November 10, 2015 - 10:11 AM EST
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Total Energy Services Inc. Announces Q3 2015 Results

CALGARY, ALBERTA--(Marketwired - Nov. 10, 2015) - Total Energy Services Inc. ("Total Energy" or the "Company") announces its consolidated financial results for the three and nine months ending September 30, 2015.

Financial Highlights  
($000's except per share data)  
  Three Months
Ended September 30
  Nine Months
Ended September 30
 
  (unaudited)   (unaudited)  
  2015   2014 % Change   2015   2014   % Change  
Revenue $ 66,713   $ 108,233 (38 )% $ 231,111   $ 307,040   (25 )%
Operating Earnings (1) 2,456   16,262 (85 )% 20,186   48,266   (58 )%
EBITDA (1) 11,137   24,596 (55 )% 46,288   76,195   (39 )%
Cashflow (1) (5) (92 ) 24,184 (100 )% 14,237   78,078   (82 )%
Net Income 1,570   11,752 (87 )% 11,674   39,996   (71 )%
                       
Per Share Data (Diluted) (2)                      
EBITDA (1) $0.36   $0.70 (49 )% $1.49   $2.19   (32 )%
Cashflow (1) (5) $0.00   $0.69 (100 )% $0.46   $2.24   (79 )%
Net Earnings $0.05   $0.37 (86 )% $0.38   $1.24   (69 )%
                       
            Sept. 30   Dec. 31      
            2015
(unaudited
) 2014
(audited
) % Change  
Financial Position                      
Total Assets           $ 538,179   $ 595,906   (10 )%
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion)           49,914   69,468   (28 )%
Working Capital (3)           92,607   82,332   12 %
Net Debt (4)           Nil   Nil   -  
Shareholders' Equity           387,699   382,063   1 %
                       
Shares Outstanding (000's)                      
Basic           30,997   31,005   -  
Diluted (2)           31,067   34,114   (9 )%

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 nine months ended September 30, 2015 reflect continued challenging North American energy service industry conditions. Despite this difficult environment, Total Energy remained profitable even after incurring significant non-recurring costs and a $1.9 million unrealized loss on the Company's holding of marketable securities during the third quarter.

Total Energy's Contract Drilling Services division achieved 18% utilization during the third quarter of 2015, recording 291 operating days (spud to release) with a fleet of 18 rigs, compared to 863 operating days, or 55% utilization, during the third quarter of 2014 with a fleet of 17 rigs. Revenue per operating day decreased 19% for the third quarter of 2015 relative to the prior year comparable period due to reduced pricing. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 22% during the third quarter of 2015 as compared to 40% during the third quarter of 2014. Divisional revenue per utilized rental piece decreased 5% for the third quarter of 2015 compared to the same period in 2014 due to lower pricing that was offset somewhat by equipment mix. This division exited the third quarter of 2015 with approximately 10,000 pieces of rental equipment and 120 heavy trucks as compared to 10,000 rental pieces and 109 heavy trucks at September 30, 2014. Revenue in the Compression and Process Services division decreased 25% to $46.3 million for the three months ended September 30, 2015 compared to $61.4 million for the same period in 2014. This division exited the third quarter of 2015 with a $51.1 million backlog of fabrication sales orders as compared to $78.6 million at September 30, 2014 and $68.0 million at June 30, 2015. At September 30, 2015, approximately 18,900 horsepower of compression equipment was on rent compared to 35,500 horsepower on rent at September 30, 2014 and 28,900 at June 30, 2015. The gas compression rental fleet operated at an average utilization rate of 55% for the third quarter of 2015 as compared to 86% during the third quarter of 2014 and 69% in the second quarter of 2015.

Cashflow was negative $0.1 million for the three months ended September 30, 2015, as compared to $24.2 million of positive cashflow for the comparable period in 2014. The decrease in cashflow was due to lower operating earnings and the payment of $10.2 million of income taxes during the third quarter of 2015 as compared to nominal income tax payments being made during the third quarter of 2014. The increase in tax payments was due in part to the timing of taxation of the Company's limited partnerships which has resulted in $12.7 million of taxes being paid in 2015 that relate to 2014 taxable income. Also included in income taxes paid during the third quarter of 2015 is $6.9 million required to be remitted following the receipt of a $13.7 million reassessment from the Canada Revenue Agency (the "CRA") that relates to the Company's conversion from an income trust to a corporate structure in 2009. This $6.9 million payment represents 50% of the federal tax reassessment that must be remitted pending final adjudication. On November 4, 2015, related provincial income tax reassessments totaling $5.6 million (including interest and penalties) were received although no remittance is required to be made in respect of such reassessments prior to final adjudication. The Company has filed notices of objection in relation to all reassessments and intends to vigorously defend its filing position as well as seek reimbursement from the CRA for the costs and damages arising from the issuance of such reassessments to the fullest extent possible. Total Energy has received legal and tax advice confirming that its filing position is strong and therefore no provision has been made for these reassessments.

During the third quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on September 30, 2015. This dividend was paid on October 30, 2015. For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as "eligible dividends" unless otherwise indicated. During the third quarter of 2015, 2,900 common shares were purchased under the Company's normal course issuer bid at an average price of $13.51 per share (including commissions).

Outlook

Substantially lower activity levels coupled with excess industry capacity have resulted in a very difficult operating environment that is expected to continue for the foreseeable future. In this environment, Total Energy looks to work with its customers, suppliers and employees to increase operating efficiencies and reduce operating costs so as to make the various markets in which the Company participates globally competitive. Total Energy also seeks to strike a strategic balance between equipment utilization and price, with a sharp focus on ensuring all business divisions are operating as efficiently as possible to ensure a strong and competitive market presence. However, the Company has and will continue to decline business opportunities that are not profitable. Despite low equipment utilization, depressed pricing and significant costs associated with right-sizing its operations, Total Energy has remained profitable thus far in 2015 and the Company remains committed to managing its business and affairs in a disciplined manner regardless of industry conditions.

Total Energy has experienced several industry downturns since commencing operations in 1997 and views such downturns as a normal part of the business cycle. As such, when making capital investment decisions, the Company's analysis considers the full business cycle, not the prevailing industry conditions at the time such investment decisions are made. This investment approach has resulted in Total Energy having not recorded any capital asset impairments, including goodwill impairments, since its inception.

Total Energy's financial condition remains very strong, with $92.6 million of positive working capital (including $9.4 million, or $0.30 per share, of cash) and no net debt as at September 30, 2015. Total Energy's bank credit facilities require that the Company maintain a debt (less cash) to equity ratio below 2.5 to 1.0 and a current ratio of at least 1.3 to 1.0. As at September 30, 2015, the Company's debt to equity ratio was 0.11 to 1.0 and the current ratio was 3.61 to 1.0. Total Energy's $65 million operating facility is currently undrawn and the Company will look to use its financial capacity and flexibility to pursue investment and consolidation opportunities that arise during such challenging times. However, Total Energy will remain focused and disciplined in the deployment of its owners' capital.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast 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. 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) 355-4959 or (416) 340-2216. 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 November 17, 2015 by dialing (800) 408-3053 (passcode 4253877).

Selected Financial Information

Selected financial information relating to the three and nine month periods ended September 30, 2015 and 2014 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 third quarter report.

Condensed Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
 
  September 30, December 31,
  2015 2014
  (unaudited) (audited)
Assets    
Current assets:    
  Cash and cash equivalents $ 9,394 $ 7,745
  Accounts receivable 51,004 98,920
  Inventory 60,598 54,348
  Other assets 8,781 -
  Prepaid expenses and deposits 3,797 5,576
  133,574 166,589
     
Property, plant and equipment 393,693 419,991
Income taxes receivable 6,859 -
Other assets - 5,273
Goodwill 4,053 4,053
  $ 538,179 $ 595,906
     
Liabilities & Shareholders' Equity    
Current liabilities:    
  Accounts payable and accrued liabilities $ 24,123 $ 59,837
  Deferred revenue 10,268 7,430
  Dividends payable 1,860 1,860
  Income taxes payable 737 12,754
  Current portion of obligations under finance leases 2,114 2,376
  Current portion of long term debt 1,865 -
  40,967 84,257
     
Long-term debt 47,375 -
     
Obligations under finance leases 2,539 3,107
     
Convertible debentures - 66,361
     
Deferred tax liability 59,599 60,118
     
Shareholders' equity:    
  Share capital 88,875 88,899
  Contributed surplus 7,740 6,880
  Equity portion of convertible debenture - 4,601
  Retained earnings 291,084 281,683
  387,699 382,063
Commitments and contingencies    
  $ 538,179 $ 595,906
 
 
 
Condensed Interim Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars except per share amounts)
 
  Three months ended
September 30
  Nine months ended
September 30
 
  2015   2014   2015   2014  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)  
                 
Revenue $ 66,713   $ 108,233   $ 231,111   $ 307,040  
                 
  Cost of services 49,814   76,167   167,227   211,473  
  Selling, general and administration 7,053   7,991   22,082   23,967  
  Share-based compensation 409   176   860   1,524  
  Depreciation 6,981   7,637   20,756   21,810  
Results from operating activities 2,456   16,262   20,186   48,266  
                 
  Gain on sale of property, plant and equipment 1,700   697   5,346   6,119  
  Finance income 242   110   637   2,188  
  Finance costs (2,322 ) (1,379 ) (6,181 ) (4,423 )
Net income before income taxes 2,076   15,690   19,988   52,150  
                 
  Current income tax expense 2,663   2,766   9,326   4,059  
  Deferred income tax (recovery) expense (2,157 ) 1,172   (1,012 ) 8,095  
Total income tax expense 506   3,938   8,314   12,154  
                 
Net income and total comprehensive income for the period $ 1,570   $ 11,752   $ 11,674   $ 39,996  
                 
Earnings per share                
  Basic earnings per share $ 0.05   $ 0.38   $ 0.38   $ 1.28  
  Diluted earnings per share $ 0.05   $ 0.37   $ 0.38   $ 1.24  
 
 
 
Condensed Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
 
  Three months ended
September 30
  Nine months ended
September 30
 
  2015   2014   2015   2014  
  (unaudited)   (unaudited)   (unaudited)   (unaudited)  
Cash provided by (used in):                
                 
Operations:                
  Net income for the period $ 1,570   $ 11,752   $ 11,674   $ 39,996  
  Add (deduct) items not affecting cash:                
    Depreciation 6,981   7,637   20,756   21,810  
    Share-based compensation 409   176   860   1,524  
    Gain on sale of property, plant and equipment (1,700 ) (697 ) (5,346 ) (6,119 )
    Unrealized loss (gain) on other assets 1,878   9   2,438   (1,916 )
    Finance costs 444   1,379   3,743   4,423  
    Current income tax expense 2,663   2,766   9,326   4,059  
    Deferred income tax (recovery) expense (2,157 ) 1,172   (1,012 ) 8,095  
  Income taxes (paid) recovered (10,180 ) (10 ) (28,202 ) 6,206  
  (92 ) 24,184   14,237   78,078  
  Changes in non-cash working capital items:                
    Accounts receivable 5,328   (28,473 ) 47,916   (19,670 )
    Inventory (705 ) (3,616 ) (6,250 ) (6,062 )
    Prepaid expenses and deposits (357 ) 1,466   1,779   (1,608 )
    Accounts payable and accrued liabilities (4,479 ) 7,721   (25,988 ) 7,683  
    Deferred revenue (1,541 ) 1,174   2,838   928  
  (1,846 ) 2,456   34,532   59,349  
Investments:                
  Purchase of property, plant and equipment (7,518 ) (21,772 ) (16,631 ) (56,200 )
  Acquisition of business -   -   (1,231 ) -  
  Proceeds on sale of other assets 138   733   138   1,022  
  Purchase of other assets (845 ) -   (6,117 ) (2,879 )
  Proceeds on disposal of property, plant and equipment 8,849   4,042   30,973   31,509  
  Changes in non-cash working capital items 168   (3,464 ) (8,898 ) (1,188 )
  792   (20,461 ) (1,766 ) (27,736 )
Financing:                
  Advances under long term debt -   -   50,000   -  
  Repayment of long-term debt (457 )     (760 )    
  Repayment of obligations under finance leases (771 ) (707 ) (2,362 ) (2,437 )
  Repayment of convertible debentures -   -   (69,000 ) -  
  Dividends to shareholders (1,860 ) (1,879 ) (5,580 ) (5,314 )
  Issuance of common shares -   1,649   -   5,791  
  Repurchase of common shares (39 ) (5,483 ) (108 ) (9,106 )
  Interest paid (444 ) (1,884 ) (3,307 ) (4,007 )
  (3,571 ) (8,304 ) (31,117 ) (15,073 )
                 
Change in cash and cash equivalents (4,625 ) (26,309 ) 1,649   16,540  
                 
Cash and cash equivalents, beginning of period 14,019   46,059   7,745   3,210  
                 
Cash and cash equivalents, end of period $ 9,394   $ 19,750   $ 9,394   $ 19,750  
                 

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
September 30, 2015
Contract
Drilling
 
 
Rentals and
Transportation
 
 
Compression
and Process
 
 
 
 
 
 
 
 
 
 
  Services   Services   Services   Other(1)   Total  
                     
Revenue $ 4,598   $ 15,861   $ 46,254   $ -   $66,713  
                     
Cost of services 2,860   8,471   38,483   -   49,814  
Selling, general and administration 520   3,240   2,014   1,279   7,053  
Share-based compensation -   -   -   409   409  
Depreciation 835   4,096   2,031   19   6,981  
Results from operating activities 383   54   3,726   (1,707 ) 2,456  
                     
Gain on sale of property, plant and equipment 6   69   1,617   8   1,700  
Finance income -   -   -   242   242  
Finance costs (95 ) (206 ) (110 ) (1,911 ) (2,322 )
                     
Net income (loss) before income taxes 294   (83 ) 5,233   (3,368 ) 2,076  
                     
Goodwill -   2,514   1,539   -   4,053  
                     
Total assets 114,230   238,322   175,456   10,171   538,179  
Total liabilities 18,605   43,847   35,139   52,889   150,480  
                     
Capital expenditures $ 239   $ 6,841   $ 433   $ 5   $ 7,518  
                     
As at and for the three months ended
September 30, 2014
Contract   Rentals and   Compression          
Drilling   Transportation   and Process          
  Services   Services   Services   Other(1)   Total  
                     
Revenue $ 16,758   $ 30,088   $ 61,387   $ -   $108,233  
                     
Cost of services 11,456   14,892   49,819   -   76,167  
Selling, general and administration 872   3,401   2,469   1,249   7,991  
Share-based compensation -   -   -   176   176  
Depreciation 1,690   3,945   1,993   9   7,637  
Results from operating activities 2,740   7,850   7,106   (1,434 ) 16,262  
                     
Gain on sale of property, plant and equipment -   105   592   -   697  
Finance income -   -   -   110   110  
Finance costs (206 ) (531 ) (260 ) (382 ) (1,379 )
                     
Net income (loss) before income taxes 2,534   7,424   7,438   (1,706 ) 15,690  
                     
Goodwill -   2,514   1,539   -   4,053  
                     
Total assets 121,325   245,996   184,426   22,372   574,119  
Total liabilities 24,198   51,386   48,000   77,622   201,206  
                     
Capital expenditures $ 4,791   $ 7,162   $ 9,801   $ 18   $ 21,772  
                     
As at and for the nine months ended
September 30, 2015
Contract
Drilling
  Rentals and
Transportation
  Compression
and Process
         
  Services   Services   Services   Other(1)   Total  
                     
Revenue $ 11,953   $ 59,285   $ 159,873   $ -   $231,111  
                     
Cost of services 7,133   31,651   128,443   -   167,227  
Selling, general and administration 1,531   10,381   6,780   3,390   22,082  
Share-based compensation -   -   -   860   860  
Depreciation 1,926   12,433   6,348   49   20,756  
Results from operating activities 1,363   4,820   18,302   (4,299 ) 20,186  
                     
Gain on sale of property, plant and equipment 39   323   4,970   14   5,346  
Finance income -   -   -   637   637  
Finance costs (472 ) (1,005 ) (652 ) (4,052 ) (6,181 )
                     
Net income (loss) before income taxes 930   4,138   22,620   (7,700 ) 19,988  
                     
Goodwill -   2,514   1,539   -   4,053  
                     
Total assets 114,230   238,322   175,456   10,171   538,179  
Total liabilities 18,605   43,847   35,139   52,889   150,480  
                     
Capital expenditures (2) $ 660   $ 12,779   $ 4,398   $ 25   $ 17,862  
                     
As at and for the nine months ended
September 30, 2014
Contract
Drilling
  Rentals and
Transportation
  Compression
and Process
         
  Services   Services   Services   Other(1)   Total  
                     
Revenue $ 46,124   $ 88,555   $ 172,361   $ -   $307,040  
                     
Cost of services 29,290   45,647   136,536   -   211,473  
Selling, general and administration 2,631   10,360   7,421   3,555   23,967  
Share-based compensation -   -   -   1,524   1,524  
Depreciation 4,283   11,624   5,889   14   21,810  
Results from operating activities 9,920   20,924   22,515   (5,093 ) 48,266  
                     
Gain on sale of property, plant and equipment 22   197   5,827   73   6,119  
Finance income -   -   -   2,188   2,188  
Finance costs (613 ) (1,578 ) (778 ) (1,454 ) (4,423 )
                     
Net income (loss) before income taxes 9,329   19,543   27,564   (4,286 ) 52,150  
                     
Goodwill -   2,514   1,539   -   4,053  
                     
Total assets 121,325   245,996   184,426   22,372   574,119  
Total liabilities 24,198   51,386   48,000   77,622   201,206  
                     
Capital expenditures $ 18,283   $ 16,016   $ 21,876   $ 25   $ 56,200  
   
(1) Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.
(2) Includes the acquisition of a private oilfield transportation company based in Casper, Wyoming as described in note 4 to the second quarter financial statements.

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 minus finance income 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 minus 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 conversion of $69 million principal amount of convertible debentures issued in 2011 prior to the redemption of such debentures on May 19, 2015.
   
(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 nine months ended September 30, 2015 is net of $12.7 million of income taxes paid during the period that relates to 2014 taxable income as a result of the Company not having been required to make income tax installment payments during 2014 and $6.9 million of taxes paid, representing half of the CRA re-assessment received by the Company on August 30, 2015.

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.

Daniel Halyk
President & Chief Executive Officer
(403) 216-3921

Yuliya Gorbach
Vice-President Finance and Chief Financial Officer
(403) 216-3920
investorrelations@totalenergy.ca
www.totalenergy.ca


Source: Marketwired (November 10, 2015 - 10:11 AM EST)

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