the US oil directed drilling market. We continue to have significant financial flexibility to take advantage of selected growth opportunities. Presently 100% of our drilling rig fleet is operating in resource plays. CanElson consistently achieves outstanding operational performance through efficient operations, well-trained crews and purpose-built drilling rigs."

At the date of this press release, CanElson was operating 32 rigs: 18 drilling rigs in the WCSB, 6 (net: 5) 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. The Corporation's owned drilling rig fleet has an average age of less than 5 years and is all capable of drilling horizontal and resource play wells.

Extracts of the unaudited condensed interim consolidated financial statements and management's discussion and analysis (MD&A) are included below. The full text of the unaudited 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 and Canadian dollars, except per share amounts and rig operating days)

Three months ended June 30, Six months ended June 30,
2011 2010 change 2011 2010 change
Services revenue $ 25,137 $ 11,096 127 % $ 66,091 $ 22,711 191 %
Rig construction revenue - - nm $ 4,377 - nm
EBITDA (i) $ 6,573 $ 1,059 521 % $ 20,951 $ 2,603 705 %
corporation $ 2,716 $ (629 ) nm $ 9,280 $ (322 ) nm
Income (loss) per share
Basic $ 0.04 $ (0.02 ) nm $ 0.14 $ (0.01 ) nm
Diluted $ 0.04 $ (0.02 ) nm $ 0.14 $ (0.01 ) nm
Funds flow (ii) $ 6,045 $ 299 1922 % $ 18,855 $ 1,771 965 %
Gross Margin (services) (iii) $ 8,282 $ 2,238 270 % $ 24,122 $ 4,831 399 %
Gross Profit (rig construction) - - nm $ 788 - nm
Weighted average diluted shares outstanding 71,256 29,931 138 % 65,420 28,403 130 %
REVENUE AND OPERATING EXPENSE HIGHLIGHTS
Three months ended June 30, Six months ended June 30,
2011 2010 Change 2011 2010 Change
Oilfield services segment
Services revenue
Domestic $ 9,093 $ 3,392 168 % $ 38,366 $ 10,560 263 %
Foreign 16,044 7,704 108 % 27,725 12,151 128 %
25,137 11,096 127 % 66,091 22,711 191 %
Other operating expenses 16,855 8,858 90 % 41,969 17,880 135 %
Gross margin $ 8,282 $ 2,238 270 % $ 24,122 $ 4,831 399 %
Gross margin % 33 % 20 % 36 % 21 %
Operating days (spud to rig release) (i) 884 418 112 % 2,382 885 169 %
Revenue per operating day (Domestic) $ 24.18 $ 20.56 18 % $ 25.39 $ 22.00 15 %
Revenue per operating day (Foreign) $ 31.58 $ 30.45 nm $ 31.83 $ 30.00 6 %
Rig construction and retrofit segment
Rig and equipment sales $ - $ - nm $ 4,377 $ - nm
Cost of rig and equipment sales - - nm 3,589 - nm
$ - $ - nm $ 788 $ - nm
CANELSON DRILLING INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Interim
Unaudited June 30, December 31,
(Stated in thousands of Canadian dollars) 2011 2010
ASSETS
Current assets:
Cash $ 9,364 $ 4,357
Trade and other receivables 26,454 21,986
Prepaid expenses and deposits 890 516
Inventory 47 2,425
36,755 29,284
Property and equipment 213,908 111,733
Goodwill 25,944 5,251
$ 276,607 $ 146,268
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities 16,831 14,772
Advances for rig construction - 3,820
Deferred revenue 525 -
Loans and borrowings 4,440 3,442
21,796 22,034
Deferred revenue 2,975 -
Loans and borrowings 6,964 3,667
Deferred tax liabilities 17,008 5,156
48,743 30,857
Equity
Share capital 204,054 105,209
Contributed surplus 1,948 1,368
Accumulated other comprehensive loss (1,402 ) (62 )
Retained earnings 13,700 4,420
Equity attributable to shareholders of the Corporation 218,300 110,935
Equity attributable to non-controlling interest 9,564 4,476
Total equity 227,864 115,411
$ 276,607 $ 146,268
CANELSON DRILLING INC.
CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Three months ended June 30, Six months ended June 30,
(Stated in thousands of Canadian dollars - except per share data) 2011 2010 2011 2010
Services revenue $ 25,137 $ 11,096 $ 66,091 $ 22,711
Cost of sales:
Other direct operating expenses 16,855 8,858 41,969 17,880
Depreciation 1,758 769 4,661 1,605
Stock based compensation 47 13 131 17
18,660 9,640 46,761 19,502
Gross profit 6,477 1,456 19,330 3,209
Rig sales - - 4,377 -
Cost of rig sales - - 3,589 -
Gross profit - - 788 -
Total gross profit 6,477 1,456 20,118 3,209
Gain on disposal of property and equipment - - - 129
Expenses:
Administration expenses 1,709 1,179 3,959 2,228
Business acquisition transaction costs 12 640 1,319 640
Stock based compensation 249 154 503 286
Foreign exchange gains (156 ) (90 ) (8 ) (48 )
1,814 1,883 5,773 3,106
Income (loss) before interest and taxes 4,663 (427 ) 14,345 232
Interest expense 248 188 493 283
Income (loss) before income tax 4,415 (615 ) 13,852 (51 )
Income tax expense 1,082 14 3,779 271
Net income (loss) for the period $ 3,333 $ (629 ) $ 10,073 $ (322 )
Other comprehensive income (loss)
Foreign currency translation differences for foreign operations (628 ) 41 (1,422 ) 20
Total comprehensive income (loss) for the period $ 2,705 $ (588 ) $ 8,651 $ (302 )
Income (loss) attributable to:
Shareholders of the Corporation $ 2,716 $ (629 ) $ 9,280 $ (322 )
Non-controlling interest 617 - 793 -
$ 3,333 $ (629 ) $ 10,073 $ (322 )
Total comprehensive income (loss) attributable to:
Shareholders of the Corporation $ 2,025 $ (588 ) $ 7,940 $ (302 )
Non-controlling interest 680 - 711 -
$ 2,705 $ (588 ) $ 8,651 $ (302 )
Income (loss) per share
Basic $ 0.04 $ (0.02 ) $ 0.14 $ (0.01 )
Diluted $ 0.04 $ (0.02 ) $ 0.14 $ (0.01 )

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 effected by the accounting standards associated with the Corporation's stock based compensation plan.

Three months ended June 30, Six months ended June 30,
2011 2010 2011 2010
Income (loss) before finance costs and taxes $ 4,663 $ (427 ) $ 14,345 $ 232
Transaction costs 12 640 1,319 640
Depreciation 1,758 769 4,661 1,605
Stock based compensation 296 167 634 303
Foreign exchange loss (gain) (156 ) (90 ) (8 ) (48 )
Gain on disposal of property and equipment - - - (129 )
EBITDA $ 6,573 $ 1,059 $ 20,951 $ 2,603

(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 months ended June 30, Six months ended June 30,
2011 2010 2011 2010
Operating cash flow $ 23,922 $ 8,988 $ 28,319 $ 4,732
Changes in working capital (17,877) (8,689) (9,464) (2,961)
Funds flow $ 6,045 $ 299 $ 18,855 $ 1,771

(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 months ended June 30, Six months ended June 30,
2011 2010 2011 2010
Gross profit $ 6,477 $ 1,456 $ 19,330 $ 3,209
Depreciation 1,758 769 4,661 1,605
Stock based compensation 47 13 131 17
Gross margin $ 8,282 $ 2,238 $ 24,122 $ 4,831

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 (the "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. 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 current expected deployment of 4 drilling rigs and expectation for receipt of contracts on one of the drilling rigs. 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 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.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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