Palko Environmental Ltd.
TSX : PLK

Palko Environmental Ltd.

August 08, 2011 08:30 ET

Palko Environmental Ltd. Announces Second Quarter 2011 Results

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2011) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES.

Palko Environmental Ltd. ("Palko" or the "Company") (TSX:PLK) is pleased to announce our financial and operating results for the three and six months ended June 30, 2011.

The financial results presented for June 30, 2011 and all 2010 comparative information has been prepared in accordance with International Financial Reporting Standards ("IFRS") with effect from January 1, 2010. The following should be read in conjunction with management's discussion and analysis and the unaudited condensed interim financial statements and notes of Palko as at and for the three and six months ended June 30, 2011. Additional information relating to the Company is available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

Q2-2011 SELECTED FINANCIAL HIGHLIGHTS

Three months ended Six months ended
June 30 (Unaudited ) June 30 (Unaudited )
$(000'S) 2011 2010 % Change 2011 2010 % Change
Revenue 5,899 3,522 67 14,384 8,836 63
Operating expenses 3,851 2,631 46 8,881 5,913 50
Operating margin 2,048 891 130 5,503 2,923 88
Operating margin % 35% 25 % 10 38% 33 % 5
Selling, general & administrative 1,208 1,010 20 2,622 1,801 46
Restructuring and reorganizing - 323 (100 ) - 323 (100 )
EBITDA(1) 840 (442 ) 290 2,881 799 261
Per share, basic and diluted 0.04 (0.03 ) 227 0.13 0.05 140
Net and comprehensive income (loss) (478) 1,710 (128 ) (35) (2,616 ) 99
Per share, basic and diluted (0.02) 0.11 (119 ) (0.00) (0.17 ) 99
Normalized loss(1) (478) (686 ) 30 (35) (411 ) 91
Funds flow from operations (1) 495 (816 ) 161 2,222 113 1,866
Per share, basic and diluted 0.02 (0.05 ) 140 0.10 0.01 1,210
Capital expenditures 1,651 395 318 2,590 501 417
Weighted average shares outstanding - basic 23,017,156 15,337,987 50 23,016,739 15,337,987 50
Weighted average shares outstanding - diluted 23,017,156 15,612,843 47 23,016,739 15,337,987 50
(1) These financial measures are Non-GAAP measurements and do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and are therefore unlikely to be comparable to measures presented by other reporting issuers. See management's discussion and analysis available at www.sedar.com for a description of the Non-GAAP measurements.

Q2-2011 Corporate Highlights

  • Revenues totalled $5.9 and $14.4 million for the three and six months ended June 30, 2011 as compared to $3.5 and $8.8 million in comparable periods of 2010 reflecting a quarter-over-quarter increase of 67% and a year-over-year increase of 63%.
  • Our operating margin in Q2 2011 increased to $2.0 million from $0.9 million in Q2-2010 and year-to-date to $5.5 million from $2.9 million in the comparable period of 2010. Operating margin as a percentage of revenue increased to 35% from 25% quarter-over-quarter and to 38% from 33% year-over-year.
  • EBITDA increased to $0.8 million ($0.04 per share) for the three months ended June 30, 2011 and to $2.9 million ($0.13 per share) for the six months ended June 30, 2011 from an EBITDA loss of ($0.4) million ($0.03 per share loss) and $0.8 million ($0.05 per share) in the comparable periods of 2010.
  • Palko expended $1.6 million and $2.6 million on property, plant and equipment in the three and six months ended June 30, 2011 of 2011 compared to $0.4 million and $0.5 million in the same three and six months of 2010.
  • We received regulatory approval for two new waste handling facilities in the Bakken area of southeast Saskatchewan. The Company commenced construction of the facilities in Stoughton and Oungre and expects these facilities to be operational in late 2011.
  • We expanded our existing sites through service and capacity improvements. In addition, our Rycroft facility received ERCB approval to conduct custom treating and terminalling of oil and to accept additional oilfield and industrial wastes from Alberta and B.C.
  • The Company increased its capital budget for 2011 to $8.6 million from $1.7 million. Palko anticipates 2011 operating cash flow in combination with the increased credit facility should provide ample liquidity to fund current year operating and capital programs.
  • Palko renewed and increased our available credit facilities from $21.6 million to $23.5 million. The credit facilities consist of a $3 million operating facility due on demand and a $20.5 million committed 364-day extendible revolving credit facility.

RESULTS OF OPERATIONS

Revenue, operating costs, and operating margin for the three and six months ended June 30, 2011 and 2010 are outlined below:

Three months ended Six months ended
June 30 June 30
$(000'S) 2011 2010 2011 2010
Revenue 5,899 3,522 14,384 8,836
Operating costs 3,851 2,631 8,881 5,913
Operating margin 2,048 891 5,503 2,923
Operating margin % 35 % 25 % 38 % 33 %

REVENUE

Revenue for the three and six months ended June 30, 2011 was $5,899 and $14,384, reflecting increases of 67% and 63% respectively, as compared to the same periods in 2010.

The increased revenues mainly occurred because of enhanced oil and gas activity in the areas in which we operate, expanded capacities at our facilities and higher oil prices. West Texas Intermediate crude oil averaged US$102.55 per barrel as compared to US$77.88 per barrel in Q2-2010, an increase of 32%.

We are also experiencing positive benefits from deploying an active sales force throughout 2010. Palko continued to implement selective price increases at certain facilities as demand for our services rose. Our 2010 capital expenditure program expanded the capacities at certain of our facilities, allowing us to meet the increased demands that our facilities are experiencing in 2011. In addition, employing our mobile oil treatment units at certain of our facilities allowed us to obtain enhanced efficiencies and recoveries for both Palko and our customers. The increased ownership of the Palko Energy facility from 50% in Q1 and Q2-2010 to 100% in Q1 and Q2-2011 also provided additional revenue.

Somewhat offsetting the positive revenue results, second quarter revenue was reduced from the first quarter of 2011 due to the seasonal slowdown of the oilfield service industry in Canada, which lasted for an extended period in many areas due to unusually heavy rainfall in May and June. In particular, southeast Saskatchewan experienced extremely wet weather, causing prolonged road bans which delayed a return to normal activity levels longer than in previous years. While wet conditions hampered certain Alberta facilities, our facility at Midale in particular suffered from the effects of the flooding in Saskatchewan, with the surrounding producers experiencing restricted access to both their facilities and ours. Subsequent to the end of Q2-2011, in late July, our Midale facility has resumed normal operations and activity.

OPERATING COSTS AND OPERATING MARGIN

Operating costs in the three and six months ended June 30, 2011 increased 46% and 50% to $3,851 and $8,881, respectively, as compared to $2,631 and $5,913 in the three and six months of 2010.

Accompanying the increase in revenue at our facilities is an increase in certain types of variable costs such as repayment of recovered oil, trucking and landfill costs. However, since many of our costs such as salaries and regular maintenance are fixed, revenue increased by 67% and 63% and operating costs increased by only 46% and 50% in the three and six months ended June 30, 2011 as compared to 2010. The continued positive results produced operating margins for the three and six months ended June 30, 2011 of $2,048 and $5,503 compared to $891 and $2,923 for the corresponding three and six months of 2010. The operating margin percentage increased in both the three and six months ended June 30, 2011 to 35% and 38% as compared to 25% and 33% for the corresponding three and six months of 2010.

Maintenance costs at certain of our facilities increased as we conducted routine procedures earlier in the year than anticipated, due to unusually heavy rainfall in May and June. In addition the increased ownership of the Palko Energy facility from 50% in Q1 and Q2-2010 as compared to 100% in Q1 and Q2-2011 resulted in increased costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SGA)

Three months ended Six months ended
June 30 June 30
$(000'S) 2011 2010 2011 2010
SGA expenses 1,208 1,010 2,622 1,801
SGA as % of revenue 20 % 29 % 18 % 20 %

SGA as a percentage of revenue decreased to 20% and 18% for the three and six months ended June 30, 2011 as compared to 29% and 20% in the same periods in 2010. Decreasing SGA as a percentage of revenue is a function of increased revenues and leverage on our fixed costs.

Gross dollar increases both quarterly and year-to-date from the same period in 2010 are due to increased staffing costs; filling vacant positions in head office that were not filled in the economic downturn and expansion of the sales force and business development group during the latter half of 2010. Increased SGA was also incurred to facilitate our conversion to International Financial Reporting Standards ("IFRS"). Additional staff has also resulted in increased costs such as computer licensing and supplies. In addition, based on operating results to date a bonus was accrued for our employees in the first six months of 2011 where as in the same period of 2010 there was nil accrued. 2010 SGA includes an IFRS adjustment for transaction costs of $206 previously capitalized for the purchase of the remaining 50% of Palko Energy.

OUTLOOK

Palko's growth theme has migrated from an assessment, approval and regulatory focus during the first half of 2011 to a construction and execution focus for the second half of 2011. Palko enters the second half of 2011 with complete approvals in hand for both the Stoughton and Oungre sites in southeast Saskatchewan. In the latter half of 2011 we expect to see the completion of construction for both of these projects. Revenue and margin generation from these facilities is expected in the fourth quarter. With the completion of these two waste disposal facilities, in addition to our waste handling and crude oil terminalling capacity at our two Midale facilities, Palko's strategic plans for service in the Saskatchewan Bakken are coming to fruition for our customers. In addition, Palko has been working through various alternatives to more competitively service the solids volumes generated by our customers in this area and the resulting solids extracted through waste treatment at our own facilities.

Saskatchewan received record rainfall during the second quarter which resulted in extensive flooding that meaningfully hampered oilfield activity. Palko expects to see producers lean hard on their service providers in an effort to recapture lost ground during the second quarter. We view the stage as being set for a robust second half of 2011 in the Bakken.

Activity levels in the Alberta Bakken have increased substantially which in turn has improved utilization at our Claresholm facility. Recently approvals were submitted and authorization received to expand unloading and processing capacity, accept additional waste types and increase injection pressures at this facility. The combination of increased activity levels and our increased capacity to accept additional volumes provides a solid foundation for improved financial performance at this location through the foreseeable future.

Palko's success in the Bakken has inspired us to stretch our reach into other resource plays that have similar characteristics of intense activity utilizing horizontal drilling and multistage fracturing technologies. One such play is the Cardium, where we have begun the regulatory process for a full service waste handling and terminalling facility.

The balance of Palko's facilities have been performing well. The combination of recent performance, consensus economic forecasts, expanded capacities and additional facilities leads us to the conclusion that the balance of 2011 should remain robust for Palko.

About Palko Environmental Ltd.

Palko provides processing and disposal of oilfield and industrial wastes through our network of waste handling and hydrocarbon recovery facilities located across Alberta and Saskatchewan. Our focus on client service extends to custom oil treating, waste oil reclamation and crude oil market access for customers.

Our services support all aspects and stages of oil and gas exploration and production, including drilling, fracturing, completion, production and subsequent abandonment and reclamation. In addition, Palko provides hydrocarbon recovery and waste management solutions for a variety of non-oilfield and industrial wastes of similar composition.

Additional information relating to the Company is available on SEDAR at www.sedar.com.

Certain statements in this press release constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Palko, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this document, such statements use such words as "may", "will", "intend", "should", "expect", "believe", "plan", "anticipate", "estimate", "predict", "potential", "continue", or the negative of these terms or other similar terminology.

Such statements include:

  • the Company's ability to capitalize on the ongoing recovery in oil and gas exploration in Western Canada;
  • the expectation that two new facilities in Saskatchewan will be operational and generating revenues and margin within 2011;
  • the ability of the Company to fund its 2011 capital expenditure program from cash flow from operations and its credit facilities;
  • improved financial performance at the Company's Claresholm facility; and
  • the expectation that Palko's performance will be robust for the remainder of 2011.

These statements reflect current expectations regarding future events and operating performance and speak only as of the date of this document. These statements are based on certain assumptions, including assumptions with respect to, prices for oil and natural gas, level of activity of oil and gas exploration, forecasts of capital expenditures and the sources of financing thereof, the amount, nature, timing and effects of capital expenditures, operating and other costs, business strategies and plans of management, tax treatment of the Company and competitive position of the Company in the oilfield waste management industry.

In particular, the Company has made the following assumptions:

  • that the recovery of the oil and gas exploration sector will continue;
  • that the Company will be able to capitalize on such recovery;
  • that the new facilities will generate revenues and margin in the later part of 2011;
  • that existing facilities will be able to absorb increasing volumes; and
  • that activity levels in the Alberta Bakken will increase.

Although Palko believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that these expectations will prove to be correct. There are risks which could affect Palko's future results and could cause the results to differ materially from those expressed in these forward looking statements including:

  • volatility in market prices for oil and natural gas;
  • liabilities and risks inherent in Palko's operations;
  • competition for, among other things, capital and skilled personnel;
  • increased competition for customers and the possibility that the Company's customer base will decrease;
  • technical and drilling problems;
  • equipment failure;
  • construction delays;
  • delivery delays;
  • the possibility that the economic recovery will not continue;
  • fluctuations in foreign exchange or interest rates and stock market volatility;
  • uncertainties associated with changes in legislation, including but not limited to changes in income tax laws.

Statements of past performance should not be construed as an indication of future performance. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors, including those discussed above, could cause actual results to differ materially from the results discussed in the forward-looking statements. Any such forward-looking statements are expressly qualified in their entirety by this cautionary statement. Moreover, Palko does not assume responsibility for the accuracy or completeness of such forward-looking statements.

The forward-looking statements included in this Press Release are made as of the date of this Press Release and Palko undertakes no obligation to publicly update or revise forward-looking statements other than as required by applicable laws. You should not place undue reliance on forward-looking statements.

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