Total Energy Services Inc.
TSX : TOT

Total Energy Services Inc.

August 14, 2012 10:49 ET

Total Energy Services Inc. Announces Q2 2012 Results and Capital Budget Increase

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2012) - Total Energy Services Inc. (TSX:TOT) ("Total Energy" or the "Company"), announces its consolidated financial results for the three and six-month periods ending June 30, 2012.

Financial Highlights

($000's except per share data)

Three Months Ended June 30 Six Months Ended June 30
(unaudited) (unaudited)
2012 2011 % Change 2012 2011 % Change
Revenue $ 54,332 $ 62,159 (13 )% $ 155,781 $ 147,264 6 %
Operating Earnings (1) 3,778 9,760 (61 )% 37,436 36,206 3 %
EBITDA (1) 9,120 15,501 (41 )% 49,255 48,692 1 %
Cashflow (1) 9,550 15,308 (38 )% 49,655 48,509 2 %
Net Income 3,250 6,392 (49 )% 27,711 25,222 10 %
Per Share Data (Diluted) (2)
EBITDA (1) $0.29 $0.44 (34 )% $1.41 $1.40 1 %
Cashflow (1) $0.30 0.39 (23 )% $1.42 1.40 1 %
Net Earnings $0.10 0.20 (50 )% $0.85 0.77 10 %
June 30 Dec. 31
2012
(unaudited
) 2011
(audited
) % Change
Financial Position
Total Assets $ 451,245 $ 434,617 4 %
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion) 64,764 63,853 1 %
Working Capital (3) 111,476 120,786 (8 )%
Net Debt (4) Nil Nil n/m
Shareholders' Equity 292,248 275,321 6 %
Shares Outstanding (000's)
Basic 30,990 31,375 (1 )%
Diluted (2) 34,669 35,261 (2 )%

Notes 1 through 4 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's financial results for the three months ended June 30, 2012 reflect the earlier arrival of spring break-up as compared to 2011 and prolonged wet weather conditions throughout much of Western Canada that delayed the commencement of summer drilling programs.

Total Energy's Contract Drilling Services division achieved 20% utilization during the second quarter of 2012, recording 277 operating days (spud to release), compared to 407 operating days, or 32% utilization during the second quarter of 2011. Revenue per operating day realized during the second quarter of 2012 increased 16% compared to the second quarter of 2011 due primarily to improved pricing. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 36% during the second quarter of 2012 as compared to a 52% utilization rate during the second quarter of 2011. The Gas Compression Services division generated revenues of $26.3 million for the three months ended June 30, 2012 compared to $28.6 million for the second quarter of 2011. At June 30, 2012 the Gas Compression Services division had a fabrication sales backlog of approximately $28.8 million compared to $48.3 million at June 30, 2011 and $29.3 million at March 31, 2012. At June 30, 2012 approximately 28,500 horsepower of compression equipment was on rent compared to 22,700 horsepower on rent at June 30, 2011. The gas compression rental fleet operated at an average utilization rate of 83% during the first six months of 2012 as compared to 78% for the same period in 2011.

During the second quarter, Total Energy declared a quarterly dividend of $0.05 per share to shareholders of record on June 29, 2012. This dividend was paid on July 31, 2012. During the first half of 2012, Total Energy repurchased 632,500 common shares at an average price of $15.49 (including commissions) pursuant to its normal course issuer bid.

Outlook

Wet weather conditions throughout Western Canada, combined with continued global economic uncertainty and resulting financial market and commodity price volatility, have negatively impacted industry activity levels going into the third quarter of 2012. Some Canadian oil and natural gas exploration and production companies have recently indicated that they will take a more cautious approach to their capital spending plans for the remainder of 2012 relative to initial budgets.

Despite near term market uncertainty and volatility, current commodity prices, particularly oil prices, continue to support activity levels that are presently reasonably strong compared to historical levels. In light of current activity levels, the Rentals and Transportation Services division's recent expansion into North Dakota and the Company's entry into the natural gas process equipment business through the establishment of Spectrum Process Systems, Total Energy has increased its 2012 capital expenditure budget by $19.2 million to $77.3 million. Included in this 33% increase is $18.2 million for the addition of approximately 500 pieces of new rental equipment in the Rentals and Transportation Services division. Upon delivery of this equipment, which is expected by year end, the Company's fleet of rental equipment will increase by 5% to approximately 9,700 pieces from 9,200 pieces currently. Also included is $1.0 million to equip a new 20,000 square foot manufacturing facility currently under construction for Spectrum. Spectrum is scheduled to put this leased facility into service by the fourth quarter of 2012. Total Energy intends to finance its 2012 capital expenditure budget from cash on hand.

Representatives of Bidell Gas Compression will be travelling to Queensland, Australia later this month to introduce the NOMAD™ to the Australian market. Bidell, in cooperation with SkillsTech Australia, Queensland's largest technical training institute, will be showcasing the specially engineered Australian version of the Company's patented large horsepower mobile compression unit at SkillsTech Australia's Acacia Ridge Training Centre during the week of August 20, 2012. Following this event, the NOMAD™ unit on display will be put into service with an Australian coal seam gas producer.

Total Energy's financial condition remains solid with a long-term debt (including convertible debentures) to long-term debt plus equity ratio of 0.19 to 1.0, $111.5 million of positive working capital (including $61.9 million, or $2.00 per share, of cash) and no net debt as at June 30, 2012. Total Energy's $35 million operating facility is currently fully available and undrawn. The Company's balance sheet strength provides significant capacity and flexibility to pursue further growth opportunities that may arise.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call to discuss its second quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. If you wish to participate, call (877) 440-9795. Those who are unable to listen to the call live may listen to a recording of it by calling (800) 408-3053 (passcode 6971499). The recording will be available until August 21, 2012.

Selected Financial Information

Selected financial information relating to the three and six-month periods ended June 30, 2012 and 2011 is attached to this news release. This information should be read in conjunction with the unaudited consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Corporation's second quarter report.

Condensed Consolidated Statements of Financial Position

(in thousands of Canadian dollars)

June 30, December 31,
2012 2011
(unaudited ) (audited )
Assets
Current assets:
Cash and cash equivalents $ 61,880 $ 35,658
Accounts receivable 55,076 94,556
Inventory 36,253 37,147
Income taxes receivable - 118
Prepaid expenses and deposits 2,027 1,795
155,236 169,274
Property, plant and equipment 291,956 261,290
Goodwill 4,053 4,053
$ 451,245 $ 434,617
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 29,912 $ 41,556
Deferred revenue 5,714 3,064
Income taxes payable 4,013 -
Dividends payable 1,550 1,255
Current portion of obligations under finance leases 2,571 2,613
43,760 48,488
Obligations under finance leases 2,889 2,763
Convertible debentures 61,875 61,090
Deferred tax liability 50,473 46,955
Shareholders' equity:
Share capital 77,623 77,917
Contributed surplus 3,025 2,472
Equity portion of convertible debenture 4,601 4,601
Retained earnings 206,999 190,331
292,248 275,321
$ 451,245 $ 434,617

Condensed Interim Consolidated Statements of Comprehensive Income

(in thousands of Canadian dollars except per share amounts)

Three months ended
June 30
Six months ended
June 30
2012 2011 2012 2011
(unaudited ) (unaudited ) (unaudited ) (unaudited )
Revenue $ 54,332 $ 62,159 $ 155,781 $ 147,264
Cost of services 38,323 40,396 91,257 84,631
Selling, general and administration 6,420 6,416 14,830 14,041
Share-based compensation 553 458 931 678
Depreciation 5,258 5,129 11,327 11,708
Results from operating activities 3,778 9,760 37,436 36,206
Gain on sale of property, plant and equipment 84 612 492 778
Finance costs (1,240 ) (1,382 ) (2,529 ) (2,571 )
Net income before income taxes 2,622 8,990 35,399 34,413
Current income tax expense 2,823 39 4,170 83
Deferred income tax (recovery) expense (3,451 ) 2,559 3,518 9,108
Total income tax (recovery) expense (628 ) 2,598 7,688 9,191
Net income and total comprehensive income for the period $ 3,250 $ 6,392 $ 27,711 $ 25,222
Earnings per share
Basic earnings per share $ 0.10 $ 0.20 $ 0.89 $ 0.80
Diluted earnings per share $ 0.10 $ 0.20 $ 0.85 $ 0.77

Condensed Interim Consolidated Statements of Cash Flows

(in thousands of Canadian dollars)

Three months ended
June 30
Six months ended
June 30
2012 2011 2012 2011
(unaudited ) (unaudited ) (unaudited ) (unaudited )
Cash provided by (used in):
Operations:
Net income for the period $ 3,250 $ 6,392 $ 27,711 $ 25,222
Add (deduct) items not affecting cash:
Depreciation 5,258 5,129 11,327 11,708
Share-based compensation 553 458 931 678
Gain on sale of property, plant and equipment (84 ) (612 ) (492 ) (778 )
Finance costs 1,240 1,382 2,529 2,571
Current income tax expense 2,823 39 4,170 83
Deferred income tax (recovery) expense (3,451 ) 2,559 3,518 9,108
Income taxes paid (39 ) (39 ) (39 ) (83 )
9,550 15,308 49,655 48,509
Changes in non-cash working capital items:
Accounts receivable 44,435 16,339 39,480 (587 )
Inventory (907 ) (574 ) 894 (3,715 )
Prepaid expenses and deposits 93 (461 ) (232 ) 35
Accounts payable and accrued liabilities (8,558 ) (9,672 ) (7,122 ) (5,523 )
Deferred revenue 808 3,587 2,650 4,836
45,421 24,527 85,325 43,555
Investments:
Purchase of property, plant and equipment (17,179 ) (10,860 ) (41,421 ) (15,790 )
Proceeds on disposal of property, plant and equipment 721 2,329 1,747 3,538
Changes in non-cash working capital items 420 1,226 (4,186 ) 1,666
(16,038 ) (7,305 ) (43,860 ) (10,586 )
Financing:
Issuance of convertible debenture, net of issue costs - - - 65,927
Repayment of long-term debt - - - (72,500 )
Repayment of obligations under finance leases (852 ) (788 ) (1,743 ) (1,809 )
Dividends to shareholders (1,566 ) (1,257 ) (2,820 ) (2,518 )
Issuance of common shares 512 466 1,197 948
Repurchase of common shares (6,262 ) (1,412 ) (9,797 ) (1,412 )
Interest paid (155 ) (43 ) (2,080 ) (1,238 )
(8,323 ) (3,034 ) (15,243 ) (12,602 )
Change in cash and cash equivalents 21,060 14,188 26,222 20,367
Cash and cash equivalents, beginning of period 40,820 6,407 35,658 228
Cash and cash equivalents, end of period $ 61,880 $ 20,595 $ 61,880 $ 20,595

Segmented Information

The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Gas Compression Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment. Amounts presented in the following tables are in thousands of Canadian dollars.

As at and for the three months ended June 30, 2012 (unaudited)


As at and for the three months ended
Contract
Drilling
Rentals and
Transportation
Gas
Compression
June 30, 2012 Services Services Services Other(1 ) Total
Revenue $ 5,935 $ 22,093 $ 26,304 $ - $ 54,332
Cost of services 4,880 11,582 21,865 (4 ) 38,323
Selling, general and administration 671 3,089 1,398 1,262 6,420
Share-based compensation - - - 553 553
Depreciation 635 3,658 957 8 5,258
Results from (used in) operating activities (251 ) 3,764 2,084 (1,819 ) 3,778
Gain (loss) on sale of property, plant and equipment (15 ) 102 (3 ) - 84
Finance costs (253 ) (583 ) (69 ) (335 ) (1,240 )
Net income (loss) before income taxes (519 ) 3,283 2,012 (2,154 ) 2,622
Goodwill - 2,514 1,539 - 4,053
Total assets 90,476 215,129 91,137 54,503 451,245
Total liabilities 16,406 48,362 23,113 71,116 158,997
Capital expenditures $ 2,323 $ 10,185 $ 4,652 $ 19 $ 17,179

As at and for the three months ended June 30, 2011 (unaudited)


As at and for the three months ended
Contract
Drilling
Rentals and
Transportation
Gas
Compression
June 30, 2011 Services Services Services Other(1 ) Total
Revenue $ 7,514 $ 26,047 $ 28,598 $ - $ 62,159
Cost of services 4,819 11,259 24,318 - 40,396
Selling, general and administration 667 3,440 1,412 897 6,416
Share-based compensation - - - 458 458
Depreciation 869 3,435 813 12 5,129
Results from operating activities 1,159 7,913 2,055 (1,367 ) 9,760
Gain (loss) on sale of property, plant and equipment (8 ) 174 446 - 612
Finance costs (254 ) (592 ) (152 ) (384 ) (1,382 )
Net income before income taxes 897 7,495 2,349 (1,751 ) 8,990
Goodwill - 2,514 1,539 - 4,053
Total assets 74,007 191,268 78,476 26,572 370,323
Total liabilities 14,308 32,669 22,615 63,371 132,963
Capital expenditures $ 3,596 $ 4,716 $ 2,547 $ 1 $ 10,860

As at and for the six months ended June 30, 2012 (unaudited)


As at and for the six months ended
Contract
Drilling
Rentals and
Transportation
Gas
Compression
June 30, 2012 Services Services Services Other(1 ) Total
Revenue $ 27,114 $ 71,441 $ 57,226 $ - $ 155,781
Cost of services 14,807 28,854 47,600 (4 ) 91,257
Selling, general and administration 1,796 7,654 2,873 2,507 14,830
Share-based compensation - - - 931 931
Depreciation 2,284 7,166 1,857 20 11,327
Results from operating activities 8,227 27,767 4,896 (3,454 ) 37,436
Gain on sale of property, plant and equipment 44 269 179 - 492
Finance costs (506 ) (1,157 ) (193 ) (673 ) (2,529 )
Net income before income taxes 7,765 26,879 4,882 (4,127 ) 35,399
Goodwill - 2,514 1,539 - 4,053
Total assets 90,476 215,129 91,137 54,503 451,245
Total liabilities 16,406 48,362 23,113 71,116 158,997
Capital expenditures $ 7,289 $ 20,137 $ 12,181 $ 1,814 $ 41,421

As at and for the six months ended June 30, 2011 (unaudited)


As at and for the six months ended
Contract
Drilling
Rentals and
Transportation
Gas
Compression
June 30, 2011 Services Services Services Other(1 ) Total
Revenue $ 25,096 $ 70,942 $ 51,226 $ - $ 147,264
Cost of services 14,793 26,300 43,538 - 84,631
Selling, general and administration 1,459 7,883 2,634 2,065 14,041
Share-based compensation - - - 678 678
Depreciation 2,577 7,564 1,542 25 11,708
Results from operating activities 6,267 29,195 3,512 (2,768 ) 36,206
Gain on sale of property, plant and equipment 7 190 581 - 778
Finance costs (466 ) (1,179 ) (279 ) (647 ) (2,571 )
Net income before income taxes 5,808 28,206 3,814 (3,415 ) 34,413
Goodwill - 2,514 1,539 - 4,053
Total assets 74,007 191,268 78,476 26,572 370,323
Total liabilities 14,308 32,669 22,615 63,371 132,963
Capital expenditures $ 5,279 $ 6,857 $ 3,651 $ 3 $ 15,790
(1) Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.

Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT.

Notes to Financial Highlights

  1. Operating earnings means results from operating activities and is equal to net income before income taxes minus gain on sale of property, plant and equipment plus finance costs. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under IFRS. Management believes that in addition to net income, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Company's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy's performance. Total Energy's method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.
  1. Per share data (diluted) and the number of common shares outstanding on a diluted basis includes the impact of the approximate 3.1 million common shares issuable upon the entire conversion of the $69 million principal amount of convertible debentures issued by the Company in February 2011.
  1. Working capital equals current assets minus current liabilities.
  1. Net Debt equals long-term debt plus obligations under finance leases plus convertible debentures plus current liabilities minus current assets.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

Contact Information