TSX Symbol: SES
All amounts are expressed in U.S. dollars unless otherwise noted
CALGARY, July 31 /CNW/ - Saxon Energy Services Inc. ("Saxon" or the "Corporation") is pleased to announce its second quarter results.
For the second quarter of 2008 the Corporation generated $73.3 million in revenue and net earnings of $6.8 million ($0.08 per diluted share) compared to revenue of $56.6 million and net earnings of $4.6 million ($0.05 per diluted share) in the second quarter of 2007. On a year-to-date basis, the Corporation generated $145.5 million in revenue and net earnings of $11.9 million ($0.14 per diluted share) compared to revenue of $111.6 million and net earnings of $12.6 million ($0.15 per diluted share) in the prior year.
Highlights
----------
Three months ended Six months ended
June 30 June 30
($000's except per
share amounts and 2008 2007 % 2008 2007 %
operating data) -----------------------------------------------------
Revenue 73,302 56,635 29 145,462 111,560 30
EBITDAS (1) 18,409 13,755 34 37,070 32,784 13
Operating
earnings (2) 12,908 8,284 56 24,196 22,103 9
Net earnings 6,758 4,601 47 11,876 12,618 (6)
Cash flow from
operations 13,725 16,325 (16) 29,639 30,714 (4)
-----------------------------------------------------
EBITDAS per
share ($) (1)
Basic 0.22 0.16 38 0.44 0.39 13
Diluted 0.21 0.16 31 0.43 0.39 10
-----------------------------------------------------
Net earnings per
share ($)
Basic 0.08 0.05 60 0.14 0.15 (7)
Diluted 0.08 0.05 60 0.14 0.15 (7)
-----------------------------------------------------
Weighted average
share (000's)
Basic 84,667 84,181 1 84,627 84,060 1
Diluted 86,581 85,554 1 85,890 84,866 1
-----------------------------------------------------
Revenue per
operating day (3) 22.4 18.4 22 21.8 18.1 20
Operating
days (4) (5) 3,272 3,049 7 6,679 6,123 9
Available days (5) 4,880 4,291 14 9,624 8,405 15
-----------------------------------------------------
Utilization 67% 71% 69% 73%
Overview
Revenue for the second quarter of 2008 was $16.7 million (29%) higher than
the second quarter of 2007. Operating days increased by 7%, driven by rig
fleet expansion in the U.S. and Mexico and rig redeployments in South America,
but was partially offset by a decline in activity in Ecuador. Revenue per
operating day was 22% higher than the second quarter of 2007. Operating
earnings increased $4.6 million (56%) compared to the second quarter of 2007,
mainly the result of additional rigs deployed since the second quarter of 2007
into the U.S. and Mexico and day rate increases in Colombia and Venezuela.
On a year-to-date basis in 2008 revenue was $33.9 million (30%) higher
than the same period in 2007. Operating days increased by 9%, the result of
rig fleet expansion in the U.S. and Mexico since the beginning of 2007 and rig
redeployments in Colombia. This increase in activity was offset in part by a
reduction in Canadian activity due to soft market conditions and a reduction
in activity in Ecuador due to an uncertain political environment. Operating
earnings were $2.1 million higher than the same period in 2007 fueled by
increases in activity and dayrates but also offset somewhat by a number of
non-recurring items primarily occurring in the first quarter of 2008.
South America
-------------
Three months ended June 30 Six months ended June 30
Selected
operating data 2008 2007 % 2008 2007 %
-----------------------------------------------------
Revenue 35,747 31,160 15 68,302 53,725 27
EBITDAS 9,503 7,905 20 18,136 15,213 19
Operating earnings 7,732 5,627 37 13,566 11,023 23
-----------------------------------------------------
Revenue per
operating day 24.7 18.0 37 23.7 17.3 37
Operating days
Colombia 623 553 13 1,215 1,003 21
Peru 182 182 - 364 362 1
Ecuador 384 757 (49) 792 1,323 (40)
Venezuela 258 240 8 511 420 22
-----------------------------------------------------
South America 1,447 1,732 (16) 2,882 3,108 (7)
Utilization
Colombia 95% 100% 98% 100%
Peru 100% 100% 100% 94%
Ecuador 51% 92% 50% 81%
Venezuela 95% 88% 94% 73%
----------------- -----------------
South America 78% 95% 77% 87%
----------------- -----------------
Revenue for the second quarter of 2008 was $4.6 million (15%) higher than
the second quarter of 2007 with all countries at or near full utilization with
the exception of Ecuador. Operating days were 285 (16%) below the second
quarter of 2007. Average revenue per operating day was 37% higher than the
second quarter of 2007. The overall increase in revenue was the result of
several factors including higher dayrates in Colombia, Peru and Venezuela
($3.6 million), higher activity in Colombia and Venezuela ($1.7 million),
higher reimbursable revenue ($500,000) and a stronger Colombian peso
($800,000). These positive factors were offset in part by the decline in
workover activity in Ecuador ($2.3 million) as the current political climate
is not conducive to new international investments and has impacted our
clients' workover programs.
Operating earnings for the second quarter of 2008 were $2.1 million (37%)
higher than the second quarter of 2007 and improved as a percentage of revenue
(2008: 22%; 2007: 18%). Higher day rates and activity in Colombia, Peru and
Venezuela helped boost operating earnings but was tempered by a loss incurred
on a rig mobilization ($700,000) and increased maintenance costs ($300,000).
On a year-to-date basis in 2008 revenue was $14.6 million (27%) higher
compared to the same period in 2007 with all countries at or near full
utilization with the exception of Ecuador. Operating days were 226 below that
of 2007 as additional days from rigs redeployed into Colombia and a rig in
Venezuela that was idle in the first quarter of 2007 were offset by decreased
operating days in Ecuador. Revenue per operating day was 37% higher than 2007.
On a year-to-date basis, operating earnings were $2.5 million higher
compared to the same period last year.
North America
-------------
Three months ended June 30 Six months ended June 30
Selected
operating data 2008 2007 % 2008 2007 %
-----------------------------------------------------
Revenue 37,512 24,974 50 77,083 57,334 34
EBITDAS 13,162 7,602 73 26,511 20,932 27
Operating earnings 9,368 4,722 98 18,560 14,851 25
-----------------------------------------------------
Revenue per
operating day 20.6 19.0 8 20.3 19.0 7
Operating days
United States 1,250 910 37 2,510 1,746 44
Mexico 556 371 50 1,017 739 38
Canada 19 36 (47) 270 530 (49)
-----------------------------------------------------
North America 1,825 1,317 39 3,797 3,015 26
Utilization
United States 72% 71% 74% 71%
Mexico 100% 100% 100% 100%
Canada 3% 4% 19% 33%
----------------- -----------------
North America 61% 53% 64% 62%
----------------- -----------------
Revenue for the second quarter of 2008 was up $12.5 million (50%) from the
second quarter of 2007, primarily the result of additional operating days
($10.2 million), higher average day rates ($1.0 million) and higher
reimbursable revenues ($1.7 million), offset in part by lower lease revenue
($400,000). Operating days rose by 508 (39%), the result of the deployment of
five new ATS(R) rigs into the U.S. since the second quarter of 2007 and three
(1.5 net) new ATD(R) rigs into Mexico. Excluding the effect of low margin
reimbursable revenue, revenue per operating day was 3% higher than the second
quarter of 2007 and added $1.0 million to revenue as the newly deployed rigs
generated higher average revenue per operating day. The effect of the new
Mexico and U.S. rigs on average day rates was offset in part by the effect of
lower rates while three rigs in Mexico were on standby between contracts
during part of April. Consistent with the prior year quarter, operations in
Canada were reduced to almost nil, the result of an expected seasonal drilling
slowdown that commonly occurs during spring break-up.
Operating earnings for the second quarter of 2008 were $4.6 million (98%)
higher than the second quarter of 2007 and improved as a percentage of revenue
(2008: 25%; 2007: 19%) due to increased activity and average dayrates.
Operating earnings as a percent of revenue was negatively affected by the
increase in low margin reimbursable revenue which does not generate
significant operating earnings.
On a year-to-date basis revenue increased $19.7 million compared to 2007,
the result of 782 more operating days ($14.9 million), higher average dayrates
($900,000) and higher reimbursable revenues ($3.9 million). Operating days
rose due to the deployment of seven new rigs into the U.S. (including five
ATS(R) rigs) since the beginning of 2007 and three (1.5 net) new ATD(R) rigs
into Mexico. The positive impact of these deployments was dampened by the
significant decline in Canadian activity in the first quarter of 2008 compared
to the same period in 2007 as soft market conditions reduced operating days
and dayrates. The effect of higher dayrates on newly deployed rigs in the U.S.
was partially offset by the lower Canadian dayrates and the fact that certain
rigs in Mexico earned reduced dayrates on standby mode in the first quarter
and first part of the second quarter of 2008 while awaiting redeployment to
new contracts.
For the six months ended June 30, 2008 operating earnings were
$3.7 million (25%) higher compared to the same period in 2007 but declined as
a percentage of revenue (2008: 24%; 2007: 26%).
Corporate and Other
-------------------
Three months ended Six months ended
Selected June 30 June 30
operating data 2008 2007 % 2008 2007 %
-----------------------------------------------------
Revenue 43 501 (91) 77 501 (85)
EBITDAS (4,256) (1,752) 143 (7,577) (3,361) 125
Operating earnings (4,192) (2,065) 103 (7,930) (3,771) 110
-----------------------------------------------------
Compared to the prior year quarter Corporate and Other expenses have
increased as the Corporation incurred $900,000 of transaction costs relating
to the pending acquisition of the Corporation's shares by Sword Canada
Acquisition Corporation ("Sword"), an acquisition company indirectly jointly
owned by Schlumberger Oilfield Holdings Limited and an affiliate of a fund
managed by First Reserve Corporation. Corporate and Other costs also increased
due to the addition of resources to support the Corporation's growing
international operations ($900,000). Expenses in this segment were negatively
impacted by the increased strength of the Canadian dollar against the U.S.
dollar ($200,000), but this was partially offset by a foreign exchange gain of
$100,000 related to net monetary assets compared to a loss of $300,000 in the
prior year quarter. In the second quarter of 2007 this segment recorded
revenue related to fees earned for managing the construction of drilling rigs
for deployment in Mexico; no such revenue was earned in the second quarter of
2008.
On a year-to-date basis, acquisition related transaction costs totaled
$1.3 million and the added corporate resources resulted in additional costs of
$1.6 million. The impact of the increased strength of the Canadian dollar
compared to the U.S. dollar negatively impacted this segment by $500,000.
Revenue generated by this segment in 2007 related to fees earned for managing
the construction of drilling rigs for deployment in Mexico; no such revenue
was earned in 2008.
Income Taxes
The Corporation's effective tax rate increased to 35% in the second
quarter of 2008 compared to 17% in the prior year quarter. In the second
quarter of 2008 the effective tax rate increased as the Corporation's
operations were weighted more towards jurisdictions with higher statutory tax
rates, particularly in the U.S., and the fact that the value of Canadian tax
losses were lower due to the utilization of a lower future tax recovery rate.
Additionally, in the second quarter of 2007 the Corporation recognized the
benefit of a capital investment incentive deduction in Colombia of $507,000
related to the importation of a drilling rig from Venezuela.
On a year-to-date basis the Corporation's effective tax rate increased to
37% compared to 25% in the prior year. In addition to those items mentioned
above, the effective tax rate was further affected by a $1.5 million
non-deductible provision for prior years' value added taxes in Venezuela
recorded in the first quarter of 2008.
Other Financial Information
---------------------------
Working Capital
At June 30, 2008 the Corporation had a working capital deficiency of $17.1
million compared to an excess of $18.2 million at December 31, 2007. The
deficiency is primarily due to the reclassification of the Corporation's
revolving credit facility to current liabilities as it was not renewed in the
quarter and will be due in June 2009. In the first quarter of 2008 the
Corporation also classified an additional quarterly principal payment on its
debt facilities to current liabilities (in June 2007 the Corporation received
a principal repayment holiday on its term debt facility until May 2008 at
which time principal repayments restarted in 11 quarterly installments).
Financing Activities
In the second quarter of 2008 the Corporation drew $6.0 million under its
revolving credit facility and made $6.5 million in scheduled repayments
against its term facilities.
On a year-to-date basis the Corporation drew $9.0 million under its
revolving credit facility and made $12.0 million in repayments. The
Corporation also made $6.8 million in scheduled repayments against its term
facilities. The net repayments were funded through cash flow from operations
and proceeds received on the sale of an idle Canadian drilling rig.
Investing Activities
During the three and six months ended June 30, 2008 the Corporation
invested $14.7 million and $25.1 million respectively in property and
equipment as follows:
- $12.2 million and $19.7 million for expansion of the drilling rig
fleet; and
- $2.5 million and $5.4 million on various capital upgrades to the
Corporation's existing asset base.
Outlook
On July 15, 2008 the Corporation's shareholders approved the plan of
arrangement involving Saxon, its shareholders, its option holders and Sword,
an acquisition company indirectly jointly owned by Schlumberger Oilfield
Holdings Limited and an affiliate of a fund managed by First Reserve
Corporation (the "Arrangement"). As previously announced, the Arrangement
involves the acquisition of all of Saxon's outstanding common shares for cash
consideration of Cdn$7.00 per share, other than a portion of the common shares
held by certain members of senior management of Saxon which are expected to be
exchanged for equity in an affiliate of Sword.
Completion of the Arrangement remains subject to a number of conditions,
some of which are beyond Saxon's and Sword's control. Although the exact
timing of implementation of the Arrangement is not currently known, both Saxon
and Sword currently expect the closing to occur by the end of August 2008.
In view of these recent announcements there will be no conference call to
discuss these results.
Notes:
------
1. Neither Earnings before interest, taxes, depreciation, amortization
and stock-based compensation ("EBITDAS") nor EBITDAS per share is a
recognized measure under Canadian Generally Accepted Accounting
Principles ("GAAP"). Management believes that in addition to cash
flow from operations and net earnings, EBITDAS is a useful
supplemental measure as it provides an indication of the operating
cash flow generated by the Corporation's principal business
activities. Readers should be cautioned that EBITDAS should not be
construed as an alternative to cash flow from operations or net
earnings determined in accordance with GAAP as an indicator of the
Corporation's performance. The Corporation's method of calculating
EBITDAS may differ from other companies and accordingly may not be
comparable to measures used by other companies. EBITDAS is calculated
as earnings before income taxes, plus or minus loss or gain on
disposal of property and equipment, plus stock-based compensation,
plus or minus financial expense or income, plus or minus foreign
exchange loss or gain, plus depreciation and amortization.
2. Operating earnings is not a recognized measure under GAAP. Management
believes that in addition to net earnings, operating earnings is a
useful supplemental measure as it provides an indication of the
results generated by the Corporation's principal business activities
prior to consideration of how those activities are financed, how the
results are taxed in various jurisdictions, or how the results are
impacted by the accounting standards associated with the
Corporation's stock-based compensation plans. Investors should be
cautioned that operating earnings should not be construed as an
alternative to net earnings determined in accordance with GAAP as an
indicator of the Corporation's performance. The Corporation's method
of calculating operating earnings may differ from other companies and
accordingly may not be comparable to measures used by other
companies. Operating earnings is calculated as earnings before income
taxes, plus stock-based compensation, plus or minus financial expense
or income.
3. Revenue per operating day excludes revenue generated in Corporate and
Other.
4. Operating days is not a recognized measure under GAAP. Management
believes that in addition to net earnings, operating days is a useful
supplemental measure as it provides an indication of the utilization
of the Corporation's asset base. The Corporation's method of
calculating operating days may differ from other companies and may
not be comparable to measures used by other companies. Operating days
is the total of all drilling, completion, workover, mobilization,
standby and other revenue days in the period.
5. Net to the Corporation.
CONSOLIDATED BALANCE SHEETS
(Unaudited - $000's) June 30, December 31,
2008 2007
--------------------------
Assets
Current assets
Cash and cash equivalents 10,342 11,249
Accounts receivable 63,332 59,919
Prepaid expenses and deposits 3,691 3,703
Long-lived asset held for sale - 4,245
--------------------------
77,365 79,116
Property and equipment 355,561 344,575
Other accounts receivable 2,220 2,570
Intangible assets 897 1,277
Goodwill 3,271 3,528
--------------------------
439,314 431,066
--------------------------
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities 30,765 27,031
Income and other taxes payable 13,671 14,065
Current portion of long-term debt 50,042 19,805
--------------------------
94,478 60,901
Long-term debt 37,926 77,644
Future income tax liability 2,462 361
Shareholders' equity
Share capital 218,296 217,704
Contributed surplus 25,027 23,070
Retained earnings 54,545 42,669
Accumulated other comprehensive income 6,580 8,717
--------------------------
61,125 51,386
--------------------------
Total shareholders' equity 304,448 292,160
--------------------------
439,314 431,066
--------------------------
--------------------------
Consolidated Statements of Operations and Retained Earnings
(Unaudited - $000's
except per share
amounts) Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
--------------------------------------------
Revenue 73,302 56,635 145,462 111,560
Expenses
Direct operating 46,391 36,958 92,517 67,692
General and
administrative 8,502 5,922 15,875 11,084
Depreciation
and amortization 6,161 4,974 12,346 10,125
Foreign exchange (gain)
loss (360) 710 820 872
Financial expense 1,454 1,554 3,195 3,174
Stock-based compensation 1,027 1,168 2,175 2,178
Gain on disposal of
property and equipment (300) (213) (292) (316)
--------------------------------------------
62,875 51,073 126,636 94,809
--------------------------------------------
Earnings before income
taxes 10,427 5,562 18,826 16,751
Income taxes
Current 2,040 2,056 4,897 4,265
Future (reduction) 1,629 (1,095) 2,053 (132)
--------------------------------------------
3,669 961 6,950 4,133
--------------------------------------------
Net earnings 6,758 4,601 11,876 12,618
Retained earnings,
beginning of period 47,787 23,901 42,669 15,884
--------------------------------------------
Retained earnings,
end of period 54,545 28,502 54,545 28,502
--------------------------------------------
--------------------------------------------
Net earnings per share
Basic 0.08 0.05 0.14 0.15
Diluted 0.08 0.05 0.14 0.15
--------------------------------------------
--------------------------------------------
Consolidated Statements of Comprehensive Income
-----------------------------------------------
(Unaudited - $000's) Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
--------------------------------------------
Net earnings 6,758 4,601 11,876 12,618
Unrealized gains (losses)
recorded on translation of
assets and liabilities of
self-sustaining operations
denominated in foreign
currency 569 5,349 (2,129) 6,035
Gains on derivatives
designated as cash flow
hedges in prior periods
transferred to net earnings
during the period, net
of tax (211) - (446) -
Gains and losses on
derivatives designated
as cash flow hedges,
net of tax 41 - 438 -
--------------------------------------------
Comprehensive income 7,157 9,950 9,739 18,653
--------------------------------------------
--------------------------------------------
Consolidated Statements of Cash Flows
(Unaudited - $000's) Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
--------------------------------------------
Cash provided by (used in):
Operating activities
Net earnings 6,758 4,601 11,876 12,618
Items not involving cash:
Depreciation
and amortization 6,161 4,974 12,346 10,125
Stock-based compensation 1,027 1,168 2,175 2,178
Unrealized foreign
exchange (gain) loss (158) - 255 -
Other 301 219 603 434
Future income tax
(reduction) 1,629 (1,095) 2,053 (132)
Gain on disposal of
property and equipment (300) (213) (292) (316)
--------------------------------------------
15,418 9,654 29,016 24,907
Change in non-cash
working capital (1,693) 6,671 623 5,807
--------------------------------------------
13,725 16,325 29,639 30,714
Financing activities
Long-term debt (497) 275 (9,796) 6,572
Issue of share capital 374 1,152 374 1,491
Debt financing costs - (300) - (532)
Intangible assets - (763) - (763)
--------------------------------------------
(123) 364 (9,422) 6,768
Investing activities
Additions to property
and equipment (14,739) (12,304) (25,131) (28,896)
Proceeds on disposal of
property and equipment 307 1,107 4,486 1,256
Change in non-cash
working capital (441) (5,449) (479) (4,167)
--------------------------------------------
(14,873) (16,646) (21,124) (31,807)
--------------------------------------------
Change in cash position (1,271) 43 (907) 5,675
Cash and cash equivalents,
beginning of year 11,613 16,087 11,249 10,455
--------------------------------------------
Cash and cash equivalents,
end of year 10,342 16,130 10,342 16,130
--------------------------------------------
--------------------------------------------
Interest paid 1,207 2,296 2,933 4,226
Interest received 37 90 129 116
Income taxes paid 3,335 1,255 4,296 2,799
--------------------------------------------
--------------------------------------------
The Corporation is an emerging international oilfield services company that operates an established oil and gas drilling and workover business focusing on providing these services to major and intermediate oil and gas companies in North and South America. The common shares of the Corporation trade on the TSX under the symbol "SES".
Forward-Looking Information
---------------------------
Certain information contained in this press release, including information and statements which may contain words such as "could", "plans", "should", "anticipates", "expects", "believes", "will", "forecasts", "budget" and similar expressions and statements relating to matters that are not historical facts, are forward-looking information including, but not limited to, information as to the completion of acquisition of all of the shares of the Corporation by Sword Canada Acquisition Corporation ("Sword") by way of plan of arrangement involving the Corporation, its shareholders, its option holders and Sword, an acquisition company indirectly jointly owned by Schlumberger Oilfield Holdings Limited and an affiliate of a fund managed by First Reserve Corporation ("Arrangement").
This forward-looking information is based on certain material factors, assumptions and analyses made by the Corporation in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results, performance or achievements will conform with the Corporation's conclusions, forecasts, projections, expectations and predictions expressed or implied by the forward looking information in this press release is subject to known and unknown risks and uncertainties which could cause actual results to differ materially from the Corporation's conclusions, forecasts, projections, expectations and predictions expressed or implied by the forward looking information in this press release, including: the transaction to acquire all of the shares of the Corporation by Sword may not close for various reasons including, on account of conditions of closing not being fulfilled or a competing bid; and those risks and uncertainties described in the Corporation's continuous disclosure filings, including those referred to in the Corporation's Information Circular dated June 13, 2008 related to the Arrangement and the Corporation's Management's Discussion and Analysis for the most recently completed financial year end and in the Corporation's most recent Annual Information Form, all of which may be found on SEDAR at www.sedar.com. If any of the above or other risks or uncertainties materialize, or if the material factors, assumptions and analyses applied by the Corporation are incorrect, actual results may vary materially from those expected in the forward looking information in this press release.
Consequently, all of the forward-looking information contained in this press release is qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Corporation expressed or implied by the forward looking information in this press release will be realized or, even if substantially realized, that they will have the expected consequences to or effects on the Corporation or its business operations. The Corporation assumes no obligation, except as required by law, to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise. Readers should not place undue reliance on forward-looking information.
%SEDAR: 00009478E