Total Energy Services Inc. Announces Q3 2018 Results

CALGARY, Alberta, Nov. 08, 2018 (GLOBE NEWSWIRE) — Total Energy Services Inc. (“Total Energy” or the “Company”) (TSX:TOT) announces its consolidated financial results for the three and nine months ended September 30, 2018.

Financial Highlights
($000’s except per share data)

  Three Months Ended September 30   Nine Months Ended September 30
       
    2018   2017 Change     2018   2017   Change
Revenue $ 232,925 $ 185,158 26 %   $ 631,963 $ 424,432   49 %
Operating Income (Loss)   14,294   6,871 108 %     25,810   (6,475 ) n/m 
EBITDA (1)   34,632   27,356 27 %     85,513   41,875   104 %
Cashflow   34,799   30,044 16 %     78,420   48,768   61 %
Net Income (Loss)   8,655   3,737 132 %     15,645   (10,257 ) n/m 
               
Attributable to shareholders   8,910   4,307 107 %     15,903   (8,111 ) n/m 
               
               
Per Share Data (Diluted)              
EBITDA (1) $ 0.75 $ 0.59 27 %   $ 1.85 $ 1.03   80 %
Cashflow $ 0.75 $ 0.65 15 %   $ 1.70 $ 1.20   42 %
Net Income (Loss) attributable to shareholders $ 0.19 $ 0.09 111 %   $ 0.34 $ (0.20 ) n/m 
               
               
          September 30,
2018
December 31,
2017
Change
Financial Position              
Total Assets         $ 1,063,813 $ 1,066,781   0 %
Long-Term Debt and Obligations Under Finance Leases (excluding current portion)       295,545   257,845   15 %
Working Capital (2)           117,586   54,892   114 %
Net Debt (3)           177,959   202,953   (12 %)
Shareholders’ Equity           549,238   546,574   0 %
               
Common Shares (000’s)(4)              
Basic and Diluted   46,099   46,238 0 %     46,186   40,523   14 %

“n/m” – calculation not meaningful
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 September 30, 2018 represent the fifth consecutive profitable quarter for the Company.  Underlying these results were improving energy service industry conditions in the United States and Australia, the realization of efficiencies of scale and cost synergies arising from the integration of Savanna Energy Services Corp. (“Savanna”) and improved discipline in declining unprofitable work.  Included in 2018 third quarter selling, general and administrative expenses was $0.6 million of legal expenses related to two claims made against Savanna following the takeover of Savanna by the Company.

Total Energy’s Contract Drilling Services segment (“CDS”) achieved 27% utilization during the third quarter of 2018, recording 2,836 operating days (spud to rig release) with a fleet of 116 drilling rigs, compared to 3,153 operating days, or 29% utilization, during the third quarter of 2017 with a fleet of 119 drilling rigs.  Revenue per operating day for the third quarter of 2018 was $20,341, a 9% increase from the prior year comparable period.  During the third quarter of 2018, the CDS segment had 1,687 operating days in Canada with a fleet of 86 rigs (21% utilization), 783 days in the United States with a fleet of 25 rigs (34% utilization) and 366 days in Australia with a fleet of 5 rigs (80% utilization). 

The Rental and Transportation Services segment (“RTS”) achieved a utilization rate on major rental equipment of 24% during the third quarter of 2018 which was consistent with the third quarter of 2017.  Segment revenue per utilized rental piece decreased 2% during the third quarter of 2018 compared to the same period in 2017 due to a change in mix of equipment operating.  This segment exited the third quarter of 2018 with approximately 11,000 pieces of major rental equipment (excluding access matting) and 112 heavy trucks as compared to 11,700 rental pieces and 125 heavy trucks at September 30, 2017.

Revenue in the Compression and Process Services segment (“CPS”) increased 70% to $114.8 million for the three months ended September 30, 2018 compared to $67.7 million for the same period in 2017.  This increase was primarily due to higher international activity levels, including increasing contribution from the Weirton, West Virginia compression fabrication facility.  This segment exited the third quarter of 2018 with a $236.7 million backlog of fabrication sales orders as compared to $160.7 million at September 30, 2017 and $216.9 million at June 30, 2018.  At September 30, 2018, there was 45,500 horsepower in the compression rental fleet, of which approximately 31,500 horsepower was on rent as compared to 20,200 horsepower on rent at September 30, 2017 and 24,800 horsepower at June 30, 2018.  The gas compression rental fleet operated at an average utilization rate of 69% during the third quarter of 2018 as compared to 46% during the third quarter of 2017.

Total Energy’s Well Servicing segment (“WS”) generated $41.0 million of revenue during the third quarter of 2018 on 44,447 service hours, or $922 per service hour, with a fleet of 83 service rigs that were located in Canada (57 rigs), the United States (14 rigs) and Australia (12 rigs).  This compares to $39.3 million of revenue during the third quarter of 2017 on 41,256 service hours, or $952 per service hour.  Service rig utilization for the three months ended September 30, 2018 was 39% in Canada, 37% in the United States and 71% in Australia. 

During the third quarter of 2018 Total Energy repurchased 200,000 common shares at an average price (including commissions) of $11.69 per share pursuant to its normal course issuer bid and declared a quarterly dividend of $0.06 per share to shareholders of record on September 30, 2018.  This dividend was paid on October 31, 2018.  For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as “eligible dividends” unless otherwise indicated.

Outlook

Oil and natural gas industry activity levels continued to recover in the United States and Australia during the third quarter and current expectations are that such markets will remain relatively strong compared to 2017.  Industry conditions remain stagnant in Canada, where oil and natural gas price discounts continue to be exacerbated by insufficient pipeline capacity.  Current indications are that upcoming Canadian winter activity will be similar to last year.

In response to increasing domestic and international demand, as evidenced by its record fabrication sales backlog, the CPS segment recently leased a 84,400 square foot fabrication facility in Calgary, Alberta that will replace an existing 24,800 square foot leased facility.  This facility will increase Canadian fabrication space by approximately 30% to 246,600 square feet and plant production is expected to ramp up over the next two quarters.

Given continued weakness in Canadian oil and natural gas drilling and completion activity combined with higher labour, fuel and utility costs arising from regulatory changes in Alberta, five RTS branch locations have or will be closed by the end of 2018.  These RTS branch closures are the first in Total Energy’s 22-year history and are necessary to reduce this segment’s fixed cost structure given persistently lower Canadian industry activity levels and the inability to fully pass on higher operating costs to customers.  Following these closures, the RTS segment will operate from 20 branches in western Canada. 

Total Energy’s working capital position at September 30, 2018 was $117.6 million, including $27.9 million of cash and marketable securities.  During the first nine months of 2018, the Company has reduced the principal amount of debt outstanding by $32.1 million and at September 30, 2018 $236.0 million was drawn on the Company’s $295.0 million of revolving bank credit facilities.  Total Energy was in compliance with all debt covenants at September 30, 2018 and able to fully draw on the remaining amounts available under its credit facilities.  Total Energy’s primary credit facility provides the Company with the option to increase such facility by $75 million subject to certain terms and conditions including the agreement of the lenders to increase their commitments.

Conference Call

At 9:00 a.m. (Mountain Time) on November 9, 2018 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.  A live webcast of the conference call will be accessible on Total Energy’s website at www.totalenergy.ca by selecting “Webcasts”.  Persons wishing to participate in the conference call may do so by calling (855) 327-6838 or (416) 915-3239.  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 December 8, 2018 by dialing (855) 669-9658 (passcode 2663).

Selected Financial Information

Selected financial information relating to the three and nine months ended September 30, 2018 and 2017 is attached to this news release.  This information should be read in conjunction with the condensed interim consolidated financial statements of Total Energy and the notes thereto as well as management’s discussion and analysis to be issued in due course and reproduced in the Company’s 2018 third quarter report.

Consolidated Statements of Financial Position
(in thousands of Canadian dollars)

      September 30,   December 31,
      2018   2017 
      (unaudited)    (audited)
Assets          
Current assets:          
Cash and cash equivalents     $    24,414     $ 21,154  
Accounts receivable       146,792       150,990  
Inventory       93,594       68,266  
Income taxes receivable             1,176  
Other assets       3,486       4,631  
Prepaid expenses and deposits       16,449       15,148  
        284,735       261,365  
           
Property, plant and equipment       765,728       793,464  
Income taxes receivable       7,070       7,070  
Deferred tax asset       2,227       829  
Goodwill       4,053       4,053  
      $ 1,063,813     $ 1,066,781  
           
Liabilities & Shareholders’ Equity          
Current liabilities:          
Accounts payable and accrued liabilities     $    118,079     $ 108,421  
Deferred revenue       39,665       21,625  
Income taxes payable       1,526        
Dividends payable       2,760       2,774  
Current portion of obligations under finance leases       2,055       1,595  
Current portion of long-term debt       3,064       72,058  
        167,149       206,473  
           
Long-term debt       292,554       255,640  
           
Obligations under finance leases       2,991       2,205  
           
Onerous lease liability       1,488       2,734  
           
Deferred tax liability       50,393       53,155  
           
Shareholders’ equity:          
Share capital       289,862       291,317  
Contributed surplus       5,785       4,550  
Accumulated other comprehensive loss       (13,214 )     (10,194 )
Non-controlling interest       122       1,196  
Retained earnings       266,683       259,705  
        549,238       546,574  
           
      $ 1,063,813     $ 1,066,781  
                   

Consolidated Statements of Comprehensive Income (Loss)
(in thousands of Canadian dollars except per share amounts)
(unaudited)
   

    Three months ended
September 30
Nine months ended
September 30
      2018     2017     2018     2017  
           
Revenue   $   232,925   $ 185,158   $   631,963    $ 424,432  
           
Cost of services     184,750     144,353     505,089     346,596  
Selling, general and administration     13,904     12,915      41,543     35,168  
Share-based compensation     499     709      1,798     1,193  
Depreciation     19,478     20,310      57,723     47,950  
Operating income (loss)     14,294     6,871     25,810     (6,475 )
           
Gain on sale of property, plant and equipment     860     175     1,980     400  
Finance costs     (2,940 )   (3,053 )   (10,293 )   (10,296 )
Net income (loss) before income taxes     12,214     3,993     17,497     (16,371 )
           
Current income tax expense (recovery)     2,963     1,802     5,737     (3,156 )
Deferred income tax expense (recovery)     596     (1,546 )   (3,885 )   (2,958 )
Total income tax expense (recovery)     3,559     256     1,852     (6,114 )
           
Net income (loss) for the period   $   8,655   $ 3,737   $   15,645   $ (10,257 )
           
Net income (loss) attributable to:          
Shareholders of the Company   $   8,910   $ 4,307   $    15,903   $ (8,111 )
Non-controlling interest     (255 )   (570 )   (258 )   (2,146 )
           
Income (loss) per share          
Basic and diluted   $   0.19   $ 0.09   $    0.34   $ (0.20 )
           

Condensed Interim Consolidated Statements of Comprehensive Income (Loss)
(unaudited)

    Three months ended
September 30
Nine months ended
September 30
      2018     2017     2018     2017  
           
Net income (loss) for the period   $   8,655   $ 3,737   $   15,645   $ (10,257 )
           
Changes in fair value of long-term investment                 665  
Realized gain on long-term investment                 (665 )
Foreign currency translation adjustment     (6,994 )   (6,069 )   (3,295 )   (10,820 )
Deferred tax effect     680     1,639     275     2,922  
           
Total other comprehensive loss for the period     (6,314 )   (4,430 )   (3,020 )   (7,898 )
           
Total comprehensive income (loss)   $   2,341   $ (693 ) $   12,625   $ (18,155 )
           
Total comprehensive income (loss) attributable to:          
           
Shareholders of the Company   $   2,596   $ (123 ) $   12,883   $ (16,009 )
Non-controlling interest     (255 )   (570 )   (258 )   (2,146 )
 

Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
(unaudited)

    Three months ended
September 30
Nine months ended
September 30
      2018     2017     2018     2017  
           
Cash provided by (used in):          
           
Operations:          
Net income (loss) for the period   $   8,655   $ 3,737   $  15,645   $ (10,257 )
Add (deduct) items not affecting cash:          
Depreciation     19,478     20,310     57,723     47,950  
Share-based compensation     499     709     1,798     1,193  
Gain on sale of property, plant and equipment     (860 )   (175 )   (1,980 )   (400 )
Finance costs     1,987     2,742     9,115     10,296  
Unrealized loss (gain) on foreign currencies translation     394     253     (2,698 )   4,949  
Current income tax expense (recovery)     2,963     1,802     5,737     (3,156 )
Deferred income tax expense (recovery)     596     (1,546 )   (3,885 )   (2,958 )
Income taxes recovered (paid)     1,087     2,212     (3,035 )   1,151  
Cashflow     34,799     30,044     78,420     48,768  
Changes in non-cash working capital items:          
Accounts receivable     (18,061 )   (32,570 )   2,806     (15,978 )
Inventory     (11,326 )   (913 )   (25,328 )   4,523  
Prepaid expenses and deposits     (291 )   (4,488 )   781     (10,654 )
Accounts payable and accrued liabilities     3,250     5,590     11,574     7,009  
Onerous leases     (201 )   (227 )   (1,246 )   (270 )
Deferred revenue     11,758     235     18,040     4,259  
Cash provided by (used in) operating activities     19,928     (2,329 )   85,047     37,657  
Investing:          
Purchase of property, plant and equipment     (7,425 )   (8,874 )   (28,502 )   (22,306 )
Acquisitions                 (26,830 )
Cash acquired                 16,167  
Proceeds on sale of other assets     954     143     1,181     258  
Proceeds on disposal of property, plant and equipment     1,695     1,814     3,798     2,842  
Changes in non-cash working capital items     344     418     (1,675 )   205  
Cash used in investing activities     (4,432 )   (6,499 )   (25,198 )   (29,664 )
Financing:          
Advances on long-term debt         6,023     50,000     210,023  
Repayment of long-term debt     (2,237 )   (4,178 )   (82,080 )   (210,076 )
Repayment of obligations under finance leases     (601 )   (433 )   (1,669 )   (1,377 )
Dividends to shareholders     (2,772 )   (2,774 )   (8,247 )   (6,961 )
Issuance of common shares                 2,289  
Repurchase of common shares     (2,122 )       (2,719 )    
Partnership distributions             (475 )    
Purchase of Partners’ share in limited partnership     (332 )       (332 )    
Interest paid     (3,087 )   (2,850 )   (11,067 )   (14,735 )
Cash used in financing activities     (11,151 )   (4,212 )   (56,589 )   (20,837 )
           
Change in cash and cash equivalents     4,345     (13,040 )   3,260     (12,844 )
           
Cash and cash equivalents, beginning of period     20,069     16,112     21,154     15,916  
           
Cash and cash equivalents, end of period   $   24,414   $ 3,072   $   24,414   $ 3,072  
           

Segmented Information

The Company provides a variety of products and services in the oil and natural gas industry through five reporting segments, which operate substantially in three geographic segments.  These reporting 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, Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and oil and natural gas process equipment and Well Servicing, which includes the contracting of service rigs and the provision of labour required to operate the equipment.  Corporate includes activities related to the Company’s corporate and public issuer affairs.

As at and for the three months ended September 30, 2018 (unaudited)

  Contract Rentals and Compression Well Corporate Total
  Drilling Transportation and Process Servicing    
  Services Services Services      
             
Revenue $   57,687   $   19,462   $   114,811   $   40,965   $   –    $   232,925  
             
Cost of services   45,287     12,474     98,215     28,774      –      184,750  
Selling, general and administration   1,836     3,359     3,262     1,120     4,327     13,904  
Share-based compensation    –       –       –       –      499     499  
Depreciation   8,544     4,070     1,874     4,965     25     19,478  
Operating income (loss)   2,020     (441 )   11,460     6,106     (4,851 )   14,294  
             
Gain (loss) on sale of property, plant and equipment   298     (144 )   193     513      –      860  
Finance costs   (17 )   (18 )   (10 )   (26 )   (2,869 )   (2,940 )
             
Net income (loss) before income taxes   2,301     (603 )   11,643     6,593     (7,720 )   12,214  
             
Goodwill    –       2,514      1,539          –       4,053  
Total assets   432,267     240,689     234,413     134,966     21,478     1,063,813  
Total liabilities   50,497     39,190     103,835     4,061     316,992     514,575  
Capital expenditures     2,114       2,916       2,062       333       –       7,425  

  Canada United States Australia Other Total
           
Revenue $   125,404 $   68,713 $     38,714 $  94 $   232,925
Non-current assets (1)     534,879   154,279   80,623   –    769,781

As at and for the three months ended September 30, 2017 (unaudited)

  Contract Rentals and Compression Well Corporate Total
  Drilling Transportation and Process Servicing    
  Services Services Services      
             
Revenue $ 58,634   $ 19,535   $ 67,707   $ 39,282   $   $ 185,158  
             
Cost of services   48,271     10,783     56,542     28,757         144,353  
Selling, general and administration   2,774     3,136     2,357     1,664     2,984     12,915  
Share-based compensation                   709     709  
Depreciation   10,854     4,519     1,852     2,898     187     20,310  
Operating income (loss)   (3,265 )   1,097     6,956     5,963     (3,880 )   6,871  
             
Gain on sale of property, plant and equipment   5     84     56     (14 )   44     175  
Finance costs   (117 )   (173 )   (94 )   (1 )   (2,668 )   (3,053 )
             
Net income (loss) before income taxes   (3,377 )   1,008     6,918     5,948     (6,504 )   3,993  
             
Goodwill       2,514     1,539             4,053  
Total assets   444,009     239,014     174,744     133,647     65,124     1,056,538  
Total liabilities   59,066     44,339     60,881     14,678     332,927     511,891  
Capital expenditures   2,377     3,894     1,843     444     316     8,874  

  Canada United States Australia Other Total
           
Revenue $ 91,739 $ 58,405 $ 34,981 $ 33 $ 185,158
Non-current assets (1)   578,765   138,208   94,150     811,123

As at and for the nine months ended September 30, 2018 (unaudited)

  Contract Rentals and Compression Well Corporate Total
  Drilling Transportation and Process Services    
  Services Services Services      
             
Revenue $   156,930   $   56,656   $   305,082   $   113,295   $   –    $   631,963  
             
Cost of services   126,280     36,494     261,397     80,918      –      505,089  
Selling, general and administration   6,285     10,579     9,545     3,357     11,777     41,543  
Share-based compensation    –       –       –       –      1,798     1,798  
Depreciation   24,134     13,012     5,465     15,051     61     57,723  
Operating income (loss)   231     (3,429 )   28,675     13,969     (13,636 )   25,810  
             
Gain on sale of property, plant and equipment   425     218     431     906      –      1,980  
Finance costs   (44 )   (74 )   (30 )   (104 )   (10,041 )   (10,293 )
             
Net income (loss) before income taxes   612     (3,285 )   29,076     14,771     (23,677 )   17,497  
             
Goodwill    –       2,514      1,539      –       –       4,053  
Total assets   432,267     240,689     234,413     134,966     21,478     1,063,813  
Total liabilities   50,497     39,190     103,835     4,061     316,992     514,575  
Capital expenditures     10,574       8,064       7,263       2,594       7       28,502  

  Canada United States Australia Other Total
           
Revenue $ 317,839 $   198,585 $   115,445 $  94  $   631,963
Non-current assets (1)     534,879   154,279   80,623   –    769,781

As at and for the nine months ended September 30, 2017 (unaudited)

  Contract Rentals and Compression Well Corporate Total
  Drilling Transportation and Process Servicing    
  Services Services Services      
Revenue $ 106,634   $ 50,468   $ 193,163   $ 74,167   $   $ 424,432  
             
Cost of services   94,367     30,413     167,214     54,602         346,596  
Selling, general and administration   6,424     9,096     6,145     3,244     10,259     35,168  
Share-based compensation                   1,193     1,193  
Depreciation   20,378     13,548     5,497     7,472     1,055     47,950  
Operating income (loss)   (14,535 )   (2,589 )   14,307     8,849     (12,507 )   (6,475 )
             
Gain on sale of property, plant and equipment   5     279     86     (14 )   44     400  
Finance costs   (305 )   (530 )   (281 )   (1 )   (9,179 )   (10,296 )
             
Net income (loss) before income taxes   (14,835 )   (2,840 )   14,112     8,834     (21,642 )   (16,371 )
             
Goodwill       2,514     1,539             4,053  
Total assets   444,009     239,014     174,744     133,647     65,124     1,056,538  
Total liabilities   59,066     44,339     60,881     14,678     332,927     511,891  
Capital expenditures   7,618     8,595     4,309     777     1,007     22,306  

  Canada United States Australia Other Total
           
Revenue $ 251,421 $ 102,458 $ 70,509 $ 44 $ 424,432
Non-current assets (1)   578,765   138,208   94,150     811,123

(1)      Includes property, plant and equipment and goodwill.

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

For further information, please contact Daniel Halyk, President & Chief Executive Officer at (403) 216-3921 or Yuliya Gorbach, Vice-President Finance and Chief Financial Officer at (403) 216-3920 or by e-mail at:  investorrelations@totalenergy.ca or visit our website at www.totalenergy.ca

Notes to the Financial Highlights

  1. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation.  EBITDA is not a recognized measure under IFRS. Management believes that in addition to net income, EBITDA is useful supplemental measure as it provides 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 EBITDA 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 EBITDA may differ from other organizations and, accordingly, EBITDA may not be comparable to measures used by other organizations.
     
  2. Working capital equals current assets minus current liabilities.
     
  3. Net Debt equals long-term debt plus obligations under finance leases plus current liabilities minus current assets.
     
  4. Basic and diluted shares outstanding reflect the weighted average number of common shares outstanding for the periods. See note 6 to the Company’s condensed interim consolidated financial statements for the three and nine months ended September 30, 2018.

             

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.  Forward-looking statements are based upon the opinions and expectations of management of Total Energy as at the effective date of such statements and, in some cases, information supplied by third parties. Although Total Energy believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions and that information received from third parties is reliable, it can give no assurance that those expectations will prove to have been correct.

In particular, this press release contains forward-looking statements concerning industry activity levels, expectations regarding Total Energy’s market share and future compression and process production activity, Total Energy’s expectations of future interest rates and its corresponding ability to realize substantial interest expense savings, expectations as to the Company’s ability to realize cost efficiencies and synergies arising from the acquisition of Savanna as well as other expected benefits of the acquisition.  Such forward-looking statements are based on a number of assumptions and factors including fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, central bank interest rate policy, the demand for products and services provided by Total Energy, Total Energy’s ability to attract and retain key personnel and other factors. 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.  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 TSX has neither approved nor disapproved of the information contained herein.

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