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RED DEER, AB, March 20, 2012 /CNW/ - High Arctic Energy Services Inc. (TSX: HWO) ("High Arctic" or the "Company") today announced its operating and financial results for the fourth quarter and year ended December 31, 2011.
High Arctic generated revenue of $127.2 million, compared to $119.3 million in 2010, representing a 6.6% increase. This increase was driven by a $7.9 million, or 20.2% increase in Canadian revenue. Adjusted EBITDA was $33.4 million compared to $33.3 million in 2010.
Net earnings for 2011 of $18.0 million ($0.40 per share), increased by $3.5 million, representing an increase of 24.1% compared to $14.5 million ($0.46 per share) in 2010.
Commenting on the results, Bruce Thiessen, High Arctic's Chief Executive Officer, stated:
"I am very pleased with the results for 2011, especially considering the challenges facing the Company heading into the year, namely an extremely weak natural gas price environment in North America and the significant pricing concessions granted to our major customer in PNG at the start of 2011. The strong performance in the Canadian division demonstrates that our high pressure well completion services are well suited for the liquids rich plays that are expected to remain the primary gas targets for 2012. The continued decline in gas prices is concerning but I am confident in our relationships with our major customers and our ability to adapt to their emerging needs. During the year, we strengthened our relationship with our main customer in PNG and invested significantly in our rental fleet as part of our strategy to expand our revenue base in the country. The operation in PNG offers excellent investment opportunities while providing diversification away from the oil and natural gas prices in North America. High Arctic has a strong balance sheet and we are positioned to take advantage of strategic growth opportunities which may present themselves."
The strong performance of the Canadian operations reflects the high activity levels in the unconventional shale gas and liquid rich plays in Alberta and British Columbia and the improved day rates in Canada. In PNG, the benefit of capital investments made to expand the matting and equipment rental business combined with increased drilling rig activity associated with several new customers and the startup of the Rig 102 workover rig offset the revenue loss from the pricing concessions granted as part of the contract extensions that took effect at the start of the year.
The Company invested $13.3 million in net capital expenditures in 2011, the majority of which were expansion of PNG's matting and equipment rental business. These investments typically have higher operating margins, are supported by long-term contracts and are part of the strategy to diversify the Company's revenue base in PNG. The results are expected to have a greater positive impact in 2012 due to the full year benefit of the matting and equipment rental acquisitions. Recently negotiated pricing improvements that took effect on January 1, 2012 are also anticipated to improve the results for PNG in 2012 and are expected to offset recent wage increases.
High Arctic completed a number of strategic milestones in 2011 which provide a strong foundation for the Company moving forward.
Some of the significant accomplishments during 2011 include:
- Total debt was reduced from $36.5 million at the start of the year to $17.2 million at year end. The Company moved from a demand facility to a $30.0 million committed credit facility of which only $17.2 million was outstanding at year end. After deducting the $16.5 million of cash on hand, High Arctic exited 2011 with a net debt position of $0.7 million compared to $12.2 million as at December 31, 2010.
- In PNG, High Arctic completed the long term extensions for the drilling contracts and support services for Rig 103 and 104 that now run until December 17, 2013. In addition, it successfully started up Rig 102 in the second quarter, following a major upgrade, under a contract that runs to May, 2014.
- High Arctic was able to significantly expand its rental business in PNG as part of its strategy to diversify both its revenue sources and customer base. As an example, High Arctic was awarded its largest matting contract to date for the drilling program of a super major operator in PNG. The contract is for an 18 month term with monthly revenue expected to be approximately $400,000 or $7.2 million over the 18 month term. Most of those mats went on full contract rate in the first quarter of 2012.
- Two year extensions for first call status were negotiated with two significant producers in Canada with improvement in pricing, which is indicative of the support from our valued customers and demand for our services.
With a strong balance sheet and available credit facilities, High Arctic is well positioned to take advantage of strategic growth opportunities to enhance shareholder value. On January 31, 2012, the Company announced a $23.0 million capital budget for 2012, of which $7.0 million is maintenance capital and $16.0 million is budgeted for growth capital. These capital expenditures are anticipated to be funded from operating cash flows. These investments, in addition to the investments made in 2011 are anticipated to provide the impetus for further revenue and cash flow growth in 2012.
Fourth Quarter Highlights for 2011
High Arctic experienced strong activity levels in its Canadian operation in the fourth quarter. Revenue in Canada was up 31.4% over the same period last year. The improvement in revenue reflects the strong demand for the Company's services in the unconventional shale gas and liquid rich plays and the benefit of improved day rates. Revenue for PNG in the fourth quarter was comparable to last year, despite pricing concessions granted to the company's major customer and delays in matting and equipment rental deliveries. Highlights for the quarter included:
- Consolidated revenue increased by 11.4% to $37.1 million in the fourth quarter of 2011 as compared to $33.3 million during the same period of 2010. The increase in revenue was due to a $3.8 million, or 31.4% increase in Canadian revenue. Utilization in Canada was led by the nitrogen division at 98.0% utilization and snubbing equipment at 44.3%. The time spent on a well averaged 5.3 days in 2011 compared to 4.8 days in 2010, reflecting more complex well profiles.
- Revenues of $21.2 million from PNG operations for the three months ended December 31, 2011 were comparable to the same period of 2010. Rig 104 and Rig 102 were each active throughout the quarter while in 2010 Rigs 104 and 103 were each active while Rig 102 was idle. Revenue for the 4th quarter in 2011 benefited from the capital expenditures during the year though the results were impacted by delivery delays for a 2,000 mat contract.
- Interest and financing fees were $0.4 million in the three months ended December 31, 2011, a reduction of $0.7 million compared to $1.1 million in the same period of 2010. This is the result of lower interest rates on the Company's current debt facilities equivalent to prime plus 1.75%, or 4.75%, versus 9.5% under the former demand facilities in the fourth quarter of 2010.
- Adjusted EBITDA was $11.0 million ($0.24 per share) for the three months ended December 31, 2011; an increase of $1.5 million from Adjusted EBITDA of $9.5 million ($0.22 per share) for the same quarter in 2010. The increase reflects the increased revenue from the Canadian operations.
- The Company recorded net earnings of $7.8 million ($0.17 per share) in the fourth quarter of 2011, as compared to net earnings of $4.7 million ($0.11 per share) in the same period of 2010.
Selected Comparative Financial Information
The following is a summary of selected financial information of the Company. All figures are presented in accordance with the International Financial Reporting Standards ("IFRS"):
| Three Months Ended
| Year Ended
|$ millions (except per share amounts)||2011||2010||Change||%||2011||2010||Change||%|
|Operating earnings from continuing operations||8.8||7.5||1.3||17.3||23.3||24.6||(1.3)||(5.3)|
|per share (basic)(2)||0.17||0.11||0.06||54.6||0.40||0.46||(0.06)||(13.0)|
|per share (diluted)(2)||0.16||0.11||0.05||45.5||0.37||0.46||(0.09)||(20.0)|
|Cash Flows provided by operations(1)||10.6||8.4||2.2||26.2||30.0||20.2||9.8||48.5|
|Net debt (end of period)(1)||0.7||12.2||(11.5)||0.7||12.2||(11.5)|
(1) Readers are cautioned that EBITDA, Adjusted EBITDA, Cash Flows provided by operations and net debt do not have standardized meanings prescribed by IFRS - see "Financial Measures".
(2) The Company completed a consolidation of its common shares on the basis of one (1) new post consolidation common share for every five (5) pre-consolidated common shares. For comparative purposes, all per share and share outstanding information presented in the table above reflect the share consolidation as if it had occurred prior to all periods presented above.
Effective January 1, 2011, High Arctic began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"). Prior year comparative amounts have been changed to reflect results as if the Company had always prepared its financial results using IFRS.
Given the ongoing weakness in natural gas prices, the Company expects that Canadian drilling and completion activity in 2012 will continue to focus on the development of oil and liquids-rich natural gas resource plays. The activity in the Montney and other deep basin plays of northwest Alberta and northeast British Columbia are expected to remain reasonably active in 2012 as producers focus on areas with plays offering the highest liquids content. In addition to the more developed regions, emerging areas such as the Duvernay shale could drive improved demand for High Arctic's services in 2012 and beyond. The growing interest in Canadian gas prospects by Asian based energy companies are encouraging in terms of bringing new capital to the industry and hopefully ultimately leading to improved access to Asian markets.
The Company expects that customers will continue to strive to improve drilling and completion efficiencies, such as through increased use of multi-well pads and 24-hour operations. An increasing amount of the activity involves wells with long horizontal legs and a greater number of fractures per wellbore, leading to increasing complexity. For High Arctic, the complexity of these wells has translated into an increase in operating days per rig per well and higher total revenue per job. The Company's equipment is well suited for the longer lateral multi-completion wells as generally the wells require either a snubbing unit or coiled tubing for completion. In a number of applications, snubbing is a better alternative to coil tubing as it can provide a larger pull capacity and has the ability to apply higher torque to turn, push and pull the jointed pipe string which is important when trying to dislodge it from stuck-in-hole situations or fishing. High Arctic will continue to adapt its snubbing and well servicing technologies to the emerging needs of its customers as part of its effort to increase market share against coiled tubing. Management is cautiously optimistic that activity levels in the liquids rich and unconventional shale gas plays will continue to allow High Arctic to grow revenues despite low natural gas prices, although the gas oversupply situation could curtail activity if more wells are forced to shut in and are unable to produce the associated liquids. The Petroleum Services Association of Canada's (PSAC) most recent forecast for 2012 is for a 10% increase in the number of wells released over 2011 though that forecast may need some adjustment.
The Canadian oilfield services industry is experiencing both a limited supply of certain specialized equipment and a shortage of qualified field personnel. This situation has led to increases in the industry day rates, but has also placed inflationary pressures on wages for experienced personnel and other operating costs. We expect that trend to continue.
The Company is in a relatively strong position given its relationships and first call commitments with some of the natural gas industry's most active operators. Management remains focused on maintaining a competitive cost structure, improving operating efficiencies and increasing its workforce to activate underutilized equipment. Attracting and retaining qualified field personnel is expected to be an ongoing challenge for 2012. The Company's goal is to maintain and add additional operating crews to keep pace with the demand for its equipment.
Operations in PNG provide stability to cash flows for the Company, particularly because Rigs 103, Rig 104 and the related support services have been contracted until December 2013 and Rig 102 is contracted until May 2014. Those contracts provide a significant base level of activity to support the operations in PNG. Operations in PNG are expected to be more active in 2012.
Our major customer in PNG expects to move from a one drilling rig program to two rigs in the second half of 2012. Current plans are to use one drilling rig crew to operate either Rig 104 or Rig 103 during the first part of the year. Rig 103 was recently mobilized to the Western Province in PNG to drill a well, and is expected to be drilling into the second quarter of 2012, following which the crew will move back onto Rig 104 to resume drilling with that rig. Meanwhile Rig 103 is expected to move to the Highlands area of PNG to possibly begin drilling operations in the fourth quarter or early 2013 in parallel with Rig 104 for our main customer as part of the plan to move to the two rig operation. Rig 101 may also be commissioned to drill one well in 2012 with a second drilling crew that would then move to Rig 103. Drilling opportunities with other operators remain possibilities, but ones more likely to be realized in 2013 than 2012. The Company's expectation is that Rig 102 will be active throughout most of 2012 working on the workover program for its main customer.
High Arctic provides drilling support equipment on a rental basis to a number of customers in Papua New Guinea. The matting rental business has expanded significantly over the past 18 months and the Company currently has firm contracts for all 5,500 Dura-Base mats currently in the country. The Company will continue to pursue opportunities to expand that business line and increase its rental fleet. Matting and rental equipment investments made in 2011 will benefit the PNG operation into 2012 as they are put fully into service.
On February 2, 2012, the Company announced a $23.0 million capital budget for 2012 which is anticipated to be fully funded from cash flow. Growth capital expenditures are budgeted at $16.0 million, and maintenance capital expenditures at $7.0 million. Capital expenditures are anticipated to be funded from operating cash flow. Growth capital spending is intended to be focused primarily on adding to the Company's equipment rental fleet as well as the expansion of the Canadian nitrogen division. Capital spending plans may be adjusted in accordance with changes in market conditions or on the ability to secure contracts with acceptable returns. While no firm decisions have been made, management anticipates the incurrence of similar or higher levels of maintenance capital in future years in order to maintain the high quality standard of its fleet.
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, 2011 and 2010. 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:
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.
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.
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 is used by management and the investment community to analyze the amount of total debt that would be remaining after cash balances are applied against the debt. It is calculated as total debt (including current portion) less cash.
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, 2011 and in the Annual Information Form for the year ended December 31, 2010 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.
A full copy of High Arctic's fourth quarter and 2011 results including Management's Discussion and Analysis, Consolidated Financial Statements and Notes to the Consolidated Financial Statements can be found on the Investor Relations page of High Arctic's website www.haes.ca or at www.sedar.com.
For further information:
Chief Financial Officer