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CanElson Announces Second Quarter Results
CALGARY, ALBERTA--(Marketwired - July 31, 2015) - CanElson Drilling Inc. (CDI.TO) announces its financial results for the second quarter. All tabular amounts are denominated in Canadian dollars unless otherwise identified and are stated in thousands, except for: per share amounts, number of drilling rigs, drilling days, utilization rate and depths in metres.
SIGNIFICANT EVENT
On June 10, 2015, Trinidad Drilling Ltd. ("Trinidad") and the Corporation entered into a definitive agreement under which Trinidad will acquire all the issued and outstanding common shares of the Corporation in exchange for a combination of cash and Trinidad common shares (the "Trinidad Shares"). The Corporation's shareholders will, for each share held, have the option to receive, subject to an aggregate maximum cash payment by Trinidad of $50.0 million, 1.0631 Trinidad Shares or $4.90 per share in cash. The transaction has been approved unanimously by the Corporation's Board of Directors. The transaction will be implemented through a Plan of Arrangement under the Business Corporations Act (Alberta) and is subject to the receipt of approval of the Corporation's securityholders, Trinidad's shareholders, TSX, court approval, relevant regulatory approvals and the satisfaction of other closing conditions. The transaction is expected to close August 10, 2015. All regulatory approvals, aside from court approval, for the transaction have been received.
"The exposure to new and larger opportunities with Trinidad is eagerly anticipated." said Randy Hawkings, President and CEO of CanElson. "The opportunity with Trinidad is a direct result of what has been accomplished here at CanElson over the past six and a half years. Since the first full year of operations in 2009, CanElson has grown to more than 50 drilling rigs, led industry activity metrics across all operating areas, and generated an industry leading return on capital. CanElson's second quarter results highlight the strength of the asset base that we have built, which remains in demand despite the significant decline in commodity prices."
SECOND QUARTER 2015 SUMMARY (compared with a year earlier)
Services revenue of $34.6 million, down 44% from $61.9 million
Adjusted EBITDA of $8.4 million, down 48% from $16.3 million, excluding an Adjusted EBITDA loss from our joint venture equity investment in Diavaz CanElson de Mexico ("DCM") of $(0.1) million (2014: DCM Adjusted EBITDA of $2.7 million)
Income/(loss) attributable to shareholders of the Corporation $(1.7) million, down 132% from $5.5 million
Income/(loss) per diluted share of $(0.02), down 133% from $0.06
Included in Income/(loss) attributable to shareholders is $3.8 million in non-cash asset impairment, up from nil
Weighted average diluted common shares outstanding 93.0 million, down 1% from 93.9 million
Declared second quarter dividend of $0.03 per share on July 27, 2015, down 50% from $0.06 per share
Canadian utilization of 29% (2.23 times above industry average), down 19% from 36% (1.38 times above industry average)
US utilization of 31%, down 59% from 75%
SIX MONTHS ENDED 2015 SUMMARY (compared with a year earlier)
Services revenue of $100.8 million, down 37% from $159.0 million
Adjusted EBITDA of $26.8 million, down 44% from $48.1 million, excluding an Adjusted EBITDA loss from our joint venture equity investment in Diavaz CanElson de Mexico ("DCM") of $0.5 million (2014: DCM Adjusted EBITDA of $5.6 million)
Income attributable to shareholders of the Corporation $3.7 million, down 82% from $20.6 million
Income/(loss) per diluted share of $0.04, down 82% from $0.22
Included in Income/(loss) attributable to shareholders is $3.8 million in non-cash asset impairment, up from nil
Weighted average diluted common shares outstanding 93.0 million, down 1% from 93.8
Declared dividends for the six months ended June 30, of $0.06 per share, down 50% from $0.12 per share
Canadian utilization of 40% (1.6 times above industry average), down 30% from 57% (1.3 times above industry average)
US utilization of 31%, down 59% from 75%
OVERVIEW OF OPERATING AND FINANCIAL RESULTS
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||
Operating Summary | 2015 | 2014 | % change | 2015 | 2014 | % change | ||||||||||||||||
Canadian Operations | ||||||||||||||||||||||
Revenue per drilling day (i) | $ | 23.91 | $ | 28.58 | (16 | )% | $ | 26.68 | $ | 29.07 | (8 | )% | ||||||||||
Drilling Days (i) | 745 | 900 | (17 | )% | 2,063 | 2,966 | (30 | )% | ||||||||||||||
Services Revenue | $ | 17,813 | $ | 25,718 | (31 | )% | $ | 55,041 | $ | 86,218 | (36 | )% | ||||||||||
Utilization (i) | 29 | % | 36 | % | (19 | )% | 40 | % | 57 | % | (30 | )% | ||||||||||
Industry Average Utilization (ii) | 13 | % | 26 | % | (50 | )% | 25 | % | 43 | % | (42 | )% | ||||||||||
Multiple of Industry Average Utilization | 2.23 | 1.38 | 62 | % | 1.60 | 1.33 | 20 | % | ||||||||||||||
US Operations | ||||||||||||||||||||||
Revenue per drilling day (i) | $ | 28.03 | $ | 29.49 | (5 | )% | $ | 28.25 | $ | 29.03 | (3 | )% | ||||||||||
Drilling Days (i) | 598 | 1,227 | (51 | )% | 1,621 | 2,509 | (35 | )% | ||||||||||||||
Industry Average Rig Count (iii) | 907 | 1,852 | (51 | )% | 1,155 | 1,816 | (36 | )% | ||||||||||||||
Services Revenue | $ | 16,754 | $ | 36,186 | (54 | )% | $ | 45,778 | $ | 72,825 | (37 | )% | ||||||||||
Utilization (i) | 31 | % | 75 | % | (59 | )% | 43 | % | 79 | % | (46 | )% | ||||||||||
Total Drilling Services | ||||||||||||||||||||||
Revenue per drilling day (i) | $ | 25.74 | $ | 29.10 | (12 | )% | $ | 27.37 | $ | 29.05 | (6 | )% | ||||||||||
Other direct expenses per day (i) | $ | 16.09 | $ | 18.48 | (13 | )% | $ | 17.24 | $ | 17.89 | (4 | )% | ||||||||||
Drilling Days (i) | 1,343 | 2,127 | (37 | )% | 3,684 | 5,475 | (33 | )% | ||||||||||||||
Utilization (i) | 30 | % | 51 | % | (41 | )% | 41 | % | 66 | % | (38 | )% | ||||||||||
Financial Summary | ||||||||||||||||||||||
Services revenue | $ | 34,567 | $ | 61,904 | (44 | )% | $ | 100,819 | $ | 159,043 | (37 | )% | ||||||||||
Gross Margin (i) | $ | 12,957 | $ | 22,600 | (43 | )% | $ | 37,311 | $ | 61,083 | (39 | )% | ||||||||||
Gross Margin % | 37 | % | 37 | % | - | % | 37 | % | 38 | % | (3 | )% | ||||||||||
Adjusted EBITDA (i) | $ | 8,445 | $ | 16,316 | (48 | )% | $ | 26,825 | $ | 48,077 | (44 | )% | ||||||||||
Adjusted EBITDA Margin % | 24 | % | 26 | % | (8 | )% | 27 | % | 30 | % | (10 | )% | ||||||||||
G&A as a percentage of services revenue (i) | 13 | % | 10 | % | 30 | % | 10 | % | 8 | % | 25 | % | ||||||||||
Depreciation expense per operating day | $ | 3.87 | $ | 2.66 | 46 | % | $ | 3.57 | $ | 2.67 | 34 | % | ||||||||||
Funds flow (i) | $ | 8,275 | $ | 19,060 | (57 | )% | $ | 27,283 | $ | 45,096 | (40 | )% | ||||||||||
Joint Venture Adjusted EBITDA | $ | (81 | ) | $ | 2,661 | (103 | )% | $ | (530 | ) | $ | 5,615 | (109 | )% | ||||||||
Share of joint venture profits (losses) | $ | (326 | ) | $ | 596 | (155 | )% | $ | (904 | ) | $ | 2,249 | (140 | )% | ||||||||
Income/(loss) attributable to shareholders of the Corporation | $ | (1,748 | ) | $ | 5,536 | (132 | )% | $ | 3,659 | $ | 20,638 | (82 | )% | |||||||||
Income/(loss) per share (diluted) | $ | (0.02 | ) | $ | 0.06 | (133 | )% | $ | 0.04 | $ | 0.22 | (82 | )% | |||||||||
Weighted average number of diluted shares outstanding | 93,029 | 93,898 | (1 | )% | 93,015 | 93,812 | (1 | )% | ||||||||||||||
Common shares outstanding | 93,166 | 92,519 | 1 | % | 93,166 | 92,519 | 1 | % | ||||||||||||||
Dividends declared per common share | $ | 0.03 | $ 0.06 | (50 | )% | $ | 0.06 | $ | 0.12 | (50 | )% | |||||||||||
i. See Non-GAAP Measures and Industry Definitions | ||||||||||||||||||||||
ii. Source: Canadian industry average utilization is provided by the CAODC (http://www.caodc.ca/rig-counts) | ||||||||||||||||||||||
iii. Source: US industry average rig count is provided by Baker Hughes (http://www.bakerhughes.com/rig-count) | ||||||||||||||||||||||
NON-GAAP MEASURES
This MD&A contains references to Adjusted EBITDA, funds flow, gross margin, and effective tax rate to shareholders of the Corporation. 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 CanElson may not be comparable to similar measures used by other companies.
Adjusted EBITDA is defined as income (loss) before interest, taxes, business acquisition transaction costs, depreciation and amortization, stock-based compensation expense, gains on disposal of property and equipment, foreign exchange and share of joint venture profits. Adjusted EBITDA includes 100% of revenue and expenses from controlled entities where the Corporation holds less than 100% of the outstanding shares. Management believes that, in addition to net and total comprehensive income (loss), Adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by CanElson'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 affected by the accounting standards associated with CanElson's stock based compensation plan. For the calculation of DCM Adjusted EBITDA, see Summary of Selected Quarterly Results for the Joint Venture (DCM).
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||
2015 | 2014 | % change | 2015 | 2014 | % change | |||||||||||||||||
Net Income/(loss) | $ | (1,678 | ) | $ | 7,071 | (124 | )% | $ | 4,575 | $ | 23,697 | (81 | )% | |||||||||
Interest expense | 119 | 108 | 10 | % | 650 | 304 | 114 | % | ||||||||||||||
Current and deferred taxes | 180 | 4,093 | (96 | )% | 2,952 | 10,202 | (71 | )% | ||||||||||||||
Depreciation expense | 5,201 | 5,649 | (8 | )% | 13,167 | 14,639 | (10 | )% | ||||||||||||||
EBITDA | 3,822 | 16,921 | (77 | )% | 21,344 | 48,842 | (56 | )% | ||||||||||||||
Stock based compensation expense | 511 | 555 | (8 | )% | 838 | 1,120 | (25 | )% | ||||||||||||||
Share of profit (loss) joint venture | 326 | (596 | ) | (155 | )% | 904 | (2,249 | ) | (140 | )% | ||||||||||||
Loss on disposal and decommissioning of assets | 3,834 | - | 100 | % | 3,834 | - | 100 | % | ||||||||||||||
Foreign exchange (recovery) losses | (48 | ) | (564 | ) | (91 | )% | (95 | ) | 364 | (126 | )% | |||||||||||
Adjusted EBITDA | $ | 8,445 | $ | 16,316 | (48 | )% | $ | 26,825 | $ | 48,077 | 23 | % | ||||||||||
Funds flow from operations is defined as cash provided by operating activities before changes in non-cash working capital and current tax expense. Funds flow from operations is a measure that provides shareholders and potential investors with additional information regarding CanElson's liquidity and its ability to generate funds to finance its operations, fund investing activities and support financing payments. Management utilizes this measurement to assess CanElson's ability to finance operating activities and capital expenditures. Comparative period presentation of funds flow has been adjusted to conform with the current year presentation of funds flow, that is net of current income tax expense, whereas it was previously net of income taxes paid.
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||
2015 | 2014 | % change | 2015 | 2014 | % change | |||||||||||||||||
Operating cash flow | $ | 27,707 | $ | 41,045 | (32 | )% | $ | 55,522 | $ | 57,789 | (4 | )% | ||||||||||
Current tax (expense) / recovery | 43 | 1,910 | (98 | )% | 703 | (2,403 | ) | (129 | )% | |||||||||||||
Changes in working capital | (19,475 | ) | (23,895 | ) | (18 | )% | (28,942 | ) | (10,290 | ) | 181 | % | ||||||||||
Funds flow | $ | 8,275 | $ | 19,060 | (57 | )% | $ | 27,283 | $ | 45,096 | (40 | )% | ||||||||||
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 with additional information regarding cash generating performance from operations. Management utilizes this measurement to assess CanElson's operating performance.
For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||
2015 | 2014 | % change | 2015 | 2014 | % change | |||||||||||||||||
Gross profit | $ | 7,542 | $ | 16,751 | (55 | )% | $ | 23,742 | $ | 46,046 | (48 | )% | ||||||||||
Depreciation expense | 5,201 | 5,649 | (8 | )% | 13,167 | 14,639 | (10 | )% | ||||||||||||||
Stock based compensation expense | 214 | 200 | 7 | % | 402 | 398 | 1 | % | ||||||||||||||
Gross margin | $ | 12,957 | $ | 22,600 | (43 | )% | $ | 37,311 | $ | 61,083 | (39 | )% | ||||||||||
Effective tax rate to the shareholders of the Corporation is defined as "income tax expense divided by the sum of net income to the shareholders of the Corporation and income tax expense". Management utilizes this measurement to determine expected income tax expense to the Corporation's shareholders.
INDUSTRY DEFINITIONS
In addition to the non-GAAP measures listed above, we use a number of industry and other terms in this MD&A, which are described below. These industry definitions may not be comparable to similar measures used by other companies.
Drilling rigs are categorized as singles, doubles, or triples based on the number of connected segments or "joints" of drill pipe that can be handled as a "stand" in the mast. Taller masts (e.g. triples) generally correspond to greater drilling depth capacities. We often refer to many of our rigs as tele-doubles - "tele" is short for telescoping, which refers to a design featuring an upper section of the mast that nests inside the lower section for transport and telescopes to full operating height to handle two-joint stands while drilling. Drilling rigs are also categorized as mechanical or Alternating Current ("AC") electric, which refers to the method by which the hoisting and pumping equipment are powered.
Spring break-up is a period when local governments typically restrict movements of heavy equipment on roads susceptible to damage during seasonally wet conditions.
References to commodity prices within the MD&A refer to the prices of crude oil, natural gas, as well as natural gas liquids such as condensate, butane, propane, and ethane.
Drilling days refers to the time it takes for a drilling rig to drill a well from spud to rig release. The time taken to mobilize, move in, rig up, and remove the drilling rig from a wellsite is excluded from this metric, even though revenue is often earned and costs are incurred during these non-operating intervals.
CanElson presents its utilization levels on a drilling day basis, and sources Canadian industry utilization statistics from the Canadian Association of Oilwell Drilling Contractors ("CAODC"), which measures drilling rig utilization based on spud to rig release dates. CanElson also references the Baker Hughes rig count in the US as a measure of US industry activity.
Revenue, operating expenses, and depreciation per drilling day are calculated as totals of the respective items divided by the number of drilling days, and these measures are not indicative of our drilling rig rates.
G&A as a percentage of revenue is calculated as total administration expense divided by total revenue.
FORWARD LOOKING INFORMATION
This Press Release contains forward-looking information pertaining to: our expectation that the transaction involving the Corporation and Trinidad Drilling Ltd. will close on August 10, 2015. This forward-looking information involves material assumptions and known and unknown risks and uncertainties, certain of which are beyond CanElson's control. CanElson's Annual Information Form, the Joint Information Circular dated June 29, 2015 in respect of the transaction involving the Corporation and Trinidad Drilling Ltd. and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the other risks, the material assumptions and other factors that could influence actual results and which are incorporated herein by reference. Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking information and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits CanElson will derive therefrom. The forward-looking information is made as at the date of this Press Release and CanElson does not undertake any obligation to update publicly or to revise any of the included forward-looking information, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
