Total Energy Services Inc. Announces Q1 2019 Results

CALGARY, Alberta, May 09, 2019 (GLOBE NEWSWIRE) — Total Energy Services Inc. (“Total Energy” or the “Company”) (TSX:TOT) announces its consolidated financial results for the three months ended March 31, 2019.

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

Three Months Ended March 31
2019 2018 Change
Revenue $   221,990 $   205,215 8 %
Operating Income  8,437 7,560 12 %
EBITDA (1)  29,415 27,655 6 %
Cashflow  28,453 21,149 35 %
Net Income  4,759 3,328 43 %
Attributable to shareholders  4,760 3,164 50 %
Per Share Data (Diluted)  
EBITDA (1) $   0.64 $   0.60 7 %
Cashflow 0.62 0.46 35 %
Net Income attributable to shareholders 0.10 0.07 43 %
 
  March 31,
2019
December 31,
2018
Change
Financial Position
Total Assets $   1,101,027 $   1,078,124 2 %
Long-Term Debt and Lease liabilities (excluding current portion)  286,829  286,319
Working Capital (2) 117,914 124,967 (6 %)
Net Debt (3)  168,915  161,352 5 %
Shareholders’ Equity 558,054 560,576
 
Common Shares (000’s)(4)
Basic and Diluted 45,829  46,122 (1 %)

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 March 31, 2019 reflect an approximate 30% year over year decline in drilling activity in Canada offset by continued strength in the Compression and Process Services (“CPS”) segment and stable industry conditions in the United States and Australia. Included in 2019 first quarter cost of services was $1.3 million of non-recurring equipment relocation expenses in the CDS and RTS segments as the Company continued to consolidate drilling operations in the United States and relocate underutilized equipment from Canada to the United States.  EBITDA and net income were also negatively impacted by $1.2 million of other expenses for the first quarter of 2019, which consisted of unrealized foreign exchange losses on the translation of foreign subsidiary intercompany balances.  The adoption of IFRS 16 on January 1, 2019 had no impact on net income, with the resultant $1.2 million reduction in lease related expenses being offset by $1.2 million of increased depreciation and finance costs.

Total Energy’s Contract Drilling Services segment (“CDS”) achieved 19% utilization during the first quarter of 2019, recording 1,930 operating days (spud to rig release) with a fleet of 114 drilling rigs, compared to 2,924 operating days, or 28% utilization, during the first quarter of 2018 with a fleet of 116 drilling rigs.  Revenue per operating day for the first quarter of 2019 was $23,681, a 14% increase from the prior year comparable period.  During the first quarter of 2019, the CDS segment had 1,110 operating days in Canada with a fleet of 85 rigs (15% utilization), 522 days in the United States with a fleet of 24 rigs (24% utilization) and 298 days in Australia with a fleet of 5 rigs (65% utilization).  Negatively impacting results for the first quarter of 2019 was $0.9 million of non-recurring rig relocation expenses as the CDS segment continued to consolidate United States operations in West Texas. Australian utilization during the first quarter of 2019 was positively impacted by an additional drilling rig operating as compared to 2018.  A modest decline in contracted rates and reduced revenue from camps and other ancillary services contributed to a year over year decline in Australian revenue per operating day.

The Rental and Transportation Services segment (“RTS”) achieved a utilization rate on major rental equipment of 23% during the first quarter of 2019 compared to 27% utilization during the first quarter of 2018.  Segment revenue per utilized rental piece in the first quarter of 2019 was consistent with the revenue per utilized piece in the first quarter of 2018.  This segment exited first quarter of 2019 with approximately 10,660 pieces of major rental equipment (excluding access matting) and 91 heavy trucks as compared to 11,000 rental pieces and 112 heavy trucks at March 31, 2018.  During first quarter of 2019 the RTS segment continued to relocate underutilized equipment from Canada to the United States at a cost of $0.4 million.

Revenue in the Compression and Process Services segment (“CPS”) increased 42% to $121.1 million for the three months ended March 31, 2019 compared to $85.1 million for the same period in 2018.  This increase was primarily due to higher international activity levels and increased manufacturing throughput following a 30% increase in Canadian fabrication capacity in the fourth quarter of 2018.  This segment exited the first quarter of 2019 with a $159.8 million backlog of fabrication sales orders as compared to $207.0 million at March 31, 2018 and $222.9 million at December 31, 2018.  At March 31, 2019, there was 47,000 horsepower in the compression rental fleet, of which approximately 30,600 horsepower was on rent as compared to 18,500 horsepower on rent at March 31, 2018.  The gas compression rental fleet operated at an average utilization rate of 68% during the first quarter of 2019 as compared to 53% during the first quarter of 2018.

Total Energy’s Well Servicing segment (“WS”) generated $36.8 million of revenue during the first quarter of 2019 on 42,649 service hours, or $863 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 $36.8 million of revenue during the first quarter of 2018 on 41,114 service hours, or $895 per service hour.  Service rig utilization for the three months ended March 31, 2019 was 41% in Canada, 31% in the United States and 69% in Australia.

During the first quarter of 2019 Total Energy repurchased 85,400 common shares at an average price (including commissions) of $9.85 per share pursuant to its normal course issuer bid and declared a quarterly dividend of $0.06 per share to shareholders of record on March 31, 2019.  This dividend was paid on April 30, 2019.  For Canadian income tax purposes, all dividends paid by Total Energy on its common shares are designated as “eligible dividends” unless otherwise indicated.

Outlook

In response to a substantial increase in the discount to world oil prices received by Canadian oil producers, the Alberta government imposed mandatory oil production cuts that came into effect in January 2019.  Many producers scaled back or cancelled winter drilling programs altogether in response to the production curtailment. Despite a significant recovery in realized Canadian oil prices thus far in 2019, political and regulatory barriers to the construction of energy infrastructure continue to weigh on industry sentiment in Canada and visibility for activity levels following spring breakup is limited.  While activity levels in the United States have leveled out, this market continues to be the primary driver of the Company’s near-term growth, particularly in the CPS and RTS segments.  With increased fabrication capacity coming on line in late 2018, the CPS segment has recently expanded its United States sales presence in order to continue to grow its share of that market.  The RTS segment has seen strong demand in the United States for quality equipment and service and continues to grow its market share by displacing third party equipment with underutilized equipment relocated from Canada and targeted investment in new equipment.  Market conditions in Australia remain stable.

Total Energy continues to generate significant free cash flow despite prolonged challenging industry conditions in Canada.  During the first quarter of 2019, the Company completed $14.7 million, or 36%, of its previously announced $40.5 million 2019 capital expenditure budget, reduced long term debt by $10.9 million and returned $3.6 million to shareholders by way of dividends and share repurchases.  The Company’s liquidity position remains strong, with $117.9 million of working capital at March 31, 2019, including $50.3 million of cash and marketable securities.  $217.0 million was drawn on Total Energy’s $295.0 million of revolving bank credit facilities at March 31, 2019 and the Company was in compliance with all debt covenants 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 May 10, 2019 Total Energy will conduct a conference call and webcast to discuss its first 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 (800) 319-4610 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 June 10, 2019 by dialing (855) 669-9658 (passcode 3140).

Annual Meeting of Shareholders

Shareholders and other interested persons are invited to attend the annual and special meeting of Shareholders which will commence at 10:00 am (Calgary time) on Wednesday, May 15, 2019 at the Calgary Petroleum Club, 319 – 5th Avenue S.W., Calgary, Alberta.

Selected Financial Information

Selected financial information relating to the three months ended March 31, 2019 and 2018 is attached to this news release.  This information should be read in conjunction with the 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 2019 first quarter report.

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

  March 31,   December 31,
2019   2018
(unaudited)   (audited)
Assets  
Current assets:  
Cash and cash equivalents $   49,750   $ 30,640
Accounts receivable   147,447   155,946
Inventory 95,719   84,743
Prepaid expenses and deposits   14,642   17,776
Income taxes receivable 6,613   7,299
Other assets 576   527
Current portion of finance lease asset 695  
  315,442   296,931
 
Property, plant and equipment 773,177   768,613
Income taxes receivable 7,070   7,070
Finance lease asset 720  
Deferred tax asset 565   1,457
Goodwill 4,053   4,053
  $   1,101,027   $ 1,078,124
   
Liabilities & Shareholders’ Equity    
Current liabilities:    
Accounts payable and accrued liabilities $   139,957   $ 126,608
Deferred revenue   44,198   37,316
Dividends payable   2,747   2,752
Current portion of lease liabilities   7,871   2,376
Current portion of long-term debt   2,755   2,912
  197,528   171,964
   
Long-term debt   272,169   282,863
   
Lease liabilities   14,660   3,456
   
Onerous lease liability   1,574
   
Deferred tax liability   58,616   57,691
   
Shareholders’ equity:    
Share capital   288,352   288,902
Contributed surplus   6,752   6,384
Accumulated other comprehensive loss   (9,380 )   (5,320 )
Non-controlling interest   237   238
Retained earnings   272,093   270,372
  558,054   560,576
   
$   1,101,027    $ 1,078,124

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

  Three months ended
March 31
2019 2018
(unaudited) (unaudited)
 
Revenue $   221,990 $ 205,215
 
Cost of services  179,978 165,569
Selling, general and administration  12,762 13,637
Other expense (income)  1,161 (1,592 )
Share-based compensation  368 441
Depreciation  19,284 19,600
Operating income  8,437 7,560
 
Gain on sale of property, plant and equipment 1,694 495
Finance costs (3,245 ) (3,856 )
Net income before income taxes 6,886 4,199
 
Current income tax expense 700 835
Deferred income tax expense 1,427 36
Total income tax expense 2,127 871
 
Net income for the period $   4,759 $ 3,328
 
Net income (loss) attributable to:  
Shareholders of the Company $   4,760 $ 3,164
Non-controlling interest (1 ) 164
 
Income per share  
Basic and diluted $   0.10 $ 0.07
   

Condensed Interim Consolidated Statements of Comprehensive Income (Loss)

  Three months ended
March 31
2019 2018
 
Net income for the period $   4,759 $ 3,328
 
Foreign currency translation adjustment (3,670 ) 3,555
Deferred tax effect (390 ) (392 )
 
Total other comprehensive income (loss) for the period   (4,060 ) 3,163
 
Total comprehensive income $   699 $ 6,491
   
Total comprehensive income (loss) attributable to:  
   
Shareholders of the Company $   700 $ 6,327
Non-controlling interest (1 ) 164

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

  Three months ended
March 31
  2019 2018
  (unaudited) (unaudited)
Cash provided by (used in):
Operations:
Net income for the period $   4,759 $ 3,328
Add (deduct) items not affecting cash:  
Depreciation 19,284 19,600
Share-based compensation 368 441
Gain on sale of property, plant and equipment (1,694 ) (495 )
Finance costs 3,224 3,631
Unrealized loss (gain) on foreign currencies translation 399 (2,567 )
Current income tax expense 700 835
Deferred income tax expense 1,427 36
Income taxes paid (14 ) (3,660 )
Cashflow 28,453 21,149
Changes in non-cash working capital items:  
Accounts receivable 7,440 1,689
Inventory (10,976 ) (9,574 )
Prepaid expenses and deposits 4,364 3,380
Accounts payable and accrued liabilities 12,727 5,650
Onerous leases 1,297 (903 )
Deferred revenue 6,882 1,393
Cash provided by operating activities 50,187 22,784
Investing:  
Purchase of property, plant and equipment (14,700 ) (7,605 )
Proceeds on sale of other assets 20 227
Proceeds on disposal of property, plant and equipment 2,670 1,239
Changes in non-cash working capital items 2,229 (1,441 )
Cash used in investing activities (9,781 ) (7,580 )
Financing:  
Repayment of long-term debt (10,851 ) (11,182 )
Repayment of lease liabilities (2,081 ) (529 )
Dividends to shareholders (2,752 ) (2,774 )
Repurchase of common shares (842 )
Interest paid (4,770 ) (2,470 )
Cash used in financing activities (21,296 ) (16,955 )
 
Change in cash and cash equivalents 19,110 (1,751 )
 
Cash and cash equivalents, beginning of period 30,640 21,154
 
Cash and cash equivalents, end of period $   49,750 $ 19,403

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 March 31, 2019 (unaudited, in thousands of Canadian dollars)

  Contract Rentals and Compression Well Corporate (1) Total
  Drilling Transportation and Process Servicing    
  Services Services Services      
             
Revenue $   45,704 $   18,407 $   121,075 $   36,804 $   – $   221,990
             
Cost of services  37,921  11,858  103,320  26,879  –  179,978
Selling, general and administration  2,199  3,660  3,648  1,760  1,495  12,762
Other expense  –  –  –  –  1,161  1,161
Share-based compensation  –  –  –  –  368  368
Depreciation  8,194  4,521  2,334  4,201  34  19,284
Operating income (loss)  (2,610 )  (1,632 )  11,773  3,964  (3,058 )  8,437
             
Gain on sale of property, plant and equipment  74  129  1,404  –  87  1,694
Finance costs  (102 )  (22 )  (105 )  (6 )  (3,010 )  (3,245 )
             
Net income (loss) before income taxes  (2,638 )  (1,525 )  13,072  3,958  (5,981 )  6,886
             
Goodwill  –  2,514  1,539  –  4,053
Total assets  423,227  255,728  255,808  137,447  28,817 1,101,027
Total liabilities  77,260  41,239  128,558  8,587 287,329  542,973
Capital expenditures $   2,795 $   7,567 $   2,405 $   1,682 $   251 $   14,700
  Canada United States Australia Other Total
           
Revenue $      95,455 $      74,548 $     51,939 $      48 $     221,990
Non-current assets (2)   525,904   172,167   79,159   –   777,230

As at and for the three months ended March 31, 2018 (unaudited, in thousands of Canadian dollars)

Contract Rentals and Compression Well Corporate (1) Total
Drilling Transportation and Process Servicing
Services Services Services
Revenue $ 60,980 $ 22,312 $ 85,118 $ 36,805 $ $ 205,215
Cost of services 49,931 14,084 74,662 26,892 165,569
Selling, general and administration 2,353 3,939 2,699 1,177 3,469 13,637
Other income (1,592 ) (1,592 )
Share-based compensation 441 441
Depreciation 8,189 4,567 1,776 5,050 18 19,600
Operating income (loss) 507 (278 ) 5,981 3,686 (2,336 ) 7,560
Gain on sale of property, plant and equipment 50 51 394 495
Finance costs 7 (31 ) (9 ) (41 ) (3,782 ) (3,856 )
Net income (loss) before income taxes 564 (258 ) 5,972 4,039 (6,118 ) 4,199
Goodwill 2,514 1,539 4,053
Total assets 462,672 245,077 197,264 145,308 15,178 1,065,499
Total liabilities 52,260 41,066 76,430 2,486 342,525 514,767
Capital expenditures $ 3,012 $ 2,121 $ 1,794 $ 678 $ $ 7,605
Canada United States Australia Other Total
Revenue $ 104,191 $ 67,099 $ 33,925 $ $ 205,215
Non-current assets (2) 560,335 140,310 89,783 790,428

(1)        Corporate includes the Company’s corporate activities and obligations pursuant to long-term credit facilities. 
(2)        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 a 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 lease liabilities 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 months ended March 31, 2019.

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, including expectations regarding Total Energy’s future activity levels, market share and compression and process production activity.  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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Date Dec 31, 1969