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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Rms Systems Inc. | TSXV:RMS | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
Hot Features
Premium
PHX Energy Services Corp. ("PHX Energy") (TSX:PHX) generated a record level of
activity and revenue for a second quarter. Consolidated revenue of $58.4 million
for the three-month period ended June 30, 2012 was achieved as compared to $45.3
million in the 2011-period; a 29 percent increase. Due to an extended spring
break-up period in Canada and a general rise in operating costs, the level of
profitability has decreased. Net earnings decreased to a loss of $2.6 million
for the second quarter of 2012 from earnings of $0.4 million in the 2011-quarter
while EBITDA decreased by 51 percent to $2.5 million for the three-month period
ended June 30, 2012 from $5.2 million in the 2011-period.
International operations continued to demonstrate strong growth, particularly in
Albania and Russia. In the 2012-quarter, this operating segment represented 17
percent of consolidated revenue as compared to 11 percent in the 2011-quarter.
This momentum should continue in all international operating areas through the
remainder of 2012 and beyond.
As part of its previously announced revised $55.1 million 2012 capital
expenditure program, $18.9 million was incurred in the second quarter of 2012,
with a further $6.6 million of equipment presently on order for delivery in the
next few months.
On May 18, 2012, the Corporation entered into a joint venture agreement with RMS
Systems Inc. ("RMS"), pursuant to which, the parties have incorporated
RigManager International Inc. ("RMII") which is equally owned by the two
parties. Pursuant to the joint venture, RMS transferred all of its interest in
its wholly-owned US subsidiary, RigManager Inc., to RMII and granted RMII an
exclusive perpetual license to market and distribute RMS' electronic drilling
recorder ("EDR") technology worldwide outside Canada. The Corporation believes
that the joint venture will strategically assist PHX Energy in achieving its
long-term goals as it represents an opportunity to expand its international and
US operating segments.
The Corporation continued its policy of rewarding its shareholders, and in the
2012-quarter, the Corporation paid dividends of $5.1 million or $0.18 per share.
PHX Energy ended the second quarter with long-term debt of $62.0 million and
working capital of $21.3 million.
Financial Highlights
(Stated in thousands of dollars except per share amounts, percentages and
shares outstanding)
Three-month periods ended Six-month periods ended
June 30, June, 30
% %
2012 2011 Change 2012 2011 Change
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Operating
Results (unaudited) (unaudited) (unaudited)(unaudited)
Revenue 58,423 45,336 29 138,192 108,484 27
Net earnings
(loss) (2,584) 424 n.m. 5,335 4,307 24
Earnings (Loss)
per share -
diluted (0.09) 0.01 n.m. 0.19 0.15 27
EBITDA (1) 2,521 5,182 (51) 17,560 14,452 22
EBITDA per share
- diluted (1) 0.09 0.18 (50) 0.62 0.51 22
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Cash Flow
Cash flows from
operating
activities 15,667 7,437 111 19,743 7,653 158
Funds from
operations (1) 2,512 4,277 (41) 15,546 13,797 13
Funds from
operations per
share - diluted
(1) 0.09 0.15 (40) 0.55 0.49 12
Dividends paid 5,069 3,099 64 8,442 6,211 36
Dividends per
share (2) 0.18 0.12 50 0.30 0.24 25
Capital
expenditures 18,897 11,242 68 36,457 21,408 70
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Financial
Position June 30, Dec 31,
(unaudited) '12 '11
Working capital 21,322 44,868 (52)
Long-term debt 62,000 56,000 11
Shareholders'
equity 112,443 113,868 (1)
Common shares
outstanding 28,179,292 28,091,062 -
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(1) Refer to non-GAAP measures section.
(2) Dividends paid by the Corporation on a per share basis in the period.
n.m. - not meaningful
Non-GAAP Measures
PHX Energy uses certain performance measures throughout this document that are
not recognizable under Canadian generally accepted accounting principles
("GAAP"). These performance measures include earnings before interest, taxes,
depreciation and amortization ("EBITDA"), EBITDA per share, funds from
operations and funds from operations per share. Management believes that these
measures provide supplemental financial information that is useful in the
evaluation of the Corporation's operations and are commonly used by other oil
and gas service companies. Investors should be cautioned, however, that these
measures should not be construed as alternatives to measures determined in
accordance with GAAP as an indicator of PHX Energy's performance. The
Corporation's method of calculating these measures may differ from that of other
organizations, and accordingly, these may not be comparable. Please refer to the
non-GAAP measures section.
Cautionary Statement Regarding Forward-Looking Information and Statements
This document contains certain forward-looking information and statements within
the meaning of applicable securities laws. The use of "expect", "anticipate",
"continue", "estimate", "objective", "ongoing", "may", "will", "project",
"could", "should", "can", "believe", "plans", "intends", "strategy" and similar
expressions are intended to identify forward-looking information or statements.
The forward-looking information and statements included in this document are not
guarantees of future performance and should not be unduly relied upon. These
statements and information involve known and unknown risks, uncertainties and
other factors that may cause actual results or events to differ materially from
those anticipated in such forward-looking statements and information. The
Corporation believes the expectations reflected in such forward-looking
statements and information are reasonable, but no assurance can be given that
these expectations will prove to be correct. Such forward-looking statements and
information included in this document should not be unduly relied upon. These
forward-looking statements and information speak only as of the date of this
document.
In particular, forward-looking information and statements contained in this
document include references to, without limitation, growth and greater
profitability in each of the Corporation's international segments; projected
capital expenditure budget and how this budget will be funded; expected fleet
expansion in 2012; the opportunity to expand internationally and in the US with
the joint venture with RMS Systems Inc.; ability to improve profitability,
specifically related to employee utilization, labor rates and performance
drilling motor costs; the implementation of strategies to mitigate the foreign
exchange exposure related to the Russian rouble; PHX Energy achieving greater
diversification and steady performance in the Canadian market; the installation
of three additional RigManager EDR units in Albania; the ability to maintain
current dividend rate; and the expected increase to the Corporation's credit
facilities.
The above references are stated under the headings: "Operating Costs and
Expenses", "Segmented Information", "Investing Activities", "Capital Resources",
and "Cash Requirements for Capital Expenditures". Furthermore, all information
contained within the Outlook section of this document contains forward-looking
statements.
In addition to other material factors, expectations and assumptions which may be
identified in this document and other continuous disclosure documents of the
Corporation referenced herein, assumptions have been made in respect of such
forward-looking statements and information regarding, among other things: the
Corporation will continue to conduct its operations in a manner consistent with
past operations; the general continuance of current industry conditions;
anticipated financial performance; business prospects; impact of competition;
strategies; the general stability of the economic and political environment in
which the Corporation operates; exchange and interest rates; tax laws; the
sufficiency of budgeted capital expenditures in carrying out planned activities;
the availability and cost of labour and services; and the adequacy of cash flow,
debt and ability to obtain financing on acceptable terms to fund its planned
expenditures, which are subject to change based on commodity prices, market
conditions, and future oil and natural gas prices; and potential timing delays.
Although Management considers these material factors, expectations and
assumptions to be reasonable based on information currently available to it, no
assurance can be given that they will prove to be correct.
Readers are cautioned that the foregoing lists of factors are not exhaustive.
Additional information on these and other factors that could affect the
Corporation's operations and financial results are included in reports on file
with the Canadian Securities Regulatory Authorities and may be accessed through
the SEDAR website (www.sedar.com) or at the Corporation's website. The
forward-looking statements and information contained in this document are
expressly qualified by this cautionary statement. The Corporation does not
undertake any obligation to publicly update or revise any forward-looking
statements or information, whether as a result of new information, future events
or otherwise, except as may be required by applicable securities laws.
Revenue
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011% Change
----------------------------------------------------------------------------
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Revenue 58,423 45,336 29 138,192 108,484 27
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Despite a prolonged spring break-up period in Canada, the Corporation reported
record second quarter consolidated revenue and activity due to strong growth
realized in the US and internationally. For the three-month period ended June
30, 2012, PHX Energy generated revenue of $58.4 million as compared to $45.3
million in the corresponding 2011-period; an increase of 29 percent. US and
international revenue as a percentage of total consolidated revenue were 55 and
17 percent, respectively, for the 2012-quarter as compared to 51 and 11 percent
in 2011. Consolidated operating days grew by 13 percent to a second quarter
record of 4,622 days in 2012 as compared to 4,105 in the 2011-quarter. Average
consolidated day rates for the three-month period ended June 30, 2012 increased
to $12,640, which is approximately 14 percent higher than the day rates of
$11,044 in the second quarter of 2011.
The industry trend toward horizontal and directional drilling is becoming the
norm in both Canada and the US, and this continues to create positive industry
fundamentals for PHX Energy's operations. In the 2012-quarter, horizontal and
directional drilling dominated the Canadian market, representing approximately
95 percent of total industry drilling days (2011 - 89 percent). In the US,
horizontal and directional activity levels in the second quarter of 2012 rose
slightly to 71 percent of the rigs running per day (2011 - 69 percent).
(Sources: Daily Oil Bulletin and Baker Hughes)
For the six-month period ended June 30, 2012, consolidated revenue increased by
27 percent to $138.2 million from $108.5 million for the comparable 2011-period.
Consolidated operating days for the six-month period ended June 30, 2012 grew by
11 percent to 11,305 days as compared to 10,170 days in 2011.
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
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Direct costs 51,365 37,805 36 113,029 87,811 29
Depreciation &
amortization (included
in direct costs) 5,206 3,873 34 10,040 7,575 33
Gross profit as
percentage of revenue
excluding depreciation
& amortization 21 25 25 26
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Direct costs are comprised of field and shop expenses, and include depreciation
and amortization on the Corporation's equipment. Excluding depreciation and
amortization, gross profit as a percentage of revenue was 21 percent for the
three-month period ended June 30, 2012 as compared to 25 percent in the
comparable 2011-period. For the six-month period ended June 30, 2012, gross
profit as a percentage of revenue, excluding depreciation and amortization, was
25 percent as compared to 26 percent in 2011.
The decline in margins in the three and six-month periods ended June 30, 2012 is
due to the factors below.
-- Slower Canadian activity caused by extended wet weather.
-- Higher labor costs in Canada; as a result of record activity levels
achieved in 2011 and in the prior quarter, field and shop personnel
levels grew substantially.
-- Increased performance drilling motor and measurements while drilling
("MWD") system repair costs in Canada and US.
-- Greater third party equipment rentals in Russia and US. The
Corporation's third party equipment rentals for the second quarter of
2012 were $2.3 million, or 4 percent of consolidated revenue, 50 percent
higher compared to the corresponding 2011-quarter when third party
rentals were $1.5 million, or 3 percent of revenue.
Management is monitoring and responding to these issues and is committed to
evaluating different cost reduction initiatives to improve profitability,
especially with its employee utilization, labor rates and performance drilling
motor costs. In addition, the Corporation also expects Colombia to generate
improved profitability in future months.
The overall negative impact of the areas above on margins was partially offset
by higher average day rates realized in all of PHX Energy's operating segments.
Depreciation and amortization for the three-month period ended June 30, 2012
increased by 34 percent to $5.2 million as compared to $3.9 million in the
2011-quarter. The increase is the result of the Corporation's record levels of
capital expenditure programs in 2011 and 2012.
(Stated in thousands of dollars except percentages)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
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Selling, general and
administrative ("SG&A")
costs 8,241 7,028 17 16,746 14,503 15
Share-based payments
(included in SG&A
costs) 614 689 (11) 1,411 1,484 (5)
SG&A costs excluding
share-based payments as
a percentage of revenue 13 14 11 12
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SG&A costs for the three-month period ended June 30, 2012 increased by 17
percent to $8.2 million as compared to $7.0 million in 2011. Included in SG&A
costs are share-based payments of $0.6 million for the 2012-quarter and $0.7
million for the 2011-quarter. Excluding these costs, SG&A costs as a percentage
of consolidated revenue for the three-month period ended June 30, 2012 and 2011
were 13 percent and 14 percent, respectively.
For the six-month period ended June 30, 2012, SG&A costs increased by 15 percent
to $16.7 million as compared to $14.5 million in 2011. Excluding share-based
payments of $1.4 million in the 2012 six-month period and $1.5 million in the
corresponding 2011-period, SG&A costs as a percentage of consolidated revenue
were 11 percent and 12 percent, respectively.
The increase in SG&A costs in both 2012-periods is due to greater
payroll-related costs associated with record activity and additional expenses
with respect to the growth and expansion of PHX Energy's international
operations.
Share-based payments relate to the amortization of the fair values of issued
options of the Corporation using the Black-Scholes model. Share-based payments
decreased in the three and six-month periods ended June 30, 2012 as the
Corporation has not made significant option issuances since December 2011.
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
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Research and development
expense 548 527 4 1,101 1,090 1
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Research and development ("R&D") expenditures charged to net earnings during
each of the three-month periods ended June 30, 2012 and 2011 were both $0.5
million. During the same 2012-period, there were no capitalized development
costs (2011 - $0.4 million).
For the six-month period ended June 30, 2012, R&D expenditures of $1.2 million
were incurred of which $0.1 million were capitalized as deferred development
costs. R&D expenditures for the six-month period ended June 30, 2011 were $1.9
million, of which $0.8 million were capitalized.
PHX Energy continues to focus on its mandate to provide leading edge
technologies to its clients.
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
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Finance expense 711 510 39 1,267 941 35
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Finance expenses relate to interest charges on the Corporation's long-term and
short-term bank facilities. In the second quarter of 2012, finance charges
increased to $0.7 million from $0.5 million in the 2011-quarter, and increased
to $1.3 million in the six-month period ended June 30, 2012 from $0.9 million in
2011. In order to fund PHX Energy's extensive capital expenditure programs in
2011 and 2012, additional bank borrowings were incurred.
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 2012 2011
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Foreign exchange losses
(gains) 988 (33) 636 (267)
Losses from the change
in fair value of
investment in equity
securities 180 - 370 -
Provision for (Recovery
of) bad debts (208) (2) (208) 15
Gains on disposition of
drilling equipment (111) (1,298) (1,105) (1,546)
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Other expense (income) 849 (1,333) (307) (1,798)
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In the second quarter of 2012, other expense is generally represented by foreign
exchange losses of $1.0 million (2011 - gains on disposition of drilling
equipment of $1.3 million). Other income for the six-month period ended June 30,
2012 is mostly represented by gains on disposition of drilling equipment of $1.1
million, partially offset by foreign exchange losses of $0.6 million, whereas in
the 2011 six-month period it is represented by gains on disposition of drilling
equipment of $1.5 million and a foreign exchange gain of $0.3 million.
Foreign exchange losses resulted mainly from fluctuations in the RUR-CDN
exchange rates. Russian roubles devalued in both 2012-periods. Management has
implemented some strategies to mitigate this foreign exchange exposure in
upcoming periods.
The dispositions of drilling equipment relate primarily to equipment lost in
well bores that are uncontrollable in nature. These gains are reported net of
any asset retirements that are made before the end of the equipment's useful
life and self-insured down hole equipment losses, if any. Gains typically result
from insurance programs undertaken whereby proceeds for the lost equipment are
at current replacement values, which are higher than the respective equipment's
book value. There were fewer occurrences of losses in the 2012-periods as
compared to the corresponding 2011-periods. In addition there was a larger
occurrence of scrapped assets in the second quarter of 2012.
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Share of loss of equity-
accounted investee 104 - n.m. 104 - n.m.
----------------------------------------------------------------------------
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n.m. - not meaningful
The Corporation's share in the loss of the equity-accounted investee, RigManager
International ("RMII") for the three and six-month period ended June 30, 2012
amounted to $0.1 million. The loss mainly pertains to RMII's wholly-owned US
subsidiary, RigManager Inc.
(Stated in thousands of dollars)
Three-month periods Six-month periods
ended June 30, ended June 30,
2012 2011 2012 2011
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Provision for (Recovery of) income
taxes (812) 374 918 1,629
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The recovery of income taxes for the second quarter of 2012 was $0.8 million as
compared to a provision for $0.4 million in the 2011-quarter. For the six-month
period ended June 30, 2012, the provision for income taxes was $0.9 million as
compared to $1.6 million in 2011. The expected combined Canadian federal and
provincial tax rate for 2012 is 25 percent. The effective tax rates in the 2012
three and six-month periods of 24 and 15 percent, respectively, are lower than
the expected rate due mainly to the effect of tax rates in foreign
jurisdictions.
(Stated in thousands of dollars except per share and percentages)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
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Net earnings (loss) (2,584) 424 n.m. 5,335 4,307 24
Earnings (Loss) per
share - diluted (0.09) 0.01 n.m. 0.19 0.15 27
EBITDA 2,521 5,182 (51) 17,560 14,452 22
EBITDA per share -
diluted 0.09 0.18 (50) 0.62 0.51 22
EBITDA as a percentage
of revenue 4 11 13 13
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n.m. - not meaningful
The Corporation's level of net earnings and EBITDA in the second quarter of 2012
have both decreased mainly due to higher operating costs and lower Canadian
activity incurred in the quarter. However, for the six-month period ended June
30, 2012, net earnings and EBITDA have both increased due to higher activity and
improved day rates realized from customers. EBITDA as a percentage of revenue
for the three and six-month periods ended June 30, 2012 were 4 and 13 percent,
respectively (2011 - 11 percent and 13 percent).
Segmented Information:
The Corporation reports three operating segments on a geographical basis
throughout the Canadian provinces of Alberta, Saskatchewan, British Columbia,
and Manitoba; throughout the Gulf Coast, Northeast and Rocky Mountain regions of
the US; and internationally in Albania, Peru, Russia and Colombia.
Canada
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
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Revenue 16,121 17,069 (6) 60,611 55,014 10
Reportable segment profit
(loss) before tax (4,512) 21 n.m. 6,499 6,721 (3)
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n.m. - not meaningful
Due to a relatively early and prolonged spring break-up, Canadian revenue for
the three-month period ended June 30, 2012 decreased by 6 percent to $16.1
million (2011 - $17.1 million) and operating days decreased by 14 percent to
1,219 days (2011 - 1,410 days). The demand for horizontal gamma jobs continued
to strengthen, and as a result, average day rates increased by 9 percent to
$13,225 in the 2012-quarter from $12,106 in the 2011-quarter.
In Canada, PHX Energy's horizontal oil well drilling activity (as measured by
operating days) for the three-month period ended June 30, 2012 represented
approximately 77 percent of its overall Canadian activity; a decrease from 82
percent in the 2011-quarter. The Corporation's activity was hampered in May and
June by the impact of wet weather and lower activity, and drilling levels in the
Bakken and Cardium areas were both below those in the 2011-quarter. The active
areas for the Corporation in the 2012-quarter were in the Montney, Viking,
Spearfish, and Shaunavon. PHX Energy is expecting greater diversification in the
Canadian market in upcoming periods as a direct result of marketing personnel
expansion.
Overall in the Canadian industry, horizontal and directional drilling activity,
as measured by drilling days, in the 2012-quarter was 16,587 days, just 30 days
higher compared to the 16,557 days in the 2011-quarter. (Source: Daily Oil
Bulletin)
For the six-month period ended June 30, 2012, PHX Energy's Canadian revenue
increased by 10 percent to $60.6 million from $55.0 million in the comparable
2011-period. The number of horizontal and directional drilling days realized in
the Canadian industry during the six-month period ended June 30, 2012 decreased
by 3 percent to 56,693 days as compared to 58,229 days in 2011. (Source: Daily
Oil Bulletin) In comparison, the Corporation's Canadian operating days decreased
by 1 percent to 4,897 days in the six-month period ended June 30, 2012 from
4,939 days in 2011. Oil well drilling activity represented 78 percent of PHX
Energy's Canadian activity for the 2012 six-month period as compared to 76
percent in 2011.
Reportable segment profit before tax for the second quarter of 2012 decreased to
a loss of $4.5 million from a profit of $21,000 in the 2011-quarter. Lower
profitability during the 2012-quarter was due to increased labor and performance
drilling motor and MWD system repair costs. Due to the seasonal nature of the
Corporation's operations, these loss results are usually expected. For the
six-month period ended June 30, 2012, reportable segment profit before tax
decreased by 3 percent to $6.5 million from $6.7 million in 2011.
United States
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
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Revenue 32,381 23,205 40 59,546 43,003 38
Reportable segment
profit before tax 2,466 1,530 61 2,497 1,242 101
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Phoenix USA reported a record level of activity and revenue during the quarter.
For the three-month period ended June 30, 2012, revenue of $32.4 million was
generated compared to $23.2 million in the 2011-period; a 40 percent increase.
The Corporation's US operating days grew by 16 percent to a record 2,666 days
from 2,291 days in the 2011-quarter. Overall day rates realized also increased
by 20 percent in the 2012-quarter to $12,146 compared to $10,129 in the
2011-quarter. The addition of a performance drilling motor rental division in
the Gulf Coast in late 2011 continued to contribute to the stronger day rates.
The factors that contributed to Phoenix USA's growth in the first quarter of
2012 continued to have an impact in the second quarter, namely: increased
activity in the Permian Basin in Midland, Texas and the mid-continent region in
Oklahoma that occurred late in 2011, the recruitment of additional marketing
personnel, and the deployment of a new proprietary power section that was
utilized successfully in the Corporation's US performance drilling motor fleet.
In the 2012-quarter, Phoenix USA was active in the Barnett, Eagle Ford,
Marcellus, Utica, Niobrara and Bakken plays.
The factors above also contributed to horizontal oil well drilling increasing to
approximately 33 percent of Phoenix USA's overall activity, as measured by
drilling days, in the three-month period ended June 30, 2012 as compared to 27
percent in the 2011-period. US industry activity, as measured by the average
number of horizontal and directional rigs running on a daily basis, were 11
percent higher in the second quarter of 2012 with 1,401 rigs running as compared
to 1,266 rigs in the 2011-quarter. This level of activity represented 71 percent
of total US Industry activity in the 2012-quarter and 69 percent in 2011.
(Source: Baker Hughes)
US revenue for the six-month period ended June 30, 2012 increased by 38 percent
to $59.5 million from $43.0 million in the comparable 2011-period. US industry
activity, as measured by the average number of horizontal and directional rigs
running on a daily basis, grew by 13 percent for the six-month period ended June
30, 2012 to 1,395 rigs as compared to 1,236 rigs in the comparable 2011-period.
For the six-month period ended June 30, 2012, horizontal and directional
drilling activity in the US represented approximately 70 percent of total
industry activity, the same level as in 2011. (Source: Baker Hughes) The
Corporation's US operating days increased by approximately 15 percent to 5,068
days in the six-month period ended June 30, 2012 from 4,402 days in 2011.
Reportable segment income before tax for the second quarter of 2012 increased by
61 percent to $2.5 million from $1.5 million in the 2011-quarter. For the
six-month period ended June 30, 2012, reportable segment profit before tax
increased by 101 percent to $2.5 million from $1.2 million in 2011. The increase
in profitability in the 2012-quarter is a result of activity growth and higher
day rates. However, this was adversely impacted by higher performance drilling
motor repair costs and third party equipment rentals incurred in the
2012-quarter.
International
(Stated in thousands of dollars)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 % Change 2012 2011 % Change
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Revenue 9,921 5,062 96 18,035 10,467 72
Reportable segment
profit before tax 2,863 883 224 4,888 2,235 119
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Revenue generated from PHX Energy's international operations in the second
quarter of 2012 increased by 96 percent to a record $9.9 million from $5.1
million in the 2011-quarter, due to activity growth realized in Albania and
Russia. International operating days also grew by 83 percent from 404 days in
the 2011-quarter to a record 738 days in the 2012-quarter. The Corporation
generated 17 percent of its consolidated revenue from international operations
in the 2012-quarter compared to 11 percent in the 2011-quarter.
For the six-month period ended June 30, 2012, revenue increased by 72 percent to
$18.0 million as compared to $10.5 million in 2011. Operating days for the same
period grew from 829 days in 2011 to 1,340 days in 2012; a 62 percent increase.
Phoenix Albania continued to be the most active international area in the second
quarter of 2012 and reported record revenue. This growth is due to the
Corporation operating steadily on 5 rigs in 2012, and since commencing
operations in 2008, PHX Energy has successfully drilled in excess of 226 wells
in Albania. In the early part of the second quarter, RMS' electronic drilling
recorder systems were installed and are now currently running on two of the rigs
in Albania. Three additional units are expected to be installed on the three
remaining rigs over the next few months. The Corporation is also continuing to
hire, train, and develop local Albanian staff, which is expected to create
greater efficiencies and profitability.
With Phoenix Russia again achieving record level of revenue and activity in the
second quarter of 2012, the Corporation has increased the region's concurrent
job capacity to 19 jobs from the previously announced 16 jobs in anticipation of
the higher activity forecasted in the remainder of 2012. Phoenix Russia
continues to build a strong team of regional field operators.
In the second quarter of 2012, Phoenix Colombia successfully commenced full
service drilling activity with two full service jobs. Growth is anticipated to
continue in future quarters, and therefore, the Corporation is also mobilizing
to deploy its RWD tool in the Colombian market. PHX Energy's operations in
Colombia currently have a 4 job capacity.
Phoenix Peru's activity in the 2012-quarter was slightly higher than the level
obtained in the second quarter of 2011. The Corporation is continuing to work
with a number of operators and currently has a job capacity of 4 full service
jobs in Peru.
For the three-month period ended June 30, 2012, reportable segment profit before
tax was $2.9 million, an increase of 224 percent compared to $0.9 million in the
corresponding 2011-period. Reportable segment profit for the six-month period
ended June 30, 2012 was $4.9 million as compared to $2.2 million in 2011; a 119
percent increase. The increase is due to the higher levels of activity led by
Albania and Russia.
Investing Activities
Net cash used in investing activities for the three-month period ended June 30,
2012 was $13.8 million as compared to $8.1 million in 2011. The Corporation made
a $2.9 million investment in the joint venture company RMII and added $18.9
million in capital equipment in the second quarter of 2012 as compared to $11.2
million in the 2011-quarter. These quarterly 2012 expenditures included:
-- $13.3 million in down hole performance drilling motors;
-- $4.1 million in MWD systems and spare components;
-- $1.2 million in non-magnetic drill collars and jars;
-- $0.2 million in machinery and equipment for global service centers, and;
-- $0.1 million in other assets.
The capital expenditure program undertaken in the year was financed from a
combination of cash flow from operations, long-term debt and working capital.
The Corporation realized proceeds from the involuntary disposal of drilling
equipment in well bores of $1.3 million in the second quarter of 2012, as
compared to $1.9 million in the 2011-quarter. The change in non-cash working
capital balances of $6.7 million (source of cash) for the three-month period
ended June 30, 2012 relates to the net change in the Corporation's trade
payables that are associated with the acquisition of capital assets. This
compares to $1.2 million (source of cash) for the three-month period ended June
30, 2011.
During the second quarter of 2012, PHX Energy's job capacity increased by 4
concurrent jobs to 204 through the addition of 2 P-360 positive pulse MWD
systems, 1 E-360 electromagnetic ("EM") MWD system, and 1 Resistivity While
Drilling ("RWD") system. As at June 30, 2012, the Corporation's MWD fleet
consisted of 133 P-360 positive pulse MWD systems, 60 E-360 EM MWD systems, and
11 RWD systems. Of these, 90 MWD systems were deployed in Canada, 82 in the US,
19 in Russia, 5 in Albania, and 4 in both Peru and Colombia.
At June 30, 2012, the Corporation had on order an additional 5 E-360 EM MWD
systems, all of which are expected to be deployed during the end of the third
quarter. As a result, by the end of 2012 the Corporation expects to have a fleet
of 209 MWD systems, which would be comprised of 133 P-360 positive pulse MWD
systems, 65 E-360 EM MWD systems and 11 RWD systems. The Corporation previously
planned to add an additional 14 P-360 positive pulse MWD systems by year end,
but this expansion will be dependent upon customer demand as the year
progresses.
Financing Activities
The Corporation reported cash flows from financing activities of $5.7 million in
the three-month period ended June 30, 2012 as compared to $2.4 million in the
2011 period. In the 2012-quarter:
-- the Corporation paid dividends of $5.1 million to shareholders, or $0.18
per share;
-- through its option and DRIP program the Corporation received cash
proceeds of $0.2 million from exercised options and reinvested dividends
to acquire 25,612 common shares of the Corporation; and
-- the Corporation received net proceeds from its bank overdraft revolving
facility and extendible revolving facility of an aggregate of $10.6
million to finance its capital expenditure program.
Capital Resources
As at June 30, 2012, the Corporation had access to a demand overdraft revolving
facility of up to $10.0 million and PHX Energy also had access to an $80.0
million, 364-day extendible revolving facility with its bank. On July 16, 2012,
the Corporation's bank provided a commitment letter to increase the credit
facilities to an aggregate amount of $105.0 million and US$25.0 million for a
term of three years. While the loan documents are being finalized, on July 17,
2012, the existing extendible revolving facility was temporarily increased to
$90.0 million.
Cash Requirements for Capital Expenditures
Historically, the Corporation has financed its capital expenditures and
acquisitions through cash flows from operating activities, debt and equity. The
2012 capital budget remains at $55.1 million. These planned expenditures are
expected to be financed from a combination of one or more of the following, cash
flow from operations, the Corporation's unused credit facilities or equity, if
necessary. However, if a sustained period of market uncertainty and financial
market volatility persists in 2012, the Corporation's activity levels, cash
flows and access to credit may be negatively impacted, and the expenditure level
would be reduced accordingly. Conversely, if future growth opportunities present
themselves, the Corporation would look at expanding this planned capital
expenditure amount.
Outlook
In the second quarter, the foreseen lower natural gas price and oil
differentials in Canada decreased industry activity levels, however, this was
intensified by wetter than normal weather during the break-up period. In
addition, what was not predicted was depressed oil prices and the general
volatility of the economy which produced a strain on operator's cash flows and
debt levels, and resulted in reduced capital budgets and cutbacks to drilling
programs throughout the industry. Despite this, in 2012, record revenue for any
second quarter in PHX Energy's history was attained and growth was achieved in a
number of operating areas.
It is expected that a retraction will continue in the remainder of 2012,
however, PHX Energy will remain focused on growth opportunities, albeit working
towards a revised forecast to reflect this operating environment.
In Canada, PHX Energy expects slower operating activity going forward, however,
believes the extent of this reduction will not be as dramatic as some sectors in
the industry. The majority of PHX Energy's clients are focused on oil production
over natural gas drilling; thus, the percent of wells drilled with horizontal
technology will increase even though many analysts have reduced the predicted
total number of wells drilled due to the many issues affecting the Canadian
market. With the strong presence PHX Energy has built in Canada and a large
diverse client base, steady performance and activity levels should be seen
during future quarters of lower industry activity.
The United States market presents many opportunities for PHX Energy's growth,
although there are still challenges present. By remaining focused on the
strategies set forth, even with reduced drilling activity, PHX Energy believes
its US division can capture a greater market share and increase operating days.
Both the Rocky Mountain and Gulf Coast regions are focused on oil drilling and,
with the addition of our newest operating area in the Permian Basin, ongoing
growth is anticipated. As such, capital assets and personnel continue to be
added in the Gulf Coast and in West Texas to service the Eagle Ford Shale,
Permian Basin and Oklahoma region with the expectation that future performance
will counterbalance past expansion costs.
Internationally, as another quarter has provided the time required to deploy
resources and implement the intended strategy, all four geographical areas
showed revenue growth and increased market penetration. With second quarter
projections realized, the long-term goal remains focused on current
diversification beyond North America and providing a footprint for the future.
The successes in the second quarter, and those that are anticipated in the
future, are the result of growth initiatives implemented and infrastructure
expansion, including personnel additions, however, this has led to a larger cost
structure which has curtailed current operating margins and profitability in
times of lower activity. PHX Energy continues to focus on improving earning
levels, not only through growth, but also through cost reduction and value added
initiatives.
PHX Energy remains aware that it is a business that operates in a volatile and
competitive segment of the energy sector. Operators will continue to strive for
leading edge technology that requires considerable investment from service
providers, and PHX Energy will continue to put tremendous efforts in delivering
on these requests.
The outlook for the remainder of 2012 remains cautiously optimistic, with
opportunities for expansion being present in certain regions and with other
areas foreseen to experience only modest reductions in a slower industry
environment.
John Hooks, Chairman of the Board, President and Chief Executive Officer
Non-GAAP Measures
1) EBITDA
EBITDA, defined as earnings before interest, taxes, depreciation and
amortization, is not a financial measure that is recognized under GAAP. However,
Management believes that EBITDA provides supplemental information to net
earnings that is useful in evaluating the Corporation's operations before
considering how it was financed or taxed in various countries. Investors should
be cautioned, however, that EBITDA should not be construed as an alternative
measure to net earnings determined in accordance with GAAP. PHX Energy's method
of calculating EBITDA may differ from that of other organizations and,
accordingly, its EBITDA may not be comparable to that of other companies.
The following is a reconciliation of net earnings to EBITDA:
(Stated in thousands of dollars)
Three-month periods Six-month periods
ended June 30, ended June 30,
2012 2011 2012 2011
------------------------------------------------------------------------
------------------------------------------------------------------------
Net earnings (loss) (2,584) 424 5,335 4,307
Add (deduct):
Depreciation and amortization 5,206 3,873 10,040 7,575
Provision for (Recovery of)
income taxes (812) 375 918 1,629
Finance expense 711 510 1,267 941
------------------------------------------------------------------------
EBITDA as reported 2,521 5,182 17,560 14,452
------------------------------------------------------------------------
------------------------------------------------------------------------
EBITDA per share - diluted is calculated using the treasury stock method whereby
deemed proceeds on the exercise of the share options are used to reacquire
common shares at an average share price. The calculation of EBITDA per share on
a dilutive basis does not include anti-dilutive options.
2) Funds from Operations
Funds from operations is defined as cash flows generated from operating
activities before changes in non-cash working capital. This is not a measure
recognized under GAAP. Management uses funds from operations as an indication of
the Corporation's ability to generate funds from its operations before
considering changes in working capital balances. Investors should be cautioned,
however, that this financial measure should not be construed as an alternative
measure to cash flows from operating activities determined in accordance with
GAAP. PHX Energy's method of calculating funds from operations may differ from
that of other organizations and, accordingly, it may not be comparable to that
of other companies.
The following is a reconciliation of cash flows from operating activities to
funds from operations:
(Stated in thousands of dollars)
Three-month periods Six-month periods
ended June 30, ended June 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating activities 15,667 7,437 19,743 7,653
Add (deduct):
Changes in non-cash working capital (14,238) (3,988) (6,490) 4,474
Interest paid 884 722 1,415 1,100
Income taxes paid 199 106 878 570
----------------------------------------------------------------------------
Funds from operations 2,512 4,277 15,546 13,797
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds from operations per share - diluted is calculated using the treasury stock
method whereby deemed proceeds on the exercise of the share options are used to
reacquire common shares at an average share price. The calculation of funds from
operations per share on a dilutive basis does not include anti-dilutive options.
About PHX Energy Services Corp.
The Corporation, through its subsidiary entities, provides horizontal and
directional technology and drilling services to oil and natural gas producing
companies in Canada, the US, Albania, Peru, Russia, and Colombia. PHX Energy
develops and manufactures its E-360 electromagnetic ("EM") and P-360 positive
pulse measurement while drilling ("MWD") technologies that are made available
for internal operational use.
PHX Energy's Canadian operations are conducted through Phoenix Technology
Services LP. The Corporation maintains its corporate head office, research and
development, Canadian sales, service and operational centres in Calgary,
Alberta. In addition, PHX Energy has a service facility in Estevan,
Saskatchewan. PHX Energy's US operations, conducted through the Corporation's
wholly-owned subsidiary, Phoenix Technology Services USA Inc. ("Phoenix USA"),
is headquartered in Houston, Texas. Phoenix USA has sales and service facilities
in Houston, Texas; Traverse City, Michigan; Casper, Wyoming; Denver, Colorado;
Fort Worth, Texas; Midland, Texas; Buckhannon, West Virginia; Pittsburgh,
Pennsylvania; and Oklahoma City, Oklahoma. Internationally, PHX Energy has sales
offices and service facilities in Albania, Peru, Russia, and Colombia.
Condensed Consolidated Statements of Financial Position
(unaudited)
June 30, 2012 December 31, 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 11,731,364 $ 8,376,344
Trade and other receivables 49,985,115 63,209,860
Inventories 21,029,445 15,445,543
Prepaid expenses 5,209,734 3,720,607
Investment in equity securities 540,270 -
Assets held for sale 3,132,482 -
----------------------------------------------------------------------------
Total current assets 91,628,410 90,752,354
Non-current assets:
Property, plant and equipment 143,626,869 120,452,022
Goodwill 8,876,351 8,876,351
Equity-accounted investee 2,747,687 -
Intangible assets 40,069 120,208
----------------------------------------------------------------------------
Total non-current assets 155,290,976 129,448,581
----------------------------------------------------------------------------
Total assets $ 246,919,386 $ 220,200,935
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 6,268,277 $ -
Trade and other payables 44,699,941 44,538,854
Dividends payable 1,613,909 1,064,592
Current tax liabilities 2,224,004 280,981
Loans and borrowings 15,500,000 -
----------------------------------------------------------------------------
Total current liabilities 70,306,131 45,884,427
Non-current liabilities:
Loans and borrowings 62,000,000 56,000,000
Deferred tax liabilities 2,170,538 4,448,999
----------------------------------------------------------------------------
Total non-current liabilities 64,170,538 60,448,999
Equity:
Share capital 98,579,676 97,583,055
Contributed surplus 7,028,037 5,827,955
Retained earnings 7,558,335 11,461,288
Accumulated other comprehensive income (723,331) (803,517)
----------------------------------------------------------------------------
Total equity attributable to equity
holders of the Corporation 112,442,717 114,068,781
Non-controlling interests - (201,272)
----------------------------------------------------------------------------
Total equity 112,442,717 113,867,509
----------------------------------------------------------------------------
Total liabilities and shareholders'
equity $ 246,919,386 $ 220,200,935
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Statements of Comprehensive Income
(unaudited)
Three-month periods ended Six-month periods ended June
June 30, 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue $58,423,429 $45,336,295 $138,192,258 $108,483,741
Direct costs 51,365,186 37,804,593 113,028,642 87,811,345
----------------------------------------------------------------------------
Gross profit 7,058,243 7,531,702 25,163,616 20,672,396
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses:
Selling, general
and
administrative 8,241,383 7,028,155 16,745,774 14,502,900
Research and
development
expenses 547,825 527,493 1,100,928 1,089,931
Finance expense 711,434 510,281 1,267,065 941,489
Other expense
(income) 849,170 (1,332,743) (306,807) (1,797,510)
----------------------------------------------------------------------------
10,349,812 6,733,186 18,806,960 14,736,810
Share of loss of
equity-accounted
investee (net of
tax) 104,471 - 104,471 -
----------------------------------------------------------------------------
Earnings (Loss)
before income
taxes (3,396,040) 798,516 6,252,185 5,935,586
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provision for
(Recovery of)
income taxes
Current 1,475,158 310,521 3,188,773 467,757
Deferred (2,287,542) 63,765 (2,271,197) 1,160,871
----------------------------------------------------------------------------
(812,384) 374,286 917,576 1,628,628
----------------------------------------------------------------------------
Net earnings
(loss) (2,583,656) 424,230 5,334,609 4,306,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other
comprehensive
income
Foreign currency
translation 970,772 (189,030) 34,873 (2,138,824)
----------------------------------------------------------------------------
Total
comprehensive
income (loss) for
the period $(1,612,884) $ 235,200 $ 5,369,482 $ 2,168,134
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings
attributable to:
Equity holders
of the
Corporation $(2,583,656) $ 517,562 $ 5,334,609 $ 4,427,279
Non-controlling
interests - (93,332) - (120,321)
----------------------------------------------------------------------------
Net earnings
(loss) $(2,583,656) $ 424,230 $ 5,334,609 $ 4,306,958
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive
income
attributable to:
Equity holders
of the
Corporation $(1,612,884) $ 272,276 $ 5,369,482 $ 2,334,190
Non-controlling
interests - (37,076) - (166,056)
----------------------------------------------------------------------------
Total
comprehensive
income (loss) for
the period $(1,612,884) $ 235,200 $ 5,369,482 $ 2,168,134
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings (Loss)
per share - basic $ (0.09) $ 0.01 $ 0.19 $ 0.15
Earnings (Loss)
per share -
diluted $ (0.09) $ 0.01 $ 0.19 $ 0.15
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three-month periods ended Six-month periods ended
June 30, June 30,
2012 2011 2012 2011
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from
operating
activities:
Net earnings (loss) $ (2,583,656) $ 424,230 $ 5,334,609 $ 4,306,958
Adjustments for:
Depreciation and
amortization 5,206,082 3,872,753 10,040,306 7,575,293
Deferred income tax
expense (recovery) (2,287,542) 63,765 (2,271,197) 1,160,871
Unrealized foreign
exchange loss (gain) 885,966 17,251 603,216 (141,276)
Gain on disposition
of drilling
equipment (110,671) (1,298,316) (1,105,309) (1,545,804)
Share-based payments 613,711 689,009 1,410,803 1,484,495
Finance expense 711,434 510,281 1,267,065 941,489
Provision for
(Recovery of) bad
debts (207,714) (1,974) (207,714) 15,360
Change in fair value
of investment in
equity securities 180,090 - 370,185 -
Share of profit of
equity-accounted
investee 104,471 - 104,471 -
Change in non-cash
working capital 14,238,126 3,988,435 6,489,463 (4,474,348)
----------------------------------------------------------------------------
Cash generated from
operating activities 16,750,297 8,265,434 22,035,898 9,323,038
Interest paid (884,753) (722,158) (1,415,295) (1,100,035)
Income taxes paid (198,983) (106,293) (878,044) (570,081)
----------------------------------------------------------------------------
Net cash from
operating activities 15,666,561 7,436,983 19,742,559 7,652,922
----------------------------------------------------------------------------
Cash flows from
investing
activities:
Proceeds on
disposition of
drilling equipment 1,293,084 1,933,544 4,637,529 3,257,465
Acquisition of
drilling and other
equipment (18,897,365) (11,241,586) (36,457,150) (21,407,654)
Formation of equity-
accounted investee (2,852,158) - (2,852,158) -
Investment in equity
securities - - (910,455) -
Change in non-cash
working capital 6,685,034 1,169,336 (917,824) 40,051
----------------------------------------------------------------------------
Net cash used in
investing activities (13,771,405) (8,138,706) (36,500,058) (18,110,138)
----------------------------------------------------------------------------
Cash flows from
financing
activities:
Proceeds from
issuance of share
capital 228,356 518,605 785,900 2,939,255
Dividends paid to
shareholders (5,069,182) (3,099,068) (8,441,658) (6,210,754)
Proceeds on loans and
borrowings 12,500,000 2,500,000 21,500,000 2,500,000
Proceeds on
(Repayment of) bank
overdraft facility (1,917,328) 2,486,307 6,268,277 8,627,154
----------------------------------------------------------------------------
Net cash from
financing activities 5,741,846 2,405,844 20,112,519 7,855,655
----------------------------------------------------------------------------
Net increase
(decrease) in cash
and cash equivalents 7,637,002 1,704,121 3,355,020 (2,601,561)
Cash and cash
equivalents,
beginning of period 4,094,362 4,319,850 8,376,344 8,625,532
----------------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 11,731,364 $ 6,023,971 $ 11,731,364 $ 6,023,971
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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