High Arctic Reports consistent year over year EBITDA

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.  ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW/

RED DEER, AB, Nov. 14, 2013 /CNW/ - High Arctic Energy Services Inc. (TSX: HWO) ("High Arctic" or the "Corporation") today announced its operating and financial results for the quarter ended September 30, 2013.

Highlights

During the first nine months of 2013 the Corporation's efforts resulted in the following achievements:

  • The Corporation completed its negotiations for the extensions of contracts that cover the drilling operations for Rigs 103 and 104 in 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.
  • High Arctic entered into a contract with a major Canadian global upstream oil and gas company to provide equipment and services to their primary staging area in the southern forelands of PNG for a minimum of one year.
  • Revenues from rentals were $20.2 million for the nine months ended September 30, 2013, a 37% increase from the $14.5 million received for the same period in 2012.  By year end, the Corporation will have over 10,000 Dura-Base® mats in PNG, virtually all under contract.
  • Revenues increased by 6% to $114.0 million for the first nine months of 2013 as compared to the nine months ended September 30, 2012.
  • Adjusted EBITDA stayed consistent for the first nine months of 2013 as compared to the same period in 2012 at $29.0 million (2012 - $29.6 million) and was $9.8 million for the three months ended September 30, 2013 as compared to $10.1 million for the same period in 2012 and would have been higher if not for a fire which occurred on the UB250K unit.
  • High Arctic increased its monthly dividend to $0.0125 per share in March, 2013. The annual dividend could total approximately $7.5 million, which represents an annualized rate of 21% of funds provided from operations during the trailing twelve months ended September 30, 2013.

Commenting on the results, Dennis Sykora, High Arctic's Chief Executive Officer, stated:

"Our diversified services offerings in PNG have continued to be beneficial for the Company throughout 2013.  The growth that we've seen in PNG this year has been sufficient to offset the challenging Canadian market and the loss of revenues from the UB250K rig through the first nine months of the year. In spite of these challenges, we have been able to deliver consolidated results consistent with last year."

Revenues for the first nine months of 2013 increased by 6% to $114.0 million compared to $107.6 million for the nine months ended September 30, 2012.  The growth in revenue for the period was driven by increased activity in PNG with revenues of $85.9 million compared to $71.2 million for the first nine months of 2012 ($27.7 million for the three months ended September 30, 2013; $22.6 million for the three months ended September 30, 2012) as a result of having a second active drilling rig and a larger fleet of rental equipment in 2013.  Revenues derived from PNG's rental fleet contributed approximately $20.2 million for the first nine months of 2013 (2012 - $14.5 million).

The operations in PNG generated significantly higher revenue in the first nine months of 2013 which offset the slower activity levels in the Canadian operation.   Despite increased revenues, adjusted EBITDA decreased slightly to $29.0 million for the nine months ended September 30, 2013 from $29.6 million for the same period in 2012 due primarily to a reduction in the Canadian operating margin attributable to overall reduced industry activity levels.

Revenue for Canada was $8.6 million for the third quarter of 2013 (2012 - $13.2 million).  For the first nine months of 2013, revenues decreased by $8.3 million (23%) from the same period in 2012 due to reduced revenue levels from both the core snubbing and nitrogen businesses which was consistent with the overall industry activity slowdown.   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 32% of revenue for the nine months but fell slightly from 34% earned for the nine months ended September 30, 2012.  The percentage was affected by the higher rig rental costs associated with operating an additional active rig in PNG for the first half of 2013 and the lower operating margins in Canada which caused the overall reduction of $0.5 million in the operating margin.

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
September 30
  Nine Months Ended
September 30
$ millions (except per share amounts) 2013 2012 Change %   2013 2012 Change %
Revenue 36.3 35.8 0.5 1   114.0 107.6 6.4 6
EBITDA(1) 12.4 9.8 2.6 27   31.1 28.4 2.7 10
Adjusted EBITDA(1) 9.8 10.1 (0.3) (3)   29.0 29.6 (0.6) (2)
Operating earnings 9.4 7.4 2.0 27   22.7 21.4 1.3 6
Net earnings 7.7 6.5 1.2 18   18.2 22.9 (4.7) (21)
  per share (basic)(2) 0.16 0.14 0.02     0.38 0.49 (0.11)  
  per share (diluted)(2) 0.16 0.13 0.03     0.37 0.47 (0.10)  
Funds provided by operations(1) 8.2 9.4 (1.2) (13)   24.5 26.2 (1.7) (6)
  per share (basic)(2) 0.17 0.20 (0.03)     0.51 0.56 (0.05)  
  per share (diluted)(2) 0.17 0.19 (0.02)     0.50 0.53 (0.03)  
Dividends 1.9 1.5 0.4     5.3 2.5 2.8  
Capital expenditures 7.6 10.1 (2.5)     17.7 17.0 0.7  
Working Capital           35.7 26.8 8.9 33
Total assets           127.9 114.6 13.3 12
Total non-current financial liabilities           6.7 8.7 (2.0) (23)
Net cash, end of period (1)           21.9 7.7 14.2 184
Shares outstanding - end of period(2)           49.9 49.8 0.1  
(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) Sep 30,
2013
Jun 30,
2013
Mar 31,
2013
Dec 31,
2012
Sep 30,
2012
Jun 30,
2012
Mar 31,
2012
Dec 31,
2011
                 
Revenue 36.3 32.9 44.8 38.6 35.8 29.6 42.2 37.1
                 
Adjusted EBITDA 9.8 6.6 12.6 10.0 10.1 5.2 14.3 11.2
                 
Net earnings 7.7 2.1 8.4 5.9 6.5 5.7 10.7 7.8
  per share - basic 0.16 0.04 0.17 0.12 0.14 0.12 0.23 0.17
  per share - diluted 0.16 0.04 0.17 0.12 0.13 0.12 0.22 0.16
                 
Funds provided from operations 8.2 5.1 11.2 8.7 9.4 3.4 13.4 10.9
                 
                   

Outlook

The PNG LNG project continues to be on schedule to deliver first gas towards the end of 2014 which remains the focus of our main customer and their partners in the facility.  The long term outlook in PNG continues to be favourable as the LNG production will be an important cash flow stream available to be invested in new projects. High Arctic continues to pursue potential drilling opportunities with other operators in PNG and is awaiting updates by our main customer regarding their drilling program for 2014. The realization of such opportunities could mean a return to two rigs operating at some point in 2014.  In the interim, our customer continues to operate one drilling rig full time.

Rig 102 was active throughout 2012 and through the first nine months of 2013.  Indications from our customer are that Rig 102 will continue working through much of the fourth quarter of 2013 and then stacked at a much lower stack rate once the 2013 work program is completed. The customer is currently evaluating its workover and completion needs and its rig options for 2014 and beyond. Rig 102 remains under contract through May 2014.

The previously announced new contracts with a major Canadian global upstream oil and gas company to provide equipment and services to their primary staging area in southern forelands of PNG, has advanced well with most matting being laid and equipment delivered to the site. This staging area provides both ship and helicopter borne logistics and materials support to their drilling activities in the area. We have provided the customer with an additional 1,065 Dura-Base® mats, a 160 ton crawler crane and other specialized rolling stock along with operating personnel to support the equipment and manage the site.  The client is pleased with the development of the site and has indicated there may be future site expansion opportunities as a result.

During the past two years, High Arctic has significantly grown its equipment rental business in PNG serving an increasing breadth of customers. Opportunities to expand this business line both within and outside of PNG continue to be pursued, and it is expected that the Corporation will have over 10,000 mats deployed by year end.  For the remainder of 2013, however, utilization of some pieces of equipment directly used to support the drilling operations of our primary customer will likely be temporarily reduced in conjunction with only one rig operating. The longer term expectation however, is that growth opportunities within PNG will result in both Rigs 103 and 104 simultaneously operating and in turn increasing utilization of all PNG rental equipment.

Activity levels in the Western Canadian Sedimentary Basin ('WCSB') have seen year over year declines through the first nine months of 2013 due to persistent weak AECO natural gas prices.  High Arctic in turn has also experienced year over year activity level reductions to date though 2013.  For the fourth quarter, it is expected that Canadian activity levels will be similar to those experienced in 2012.

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 levels in the Montney, Duvernay and other deep basin plays in northwest Alberta and northeast British Columbia are expected to improve in 2014 as producers focus on both liquids rich resource plays and the development of gas fields in BC to support the future demand that will arise from BC LNG exports.

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 and nine months ended September 30:

               
($ millions) Three months
ended
September 30,
2013
  Three months
ended
September 30,
2012
  Nine months
ended
September 30,
2013
  Nine months
ended
September 30,
2012
Net earnings for the period 7.7   6.5   18.2   22.9
Add:              
Interest and finance expense 0.2   0.2   0.6   0.8
Income taxes 1.5   0.7   3.9   (2.3)
Amortization 3.0   2.4   8.4   7.0
EBITDA 12.4   9.8   31.1   28.4
Add:              
Share-based compensation 0.1   0.5   0.4   1.3
Loss on sale of property and equipment 0.3   -   0.3   -
Excess of insurance proceeds over costs (2.7)   -   (2.7)   -
Foreign exchange (gain) loss (0.3)   (0.2)   (0.1)   (0.1)
Adjusted EBITDA 9.8   10.1   29.0   29.6
               

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 nine months ended September 30:

                 
($ millions)   Three months
ended
September 30,
2013
  Three months
ended
September 30,
2012
  Six months
ended
September 30,
2013
  Six months
ended
September 30,
2012
Net cash generated from
operating activities
  8.8   7.3   26.9   28.0
Less:                
Net changes in items of non-cash
working capital
  (0.6)   2.1   (2.4)   (1.8)
Funds provided from operations   8.2   9.4   24.5   26.2
                 

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 September 30:

         
($ millions)   September 30, 2013   September 30, 2012
Cash and cash equivalents   28.7   22.7
Less:        
Long-term debt   (6.8)   (15.0)
Net cash   21.9   7.7
         

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 nine months ended September 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 Unaudited Condensed Consolidated Interim Financial Statements for the nine months ended September 30, 2013, can be found on the Investor Relations page of High Arctic's website www.haes.ca or at www.sedar.com

 

SOURCE: High Arctic Energy Services Inc.

For further information:

Ken Olson
Chief Financial Officer
(403) 340-9825
ken.olson@haes.ca

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High Arctic Energy Services Inc.

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