Total Energy Services Inc.
TSX : TOT

Total Energy Services Inc.

November 09, 2011 09:17 ET

Total Energy Services Inc. Announces Q3 2011 Results

CALGARY, ALBERTA--(Marketwire - Nov. 9, 2011) - Total Energy Services Inc. (TSX:TOT) ("Total Energy" or the "Company"), announces its consolidated financial results for the three and nine-month periods ending September 30, 2011.

Financial Highlights

($000's except per share data)

Three Months Ended Sept 30 Nine Months Ended Sept 30
(Unaudited ) (Unaudited )
2011 2010 % Change 2011 2010 % Change
Revenue $ 87,882 $ 56,060 57 % $ 235,146 $ 151,959 55 %
Operating Earnings (1) 28,821 12,157 137 % 65,027 28,583 128 %
EBITDA (1) 34,734 17,092 103 % 83,426 43,539 92 %
Cashflow (1) 35,020 19,853 76 % 83,529 46,541 79 %
Net Income 20,603 7,910 160 % 45,825 19,594 134 %
Per Share Data (Diluted)
EBITDA (1) $ 0.98 $ 0.54 81 % $ 2.38 $ 1.39 71 %
Cashflow (1) 0.99 0.63 57 % 2.39 1.49 60 %
Net Earnings 0.61 0.25 144 % 1.38 0.63 119 %
Sept 30 Dec. 31
2011
(Unaudited)
2010
(Audited
) % Change
Financial Position
Total Assets $ 404,154 $ 342,834 18 %
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases 66,152 78,717 (16 )%
Working Capital (2) 108,375 64,446 68 %
Net Debt (3) - 5,026 n/m
Shareholders' Equity 254,791 209,845 21 %
Shares Outstanding (000's)
Basic 31,350 31,425 n/m
Diluted 35,216 32,096 10 %

Notes 1 through 3 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 September 30, 2011 represent record third quarter financial results, driven by higher activity levels in all three divisions. Continued strengthening of equipment utilization and pricing in the Contract Drilling Services and the Rentals and Transportation Services divisions contributed to the substantial increase in third quarter revenue, EBITDA, cashflow and net earnings as compared to the prior year.

Total Energy's Contract Drilling Services division achieved 66% utilization during the third quarter of 2011, recording 855 operating days (spud to release) with a fleet of 14 rigs, compared to 623 operating days, or 48% utilization during the third quarter of 2010 with the same fleet. Revenue per operating day realized during the third quarter of 2011 increased 29% compared to the third quarter of 2010 due primarily to improved pricing. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 74% during the third quarter of 2011 as compared to a 57% utilization rate during the third quarter of 2010. The Gas Compression Services division generated revenues of $28.6 million for the three months ended September 30, 2011 compared to $18.0 million for the third quarter of 2010. At September 30, 2011 the Gas Compression Services division had a fabrication backlog of approximately $40.3 million compared to a backlog of $22.2 million as at September 30, 2010. At September 30, 2011 approximately 21,700 horsepower of compression equipment was on rent compared to 18,900 horsepower on rent at September 30, 2010. The gas compression rental fleet operated at an average utilization rate of 78% during the first nine months of 2011 as compared to 74% for the same period in 2010.

During the third quarter, Total Energy declared a quarterly dividend of $0.04 per share to shareholders of record on September 30, 2011. This dividend was paid on October 31, 2011.

Total Energy is reporting its financial results in accordance with International Financial Reporting Standards ("IFRS") effective January 1, 2011. A description of the impact of the implementation of IFRS on the Company's financial results is contained in the Company's Unaudited Interim Consolidated Financial Statements and related Management Discussion and Analysis as at and for the three and nine months ended September 30, 2011, which documents will be filed with regulators and available on SEDAR in due course.

Outlook

Despite volatile financial market conditions, current indications are that the upcoming winter drilling season will be very active. Contributing to the strong demand for the equipment and services provided by Total Energy are relatively strong oil and natural gas liquids prices and pent-up demand arising from unusually wet weather conditions in Western Canada during the second quarter that delayed the commencement of summer drilling and completion activity.

Delivery of equipment being constructed pursuant to Total Energy's $71.3 million 2011 capital expenditure program is underway. Completion of Rig 15 is expected in the next few weeks and such rig has been contracted for the upcoming winter drilling season. With the addition of approximately 1,000 pieces of rental equipment and 12 heavy trucks (net of dispositions), the Rentals and Transportation Services division's equipment fleet will increase by approximately 13% going into 2012 as compared to the beginning of 2011. With strong demand for this division's equipment and services, as evidenced by third quarter equipment utilization in line with historical winter utilization levels, such equipment additions are necessary to service existing demand. Total Energy's Gas Compression Services division, Bidell Gas Compression, continues to expand its product and service capabilities. Subsequent to September 30, 2011, Bidell received an order for a 6,500 horsepower compression package, the largest horsepower package order ever received. Bidell also recently established a full service parts and service branch in Medicine Hat, Alberta and currently operates out of 10 locations throughout Alberta, British Columbia and Saskatchewan. Total Energy recently received a Canadian patent for its proprietary NOMAD ™ mobile gas compression and demand for this product continues to strengthen with approximately 60 units now sold or in service under rental contracts. Currently, approximately 60% of Bidell's compression rental fleet (measured on a horsepower basis) consists of NOMAD ™ units, with utilization of such rental units at 100%. Construction of an Australian NOMAD™ is underway with delivery to Australia expected during the first quarter of 2012.

Total Energy's financial position remains strong with a long-term debt (including $69 million of principal amount of convertible debentures) to long-term debt plus equity ratio of 0.21 to 1.0 and no net debt as at September 30, 2011. The Company's $35 million secured bank facility is currently fully available and unutilized.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call to discuss its third 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 (800) 355-4959. Those who are unable to listen to the call live may listen to a recording of it by calling (800) 408-3053 (passcode 1387560). The recording will be available until November 16, 2011.

Selected Financial Information

Selected financial information relating to the three and nine-month periods ended September 30, 2011 and 2010 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 third quarter report.

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
September 30, December 31,
2011 2010
(unaudited )
Assets
Current assets:
Cash and cash equivalents $ 24,730 $ 228
Accounts receivable 87,493 70,983
Inventory 39,998 33,488
Income taxes receivable 118 118
Prepaid expenses and deposits 3,109 1,818
155,448 106,635
Property, plant and equipment 244,653 232,146
Goodwill 4,053 4,053
$ 404,154 $ 342,834
Liabilities & Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 32,044 28,353
Deferred revenue 11,000 3,334
Dividends payable 1,254 1,257
Current portion of long-term debt - 6,042
Current portion of obligations under finance leases 2,775 3,203
47,073 42,189
Long-term debt - 66,458
Obligations under finance leases 2,670 3,014
Convertible debentures 60,707 -
Deferred tax liability 38,913 21,328
Shareholders' equity:
Share capital 76,803 76,268
Contributed surplus 2,543 1,769
Equity portion of convertible debenture 4,601 -
Retained earnings 170,844 131,808
254,791 209,845
$ 404,154 $ 342,834
Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars except per share amounts)
Three months ended Nine months ended
September 30 September 30
2011 2010 2011 2010
(unaudited ) (unaudited ) (unaudited ) (unaudited )
Revenue $ 87,882 $ 56,060 $ 235,146 $ 151,959
Expenses:
Cost of services 45,725 32,354 130,356 89,347
Selling, general and administration 7,126 6,373 21,167 18,753
Share-based compensation 368 241 1,046 855
Depreciation 5,842 4,935 17,550 14,421
Results from operating activities 28,821 12,157 65,027 28,583
Gain on sale of property, plant and equipment 71 - 849 535
Finance costs (1,351 ) (882 ) (3,922 ) (2,458 )
Net income before income taxes 27,541 11,275 61,954 26,660
Current income tax expense 11 - 94 48
Deferred income tax expense 6,927 3,365 16,035 7,018
Total income tax expense 6,938 3,365 16,129 7,066
Net income and total comprehensive income for the period 20,603 7,910 45,825 19,594
Retained earnings, beginning of period 153,337 112,936 131,808 103,114
Dividends (1,254 ) (931 ) (3,776 ) (2,793 )
Repurchase and cancellation of common shares (1,842 ) (182 ) (3,013 ) (182 )
in excess of stated common share capital
Retained earnings, end of period $ 170,844 $ 119,733 $ 170,844 $ 119,733
Earnings per share :
Basic $ 0.65 $ 0.25 $ 1.46 $ 0.64
Diluted $ 0.61 $ 0.25 $ 1.38 $ 0.63
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Three months ended Nine months ended
September 30 September 30
2011 2010 2011 2010
(unaudited ) (unaudited ) (unaudited ) (unaudited )
Cash provided by (used in):
Operations:
Net income for the period $ 20,603 $ 7,910 $ 45,825 $ 19,594
Add (deduct) items not affecting cash:
Depreciation 5,842 4,935 17,550 14,421
Share-based compensation 368 241 1,046 855
Gain on sale of property, plant and equipment (71 ) - (849 ) (535 )
Finance costs 1,351 882 3,922 2,458
Current income tax expense 11 - 94 48
Future income tax expense 6,927 3,365 16,035 7,018
Income taxes paid (11 ) 2,520 (94 ) 2,682
35,020 19,853 83,529 46,541
Changes in non-cash working capital items:
Accounts receivable (15,923 ) (20,134 ) (16,510 ) (30,360 )
Inventory (2,795 ) 3,117 (6,510 ) 1,176
Prepaid expenses and deposits (1,397 ) (1,060 ) (1,362 ) (373 )
Accounts payable and accrued liabilities 5,454 (7,450 ) (69 ) 7,971
Deferred revenue 2,830 555 7,666 (1,682 )
23,189 (5,119 ) 66,744 23,273
Investments:
Purchase of property, plant and equipment (15,557 ) (12,591 ) (31,347 ) (21,628 )
DC Energy Services LP acquisition - - - (31,093 )
Proceeds on disposal of property, plant and equipment 571 362 4,109 2,526
Changes in non-cash working capital items 2,318 1,404 3,984 3,188
(12,668 ) (10,825 ) (23,254 ) (47,007 )
Financing:
Advances under long-term debt - 16,225 - 67,407
Issuance of convertible debenture, net of issue costs - - 65,927 -
Repayment of long-term debt - - (72,500 ) (17,500 )
Repayment of obligations under capital leases (933 ) (677 ) (2,742 ) (1,745 )
Dividends to shareholders (1,254 ) (931 ) (3,776 ) (2,793 )
Dividends payable (7 ) 1 (3 ) 57
Issuance of common shares - 280 948 583
Repurchase of common shares (2,215 ) (239 ) (3,627 ) (239 )
Interest paid (1,977 ) (816 ) (3,215 ) (2,167 )
Decrease in bank indebtedness - - - (19,869 )
(6,386 ) 13,843 (18,988 ) 23,734
Change in cash and cash equivalents 4,135 (2,101 ) 24,502 -
Cash and cash equivalents, beginning of period 20,595 2,101 228 -
Cash and cash equivalents, end of period $ 24,730 $ - $ 24,730 $ -

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 equipment.

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

Contract Rentals and Gas
Drilling Transportation Compression
Services Services Services Other(1 ) Total
Revenue $ 16,274 $ 43,020 $ 28,588 $ - $ 87,882
Cost of services 7,959 13,893 23,873 - 45,725
Selling, general and administration 835 3,911 1,364 1,016 7,126
Share-based compensation - - - 368 368
Depreciation 1,468 3,531 830 13 5,842
Results from operating activities 6,012 21,685 2,521 (1,397 ) 28,821
Gain (loss) on sale of property, plant and equipment - 81 (10 ) - 71
Finance costs (254 ) (597 ) (153 ) (347 ) (1,351 )
Net income before income taxes 5,758 21,169 2,358 (1,744 ) 27,541
Goodwill - 2,514 1,539 - 4,053
Total assets 81,418 205,773 87,612 29,351 404,154
Total liabilities 17,290 39,367 27,687 65,019 149,363
Capital expenditures $ 3,689 $ 9,603 $ 2,216 $ 49 $ 15,557

As at and for the three months ended September 30, 2010 (unaudited)

Contract Rentals and Gas
Drilling Transportation Compression
Services Services Services Other(1 ) Total
Revenue $ 9,171 $ 28,862 $ 18,027 $ - $ 56,060
Cost of services 6,227 11,913 14,214 - 32,354
Selling, general and administration 526 3,402 1,028 1,417 6,373
Share-based compensation - - - 241 241
Depreciation 1,092 3,254 581 8 4,935
Results from operating activities 1,326 10,293 2,204 (1,666 ) 12,157
Gain (loss) on sale of property, plant and equipment - - - - -
Finance costs (149 ) (604 ) (98 ) (31 ) (882 )
Net income before income taxes 1,177 9,689 2,106 (1,697 ) 11,275
Goodwill - 2,514 1,539 - 4,053
Total assets 73,119 178,483 66,050 1,037 318,689
Total liabilities 13,827 34,975 13,680 60,665 123,147
Capital expenditures $ 978 $ 7,734 $ 3,879 $ - $ 12,591

As at and for the nine months ended September 30, 2011 (unaudited)

Contract Rentals and Gas
Drilling Transportation Compression
Services Services Services Other(1 ) Total
Revenue $ 41,370 $ 113,962 $ 79,814 $ - $ 235,146
Cost of services 22,752 40,193 67,411 - 130,356
Selling, general and administration 2,294 11,794 3,998 3,081 21,167
Share-based compensation - - - 1,046 1,046
Depreciation 4,045 11,095 2,372 38 17,550
Results from operating activities 12,279 50,880 6,033 (4,165 ) 65,027
Gain on sale of property, plant and equipment 7 271 571 - 849
Finance costs (720 ) (1,776 ) (432 ) (994 ) (3,922 )
Net income before income taxes 11,566 49,375 6,172 (5,159 ) 61,954
Goodwill - 2,514 1,539 - 4,053
Total assets 81,418 205,773 87,612 29,351 404,154
Total liabilities 17,290 39,367 27,687 65,019 149,363
Capital expenditures $ 8,968 $ 16,460 $ 5,867 $ 52 $ 31,347

As at and for the nine months ended September 30, 2010 (unaudited)

Contract Rentals and Gas
Drilling Transportation Compression
Services Services Services Other(1 ) Total
Revenue $ 28,061 $ 81,681 $ 42,217 $ - $ 151,959
Cost of services 19,780 36,402 33,050 115 89,347
Selling, general and administration 1,519 11,445 2,786 3,003 18,753
Share-based compensation - - - 855 855
Depreciation 3,381 9,404 1,614 22 14,421
Results from operating activities 3,381 24,430 4,767 (3,995 ) 28,583
Gain on sale of property, plant and equipment - 224 311 - 535
Finance costs (414 ) (1,695 ) (268 ) (81 ) (2,458 )
Net income before income taxes 2,967 22,959 4,810 (4,076 ) 26,660
Goodwill - 2,514 1,539 - 4,053
Total assets 73,119 178,483 66,050 1,037 318,689
Total liabilities 13,827 34,975 13,680 60,665 123,147
Capital expenditures (2) $ 2,890 $ 11,847 $ 6,864 $ 27 $ 21,628
(1) Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.
(2) Excludes the acquisition of DC Energy Services LP on January 15, 2010.

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 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. 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.

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