Red Deer, Canada – August 14, 2013 – High Arctic Energy Services Inc. (TSX: HWO) (“High Arctic” or the “Corporation”) today announced its operating and financial results for the quarter ended June 30, 2013.
First Half Highlights
During the first half of 2013 the Corporation saw the following achievements:
- Completed the negotiations for the extensions of contracts that cover the drilling operations for Rigs 103 and 104 in Papua New Guinea (“PNG”) and the drilling support services related to the supply of personnel and rental equipment to support the related drilling. The extensions are effective July 1, 2013 for a three year term to June 30, 2016.
- Deployed a new 104 man heli-portable camp in PNG in January, 2013, under the terms of a three year contract.
- Adjusted EBITDA was $6.6 million for the three months ended June 30, 2013 as compared to $5.2 million for the same period in 2012 and stayed consistent for the first half of 2013 at $19.2 million (2012 – $19.5 million).·
- Increased revenue by 8% to $77.7 million for the first half of 2013 as compared to the six months ended June 30, 2012 (11% increase to $32.9 million for the three months ended June 30, 2013 as compared to the same period in 2012).
- Increased the monthly dividend to $0.0125 per share in March, 2013, a 25% increase from the previous monthly dividend amount.
Commenting on the results, Bruce Thiessen, High Arctic’s Chief Executive Officer, stated:
“In spite of a prolonged spring break-up in Canada which resulted in lower activity levels compared to the prior year, the Corporation was able to increase both year-over year consolidated revenue and EBITDA in the second quarter due to the strong performance of our PNG operations. Despite the challenges inherent in working in PNG, our business there continues to grow and we see long term opportunities continuing to develop in the country. ”
Consolidated revenue for the first six months increased 8% to $77.7 million compared to $71.8 million for the first half of 2012. The growth in revenue for the period was driven by increased activity in PNG with revenues of $58.2 million compared to $48.6 million for the first six months of 2012 ($28.3 million for the three months ended June 30, 2013; $25.1 million for the three months ended June 30, 2012) as a result of having a second active drilling rig operating in the first half of 2013. The Corporation continues to see increased revenues derived from its rental fleet with growth of approximately $2.6 million from its rental operations in PNG contributing to increased revenues for the first six months of 2013.
The operations in PNG generated significantly higher revenue in the first half of 2013 which offset the slower activity levels in the Canadian operation. Despite increased revenues, adjusted EBITDA decreased 3% to $19.2 million for the six months ended June 30, 2013 from $19.5 million for the same period in 2012 due primarily to a reduction in the Canadian operating margin attributable to normal spring break-up and an overall reduced industry activity level.
Revenue for Canada was $4.6 million for the second quarter of 2013 (2012 – $4.5 million). For the first six months of 2013, revenues decreased by $3.7 million (16%) for the same period in 2012 due to reduced revenue levels in the first quarter from the core snubbing and nitrogen businesses as both activities were softer with overall industry activity down. The operating margins in Canada were adversely affected by the reduced revenue levels and by competitive pricing conditions primarily in the nitrogen operations.
Consolidated oilfield services operating margins continued to be strong at 30% of revenue for the six months but fell slightly from 33% earned for the six months ended June 30, 2012. The percentage was affected by the higher rig rental costs associated with operating an additional active rig in PNG in 2013 and the lower operating margins in Canada which caused the overall reduction of $0.4 million of operating margin.
As a result of its continued strong financial results, High Arctic increased its monthly dividend to $0.0125 per share in March, 2013, a 25% increase from the previous monthly dividends paid. At this monthly rate, the annual dividend will total approximately $7.5 million, which represents an annualized rate of 22% of funds provided from operations during the trailing twelve months ended June 30, 2013.
At June 30, 2013, the Corporation had $19.6 million of net cash on hand (June 30, 2012 – $12.6 million) and working capital of $38.2 million (June 30, 2012 – $31.7). The Corporation also continues to generate strong cash flows from its operations. For the six months ended June 30, 2013, High Arctic generated $16.3 million (2012- $16.8 million) of funds provided from operations.
Selected Comparative Financial Information
The following is a summary of selected financial information of the Corporation. All figures are derived from financial information that is prepared or presented in accordance with International Financial Reporting Standards (“IFRS”):
|
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||
| $ millions (except per share amounts) |
2013 |
2012 |
Change |
% |
2013 |
2012 |
Change |
% |
||
| Revenue |
32.9 |
29.6 |
3.3 |
11 |
77.7 |
71.8 |
5.9 |
8 |
||
| EBITDA(1) |
6.3 |
4.6 |
1.7 |
37 |
18.7 |
18.6 |
0.1 |
1 |
||
| Adjusted EBITDA(1) |
6.6 |
5.2 |
1.4 |
27 |
19.2 |
19.5 |
(0.3) |
(2) |
||
| Operating earnings |
3.5 |
2.3 |
1.2 |
52 |
13.3 |
14.0 |
(0.7) |
(5) |
||
| Net earnings |
2.1 |
5.7 |
(3.6) |
(63) |
10.5 |
16.4 |
(5.9) |
(36) |
||
| per share (basic)(2) |
0.04 |
0.12 |
(0.08) |
|
0.22 |
0.36 |
0.14 |
|
||
| per share (diluted)(2) |
0.04 |
0.12 |
(0.08) |
|
0.21 |
0.35 |
0.14 |
|
||
|
|
|
|
|
|
|
|
|
|||
| Funds provided by operations(1) |
5.1 |
3.4 |
1.7 |
50 |
16.3 |
16.8 |
(0.5) |
(3) |
||
| per share (basic)(2) |
0.11 |
0.07 |
(0.04) |
|
0.34 |
0.36 |
(0.02) |
|
||
| per share (diluted)(2) |
0.10 |
0.07 |
(0.03) |
|
0.33 |
0.35 |
(0.02) |
|
||
| Dividends |
1.8 |
0.5 |
1.3 |
|
3.4 |
0.5 |
2.9 |
|
||
| Capital expenditures |
4.9 |
5.3 |
(0.4) |
|
10.8 |
6.9 |
3.9 |
|
||
| Working Capital |
|
|
|
|
38.2 |
31.7 |
6.5 |
21 |
||
| Total assets |
|
|
|
|
126.9 |
110.2 |
16.7 |
15 |
||
| Total non-current financial liabilities |
|
|
|
|
10.7 |
10.0 |
0.7 |
7 |
||
| Net cash, end of period (1) |
|
|
|
|
19.6 |
12.6 |
7.0 |
55 |
||
| Shares outstanding – end of period(2) |
|
|
|
|
49.8 |
49.8 |
– |
|
||
(1) Readers are cautioned that EBITDA, Adjusted EBITDA, Funds provided from operations and net cash 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 net earnings per share amounts are determined differently as explained in the Financial Statements.
Selected Quarterly Consolidated Financial Information (Three Months Ended)
The following is a summary of selected financial information of the Corporation for the last eight completed quarters:
|
|
|
|
|
|
|
|
|
|||
| $ (millions, except per share amounts) | Jun 30, 2013 | Mar 31, 2013 | Dec 31, 2012 | Sep 30, 2012 | Jun 30, 2012 | Mar 31, 2012 | Dec 31, 2011 | Sep 30, 2011 | ||
| Revenue |
32.9 |
44.8 |
38.6 |
35.8 |
29.6 |
42.2 |
37.1 |
29.3 |
||
|
|
|
|
|
|
|
|
|
|||
| Adjusted EBITDA |
6.6 |
12.6 |
10.0 |
10.1 |
5.2 |
14.3 |
11.2 |
7.8 |
||
|
|
|
|
|
|
|
|
|
|||
| Net earnings |
2.1 |
8.4 |
5.9 |
6.5 |
5.7 |
10.7 |
7.8 |
3.0 |
||
| per share – basic |
0.04 |
0.17 |
0.12 |
0.13 |
0.13 |
0.23 |
0.17 |
0.07 |
||
| per share – diluted |
0.04 |
0.17 |
0.12 |
0.12 |
0.13 |
0.22 |
0.16 |
0.06 |
||
|
|
|
|
|
|
|
|
|
|||
| Funds provided from operations |
5.1 |
11.2 |
8.7 |
4 |
3.4 |
13.4 |
10.9 |
6.0 |
||
|
|
|
|
|
|
|
|
|
|||
Outlook
Effective July 1, 2013, High Arctic entered into extensions of its main contracts with its major customer in PNG. The extensions cover the drilling contracts for Rigs 103 and 104 and the drilling support services contract related to the supply of personnel and rental equipment to support the related drilling operations. Some pricing concessions were reached, particularly on the rental equipment, to reflect the long term nature of the rentals, some of which have now been operating for that customer continuously for more than five years. Other cost reductions, to reflect the lower drilling activity levels, were primarily accomplished through personnel reductions.
The extensions are effective for a three year term to June 30, 2016. With a new three year agreement in place, High Arctic is well positioned to deliver the services required by its major customer to both continue its oil drilling program that will offset natural declines and to drill for new gas reserves that will be required as feedstock for any additional trains added to the PNG LNG facility.
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. While the long term outlook is favourable as the associated production becomes an important cash flow stream for our customer, the capital demands of that project affect the capital available for drilling in the near term. As a result, High Arctic returned to a one drilling rig operation at the start of May, 2013 and some of the associated equipment rental fleet is being placed on a standby rate. Rigs 103 and 104 are expected to operate on a moving rig basis for the balance of 2013, similar to what occurred during the first nine months of 2012. We are pursuing potential additional drilling opportunities with other operators and are awaiting a decision by our main customer regarding its drilling program in the near future. The realization of such opportunities could mean returning to two rigs operating in 2014. Rig 102 was active throughout 2012 and for the first six months of 2013. Indications from our customer are that Rig 102 will continue working through most of the fourth quarter of 2013 but may be stacked at some point thereafter when the current work program is completed.
High Arctic also recently announced new contracts with a major Canadian global upstream oil & gas company to provide equipment and services to their primary staging area in southern forelands of PNG. This staging area provides both ship and helicopter borne logistics and materials support to their drilling activities in the area. High Arctic has provided the customer with an additional 1,065 Dura-Base® mats, a 160 ton crawler crane and will provide other specialized rolling stock along with operating personnel as agreed. The contract is for a minimum term of one year with options to extend further.
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 with our primary customer that we constructed as part of the 2012 capital spending program, and which provides incremental revenue in 2013. Additional rig matting and cranes went on contract in late 2012 and High Arctic now receives a full year of revenue from these additions. The matting rental business has expanded significantly over the past two years and High Arctic currently has approximately 9,000 mats earning revenue in PNG. Opportunities to expand this business line both within and outside of PNG are being pursued and it is expected that the Corporation will have approximately 10,000 mats available by year end. For the remainder of 2013, however, the anticipated slower drilling activity by our primary customer, as well as other operators in PNG, may temporarily reduce demand for other rental equipment. The longer term expectation is that PNG will continue to provide further growth opportunities for the Corporation.
Activity levels in the Western Canadian Sedimentary Basin (‘WCSB’) have seen year over year declines in the first half of 2013 due to persistent weak natural gas prices and transportation bottlenecks for Alberta crude oil. 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, and gas well completions were down 25% for the first half of 2013 as compared to the first six months of 2012. High Arctic in turn has also experienced year over year activity level reductions to date in 2013. The impact of the slower drilling activity has been 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 hydrocarbon liquids content. High Arctic will continue its efforts to increase the proportion of its work conducted on liquids rich wells where snubbing is needed on higher pressure wells.
In June, 2013 the UB250K workover rig commenced operations; however, a few days into the work both hydraulic power units which are used to supply power to the rig were damaged beyond repair in a fire. No injuries or environmental damage occurred during the incident. High Arctic expects the loss event to be fully insured. The wells are now being completed with a service rig and a High Arctic rig assist snubbing unit while the two hydraulic power units are being replaced. Management continues to be committed to the UB250k technology, recognizing that as wellbores continue to get longer – in excess of 6000 meters – this technology provides unique completion solutions. The Corporation does not currently anticipate any significant utilization of the UB250K unit in the near future.
Based on the results of the first half of 2013 and the current market environment, the outlook for High Arctic continues to be for flat EBITDA for the remainder of 2013 as compared to the last half of 2012.
Key Financial Measures
This Press Release contains references to certain financial measures that do not have a standardized meaning prescribed by IFRS or previous Canadian GAAP and may not be comparable to the same or similar terms used by other companies. High Arctic uses these financial measures to assess performance and believes these measures provide useful supplemental information to shareholders’ and 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 reported in the consolidated statement of earnings and comprehensive income, EBITDA (earnings before interest, taxes and depreciation and amortization) is a useful supplemental measure of the Corporation’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 (as referred to above) prior to the effect of share-based compensation, gain on sale of assets or investments, foreign exchange gains or losses and other non-recurring charges, and is not intended to represent net earnings as calculated in accordance with IFRS. The following tables provide a quantitative reconciliation of consolidated net earnings to EBITDA and Adjusted EBITDA for the three months ended June 30:
| ($ millions) |
Three months ended June 30, 2013 |
|
Three months ended June 30, 2012 |
|
Six months ended June 30, 2013 |
|
Six months ended June 30, 2012 |
|
| Net earnings for the period |
|
2.1 |
|
5.7 |
|
10.5 |
|
16.4 |
| Add: |
|
|
|
|
|
|
|
|
| Interest and finance expense |
|
0.2 |
|
0.4 |
|
0.4 |
|
0.6 |
| Income taxes |
|
1.2 |
|
(3.8) |
|
2.4 |
|
(3.0) |
| Amortization |
|
2.8 |
|
2.3 |
|
5.4 |
|
4.6 |
| EBITDA |
|
6.3 |
|
4.6 |
|
18.7 |
|
18.6 |
| Add: |
|
|
|
|
|
|
|
|
| Share-based compensation |
0.1 |
|
0.4 |
|
0.3 |
|
0.8 |
|
| Foreign exchange loss |
0.2 |
|
0.2 |
|
0.2 |
|
0.1 |
|
| Adjusted EBITDA |
6.6 |
|
5.2 |
|
19.2 |
|
19.5 |
Operating Earnings
Management believes that in addition to net earnings, operating earnings reported in the consolidated statements of earnings and comprehensive income 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 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.
Oilfield Services Operating Margin %
Oilfield services operating margin % is used by management to analyze overall operating performance. Oilfield services operating margin % is calculated as oilfield services operating margin divided by revenue.
Funds Provided from Operations
Management believes that, in addition to net cash generated from operating activities as reported in the consolidated statements of cash flows, cash flow from operating activities before working capital adjustments (funds provided from operations) 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 items of working capital.
This measure is used by management to analyze funds provided from operating activities prior to the net effect of changes in items of non-cash working capital, and is not intended to represent net cash generated from operating activities as calculated in accordance with IFRS.
The following tables provide a quantitative reconciliation of net cash generated from operating activities to funds provided from operations for the three and six months ended June 30:
| ($ millions) |
Three months ended June 30, 2013 |
|
Three months ended June 30, 2012 |
|
Six months ended June 30, 2013 |
|
Six months ended June 30, 2012 |
|
| Net cash generated from operating activities |
|
15.3 |
|
11.5 |
|
18.1 |
|
20.6 |
| Less: |
|
|
|
|
|
|
|
|
| Net changes in items of non-cash working capital |
(10.2) |
|
(8.1) |
|
(1.8) |
|
(3.8) |
|
| Funds provided from operations |
5.1 |
|
3.4 |
|
16.3 |
|
16.8 |
Net cash
Net cash is used by management to analyze the amount by which cash and cash equivalents exceed the total amount of debt. The amount, if any, is calculated as cash and cash equivalents less total gross debt.
The following tables provide a quantitative reconciliation of cash and cash equivalents to net cash as at June 30:
| ($ millions) |
June 30, 2013 |
|
June 30, 2012 |
|
| Cash and cash equivalents |
|
30.4 |
|
27.6 |
| Less: |
|
|
|
|
| Long-term debt |
|
(10.8) |
|
(15.0) |
| Net cash |
19.6 |
|
12.6 |
Forward-Looking Statements
This news release may contain forward-looking statements relating to expected future events and financial and operating results of the Corporation 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 Corporation’s Management Discussion and Analysis for the six months ended June 30, 2013 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 Corporation 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 Corporation 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 and international operations located in Papua New Guinea.
Further Information
A full copy of the results of the Corporation including the Management’s Discussion and Analysis and the Condensed Consolidated Interim Financial Statements for the six months ended June 30, 2013, can be found on the Investor Relations page of High Arctic’s website haes.ca or at www.sedar.com.
Ken Olson
Chief Financial Officer
(403) 340-9825
ken.olson@dev.haes.ca
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