Total Energy Services Inc. Announces Q3 2014 Results

CALGARY, ALBERTA--(Marketwired - Nov. 12, 2014) - Total Energy Services Inc. ("Total Energy" or the "Company") (TSX:TOT) announces its consolidated financial results for the three and nine months ending September 30, 2014.

Financial Highlights
($000's except per share data)
	Three Months Ended  September 30						Nine Months Ended  September 30
	(unaudited)						(unaudited)
	2014		2013		%  Change		2014			2013			% Change
Revenue	$	108,233	$	89,060	22%		$	307,040		$	252,639		22%
Operating Earnings (1)		16,262		13,698	19%			48,266			38,631		25%
EBITDA (1)		24,596		20,752	19%			76,195			59,800		27%
Cashflow (1) (5)		24,184		18,899	28%			78,078			36,456		114%
Net Income		11,752		9,109	29%			39,996			26,614		50%
Per Share Data (Diluted) (2)
EBITDA (1)	$	0.70	$	0.61	15%		$	2.19		$	1.76		24%
Cashflow (1) (5)	$	0.69	$	0.55	25%		$	2.24		$	1.07		109%
Net Earnings	$	0.37	$	0.29	28%		$	1.24		$	0.86		44%
								Sept. 30			Dec. 31
								2014 (unaudited	)		2013 (audited	)	%  Change
Financial Position
Total Assets							$	574,119		$	518,782		11%
Long-Term Debt, Convertible Debentures and Obligations Under Finance Leases (excluding current portion)								68,732			67,221		2%
Working Capital (3)								97,624			69,651		40%
Net Debt (4)								Nil			Nil		-
Shareholders' Equity								372,913			340,612		9%
Shares Outstanding (000's)
Basic								31,174			31,176		-
Diluted (2)								34,744			34,838		-

Notes 1 through 5 please refer to the Notes to the Financial Highlights set forth at the end of this release.

Total Energy's results for the three and nine months ended September 30, 2014 reflect a seasonal increase in field activity levels within the Contract Drilling Services and Rentals and Transportation Services divisions coming out of spring breakup. Continued growth within the Compression and Process Services division was tempered by the sale of approximately 23,900 horsepower of rental compression during the first half of 2014 upon the exercise of purchase options by customers.

Total Energy's Contract Drilling Services division achieved 55% utilization during the third quarter of 2014, recording 863 operating days (spud to release) with a fleet of 17 rigs, compared to 798 operating days, or 54% utilization, during the third quarter of 2013 with a fleet of 16 rigs. Rig 17 was completed and commenced operations in late August of 2014. Revenue per operating day increased 5% for the third quarter of 2014 relative to the prior year comparable period due primarily to the mix of equipment operating. Despite operating earnings margins for the third quarter of 2014 being negatively impacted by significant non-routine rig repair costs, year to date operating earnings margins in the Contract Drilling Services division have increased by 13% as compared to 2013. The Rentals and Transportation Services division achieved a utilization rate on major rental equipment of 40% during the third quarter of 2014, which was consistent with the third quarter of 2013. Divisional revenue per utilized rental piece increased 17% for the third quarter of 2014 compared to the same period in 2013, due primarily to the mix of equipment utilized. Revenues in the Compression and Process Services division increased 26% to $61.4 million for the three months ended September 30, 2014 compared to $48.8 million for the same period in 2013. This division exited the third quarter of 2014 with a $78.6 million backlog of fabrication sales orders as compared to $57.6 million at September 30, 2013. Excluded from the September 30, 2014 sales backlog is approximately $11.5 million (10,900 horsepower) of compression equipment that was sold during the third quarter but converted to rentals subsequent to September 30, 2014. At September 30, 2014, approximately 35,500 horsepower of compression equipment was on rent compared to 35,700 horsepower on rent at September 30, 2013. The gas compression rental fleet operated at an average utilization rate of 86% for the third quarter of 2014 as compared to 85% during the same period in 2013.

During the third quarter, Total Energy declared a quarterly dividend of $0.06 per share to shareholders of record on September 30, 2014. This dividend was paid on October 31, 2014. 268,900 common shares were purchased under the Company's normal course issuer bid during the three months ended September 30, 2014 at an average price of $21.15 per share (including commissions).

Outlook

While activity levels in Western Canada during the third quarter of 2014 were generally higher than the third quarter of 2013, recent declines in global oil prices and associated market volatility give rise to uncertainty as to oil and gas producers' future capital spending plans. In this uncertain environment, Total Energy is focused on completing its 2014 capital expenditure program and efficiently managing its operations during the upcoming seasonally active winter season. 

Construction of the Company's 18^th rig, a 4,200 meter (vertical depth rating) AC electric telescopic double with a top drive, is on time and on budget and such rig is expected to be completed and commence operations during the first quarter of 2015. There is significant customer interest in this rig and discussions are underway in regards to contracting the rig upon completion.

Well completion activity levels in Western Canada increased significantly during the third quarter and have carried on into the fourth quarter. The Rentals and Transportation Services division is focused on completing its 2014 capital equipment build program and increasing its equipment utilization as the industry enters the seasonally busy winter drilling season.

Demand for compression and process equipment remains strong. To accommodate increased demand for natural gas compression equipment rentals, including the recent conversion of 10,900 horsepower of compression sales to rentals, Total Energy has increased its 2014 capital budget by $5.0 million to $93.1 million. This increase will bring the Company's 2014 capital budget for compression rental fleet expansion to $32.9 million, which includes $7.9 million carried forward from 2013. Offsetting this capital budget increase has been the receipt of $31.5 million from the sale of property, plant and equipment during the first nine months of 2014, a significant portion of which was received upon the sale of approximately 28,160 horsepower of compression rental equipment upon the exercise of purchase options by customers. 

To September 30, 2014, $56.2 million of 2014 capital expenditures had been made, with the remaining approximate $36.9 million expected to be expended by the first quarter of 2015. With no significant capital expenditure commitments beyond its 2014 capital budget, Total Energy will continue to evaluate market conditions with a view to pursuing opportunities that meet the Company's investment expectations.

Total Energy's financial condition remains solid with a long-term debt (including convertible debentures) to long-term debt plus equity ratio of 0.17 to 1.0, $97.6 million of positive working capital and no net debt as at September 30, 2014. Total Energy's $35 million operating facility is currently fully available and undrawn.

Conference Call

At 2:30 p.m. MST today, Total Energy will conduct a conference call and webcast to discuss its third quarter financial results. Daniel Halyk, President & Chief Executive Officer, will host the conference call. The call is open to Shareholders and all other interested persons. A live webcast of the conference call will be accessible on Total's website at www.totalenergy.ca by selecting "Webcasts". Persons wishing to join the conference call live may do so by calling (800) 766-6630 or (416) 340-8530. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until November 20, 2014 by dialing (800) 408-3053 (passcode 6885693).

Selected Financial Information

Selected financial information relating to the three and nine month periods ended September 30, 2014 and 2013 is attached to this news release. This information should be read in conjunction with the condensed unaudited interim consolidated financial statements of Total Energy and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Company's third quarter report.

Condensed Interim Consolidated Statements of Financial Position
(in thousands of Canadian dollars)
			September 30,		December 31,
			2014		2013
			(unaudited)		(audited)
Assets
Current assets:
		Cash and cash equivalents	$	19,750	$	3,210
		Accounts receivable		97,800		78,130
		Inventory		44,920		38,858
		Income taxes receivable		-		2,402
		Prepaid expenses and deposits		7,454		5,921
				169,924		128,521
Property, plant and equipment				392,508		382,347
Other assets				7,634		3,861
Goodwill				4,053		4,053
			$	574,119	$	518,782
Liabilities & Shareholders' Equity
Current liabilities:
		Accounts payable and accrued liabilities	$	50,658	$	46,224
		Deferred revenue		9,638		8,710
		Income taxes payable		7,863		-
		Dividends payable		1,870		1,559
		Current portion of obligations under finance leases		2,271		2,377
				72,300		58,870
	Obligations under finance leases			2,871		2,775
	Convertible debentures			65,861		64,446
	Deferred tax liability			60,174		52,079
Shareholders' equity:
		Share capital		89,100		83,243
		Contributed surplus		6,547		6,677
		Equity portion of convertible debenture		4,601		4,601
		Retained earnings		272,665		246,091
				372,913		340,612
			$	574,119	$	518,782

Condensed Interim Consolidated Statements of Comprehensive Income
(in thousands of Canadian dollars except per share amounts)
					Three months ended September 30						Nine months ended September 30
					2014			2013			2014			2013
					(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenue					$	108,233		$	89,060		$	307,040		$	252,639
	Cost of services					76,167			60,573			211,473			169,076
	Selling, general and administration					7,991			7,188			23,967			22,358
	Share-based compensation					176			643			1,524			2,556
	Depreciation					7,637			6,958			21,810			20,018
Results from operating activities						16,262			13,698			48,266			38,631
	Gain on sale of property, plant and equipment					697			96			6,119			1,151
	Finance income					110			107			2,188			342
	Finance costs					(1,379	)		(1,501	)		(4,423	)		(4,451	)
Net income before income taxes						15,690			12,400			52,150			35,673
	Current income tax expense					2,766			1,954			4,059			5,241
	Deferred income tax (recovery) expense					1,172			1,337			8,095			3,818
Total income tax expense						3,938			3,291			12,154			9,059
Net income and total comprehensive income for the period					$	11,752		$	9,109		$	39,996		$	26,614
Earnings per share
	Basic earnings per share				$	0.38		$	0.30		$	1.28		$	0.87
	Diluted earnings per share				$	0.37		$	0.29		$	1.24		$	0.86
Condensed Interim Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
						Three months ended September 30						Nine months ended September 30
						2014			2013			2014			2013
Cash provided by (used in):
Operations:
	Net income for the period				$	11,752		$	9,109		$	39,996		$	26,614
		Add (deduct) items not affecting cash:
				Depreciation		7,637			6,958			21,810			20,018
				Share-based compensation		176			643			1,524			2,556
			Gain on sale of property, plant and equipment			(697	)		(96	)		(6,119	)		(1,151	)
				Finance income		9			(107	)		(1,916	)		(342	)
				Finance costs		1,379			1,501			4,423			4,451
				Current income tax expense		2,766			1,954			4,059			5,241
				Deferred income tax (recovery) expense		1,172			1,337			8,095			3,818
		Income taxes recovered (paid)				(10	)		(2,400	)		6,206			(24,749	)
						24,184			18,899			78,078			36,456
		Changes in non-cash working capital items:
				Accounts receivable		(28,473	)		(17,353	)		(19,670	)		(7,712	)
				Inventory		(3,616	)		(1,553	)		(6,062	)		1,517
				Prepaid expenses and deposits		1,466			(1,385	)		(1,608	)		(3,336	)
				Accounts payable and accrued liabilities		7,721			6,674			7,683			6,435
				Deferred revenue		1,174			(1,402	)		928			(1,277	)
						2,456			3,880			59,349			32,083
Investments:
			Purchase of property, plant and equipment			(21,772	)		(19,400	)		(56,200	)		(36,472	)
			Acquisition of business			-			-			-			(16,954	)
			Proceeds on sale of other assets			733			-			1,022			-
			Purchase of other assets			-			-			(2,879	)		-
			Proceeds on disposal of property, plant and equipment			4,042			841			31,509			4,351
			Changes in non-cash working capital items			(3,464	)		5,103			(1,188	)		880
						(20,461	)		(13,456	)		(27,736	)		(48,195	)
Financing:
	Repayment of obligations under finance leases					(707	)		(795	)		(2,437	)		(2,279	)
	Dividends to shareholders					(1,879	)		(1,530	)		(5,314	)		(4,598	)
	Issuance of common shares					1,649			3,277			5,791			4,705
	Repurchase of common shares					(5,483	)		(1,427	)		(9,106	)		(5,420	)
	Interest paid					(1,884	)		(1,994	)		(4,007	)		(4,157	)
						(8,304	)		(2,469	)		(15,073	)		(11,749	)
Change in cash and cash equivalents						(26,309	)		(12,045	)		16,540			(27,861	)
Cash and cash equivalents, beginning of period						46,059			34,236			3,210			50,052
Cash and cash equivalents, end of period					$	19,750		$	22,191		$	19,750		$	22,191

Segmented Information

The Company operates in three main industry segments, which are substantially in one geographic segment. These segments are Contract Drilling Services, which includes the contracting of drilling equipment and the provision of labour required to operate the equipment, Rentals and Transportation Services, which includes the rental and transportation of equipment used in drilling, completion and production operations and Compression and Process Services, which includes the fabrication, sale, rental and servicing of natural gas compression and process equipment.

As at and for the	Contract			Rentals and			Compression
three months ended	Drilling			Transportation			and Process
September 30, 2014	Services			Services			Services			Other(1)			Total
Revenue	$	16,758		$	30,088		$	61,387		$	-		$	108,233
Cost of services		11,456			14,892			49,819			-			76,167
Selling, general and administration		872			3,401			2,469			1,249			7,991
Share-based compensation		-			-			-			176			176
Depreciation		1,690			3,945			1,993			9			7,637
Results from operating activities		2,740			7,850			7,106			(1,434	)		16,262
Gain on sale of property, plant and equipment		-			105			592			-			697
Finance income		-			-			-			110			110
Finance costs		(206	)		(531	)		(260	)		(382	)		(1,379	)
Net income (loss) before income taxes		2,534			7,424			7,438			(1,706	)		15,690
Goodwill		-			2,514			1,539			-			4,053
Total assets		121,325			245,996			184,426			22,372			574,119
Total liabilities		24,198			51,386			48,000			77,622			201,206
Capital expenditures	$	4,791		$	7,162		$	9,801		$	18		$	21,772

As at and for the	Contract			Rentals and			Compression
three months ended	Drilling			Transportation			and Process
September 30, 2013	Services			Services			Services			Other(1		)	Total
Revenue	$	14,772		$	25,508		$	48,780		$	-		$	89,060
Cost of services		9,460			12,248			38,865			-			60,573
Selling, general and administration		841			3,250			2,048			1,049			7,188
Share-based compensation		-			-			-			643			643
Depreciation		1,597			3,722			1,630			9			6,958
Results from operating activities		2,874			6,288			6,237			(1,701	)		13,698
Gain on sale of property, plant and equipment		-			(19	)		115			-			96
Finance income		-			-			-			107			107
Finance costs		(204	)		(552	)		(241	)		(504	)		(1,501	)
Net income (loss) before income taxes		2,670			5,717			6,111			(2,098	)		12,400
Goodwill		-			2,514			1,539			-			4,053
Total assets		102,233			224,203			153,071			14,855			494,362
Total liabilities		19,583			43,570			32,388			68,920			164,461
Capital expenditures	$	2,816		$	5,255		$	9,855		$	1,474		$	19,400
As at and for the		Contract			Rentals and			Compression
nine months ended		Drilling			Transportation			and Process
September 30, 2014		Services			Services			Services			Other(1	)		Total
Revenue	$	46,124		$	88,555		$	172,361		$	-		$	307,040
Cost of services		29,290			45,647			136,536			-			211,473
Selling, general and administration		2,631			10,360			7,421			3,555			23,967
Share-based compensation		-			-			-			1,524			1,524
Depreciation		4,283			11,624			5,889			14			21,810
Results from operating activities		9,920			20,924			22,515			(5,093	)		48,266
Gain on sale of property, plant and equipment		22			197			5,827			73			6,119
Finance income		-			-			-			2,188			2,188
Finance costs		(613	)		(1,578	)		(778	)		(1,454	)		(4,423	)
Net income (loss) before income taxes		9,329			19,543			27,564			(4,286	)		52,150
Goodwill		-			2,514			1,539			-			4,053
Total assets		121,325			245,996			184,426			22,372			574,119
Total liabilities		24,198			51,386			48,000			77,622			201,206
Capital expenditures	$	18,283		$	16,016		$	21,876		$	25		$	56,200
As at and for the		Contract			Rentals and			Compression
nine months ended		Drilling			Transportation			and Process
September 30, 2013		Services			Services			Services			Other(1	)		Total
Revenue	$	37,687		$	79,225		$	135,727		$	-		$	252,639
Cost of services		24,158			37,933			106,985			-			169,076
Selling, general and administration		2,409			10,048			6,331			3,570			22,358
Share-based compensation		-			-			-			2,556			2,556
Depreciation		3,907			11,414			4,668			29			20,018
Results from operating activities		7,213			19,830			17,743			(6,155	)		38,631
Gain (loss) on sale of property, plant and equipment		(22	)		216			957			-			1,151
Finance income		-			-			53			289			342
Finance costs		(608	)		(1,648	)		(711	)		(1,484	)		(4,451	)
Net income before income taxes		6,583			18,398			18,042			(7,350	)		35,673
Goodwill		-			2,514			1,539			-			4,053
Total assets		102,233			224,203			153,071			14,855			494,362
Total liabilities		19,583			43,570			32,388			68,920			164,461
Capital expenditures (2)	$	4,547		$	12,657		$	31,248		$	2,020		$	50,472

(1)	Other includes the Company's corporate activities, accretion of convertible debentures and obligations pursuant to long-term credit facilities.
(2)	Includes January 1, 2013 acquisition of a process equipment fabrication business included in Compression and Process Services segment.

Total Energy Services Inc. is a growth oriented energy services corporation involved in contract drilling services, rentals and transportation services and the fabrication, sale, rental and servicing of natural gas compression and process equipment. The common shares of Total Energy are listed and trade on the TSX under the symbol TOT. 

Notes to Financial Highlights

1. Operating earnings means results from operating activities and is equal to net income before income taxes minus gain on sale of property, plant and equipment plus finance costs. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to net income before income taxes plus finance costs plus depreciation. Cashflow means cash provided by operations before changes in non-cash working capital items. Operating earnings, EBITDA and cashflow are not recognized measures under IFRS. Management believes that in addition to net income, operating earnings, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by the Company's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by the Company's primary business activities without consideration of the timing of the monetization of non-cash working capital items. Readers should be cautioned, however, that operating earnings, EBITDA and cashflow should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of Total Energy's performance. Total Energy's method of calculating operating earnings, EBITDA and cashflow may differ from other organizations and, accordingly, operating earnings, EBITDA and cashflow may not be comparable to measures used by other organizations.

2. Per share data (diluted) and the number of common shares outstanding on a diluted basis includes the impact of the approximate 3.1 million common shares issuable upon the entire conversion of the $69 million principal amount of convertible debentures issued by the Company in February 2011.

3. Working capital equals current assets minus current liabilities.

4. Net Debt equals long-term debt plus obligations under finance leases plus convertible debentures plus current liabilities minus current assets.

5. Cashflow for the nine months ended September 30, 2013 is net of $15.3 million of income taxes paid during the period that relates to 2012 taxable income as a result of the Company not having been required to make income tax installment payments during 2012.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "believe", "will" and similar expressions and statements relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of Total Energy to be materially different from any future results, performances or achievements expressed or implied by such forward-looking statements. Such factors include fluctuations in the market for oil and natural gas and related products and services, political and economic conditions, the demand for products and services provided by Total Energy, Total Energy's ability to attract and retain key personnel and other factors. Reference should be made to Total Energy's most recently filed Annual Information Form and other public disclosures (available at www.sedar.com) for a discussion of such risks and uncertainties.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.