Total Energy Services Inc.

TSX : TOT


Total Energy Services Inc.

August 13, 2014 09:40 ET

Total Energy Services Inc. Announces Q2 2014 Results and Capital Budget Increase

CALGARY, ALBERTA--(Marketwired - Aug. 13, 2014) - Total Energy Services Inc. (TSX:TOT) ("Total Energy" or the "Company") announces its consolidated financial results for the three and six months ending June 30, 2014.

Financial Highlights
($000's except per share data)
Three Months Ended June 30 Six Months Ended June 30
(unaudited) (unaudited)
2014 2013 % Change 2014 2013 % Change
Revenue $ 83,694 $ 60,668 38 % $ 198,807 $ 163,579 22 %
Operating Earnings (1) 6,344 1,455 336 % 32,004 24,933 28 %
EBITDA (1) 15,920 7,471 113 % 51,599 39,048 32 %
Cashflow (1) (5) 19,871 5,203 282 % 53,894 17,557 207 %
Net Income 7,216 114 6,230 % 28,244 17,505 61 %
Per Share Data (Diluted) (2)
EBITDA (1) $ 0.46 $ 0.22 109 % $ 1.48 $ 1.14 30 %
Cashflow (1) (5) $ 0.57 $ 0.15 280 % $ 1.55 $ 0.51 204 %
Net Earnings $ 0.23 $ 0.00 n/m $ 0.87 $ 0.56 55 %
June 30 Dec. 31
2014
(unaudited
) 2013
(audited
) % Change
Financial Position
Total Assets $ 559,252 $ 518,782 8 %
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion) 68,405 67,221 2 %
Working Capital (3) 100,658 69,651 45 %
Net Debt (4) Nil Nil n/m
Shareholders' Equity 366,893 340,612 8 %
Shares Outstanding (000's)
Basic 31,309 31,176 nil
Diluted (2) 35,036 34,838 1 %
Notes 1 through 5 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's results for the three and six months ended June 30, 2014 represent record second quarter financial results and reflect increased drilling activity in Western Canada as well as continued growth in the Company's Compression and Process Services division.

Total Energy's Contract Drilling Services division achieved 28% utilization during the second quarter of 2014, recording 405 operating days (spud to release), compared to 227 operating days, or 16% utilization, during the second quarter of 2013 with a fleet of 16 rigs during both periods. Revenue per operating day for the second quarter of 2014 remained comparable to the second quarter of 2013. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 28% during the second quarter of 2014 as compared to a 21% utilization rate during the second quarter of 2013. This division exited the second quarter of 2014 with 9,900 pieces of rental equipment and 109 heavy trucks as compared to 9,900 rental pieces and 106 heavy trucks at June 30, 2013. The Compression and Process Services division generated revenues of $56.2 million for the three months ended June 30, 2014 compared to $41.9 million for the same period in 2013, an increase of 34%. This division exited the second quarter of 2014 with an $81.9 million backlog of fabrication sales orders as compared to $58.2 million at June 30, 2013. During the second quarter of 2014 approximately 23,900 horsepower of rental compression was sold upon the exercise of purchase options. As at June 30, 2014 there was approximately 35,900 horsepower of compression equipment on rent as compared to 30,500 horsepower on rent at June 30, 2013. The gas compression rental fleet operated at an average utilization rate of 89% during the second quarter of 2014 as compared to 84% during the second quarter of 2013.

Cashflow was $19.9 million for the three months ended June 30, 2014, as compared to $5.2 million for the comparable period in 2013. This significant increase in cashflow was primarily due to increased operating earnings and $6.2 million of income tax recoveries that were received during second quarter of 2014. During the second quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on June 30, 2014. This dividend was paid on July 31, 2014. 136,100 common shares were purchased under the Company's normal course issuer bid during the second quarter of 2014 at an average price of $21.39 per share (including commissions).

Outlook

Continued strength of oil prices and improved year over year natural gas prices underpinned an increase in Western Canadian drilling activity during the second quarter of 2014. Current expectations are that drilling activity levels will remain above prior year levels for the remainder of 2014. Construction of the Company's 17th drilling rig, a 4,200 meter AC electric telescopic double with a top drive, was recently completed and such rig is scheduled to move to its first location shortly. Well completion activity levels are also expected to improve relative to 2013 for the remainder of the year, which is expected to benefit Total Energy's Rentals and Transportation Services division. The Company's Compression and Process Services division continues to see strong demand for its products and services, exiting the second quarter with a record fabrication sales order backlog.

Total Energy's financial condition remains solid with a long-term debt (including convertible debentures) to long-term debt plus equity ratio of 0.16 to 1.0, $100.7 million of positive working capital (including $46.1 million of cash or $1.47 of cash per share, basic), and no net debt as at June 30, 2014. Total Energy's $35 million operating facility is currently fully available and undrawn.

Total Energy has increased its 2014 capital expenditure budget by $20.1 million to $88.1 million. Included in this increase is $15.2 million for the construction of the Company's 18th drilling rig, a 4,200 meter (vertical depth rating) AC electric telescopic double drilling rig (complete with top drive), $3.2 million for approximately 170 pieces of new surface rental equipment for the Company's Rentals and Transportation Services division and $1.7 million for infrastructure. Construction of Rig 18 is expected to be completed by the first quarter of 2015 and, consistent with past practice, the Company will look to contract the new rig near completion. To June 30, 2014, $34.4 million of 2014 capital expenditures have been made. The Company intends to finance its remaining 2014 capital expenditure budget from cash on hand, operating cash flow and, if necessary, its $35 million operating facility. Total Energy continues to evaluate numerous investment opportunities and the Company's balance sheet strength provides significant capacity and flexibility to pursue further growth opportunities that meet the Company's investment expectations.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast 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. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to join the conference call live may do so by calling (800) 766-6630 or (416) 340-8530. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until August 20, 2014 by dialing (800) 408-3053 (passcode 5508248).

Selected Financial Information

Selected financial information relating to the three and six month period ended June 30, 2014 and 2013 is attached to this news release. This information should be read in conjunction with the condensed unaudited interim 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 Company's second quarter report.

Condensed Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
June 30, December 31,
2014 2013
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 46,059 $ 3,210
Accounts receivable 69,327 78,130
Inventory 41,304 38,858
Income taxes receivable - 2,402
Prepaid expenses and deposits 8,920 5,921
165,610 128,521
Property, plant and equipment 381,213 382,347
Other assets 8,376 3,861
Goodwill 4,053 4,053
$ 559,252 $ 518,782
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 47,181 $ 46,224
Deferred revenue 8,464 8,710
Dividends payable 1,879 1,559
Income taxes payable 5,107 -
Current portion of obligations under finance leases 2,321 2,377
64,952 58,870
Obligations under finance leases 3,023 2,775
Convertible debentures 65,382 64,446
Deferred tax liability 59,002 52,079
Shareholders' equity:
Share capital 88,015 83,243
Contributed surplus 6,840 6,677
Equity portion of convertible debenture 4,601 4,601
Retained earnings 267,437 246,091
366,893 340,612
Commitments and contingencies
$ 559,252 $ 518,782
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
2014 2013 2014 2013
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue $ 83,694 $ 60,668 $ 198,807 $ 163,579
Cost of services 62,613 45,748 135,306 108,503
Selling, general and administration 7,528 6,793 15,976 15,170
Share-based compensation 658 780 1,348 1,913
Depreciation 6,551 5,892 14,173 13,060
Results from operating activities 6,344 1,455 32,004 24,933
Gain on sale of property, plant and equipment 3,025 124 5,422 1,055
Finance income 919 93 2,078 235
Finance costs (1,542 ) (1,521 ) (3,044 ) (2,950 )
Net income before income taxes 8,746 151 36,460 23,273
Current income tax expense 2,122 683 1,293 3,287
Deferred income tax (recovery) expense (592 ) (646 ) 6,923 2,481
Total income tax expense 1,530 37 8,216 5,768
Net income and total comprehensive income for the period $ 7,216 $ 114 $ 28,244 $ 17,505
Earnings per share
Basic earnings per share $ 0.23 $ - $ 0.90 $ 0.57
Diluted earnings per share $ 0.23 $ - $ 0.87 $ 0.56
Condensed Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Three months ended
June 30
Six months ended
June 30
2014 2013 2014 2013
(unaudited) (unaudited) (unaudited) (unaudited)
Cash provided by (used in):
Operations:
Net income for the period $ 7,216 $ 114 $ 28,244 $ 17,505
Add (deduct) items not affecting cash:
Depreciation 6,551 5,892 14,173 13,060
Share-based compensation 658 780 1,348 1,913
Gain on sale of property, plant and equipment (3,025 ) (124 ) (5,422 ) (1,055 )
Finance income (817 ) (93 ) (1,925 ) (235 )
Finance costs 1,542 1,521 3,044 2,950
Current income tax expense 2,122 683 1,293 3,287
Deferred income tax (recovery) expense (592 ) (646 ) 6,923 2,481
Income taxes recovered (paid) 6,216 (2,924 ) 6,216 (22,349 )
19,871 5,203 53,894 17,557
Changes in non-cash working capital items:
Accounts receivable 33,269 42,850 8,803 9,641
Inventory (1,707 ) (152 ) (2,446 ) 3,070
Prepaid expenses and deposits (4,422 ) (247 ) (3,074 ) (1,951 )
Accounts payable and accrued liabilities (7,330 ) (7,887 ) (38 ) (239 )
Deferred revenue 2,861 1,993 (246 ) 125
42,542 41,760 56,893 28,203
Investments:
Purchase of property, plant and equipment (14,520 ) (10,656 ) (34,428 ) (17,072 )
Acquisition of business - - - (16,954 )
Proceeds on sale of other assets 289 - 289 -
Purchase of other assets - - (2,879 ) -
Proceeds on disposal of property, plant and equipment 14,542 293 27,467 3,510
Changes in non-cash working capital items 1,558 36 2,276 (4,223 )
1,869 (10,327 ) (7,275 ) (34,739 )
Financing:
Repayment of obligations under finance leases (840 ) (699 ) (1,730 ) (1,484 )
Dividends to shareholders (1,876 ) (1,538 ) (3,435 ) (3,068 )
Issuance of common shares 2,949 316 4,142 1,428
Repurchase of common shares (2,911 ) (2,838 ) (3,623 ) (3,993 )
Interest paid (72 ) (147 ) (2,123 ) (2,163 )
(2,750 ) (4,906 ) (6,769 ) (9,280 )
Change in cash and cash equivalents 41,661 26,527 42,849 (15,816 )
Cash and cash equivalents, beginning of period 4,398 7,709 3,210 50,052
Cash and cash equivalents, end of period $ 46,059 $ 34,236 $ 46,059 $ 34,236

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 Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment.

As at and for the three months ended June 30, 2014 (unaudited)


June 30, 2014
Contract
Drilling
Services
Rentals and
Transportation
Services
Compression
and Process
Services


Other(1)


Total
Revenue $ 7,625 $ 19,839 $ 56,230 $ - $ 83,694
Cost of services 6,264 12,637 43,712 - 62,613
Selling, general and administration 741 3,157 2,574 1,056 7,528
Share-based compensation - - - 658 658
Depreciation 727 3,855 1,964 5 6,551
Results from operating activities (107 ) 190 7,980 (1,719 ) 6,344
Gain on sale of property, plant and equipment 2 48 2,975 - 3,025
Finance income - - - 919 919
Finance costs (204 ) (525 ) (266 ) (547 ) (1,542 )
Net income (loss) before income taxes (309 ) (287 ) 10,689 (1,347 ) 8,746
Goodwill - 2,514 1,539 - 4,053
Total assets 115,576 238,031 169,252 36,393 559,252
Total liabilities 24,808 47,512 41,112 78,927 192,359
Capital expenditures $ 5,173 $ 5,359 $ 4,837 $ (849 ) $ 14,520
As at and for the three months ended June 30, 2013 (unaudited)
Contract Rentals and Compression
Drilling Transportation and Process
Services Services Services Other(1) Total
Revenue $ 4,285 $ 14,516 $ 41,867 $ - $ 60,668
Cost of services 3,931 9,712 32,105 - 45,748
Selling, general and administration 654 2,901 2,177 1,061 6,793
Share-based compensation - - - 780 780
Depreciation 512 3,831 1,313 236 5,892
Results from operating activities (812 ) (1,928 ) 6,272 (2,077 ) 1,455
Gain on sale of property, plant and equipment 10 70 44 - 124
Finance income - - - 93 93
Finance costs (203 ) (548 ) (237 ) (533 ) (1,521 )
Net income (loss) before income taxes (1,005 ) (2,406 ) 6,079 (2,517 ) 151
Goodwill - 2,514 1,539 - 4,053
Total assets 100,120 218,456 142,780 12,144 473,500
Total liabilities 15,511 38,391 31,706 68,038 153,646
Capital expenditures $ 472 $ 3,925 $ 5,722 $ 537 $ 10,656
As at and for the six months ended June 30, 2014 (unaudited)
Contract Rentals and Compression
Drilling Transportation and Process
Services Services Services Other(1) Total
Revenue $ 29,366 $ 58,467 $ 110,974 $ - $ 198,807
Cost of services 17,834 30,755 86,717 - 135,306
Selling, general and administration 1,759 6,959 4,952 2,306 15,976
Share-based compensation - - - 1,348 1,348
Depreciation 2,593 7,679 3,896 5 14,173
Results from operating activities 7,180 13,074 15,409 (3,659 ) 32,004
Gain on sale of property, plant and equipment 22 92 5,235 73 5,422
Finance income - - - 2,078 2,078
Finance costs (407 ) (1,047 ) (518 ) (1,072 ) (3,044 )
Net income (loss) before income taxes 6,795 12,119 20,126 (2,580 ) 36,460
Goodwill - 2,514 1,539 - 4,053
Total assets 115,576 238,031 169,252 36,393 559,252
Total liabilities 24,808 47,512 41,112 78,927 192,359
Capital expenditures $ 13,492 $ 8,854 $ 12,075 $ 7 $ 34,428
As at and for the six months ended June 30, 2013 (unaudited)
Contract Rentals and Compression
Drilling Transportation and Process
Services Services Services Other(1) Total
Revenue $ 22,915 $ 53,717 $ 86,947 $ - $ 163,579
Cost of services 14,698 25,685 68,120 - 108,503
Selling, general and administration 1,568 6,798 4,283 2,521 15,170
Share-based compensation - - - 1,913 1,913
Depreciation 2,310 7,692 2,584 474 13,060
Results from operating activities 4,339 13,542 11,960 (4,908 ) 24,933
Gain (loss) on sale of property, plant and equipment (22 ) 235 842 - 1,055
Finance income - - 53 182 235
Finance costs (404 ) (1,096 ) (470 ) (980 ) (2,950 )
Net income before income taxes 3,913 12,681 12,385 (5,706 ) 23,273
Goodwill - 2,514 1,539 - 4,053
Total assets 100,120 218,456 142,780 12,144 473,500
Total liabilities 15,511 38,391 31,706 68,038 153,646
Capital expenditures (2) $ 1,731 $ 7,402 $ 21,393 $ 546 $ 31,072
(1) Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.
(2) Includes January 1, 2013 acquisition of a process equipment fabrication business included in Compression and Process Services segment.

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 minus finance income. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation less finance income. 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.

  2. 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.

  3. Working capital equals current assets minus current liabilities.

  4. Net Debt equals long-term debt plus obligations under finance leases plus convertible debentures plus current liabilities minus current assets.

  5. Cashflow for the six months ended June 30, 2013 is net of $15.3 million of income taxes paid during the period that relates to 2012 taxable income as a result of the Company not having been required to make income tax installment payments during 2012.

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.

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