CanElson Drilling Inc.
TSX VENTURE : CDI

CanElson Drilling Inc.

November 09, 2011 07:00 ET

CanElson Announces Third Quarter Financial Results

CALGARY, ALBERTA--(Marketwire - Nov. 9, 2011) - CanElson Drilling Inc. ("CanElson" or the "Corporation") (TSX:CDI) announces third quarter financial results.

THIRD QUARTER 2011 HIGHLIGHTS:

  • Services revenue in Q3 2011 of $54.6 million (Q3 2010: $43.4 million)
  • US and Mexico contributed $21.3 million (Q3 2010: $7.7 million) of services revenue
  • Canadian utilization of 80% compared to an industry utilization level of 57%
  • EBITDA margins of 37% (Q3 2010: 21%)
  • Q3 2011 services gross margin of $23.7 million increased from $6.0 million in Q3 2010
  • Q3 2011 EBITDA of $20.3 million increased from Q3 2010 EBITDA of $4.5 million
  • Q3 2011 Income of $10.7 million increased from Q3 2010 Income of $1.8 million
  • Completed construction and deployment of 2 tele-double drilling rigs to Alberta

The Corporation achieved strong financial results as a result of high Canadian utilization and strong performance in the US and Mexico. Third quarter EBITDA of $20.3 million and basic and diluted earnings per share of $0.15 compares to 2010 third quarter's EBITDA and basic and diluted per share of $4.5 million and $0.04, respectively. The significant increase in third quarter EBITDA and earnings per share from the same period last year is a result of significant growth in the drilling rig fleet to 32 (net: 30) average drilling rigs available for operation compared to an average of 14 (net: 13) in 2010. Revenue rates have also increased with the Corporation averaging $25,200 per rig operating day compared to $24,000 per rig operating day in 2010.

Contracted organic rig builds continue to be delivered as planned and CanElson has contracted a new tele- double for deployment to west Texas in April 2012. During the third quarter CanElson delivered two "purpose-built" small footprint ultra-heavy-duty telescoping double drilling rigs ("tele-double") to drill deep horizontal wells with expected measured depths of up to 5,500 metres. CanElson currently has three tele- doubles under construction with the first for deployment to northern Alberta in November 2011 and the remaining two for deployment to the Permian Basin of west Texas, US during the first and second quarter of 2012. Construction of additional drilling rigs is dependent upon obtaining satisfactory customer commitments.

At the date of this press release, 100% of CanElson's fleet (including rigs under construction) is contracted with in excess of 36% of the owned drilling rig fleet operating under term contracts (deposits or days/wells). Based on current market conditions, CanElson is evaluating opportunities to increase its proportion of term contracts. It is CanElson's belief that the most efficient drilling contractors will remain active through a full commodity price cycle and that CanElson's fleet is one of the most efficient in the resource plays CanElson targets. CanElson's experience, purpose built rig configurations and committed crews offer superior performance as evidenced by its willingness to commit 50% of its US rig fleet and 100% of its Mexican rig fleet to performance based contracts and further evidenced by its top-decile Canadian rig activity levels.

The bulk 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 / rig out times, lower cost transportation and highly reliable operation. 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.

President Randy Hawkings states, "The strong third quarter results are due to leading industry performance. We continued to focus our growth on oil and liquids weighted resource plays with the deployment of two additional new rig builds into Alberta during the third quarter. 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 34 rigs: 20 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 4.2 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 September 30 , Nine months ended September 30 ,
2011 2010 change 2011 2010 change
Services revenue $ 54,569 $ 20,705 164 % $ 120,660 $ 43,416 178 %
Rig construction revenue - - nm $ 4,377 - nm
EBITDA (i) $ 20,337 $ 4,449 357 % $ 41,288 $ 7,052 485 %
Income attributable to shareholders of the corporation $ 10,724 $ 1,826 nm $ 20,005 $ 1,504 nm
Income per share
Basic $ 0.15 $ 0.04 nm $ 0.30 $ 0.04 nm
Diluted $ 0.15 $ 0.04 nm $ 0.29 $ 0.04 nm
Funds flow (ii) $ 20,838 $ 4,506 362 % $ 39,692 $ 6,293 531 %
Gross Margin (services) (iii) $ 23,701 $ 6,018 294 % $ 47,823 $ 10,849 341 %
Gross Profit (rig construction) - - nm $ 788 - nm
Weighted average diluted shares outstanding 73,564 49,786 48 % 68,158 35,483 92 %
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Interim
Unaudited September 30 , December 31 ,
(Stated in thousands of Canadian dollars) 2011 2010
ASSETS
Current assets:
Cash $ 9,323 $ 4,357
Trade and other receivables 47,956 21,986
Prepaid expenses and deposits 442 516
Inventory 50 2,425
57,771 29,284
Property and equipment 231,251 111,733
Goodwill 25,944 5,251
$ 314,966 $ 146,268
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued liabilities 27,584 14,772
Advances for rig construction - 3,820
Deferred revenue 1,866 -
Loans and borrowings 5,047 3,442
34,497 22,034
Deferred revenue 2,543 -
Loans and borrowings 10,383 3,667
Deferred tax liabilities 21,949 5,156
69,372 30,857
Equity
Share capital 205,057 105,209
Contributed surplus 1,987 1,368
Accumulated other comprehensive income (loss) 3,875 (62 )
Retained earnings 24,425 4,420
Equity attributable to shareholders of the Corporation 235,344 110,935
Equity attributable to non-controlling interest 10,250 4,476
Total equity 245,594 115,411
$ 314,966 $ 146,268
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Three months ended September 30 , Nine months ended September 30 ,
(Stated in thousands of Canadian dollars - except per share data) 2011 2010 2011 2010
Services revenue $ 54,569 $ 20,705 $ 120,660 $ 43,416
Cost of sales:
Other direct operating expenses 30,868 14,687 72,837 32,567
Depreciation 3,843 1,645 8,504 3,250
Stock based compensation 165 8 296 25
34,876 16,340 81,637 35,842
Gross profit 19,693 4,365 39,023 7,574
Rig sales - - 4,377 -
Cost of rig sales - - 3,589 -
Gross profit - - 788 -
Total gross profit 19,693 4,365 39,811 7,574
Gain on disposal of property and equipment - 64 - 193
Expenses:
Administration expenses 3,364 1,569 7,323 3,797
Business acquisition transaction costs - - 1,319 640
Stock based compensation 330 108 833 394
Foreign exchange (gains) losses (699 ) 156 (707 ) 108
2,995 1,833 8,768 4,939
Income before interest and taxes 16,698 2,596 31,043 2,828
Interest expense 328 56 821 339
Income before income tax 16,370 2,540 30,222 2,489
Income tax expense 4,919 714 8,698 985
Net income for the periods $ 11,451 $ 1,826 $ 21,524 $ 1,504
Other comprehensive income (loss)
Foreign currency translation differences for foreign operations 5,631 (34 ) 4,209 (14 )
Total comprehensive income for the periods $ 17,082 $ 1,792 $ 25,733 $ 1,490
Income attributable to:
Shareholders of the Corporation $ 10,724 $ 1,826 $ 20,005 $ 1,504
Non-controlling interest 727 - 1,519 -
$ 11,451 $ 1,826 $ 21,524 $ 1,504
Total comprehensive income attributable to:
Shareholders of the Corporation $ 16,002 $ 1,792 $ 23,942 $ 1,490
Non-controlling interest 1,080 - 1,791 -
$ 17,082 $ 1,792 $ 25,733 $ 1,490
Income per share
Basic $ 0.15 $ 0.04 $ 0.30 $ 0.04
Diluted $ 0.15 $ 0.04 $ 0.29 $ 0.04
REVENUE AND OPERATING EXPENSE HIGHLIGHTS
Three months ended September 30 , Nine months ended September 30 ,
2011 2010 Change 2011 2010 Change
Oilfield services segment
Services revenue
Domestic $ 33,262 $ 13,017 156 % $ 71,628 $ 23,577 204 %
Foreign 21,307 7,688 177 % 49,032 19,839 147 %
54,569 20,705 164 % 120,660 43,416 178 %
Other direct operating expenses 30,868 14,687 110 % 72,837 32,567 124 %
Gross margin $ 23,701 $ 6,018 294 % $ 47,823 $ 10,849 341 %
Gross margin % 43 % 29 % 40 % 25 %
General and administration expenses 3,364 1,569 114 % 7,323 3,797 93 %
EBITDA 20,337 4,449 357 % 41,288 7,052 485 %
EBITDA % 37 % 21 % 73 % 34 % 16 % 111 %
Operating days (spud to rig release) 2,163 862 151 % 4,646 1,747 166 %
Revenue per operating day (Domestic) $ 23.95 $ 21.59 11 % $ 24.87 $ 21.77 14 %
Revenue per operating day (Foreign) $ 27.52 $ 29.68 -7 % $ 27.76 $ 29.88 -7 %
Other operating expenses per day $ 14.27 $ 17.04 -16 % $ 15.68 $ 18.64 -16 %
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

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
September 30
, Nine months ended
September 30
,
2011 2010 2011 2010
Income (loss) before finance costs and taxes $ 16,698 $ 2,596 $ 31,043 $ 2,828
Transaction costs - - 1,319 640
Depreciation 3,843 1,645 8,504 3,250
Stock based compensation 495 116 1,129 419
Foreign exchange loss (gain) (699 ) 156 (707 ) 108
Gain on disposal of property and equipment - (64 ) - (193 )
EBITDA $ 20,337 $ 4,449 $ 41,288 $ 7,052
(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 September 30 , Nine months ended September 30 ,
2011 2010 2011 2010
Operating cash flow $ 13,592 $ (1,849 ) $ 41,911 $ 2,899
Changes in working capital (7,246 ) (6,355 ) 2,219 (3,394 )
Funds flow $ 20,838 $ 4,506 $ 39,692 $ 6,293
(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
September 30
, Nine months ended
September 30
,
2011 2010 2011 2010
Gross profit $ 19,693 $ 4,365 $ 39,023 $ 7,574
Depreciation 3,843 1,645 8,504 3,250
Stock based compensation 165 8 296 25
Gross margin $ 23,701 $ 6,018 $ 47,823 $ 10,849

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 the deployment of three drilling rigs with one deploying to Alberta in November 2011 and the remaining two to the Permian Basin of West Texas USA during the first and second quarter of 2012; and CanElson's belief that the most efficient drilling contractors remain active through a full commodity price cycle. 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.

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