FOR IMMEDIATE RELEASE
Red Deer, Canada – March 13, 2013 – High Arctic Energy Services Inc. (TSX: HWO) (“High Arctic” or the “Corporation”) today announced its operating and financial results for the fourth quarter and year ended December 31, 2012.
Highlights for 2012
High Arctic continued its strong year over year growth in revenue, EBITDA and net earnings in 2012. Adjusted EBITDA increased 19% to $39.6 million for the year. Consolidated net earnings for the year increased by 60% to $28.8 million from $18.0 million earned in 2011. The operations in Papua New Guinea (PNG) generated higher revenue and EBITDA in the fourth quarter which helped to offset slower activity in the Canadian operation. The Corporation continues to see increased revenues derived from the capital additions made in PNG during 2011 and early 2012.
Consolidated revenue for the fourth quarter increased 4% to $38.6 million compared to $37.1 million for the same quarter last year. Year to date revenues of $146.2 million were up 15% compared to 2011. Consolidated operating margins continued to be strong at 31% for the quarter, (2011 – 35%) and 33% for 2012 year to date compared to 32% last year. The margins benefitted from the favourable returns generated during 2012 on capital invested in new rental equipment offset somewhat by lower margins during 2012 on nitrogen sales and the supply of additional personnel services in PNG carrying a lower margin.
Commenting on the results, Bruce Thiessen, High Arctic’s Chief Executive Officer, stated:
“2012 proved to be a strong year for High Arctic and one which saw growth and adaptation in our chosen markets. In PNG, we continued to invest in our rental fleet, both with our primary customer and with new customers, helping us to grow our revenue base. We continue to strengthen our relationship with our primary customer by delivering solutions to them in a challenging environment. In Canada, we experienced a strong start to the year as our operations focused on liquids rich wells and are evolving to also provide services in the oil basins. This adaptation is important for the Corporation given the continuing low gas prices and the associated reduction in gas field activity.”
The strong growth in revenue for the year was driven by increased activity in PNG and by the deployment of a 250K UB Unit in Canada. In PNG, the fourth quarter revenue was $27.8 million compared to $21.3 million in 2011, the 31% increase primarily from the growth in the matting and equipment rental business and from the start-up of a second drilling rig that went on full operating rate on November 1, 2012. Year to date revenues in PNG of $99.0 million are up 23% for the same reasons and because of the operation of Rig 102 for all of 2012 compared to seven months in 2011.
Revenue for Canada was $47.2 million for 2012, relatively unchanged from 2011. The fourth quarter saw significantly reduced revenue levels in the core snubbing and nitrogen businesses as both activities were softer with overall industry activity down.
In addition to the strong financial results, some of the accomplishments for the Corporation during 2012 include:
- High Arctic instituted a monthly dividend of $0.01 per share with the first monthly dividend paid on June 14, 2012. At that monthly rate, the annual dividend would total $6.0 million, which represents 17.2% of cash flows provided by operations during 2012.
- The Company expanded its rental business in PNG deploying additional mats, cranes and other ancillary equipment, as well as commissioning a newly built 104 person camp that was placed in use in January 2013.
- In Canada, land was acquired for a new facility in Grande Prairie with construction set to begin in 2013 as part of the strategy to grow in that region.
High Arctic continues to maintain a very strong balance sheet. At December 31, 2012, the Corporation had $27.4 million of cash on hand, well in excess of its debt of $13.8 million. The Corporation also continues to generate strong cash flows from its operations. For the year, High Arctic generated $34.9 million (2011- $29.8 million) of cash flows provided by operations, an increase of 17%. The annual Adjusted EBITDA was $39.6 million for 2012 compared to $33.4 million for the year ended December, 2011.
Selected Comparative Financial Information
The following is a summary of selected financial information of the Corporation. All figures are presented in accordance with the International Financial Reporting Standards (“IFRS”):
|
Three Months Ended December 31 |
Years Ended December 31 |
|||||||||
| $ millions (except per share amounts) |
2012 |
2011 |
Change |
% |
2012 |
2011 |
Change |
% |
||
| Revenue |
38.6 |
37.1 |
1.5 |
4 |
146.2 |
127.2 |
19.0 |
15 |
||
|
|
|
|
|
|
|
|
|
|||
| EBITDA(1) |
9.8 |
11.0 |
(1.2) |
(11) |
38.2 |
32.0 |
6.2 |
19 |
||
| Adjusted EBITDA(1) |
10.0 |
11.2 |
(1.2) |
(11) |
39.6 |
33.4 |
6.2 |
19 |
||
|
|
|
|
|
|
|
|
|
|||
| Operating earnings |
7.1 |
8.8 |
(1.7) |
(19) |
28.5 |
23.3 |
5.2 |
22 |
||
|
|
|
|
|
|
|
|
|
|||
| Net earnings |
5.9 |
7.8 |
(1.9) |
(24) |
28.8 |
18.0 |
10.8 |
60 |
||
| per share (basic)(2) |
0.12 |
0.17 |
(0.05) |
|
0.62 |
0.40 |
0.22 |
|
||
| per share (diluted)(2) |
0.12 |
0.16 |
(0.04) |
|
0.59 |
0.37 |
0.22 |
|
||
|
|
|
|
|
|
|
|
|
|||
| Cash flows provided by operations(1) |
8.7 |
10.7 |
(2.0) |
(19) |
34.9 |
29.8 |
5.1 |
17 |
||
|
|
|
|
|
|
|
|
|
|||
| Dividends |
1.5 |
– |
1.5 |
– |
4.0 |
– |
4.0 |
– |
||
|
|
|
|
|
|
|
|
|
|||
| Capital expenditures |
2.9 |
0.2 |
2.7 |
1350 |
19.9 |
13.3 |
6.6 |
50 |
||
|
|
|
|
|
|
|
|
|
|||
| Total assets |
|
|
|
|
118.9 |
93.5 |
25.4 |
27 |
||
|
|
|
|
|
|
|
|
|
|||
| Total non-current financial liabilities |
|
|
|
|
13.7 |
12.4 |
1.3 |
10 |
||
|
|
|
|
|
|
|
|
|
|||
| Net cash (net debt) end of year (1) |
|
|
|
|
13.6 |
(1.0) |
14.6 |
|
||
|
|
|
|
|
|
|
|
|
|||
| Shares outstanding – end of year(2) |
|
|
|
|
49.8 |
49.6 |
0.2 |
|
||
(1) Readers are cautioned that EBITDA, Adjusted EBITDA, Cash Flows provided by operations, net cash and net debt do not have standardized meanings prescribed by IFRS – see “Key Financial Measures”.
(2) The restricted shares held by a trustee under the Executive and Director Incentive Share Plan are included in the shares outstanding. The number of shares used in calculating the per share net earning amounts are determined differently as explained in the Financial Statements.
Outlook
Activity levels in the Western Canadian Sedimentary Basin (‘WCSB’) may continue to see year over year declines in the first half of 2013 due to persistent weak natural gas prices and transportation bottlenecks for Alberta crude oil. With commodity prices not forecasted to materially improve in 2013, capital spending by exploration and development companies will likely be reduced from the levels seen in the first half of 2012.
The start of the 2013 winter drilling season in the WCSB saw drilling rig activity levels down approximately 10% from the start of
the 2012 season, improving to a 4% reduction from the prior year by the end of February 2013. High Arctic in turn has also experienced year over year activity level reductions at the start of 2013. The impact of the slower drilling activity will likely be somewhat mitigated by the continued industry transition to longer reach horizontal wells with multi-stage completions that often require snubbing services. Liquids rich gas play development is expected to continue at reasonable levels and be the primary driver for High Arctic’s business. The activity in the Duvernay, Montney and other deep basin plays in northwest Alberta and northeast British Columbia are expected to remain stronger than other regions as producers focus on the reservoirs offering the highest liquids content. High Arctic will continue its efforts to increase the proportion of its work conducted on oil wells where snubbing is needed on higher pressure wells.
Deploying High Arctic’s 250K UB units is part of the strategy in 2013 to increase the Canadian revenue, which has been challenging in the past as the demand for the rigs has been limited by the number of wells needing their high pushing capacity. The longer horizontal multi-stage fracturing techniques create new opportunities for these rigs as the horizontal well lengths are now exceeding 6000 meters and the longer horizontal lengths strain the capacity of coiled tubing. Each of High Arctic’s three 250K UB units have a large push and pull capability and high torque rotary drive and are not constrained by the length of a coil spool, thus providing a possible opportunity to extend the lateral length. The Corporation is actively marketing these units as a completions solution for oil and natural gas exploration and production companies.
The PNG LNG project is on schedule to deliver first gas towards the end of 2014 and this continues to be the focus of our main customer and their partners in the facility. The capital demands of that project may reduce the capital available for drilling in 2013. As a result, High Arctic expects to return to a one drilling rig operation in April 2013 and may see some reduction in utilisation of its equipment rental fleet. It is currently forecasted that Rigs 103 and 104 will operate on a leapfrog basis for the balance of 2013. We do not anticipate any drilling opportunities with other operators in 2013. Rig 102 should operate at least through September 2013 and hopefully through the full year. We have begun discussions with our lead customer on the long term contract renewals and hope to conclude these well before they expire in December 2013. Early indications are positive and reflect the strong strategic partnership we have formed with them. Some cost reductions may be required by our customer in 2013 because of the lower activity, which will primarily be accomplished through personnel reductions and some cutbacks in rental equipment.
During the past two years, the Corporation has been able to significantly grow its equipment rental business in PNG that now serves an increasing breadth of customers. In January 2013 we deployed a new heli-portable 104 person camp that we constructed as part of the 2012 capital spending program, and which will provide incremental revenue in 2013. Additional rig matting and cranes went on contract in late 2012 and High Arctic should receive a full year of revenue from those additions in 2013. The matting rental business has expanded significantly over the past two years, exiting 2012 with approximately 7,000 mats in the country, substantially all of which are under contract. The Corporation will continue to pursue opportunities to expand this business line and increase our rental fleet. However, the anticipated slower drilling activity in 2013 by our primary customer, as well as other operators in PNG, will reduce demand for new rental equipment in 2013. Our focus will be on reducing administration costs, keeping existing equipment deployed and purchasing new equipment when supported by contracts, as we wait out the completion of the LNG facility.
The approved capital budget of $32 million for 2013 includes growth capital expenditures of $21 million, maintenance capital expenditures of $7 million and approximately $4 million for the building of the previously announced facility in Grande Prairie, Alberta. Included in the $32 million is $6 million of capital expenditures that were committed during fiscal 2012 but which had not yet been completed at year-end and are thus carried into 2013.
The growth spending in 2013 will be more heavily weighted to the operations in Papua New Guinea and will include investing in matting and other rental equipment, purchasing ancillary support equipment, such as cranes, and purchasing specialized drilling tools to increase operational efficiency. In addition to the new Grande Prairie facility, capital spending in Canada will include retrofitting some existing equipment in response to specific client requests to address certain challenges at the wellhead, as well as purchasing certain wellhead tools which will continue to differentiate the Company’s service offering. Capital spending plans may be adjusted throughout the year in accordance with changes in regional market conditions or due to the ability of the Company to secure contracts with acceptable returns, particularly in PNG.
After achieving 15% revenue growth and 19% EBIDTA growth in 2012 compared to 2011, and given the current market conditions outlined above, the outlook for High Arctic is for flat to modest consolidated EBIDTA growth in 2013.
Key Financial Measures
This document contains references to certain financial measures that do not have any standardized meaning prescribed by IFRS and previous Canadian GAAP and may not be comparable to other companies. For a more complete list of these Financial Measures, including their calculation, please refer to the Management’s Discussion and Analysis for the years ended December 31, 2012 and 2011. High Arctic uses these financial measures to assess performance and believes these measures provide useful supplemental information to investors. These financial measures are computed on a consistent basis for each reporting period and include the following:
EBITDA
Management believes that, in addition to net earnings (loss) reported in the consolidated statement of income, EBITDA is a useful supplemental measure of the Company’s performance prior to consideration of how operations are financed or how results are taxed or how depreciation and amortization affects results. EBITDA is not intended to represent net earnings calculated in accordance with IFRS.
Adjusted EBITDA
This measure is used by management to analyze EBITDA prior to the effect of stock based compensation, gain on sale of assets or investments and foreign exchange gains or losses, and is not intended to represent net earnings as calculated in accordance with IFRS
Operating Earnings
Management believes that in addition to net earnings, operating earnings reported in the consolidated statements of earnings is a useful supplemental measure as it provides an indication of the results generated by High Arctic’s principal business activities prior to consideration of how those activities are financed or how the results are taxed. Operating earnings is not intended to represent net earnings calculated in accordance with IFRS.
Oilfield Services Operating Margin
Oilfield services operating margin is used by management to analyze overall and segment operating performance. Oilfield services operating margin is not intended to represent operating income nor should it be viewed as an alternative to net earnings or other measures of financial performance calculated in accordance with IFRS. Oilfield services operating margin is calculated as revenue less oilfield services expense.
Cash Flow Provided by Operations
Management believes that, in addition to net cash generated from operating activities as reported in the Consolidated Statement of Cash flow, cash flows from operating activities before working capital adjustments is a useful supplemental measure as it provides an indication of the funds generated by High Arctic’s principal business activities prior to consideration of changes in working capital.
Net debt and net cash
Net debt is used by management to analyze the amount of total debt that would be remaining after cash balances are applied against the debt. The amount, if any, is calculated as total debt (including current portion but excluding deferred financing costs) less cash and cash equivalents. Net cash is the amount by which the cash and cash equivalents exceed the total amount of debt.
Forward-Looking Statements
This news release may contain forward-looking statements relating to expected future events and financial and operating results of the Company that involve risks and uncertainties. Actual results may differ materially from management expectations, as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed in both the Company’s Management Discussion and Analysis for the year ended December 31, 2012 and in the Annual Information Form for the year ended December 31, 2012 found on SEDAR (www.sedar.com). Due to the potential impact of these factors, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.
About High Arctic
The Company is a global provider of specialized oilfield equipment and services, including drilling, completion and workover operations. Based in Red Deer, Alberta, High Arctic has domestic operations throughout western Canada. International operations are currently active in Papua New Guinea.
Further Information
A full copy of High Arctic’s results including Management’s Discussion and Analysis, and the Audited Consolidated Financial Statements for the years ended December 31, 2012 and 2011 and the notes contained therein, can be found on the Investor Relations page of High Arctic’s website www.haes.ca or at www.sedar.com.
Ken Olson
Chief Financial Officer
(403) 340-9825
ken.olson@dev.haes.ca