CALGARY, ALBERTA — (Marketwired) — 11/12/14 — CWC Energy Services Corp. (TSX VENTURE: CWC) (“CWC” or the “Company”) announces the December 2014 dividend and the release of its operational and financial results for the three and nine months ended September 30, 2014. The Interim Financial Statements and Management–s Discussion and Analysis (“MD&A”) for the periods ended September 30, 2014 are filed on SEDAR at .
Quarterly Dividend
The Company is pleased to announce that its Board of Directors has declared a quarterly dividend of $0.0175 per common share. The dividend will be paid on January 15, 2015 to shareholders of record on December 31, 2014. The ex-dividend date is December 29, 2014. This dividend is an eligible dividend for Canadian income tax purposes.
The declaration of dividends is determined on a quarter by quarter basis by the Board of Directors and reflects CWC–s positive view on the sustainability of its cash flow and earnings in the future.
Highlights for the Three Months Ended September 30, 2014
Highlights for the Nine Months Ended September 30, 2014
(1) Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Financial and Operational Highlights
Operational Overview
Contract Drilling
CWC Ironhand Drilling experienced industry leading utilization of 75% during Q3 2014 and put rig 9 into service on September 29, 2014. CWC Ironhand Drilling currently has a fleet of nine telescopic double drilling rigs with depth ratings from 3,200 to 4,500 metres having an average age of five years. Eight of these nine drilling rigs have top drives. All of the drilling rigs are well suited for the most active depths for horizontal drilling in the WCSB, including the Montney, Duvernay, Cardium and other deep basin horizons. Currently four of the nine drilling rigs are on long-term contracts and there are customers for eight of the nine drilling rigs until April 2015. Despite the current downturn in oil prices, CWC anticipates customers will renew their contracts and commitments after spring breakup 2015.
CWC Ironhand Drilling is currently constructing Rig #10, a new telescopic double drilling rigs with a depth capacity of 4,500 metres to be in service in Q3 2015. This drilling rig, like our other nine rigs, is well suited for drilling the Montney, Duvernay, Cardium, and other deep basin targets. CWC expects to continue to grow the CWC Ironhand Drilling rig fleet through organic new builds backed by long-term contracts with high credit quality oil and gas customers.
Production Services
CWC is the fifth largest service rig provider in the WCSB, having a modern fleet of 71 service rigs as at September 30, 2014. The Company–s service rig fleet consists of 41 singles, 27 doubles, and 3 slant rigs. The average age of CWC–s service rig fleet is approximately 7 years, making CWC–s fleet amongst the newest in the WCSB. CWC took delivery of a new slant service rig at the end of September 2014 and put it into service in October 2014. This new slant service rig was completed ahead of schedule and on budget at a cost of $3.0 million. This slant service rig will operate out of our Slave Lake operation with a focus on SAGD wells. Customer acceptance of our high quality equipment continues to be strong and a differentiating factor for CWC. Both customers and field personnel generally prefer to use newer equipment due to lighter weight, better design, and modern safety features. Rig services include completions, maintenance, workovers and abandonments with depth ratings from 1,500 to 5,000 metres.
Service rig hours and utilization decreased in Q3 2014 compared to Q3 2013 primarily due to abnormally wet weather conditions in central and southern Alberta and southeast Saskatchewan throughout July and August 2014 which affected the ability of our service rigs to move to the well location to perform its services. In addition, three of CWC–s top five senior E&P customers by revenue temporarily reduced activity levels during the quarter due to their unique internal operational issues which resulted in a significant reduction in CWC–s Q3 2014 utilization of 42% compared to 51% in Q3 2013. CWC was challenged to find new E&P customers to replace the significant reduction in revenue from these three customers and is pleased to report that all the service rigs affected by this slowdown in activity have been re-deployed with new customers by the end of September 2014. The end result of this shift in customers is that CWC has a more diverse and broader base of E&P customers today than in the prior year. In Q3 2013, 50% of CWC revenues came from five customers, as compared to 46% in Q3 2014.
CWC–s Class I, II and III coil tubing units have depth ratings from 1,500 to 4,000 metres. The market for the Class III deep coil tubing unit has become extremely competitive with an increased supply of new deep coil tubing units over the last year having an adverse affect on industry utilization and pricing. In light of these competitive challenges for CWC–s Class III coil tubing unit, the Company has chosen to focus its sales and operational efforts on SAGD wells, which are shallower in depth and more appropriate for our Class I and II coil tubing units. These strategies resulted in record 2013 revenue and cash flow in the eight year history of CWC–s coil tubing division. In Q3 2014, the coil tubing division continues to show increased operating hours and utilization of 29% compared to Q3 2013 of 25% as it continues to gain market share on servicing SAGD wells. To support the increasing number of SAGD wells that need coil tubing services, in August 2014, the Company purchased two additional Class II shallow coil tubing units, similar to our existing shallow coil tubing fleet for a total purchase price of $1.3 million.
On September 15, 2014, CWC announced the sale of its non-core snubbing assets and business in several separate transactions for total gross proceeds of $6.5 million. The sale of the snubbing division allows CWC to focus on its core business of drilling rigs, service rigs and coil tubing.
Capital Expenditures
The Board of Directors has approved a 2014 capital expenditure budget of $45.6 million consisting of $31.2 million in growth capital and $14.4 million of maintenance and infrastructure capital. The growth capital consists of:
As at September 30, 2014, the Company has spent $20.7 million of the $45.6 million 2014 capital expenditure budget and taken delivery of:
CWC expects to take delivery of the remaining growth capital expenditures as follows:
Of the $45.6 million capital expenditure budget, it is expected that $17.8 million is expected to be carried over into 2015 due primarily to long lead time items for the drilling rig that are not expected to be received in 2014.
Outlook
While oil and natural gas liquids prices have been strong in the first half of 2014, the more recent sharp decline in both oil and natural gas liquids prices may have an effect on our E&P customers– cash flow and therefore capital expenditure plans in 2015. This potential decline in E&P customers– cash flow is somewhat offset by the rising U.S. dollar resulting in favourable foreign exchange translations back to the Canadian dollar. The Petroleum Services Association of Canada (“PSAC”) predicts in their recently released drilling activity forecast that 10,100 wells will be drilled in 2015 compared to their forecast of 10,830 wells in 2014, a decrease of 7%. While PSAC anticipates fewer wells to be drilled in 2015, the average well depth will increase from 2,236 metres in 2014 to 2,415 metres in 2015 and the total meters drilled will increase from 24.2 million metres in 2014 to 24.4 million metres in 2015 indicating more drilling and well servicing activity per well. CWC believes this deeper well trend will result in increased operating days per well for its Contract Drilling fleet resulting in increased utilization. For CWC–s Production Services segment, CWC anticipates that its modern service rig fleet and high quality field service staff will remain steady with stable utilization, while coil tubing should see an increase in utilization due to its focus on the ever increasing number of SAGD wells.
While commodity prices are currently under pressure, E&P customers have not yet slowed down their activity levels. CWC is not currently experiencing a slowdown of activity with its customers in Q4 2014 and Q1 2015 with less visibility into and beyond Q2 2015.
The recent announcement of the British Columbia liquified natural gas (“LNG”) tax at a graduated 3.5% tax rate was lower than previously anticipated and should not be a hindrance to proponents making final investment decisions on whether to build such LNG facilities on the west coast of British Columbia. A positive investment decision will have significant impact to CWC–s growth profile as the Company is well positioned to capitalize on this potential future growth. Currently, 100% of the drilling rig fleet is positioned in the Montney, Duvernay, Cardium and deep basin resource plays and 20% of the service rig fleet is based out of Grande Prairie. CWC is cautiously optimistic on its prospects to grow its fleet as these LNG investment decisions become reality and activity levels in northwest Alberta and northeast British Columbia increase.
About CWC Energy Services Corp.
CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the Western Canadian Sedimentary Basin with a complementary suite of oilfield services including drilling rigs, service rigs, coil tubing and well testing. The Company–s corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Red Deer, Lloydminster, Provost, and Brooks, Alberta and Weyburn, Saskatchewan. The Company–s shares trade on the TSX Venture Exchange under the symbol “CWC”.
On May 15, 2014, CWC changed its name from CWC Well Services Corp. to CWC Energy Services Corp. and amalgamated with its wholly-owned subsidiary, Ironhand Drilling Inc. (see “Subsequent Event – Acquisition of Ironhand Drilling Inc.”)
READER ADVISORY – Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
This news release contains certain forward-looking information and statements within the meaning of applicable Canadian securities legislation. Certain statements contained in this news release including everything contained in the section titled “Outlook” and including statements which may contain such words as “anticipate”, “could”, “continue”, “should”, “seek”, “may”, “intend”, “likely”, “plan”, “estimate”, “believe”, “expect”, “will”, “objective”, “ongoing”, “project” and similar expressions are intended to identify forward-looking information or statements. In particular, this news release contains forward-looking statements including management–s assessment of future plans and operations, planned levels of capital expenditures, expectations as to the increase in activity levels, expectations on the sustainability of future cash flow and earnings and the ability to pay dividends, expectations with respect to oil and natural gas prices and price levels necessary for increases in oil and natural gas activity levels, activity levels in various areas, continuing focus on cost saving measures, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB, expectations regarding entering into long term drilling contracts, and expectations regarding the business, operations and revenue of the Company in addition to general economic conditions. Although the Company believes that the expectations and assumptions on which such forward-looking information and statements are based are reasonable, undue reliance should not be placed on the forward-looking information and statements because the Company can give no assurances that they will prove to be correct.
Since forward-looking information and statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the drilling and oilfield services sector (ie. demand, pricing and terms for oilfield drilling and services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks), integration of acquisitions, including the Ironhand Acquisition, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation, including but not limited to tax laws, royalties and environmental regulations, stock market volatility and the inability to access sufficient capital from external and internal sources and the inability to pay dividends. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company–s financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through SEDAR at . The forward-looking information and statements contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Any forward-looking statements made previously may be inaccurate now.
Reconciliation of Non-IFRS Measures
Contacts:
CWC Energy Services Corp.
Duncan T. Au, CA, CFA
President & Chief Executive Officer
(403) 264-2177