For the third consecutive year, in 2013 PHX Energy (TSX:PHX) generated an
all-time record level of revenue, operating days, EBITDA, net earnings, and
funds from operations.
For the year ended December 31, 2013, the Corporation generated consolidated
revenue of $380.7 million as compared to $301.7 million in the 2012-year; an
increase of 26 percent. EBITDA increased by 49 percent to $72.6 million in 2013
as compared to $48.8 million in 2012. Net earnings increased to $36.6 million in
2013 from $17.7 million in 2012; a 107 percent increase. The Corporation's funds
from operations were $53.2 million in 2013, which is 5 percent greater than the
$50.6 million achieved in 2012. Included in the 2013-year's EBITDA and net
earnings were gains of $14.8 million from the re-measurement to fair value of
the Corporation's pre-existing ownership interest in RMS Systems Inc. ("RMS")
and RigManager International Inc. ("RMII"), a gain of $2.2 million from the sale
of land and an operations centre, and a loss of $1.2 million that related to the
write-off of certain tools as the technology is no longer being utilized.
Excluding these items, adjusted EBITDA increased by 17 percent to a record $56.9
million and net earnings increased by 18 percent to a record $20.9 million in
the year ended December 31, 2013.
During 2013, the Corporation benefitted from positive trends in the Canadian and
US industry, such as overall improved commodity prices and continued strong
utilization of horizontal and directional drilling techniques. Industry
horizontal and directional drilling activity represented approximately 93
percent (as measured by drilling days) and 75 percent (as measured by rigs
running per day) of the 2013 total drilling activity in Canada and the US,
respectively. This compared to 92 percent in Canada and 71 percent in the US for
the 2012-year. (Sources: Daily Oil Bulletin and Baker Hughes) This, coupled with
the Corporation's continued superior operational performance, led PHX Energy to
realize record activity growth in all of its operating segments in 2013.
PHX Energy's US and international operations achieved record levels of revenue
and represented 48 and 13 percent of consolidated revenue in the 2013-year
compared to 46 and 12 percent in 2012. In the US, the Corporation continues to
build and strengthen its marketing and operations teams and has been successful
in diversifying its client base. Russia has been at the forefront of the
international operations' growth and Albania demonstrated solid results
throughout the year. PHX Energy expects this growth momentum to continue in
future years.
In line with the Corporation's strategic objective of providing leading edge
technologies to its clients, PHX Energy is in the process of exploring new
technologies and as a result has entered into third party license and technology
development agreements. The activities are a collaboration between PHX Energy's
research and development ("R&D") department and the third parties. During 2013,
the Corporation made payments totaling $4.3 million under these agreements.
For the year ended December 31, 2013, $41.8 million in capital expenditures were
incurred. During 2013, PHX Energy's down hole performance drilling motor fleet
grew and job capacity increased to 214 concurrent jobs from 210 in 2012. Greater
job capacity resulted from the addition of resistivity while drilling ("RWD")
systems. As at December 31, 2013, the Corporation's measurement while drilling
("MWD") fleet consisted of 132 P-360 positive pulse MWD systems, 65 E-360
electromagnetic ("EM") MWD systems, and 17 RWD systems. Of these, 96 MWD systems
were deployed in Canada, 88 in the US, 15 in Russia, 6 in Albania, 5 in
Colombia, and 4 in Peru.
The Corporation's capital expenditures were financed from a combination of cash
flow from operations, borrowings under the Corporation's credit facilities, and
from an equity financing. On August 7, 2013, the terms of the Corporation's
syndicated loan agreement with its bank were amended to extend the maturity date
of the syndicated facility and US operating facility from September 6, 2015 to
September 5, 2016. The aggregate carrying amount of the syndicated facility and
US operating facility of $70.2 million as at December 31, 2013 was classified as
a non-current liability.
The 2014 capital expenditure budget has been approved by the Board of Directors
and is projected to be $34.7 million. Included in the budget are MWD guidance
systems and components, performance drilling motors and tubulars required for
anticipated growth.
In light of the record financial results and positive company outlook, on
October 30, 2013, the Board of Directors approved raising the monthly dividend
by $0.01 to $0.07 per share. The dividend increase became effective for the
Corporation's November 2013 dividend. For the year ended December 31, 2013, the
Corporation paid dividends of $0.73 per share to its shareholders (2012 - $0.66
per share), or $21.4 million (2012 - $18.6 million). PHX Energy ended 2013 with
a cash dividend payout ratio of 40 percent (cash dividends paid divided by funds
from operations).
On November 28, 2013, PHX Energy successfully completed the acquisition of RMS
through a plan of arrangement. Upon completion of the arrangement, RMS became a
wholly-owned subsidiary of PHX Energy and ceased trading on the TSX Venture
Exchange. RMS was subsequently amalgamated with PHX Energy on January 1, 2014.
RMS owns web-based remote electronic drilling recorder ("EDR") technology which
allows oil and natural gas companies to retrieve scientific measurement data in
the field and communicate this data in real-time back to a central web-based
data warehouse. PHX Energy markets these services in Canada through RMS as well
as through its wholly-owned subsidiary RMII worldwide outside Canada; mainly
Albania, and Mexico.
Financial Highlights
(Stated in thousands of dollars except per share amounts, percentages and shares
outstanding)
Three-month periods ended
December 31,
2013 2012 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Results (unaudited) (unaudited)
Revenue 115,543 79,473 45
Net earnings 22,259 4,537 391
Earnings per share - diluted 0.68 0.16 325
EBITDA (1) 32,369 13,575 138
EBITDA per share - diluted (1) 0.99 0.48 106
Adjusted EBITDA (1) 17,611 13,575 30
Adjusted EBITDA per share -
diluted (1) 0.54 0.48 13
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Cash Flow
Cash flows from operating
activities 17,367 13,748 26
Funds from operations (1) 15,161 13,890 9
Funds from operations per share -
diluted (1) 0.46 0.49 (6)
Dividends paid 6,058 5,080 19
Dividends per share (2) 0.19 0.18 6
Capital expenditures 13,272 5,334 149
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----------------------------------------------------------------------------
Years ended
December 31,
2013 2012 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Results
Revenue 380,663 301,720 26
Net earnings 36,567 17,707 107
Earnings per share - diluted 1.23 0.63 95
EBITDA (1) 72,639 48,837 49
EBITDA per share - diluted (1) 2.45 1.73 42
Adjusted EBITDA (1) 56,930 48,837 17
Adjusted EBITDA per share -
diluted (1) 1.92 1.73 11
----------------------------------------------------------------------------
Cash Flow
Cash flows from operating
activities 35,378 33,070 7
Funds from operations (1) 53,160 50,621 5
Funds from operations per share -
diluted (1) 1.79 1.79 -
Dividends paid 21,433 18,595 15
Dividends per share (2) 0.73 0.66 11
Capital expenditures 41,818 51,452 (19)
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Financial Position, December 31,
Working capital 66,580 45,480 46
Long-term debt 70,208 80,000 (12)
Shareholders' equity 198,477 115,095 72
Common shares outstanding 34,218,974 28,241,371 21
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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.
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, adjusted EBITDA,
adjusted EBITDA per share, funds from operations, funds from operations per
share and senior debt to EBITDA ratio. 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 natural 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, without limitation the expected growth momentum in PHX
Energy's US and international operations; projected capital expenditure budget
and how this budget will be funded; the expected combined Canadian federal and
provincial tax rate; the impact that remote drilling and Prism Optimization
initiatives will have on Canadian margins in 2014; the ability to diversify the
Corporation's client base in Russia; and expectations to market RMS' EDR
technology.
The above are stated under the headings: "Overall Performance", "Operating Costs
and Expenses", "Segmented Information", "Cash Requirements for Capital
Expenditures" and "Acquisition of Subsidiaries". Furthermore all statements in
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 MD&A 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 Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue 115,543 79,473 45 380,663 301,720 26
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With the strength of ongoing marketing initiatives, superior operational
performance, and the provision of leading edge technology solutions, PHX Energy
generated all-time records in quarterly consolidated revenue and operating days
for the three-month period ended December 31, 2013. Consolidated revenue for the
fourth-quarter of 2013 was $115.5 million, compared to $79.5 million in the
comparable 2012-quarter, an increase of 45 percent. Consolidated operating days
increased by 37 percent to 9,188 days in 2013 from 6,690 days in the
2012-quarter. For the three-month period ended December 31, 2013, all three
regions, Canada, US and international, achieved record levels of activity and
revenue for any quarter.
Average consolidated day rates for the three-month period ended December 31,
2013, excluding the motor rental division in Midland, Texas and the recently
acquired EDR business, were $12,285 which is 5 percent higher compared to the
day rates of $11,671 realized in the fourth quarter of 2012.
Horizontal and directional drilling continues to represent a large majority of
total wells in Canada and the US. In the 2013-quarter, horizontal and
directional drilling activity represented 93 percent of total Canadian industry
drilling days (2012 - 93 percent). In the US, horizontal and directional
activity represented approximately 77 percent of the rigs running per day in the
fourth quarter of 2013 compared to 72 percent in the 2012-quarter. (Sources:
Daily Oil Bulletin and Baker Hughes)
For the year ended December 31, 2013, PHX Energy generated record consolidated
revenue of $380.7 million, a 26 percent increase compared to 2012 revenue of
$301.7 million. As a result of the Corporation's strategic focus to grow its
operations outside of Canada, US and international revenue, as a percentage of
total consolidated revenue, grew to 48 and 13 percent, respectively, for the
2013-year as compared to 46 and 12 percent in 2012. Consolidated operating days
increased by 23 percent to a record 30,711 days compared to 24,930 in 2012.
Average consolidated day rates for the year ended December 31, 2013, excluding
the motor rental division in Midland, Texas and the EDR business, increased
slightly by 2 percent to $12,124 from $11,903 in 2012.
Operating Costs and Expenses
(Stated in thousands of dollars except percentages)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
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----------------------------------------------------------------------------
Direct costs 93,293 62,990 48 307,680 238,168 29
Depreciation &
amortization
(included in direct
costs) 6,362 5,800 10 24,403 21,336 14
Gross profit as
percentage of revenue
excluding
depreciation &
amortization 25% 28% 26% 28%
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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 25 percent for the
three-month period ended December 31, 2013 as compared to 28 percent in the
2012-quarter. For the year ended December 31, 2013, gross profit as a percentage
of revenue (excluding depreciation and amortization) was 26 percent as compared
to 28 percent in 2012.
The decrease in PHX Energy's margins in the three-month period and year ended
December 31, 2013 is primarily due to the following factors:
-- higher performance drilling motor and MWD system repair costs in Canada
and US,
-- higher third party equipment rentals,
-- increased field personnel costs in Canada, and
-- weaker than expected industry activity levels in Peru and Colombia.
Management continues to implement several strategies and initiatives aimed at
reducing costs and improving profitability. For the fourth quarter of 2013, the
Corporation's third party equipment rentals were $3.7 million or 3 percent of
consolidated revenue, as compared to $1.9 million, or 2 percent of revenue, in
the corresponding 2012-quarter. For the year ended December 31, 2013, third
party equipment rentals were $13.0 million, or 3 percent of consolidated
revenue, versus $8.8 million, or 3 percent of revenue, in 2012.
Depreciation and amortization for the three-month period ended December 31, 2013
increased by 10 percent to $6.4 million as compared to $5.8 million in the
2012-quarter. For the year ended December 31, 2013, depreciation and
amortization increased by 14 percent to $24.4 million from $21.3 million in
2012. The increase in both periods is the result of the Corporation's high level
of capital expenditure program in 2013.
(Stated in thousands of dollars except percentages)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
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Selling, general and
administrative
("SG&A") costs 13,491 8,456 60 43,632 34,467 27
Share-based payments
(included in SG&A
costs) 301 410 (27) 1,061 2,265 (53)
SG&A costs excluding
share-based
payments as a
percentage of
revenue 11% 10% 11% 11%
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----------------------------------------------------------------------------
SG&A costs for the three-month period ended December 31, 2013 increased by 60
percent to $13.5 million from the $8.5 million incurred in the 2012-period.
Included in SG&A costs are share-based payments of $0.3 million in the
2013-quarter as compared to $0.4 million in the 2012-quarter. Excluding these
costs, SG&A costs represented 11 percent of consolidated revenue in the 2013
three-month period compared to 10 percent in the 2012-period.
For the year ended December 31, 2013, SG&A costs increased by 27 percent to
$43.6 million as compared to $34.5 million in 2012. Excluding share-based
payments of $1.1 million in the 2013-year and $2.3 million in the 2012-year,
SG&A costs as a percentage of consolidated revenue were 11 percent in both
periods.
The increase in SG&A costs, in dollar terms, in both 2013-periods was mainly due
to higher payroll and marketing related costs associated with overall increased
activity in all of PHX Energy's operating segments. In addition, costs were
incurred in relation to the acquisition of RMS and the closure of the Peruvian
subsidiary.
Share-based payments relate to the amortization of the fair values of issued
options of the Corporation using the Black-Scholes model. In the three-month
period and year ended December 31, 2013, share-based payments decreased by 27
percent and 53 percent, respectively, as the Corporation shifted to rewarding
employees with retention awards rather than options. Share-based cash settled
retention awards are measured at fair value and in the 2013-quarter and year
ended December 31, 2013, PHX Energy recognized $1.2 million and $2.9 million,
respectively, in compensation expense relating to retention awards (2012 - $0.2
million and $0.9 million, respectively).
(Stated in thousands of dollars)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
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Research and
development expense 565 321 76 2,004 1,985 1
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R&D expenditures charged to net earnings during the three-month periods ended
December 31, 2013 and 2012 were $0.6 million and $0.3 million, respectively.
During the 2013-quarter, no R&D expenditures were capitalized as development
costs (2012 - $39,000).
For the year ended December 31, 2013, R&D expenditures of $2.0 million were
incurred, none of which were capitalized as development costs. R&D expenditures
for the year ended December 31, 2012 were $2.1 million, of which $151,000 were
capitalized.
(Stated in thousands of dollars)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
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Finance expense 1,131 1,091 4 4,789 3,233 48
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Finance expenses relate to interest charges on the Corporation's long-term and
short-term bank facilities. For the three-month period ended December 31, 2013,
finance charges were $1.1 million, which is comparable to finance charges
incurred in the 2012-period. In the 2013-year, finance charges increased by 48
percent to $4.8 million from $3.2 million in 2012. In order to fund PHX Energy's
capital expenditure programs in 2012 and 2013 and the construction of the new
operations centre in 2013 that was sold in September, additional bank borrowings
were made in the 2013-year.
(Stated in thousands of dollars)
Three-month
periods ended Years ended
December 31, December 31,
2013 2012 2013 2012
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Gains from pre-existing ownership
interest in RMS and RMII 14,758 - 14,758 -
Net gain on disposition of drilling
equipment 3,488 575 7,419 2,727
Gain on sale of land and operations
centre - - 2,196 -
Write-down of technological assets - - (1,245) -
Foreign exchange gains (losses) 297 (89) (232) (1,267)
Provision for bad debt (88) (108) (60) (15)
Losses from the change in fair value of
investment in equity securities - - - (490)
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Other income 18,455 378 22,836 955
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For the three-month period and year ended December 31, 2013, PHX Energy
recognized a total gain of $14.8 million from the re-measurement to fair value
of the Corporation's pre-existing 39.85 percent interest in RMS and its 50
percent interest in RMII. This gain is comprised of a gain of $11.3 million
related to the re-measurement of RMS ($15.0 million less the $3.7 million
carrying amount of equity-accounted investee at the acquisition date) and a gain
of $3.4 million related to the re-measurement of RMII ($7.0 million less the
$3.6 million carrying amount of equity-accounted investee at the acquisition
date). In addition, included in other income is a gain of $2.2 million that
resulted from the sale of land and an operations centre on September 17, 2013.
For the three-month period and year ended December 31, 2013, PHX Energy realized
gains on disposition of drilling equipment of $3.5 million (2012 - $0.6 million)
and $7.4 million (2012 - $2.7 million), respectively. The dispositions of
drilling equipment relate primarily to equipment lost in well bores that are
uncontrollable in nature. The gain reported is 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. In 2013,
the Corporation also recognized a $1.2 million write-down of certain assets,
whereby the technology is no longer being utilized. For the three-month period
and year ended December 31, 2013, the gains on disposition of drilling equipment
are higher compared to the 2012-periods mainly due to higher occurrences of down
hole equipment losses in 2013-year.
For the three-month period ended December 31, 2013, the Corporation recognized
foreign exchange gains of $0.3 million (2012 - foreign exchange losses of $0.1
million) and a bad debt provision of $0.1 million (2012 - $0.1 million). For the
year ended December 31, 2013, other expenses offsetting other income include
foreign exchange losses of $0.2 million (2012 - $1.3 million) and bad debt
provisions of $59,000 (2012 - $15,000).
Foreign exchange gains in the 2013-quarter and foreign exchange losses in the
2013-year resulted mainly from fluctuations in the RUR-Canadian and US-Canadian
exchange rates that caused revaluation gains and losses on Canadian-denominated
payables and receivables in Russia and the US, respectively. In the
2012-periods, foreign exchange losses resulted mainly from the devaluation of
Albanian lek against the Canadian currency.
(Stated in thousands of dollars)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
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Share of losses of
equity-accounted
investees 642 310 107 1,947 553 252
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Prior to the acquisition of RMS and RMII on November 28, 2013, the Corporation
recognized losses of $0.6 million and $1.9 million in the three-month period and
year ended December 31, 2013, respectively, as its share in the losses of the
previously equity-accounted investees, RMS and RMII. In the 2012-quarter and
year, the Corporation's share in the losses of RMS and RMII were $0.3 million
and $0.6 million, respectively.
(Stated in thousands of dollars)
Three-month periods
ended Years ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provision for income taxes 2,618 2,147 6,880 6,561
Effective tax rates 11% 32% 16% 27%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The provision for income taxes for the three-month period ended December 31,
2013 was $2.6 million as compared to $2.1 million in the 2012-period. For the
year ended December 31, 2013, the provision for income taxes was $6.9 million as
compared to $6.6 million in 2012. The expected combined Canadian federal and
provincial tax rate for 2013 is 25 percent. The effective tax rates in the
three-month period and year ended December 31, 2013 of 11 percent and 16
percent, respectively, are lower than the expected rate primarily due to
non-taxable accounting gains from the re-measurement to fair value of
pre-existing ownership interests in RMS and RMII and the effect of lower tax
rates in foreign jurisdictions.
(Stated in thousands of dollars except per share amounts and percentages)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
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----------------------------------------------------------------------------
Net earnings 22,259 4,537 391 36,567 17,707 107
Earnings per share -
diluted 0.68 0.16 325 1.23 0.63 95
EBITDA 32,369 13,575 138 72,639 48,837 49
EBITDA per share -
diluted 0.99 0.48 106 2.45 1.73 42
EBITDA as a percentage
of revenue 28% 17% 19% 16%
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----------------------------------------------------------------------------
The Corporation's level of net earnings and EBITDA in the three-month period and
year ended December 31, 2013 increased mainly due to stronger activity levels
realized across all operating segments, a $14.8 million gain from the
re-measurement to fair value of pre-existing ownership interests in RMS and
RMII, and a $2.2 million gain on the sale of land and an operations centre.
EBITDA as a percentage of revenue for the three-month period ended December 31,
2013 was 28 percent (2012 - 17 percent) and for the 2013-year was 19 percent
(2012 - 16 percent). Also included in the 2013-year's earnings was $1.2 million
that related to the write-off of certain tools as the technology is no longer
being utilized, $1.9 million of the Corporation's share in the losses of
previously equity-accounted investees, RMS and RMII, and $0.7 million of losses
from RMS and RMII for the 33-day period from the date of acquisition, November
28, 2013, to December 31, 2013.
The level of net earnings and EBITDA for the three-month period ended December
31, 2013, excluding the gains from the re-measurement to fair value of
pre-existing ownership interests in RMS and RMII and for the year ended December
31, 2013, excluding the gains from the re-measurement to fair value of
pre-existing ownership interests in RMS and RMII, the gain on sale of land and
operations centre, and the write-off of tools are as follows:
(Stated in thousands of dollars except per share amounts and percentages)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings 7,501 4,537 65 20,858 17,707 18
Earnings per share -
diluted 0.23 0.16 44 0.70 0.63 11
Adjusted EBITDA 17,611 13,575 30 56,930 48,837 17
Adjusted EBITDA per
share - diluted 0.54 0.48 13 1.92 1.73 11
Adjusted EBITDA as a
percentage of revenue 15% 17% 15% 16%
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----------------------------------------------------------------------------
The increase in adjusted EBITDA and net earnings for the 2013 three and
twelve-month periods are generally due to activity growth realized in all of the
Corporation's operating regions.
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, Russia and Colombia.
Canada
(Stated in thousands of dollars)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
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Revenue 47,521 32,344 47 146,896 126,712 16
Reportable segment
profit before tax 2,624 6,833 (62) 20,175 27,953 (28)
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PHX Energy's Canadian revenue increased by 47 percent to a quarterly record of
$47.5 million (2012 - $32.3 million) and operating days increased by 47 percent
to a record 4,166 days (2012 - 2,829 days). In comparison, total industry
horizontal and directional drilling activity, as measured by drilling days, was
4 percent higher in the 2013-quarter, 30,493 days, compared to the
2012-quarter's 29,264 days. (Source: Daily Oil Bulletin) Average day rates
changed slightly at $11,407 in the 2013-quarter compared to $11,433 in the
2012-quarter.
With more horizontal wells being drilled, industry activity in terms of days is
greater as horizontal wells are typically longer; however, the average rig count
was relatively flat with an average of 370 rigs running per day in the
2013-quarter as compared to 363 rigs in the comparable 2012-period. There was
continued pressure on Canadian day rates in the 2013-quarter due to the stagnant
rig count and the resultant competition in the market.
In the 2013-quarter, PHX Energy built up a diverse customer base and realized a
strong presence in the Montney. In addition, Canadian operations in the quarter
were active in the Viking, Cardium, Shaunavon, Bakken, and Frobisher areas. The
Corporation is experiencing a trend toward greater activity in liquids rich
natural gas, where approximately 41 percent of fourth quarter operating days
were gas wells.
For the year ended December 31, 2013, the Corporation's Canadian revenue was
$146.9 million, which is 16 percent higher than the $126.7 million generated in
the 2012-year. The number of horizontal and directional operating days realized
in the Canadian industry during the 2013-year decreased by 7 percent to 109,824
days as compared to 118,066 days in 2012. (Source: Daily Oil Bulletin) In
comparison, the Corporation's Canadian drilling days increased by 22 percent to
12,901 days in the 2013-year from 10,567 days in 2012.
Reportable segment profit before tax for the three-month period ended December
31, 2013 decreased to $2.6 million from $6.8 million in the 2012-quarter. For
the year ended December 31, 2013, reportable segment profit before tax decreased
by 28 percent to $20.2 million from $28.0 million in 2012. The decrease in the
Canadian segment profit for both 2013-periods was due mainly to the following
factors:
-- higher performance drilling motor and MWD system repair costs,
-- higher third party equipment rentals,
-- greater selling, general and administrative expenses as a result of
increased level of activity and higher number of personnel, and
-- increased field personnel costs.
Also included in PHX Energy's Canadian earnings for the 2013-quarter are losses
of $0.7 million from RMS and RMII.
Given the challenges in the Canadian market, PHX Energy is committed to
implementing and growing initiatives that aim to provide its customers
exceptional service and create drilling efficiencies. In late 2013, the
Corporation aimed to increase the utilization of its remote drilling services,
which focus on reducing operators' costs by centralizing logging services.
Additionally, PHX Energy is growing its Prism Drilling Optimization operations,
whereby real-time solutions for improved drilling practices are provided by a
team of technical experts. It is expected that both these initiatives will
provide a positive impact on Canadian margins in 2014.
United States
(Stated in thousands of dollars)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue 53,094 37,824 40 182,695 137,712 33
Reportable segment
profit before tax 4,692 2,068 127 5,967 4,478 33
----------------------------------------------------------------------------
----------------------------------------------------------------------------
PHX Energy's US operations had record quarterly activity and revenues in two of
its three operating regions. For the three-month period ended December 31, 2013,
US revenue of $53.1 million was generated compared to $37.8 million in the
2012-period; a 40 percent increase. The Corporation's US operating days in the
fourth quarter increased by 22 percent to 3,851 days from 3,152 days in the
2012-quarter. Average day rates in the US, excluding the motor rental division
in Midland, Texas, increased by 15 percent to CDN$13,242 in the 2013-quarter
compared to CDN$11,557 in the corresponding 2012-period. This increase is
attributable to the increased utilization of the Corporation's value added
technologies, such as its RWD technology, aided by a stronger US dollar in the
2013-period.
In the fourth quarter of 2013, US industry activity, as measured by the average
number of horizontal and directional rigs running on a daily basis, increased by
3 percent to 1,348 rigs from 1,303 rigs in 2012. (Source: Baker Hughes). Phoenix
USA's success in exceeding industry activity levels are a direct result of the
efforts to strengthen its marketing and operations teams over the past few
periods which has resulted in a more diversified client base. The most active
basins for the Corporation in the quarter were the Permian, Marcellus, Bakken,
Eagle Ford and Mississippian/Woodford.
Horizontal oil well drilling represented approximately 68 percent of Phoenix
USA's overall activity, as measured by drilling days, in the fourth quarter of
2013 as compared to 49 percent in the 2012-quarter.
For the year ended December 31, 2013, Phoenix USA generated a record level of
revenue, $182.7 million which was 33 percent higher than the $137.7 million
reported in the 2012-year. Excluding the motor rental division in Midland,
Texas, Phoenix USA achieved a 9 percent increase in its average day rates, which
were CDN$12,509 in 2013 as compared to CDN$11,508 in 2012. The Corporation's US
operating days also increased by 21 percent to 13,985 days in the 2013-year
compared to 11,534 days in 2012-year. In comparison, US industry activity, as
measured by the average number of horizontal and directional rigs running on a
daily basis, decreased by 3 percent to 1,326 rigs in 2013 compared to 1,367 rigs
in 2012. (Source: Baker Hughes)
Reportable segment profit before tax for the three-month period ended December
31, 2013 increased to $4.7 million from $2.1 million in the 2012-period; a 127
percent increase. For the year ended December 31, 2013, reportable segment
profit before tax increased by 33 percent to $6.0 million from $4.5 million in
2012. The increase in profitability and improved margins in both periods was
primarily due to higher activity and improved day rates.
International
(Stated in thousands of dollars)
Three-month periods ended Years ended
December 31, December 31,
2013 2012 % Change 2013 2012 % Change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revenue 14,928 9,305 60 51,072 37,296 37
Reportable segment
profit before tax 4,441 898 395 13,987 6,786 106
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Lead by strong activity in Russia and solid Albanian operations, the Corporation
achieved a record level of quarterly activity and revenue in the fourth-quarter
of 2013. For the three-month period ended December 31, 2013, international
revenue increased by 60 percent to $14.9 million from $9.3 million in the
2012-period. International operating days increased by 65 percent from 710 days
in the 2012-quarter to 1,170 days in the 2013-quarter. The Corporation generated
13 percent of its consolidated revenue from international operations in the
fourth quarter of 2013 compared to 12 percent in 2012.
For the year ended December 31, 2013, revenue increased by 37 percent to $51.1
million as compared to $37.3 million in 2012. Growth in Russian activity mainly
contributed to a 35 percent increase in operating days, from 2,830 days in 2012
to 3,825 days in 2013. These were both yearly records for the Corporation's
international segment.
Albanian activity in the fourth quarter of 2013 was relatively consistent with
that in the 2012-quarter, as Phoenix Albania continued to operate on 5
consecutive rigs for most of the 2013-year. RMII's EDR systems also continued to
run on all 5 rigs. Operating days in the 2013-quarter increased 13 percent as
compared to the 2012-quarter and revenue increased at a greater rate due to the
premium charged for the value added services deployed. In 2013, Phoenix Albania
drilled 145 wells. The Corporation continues to employee local Albanian staff,
which has created efficiencies and at the same time, goodwill by supporting the
local economy. Phoenix Albania remains the largest portion of PHX Energy's
international revenue and the Corporation presently has a 6 job capacity in
Albania.
Phoenix Russia experienced exceptional growth in the fourth quarter of 2013 and
for the 2013-year as compared to comparable 2012-periods, increasing revenue by
186 and 110 percent, respectively. In Russia there are currently 100 employees,
of which 98 are Russian nationals. The Corporation has positioned itself as a
Russian company with western technology and processes and this has allowed for
the successful penetration into the western Siberian market. As a result of
activity in 2013-year, Phoenix Russia has solidified its presence as a credible
horizontal and directional drilling service provider in this strategic market,
and the Corporation will continue to diversify its client base which is critical
for ongoing success in 2014. The Corporation presently has a 15 job capacity in
Russia.
In Colombia, the Corporation realized strong growth in the 2013-quarter as
compared to the comparable 2012-period. However, the overall activity realized
in the 2013-year was below expectations generally due to relatively weak market
conditions in the country. PHX Energy is currently examining strategies and
structures with the aim of becoming more profitable in the 2014-year. The
Corporation's operations in Colombia currently have a 4 job capacity.
Given the poor market conditions that persisted in Peru during 2013 and the
limited future growth opportunities forecasted, PHX Energy made the decision to
cease operations and withdraw from this market in the fourth quarter. The
Corporation is in the process of re-allocating the assets that were in this
region to more strategic areas for greater utilization in the future.
For the three-month period ended December 31, 2013, reportable segment profit
before tax was $4.4 million compared to $0.9 million in the corresponding
2012-period; a 395 percent increase. Reportable segment profit before tax for
the year ended December 31, 2013 was $14.0 million as compared to $6.8 million
in 2012; a 106 percent increase. Strong activity levels in Albania and Russia
were the main factors in the international segment's improved profitability.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2013 was
$21.5 million as compared to $64.7 million in 2012. During the 2013-year, PHX
Energy added $28.4 million net in capital equipment (2012 - $42.4 million).
These capital equipment amounts are net of proceeds from the involuntary
disposal of drilling equipment in well bores of $13.4 million (2012 - $9.0
million). The 2013 capital expenditures included:
-- $15.8 million in MWD systems and spare components;
-- $14.4 million in down hole performance drilling motors;
-- $3.1 million in non-magnetic drill collars and jars;
-- $2.4 million in software, network, and computers;
-- $2.2 million in machinery and equipment for global service centres;
-- $2.1 million in leasehold improvements and furniture and fixtures; and
-- $1.8 million in other assets, including costs of $1.0 million relating
to a motor facility in the Rocky Mountain region, vehicles of $0.5
million and EDR systems of $0.4 million.
The capital expenditure program undertaken in the year was financed from a
combination of cash flow from operations, long-term debt, equity financing, and
working capital.
During the year, the Corporation received proceeds of $23.1 million from the
sale of land and an operations centre. Payments relating to the land and
operations centre amounted to $18.9 million. The change in non-cash working
capital balances of $10.8 million (source of cash) for the year ended December
31, 2013 pertains to $9.4 million of costs that relate to the land and an
operations centre and $1.4 million of net change in the Corporation's trade
payables that are associated with the acquisition of capital assets. This
compares to $16.2 million (use of cash) for the year ended December 31, 2012.
The Corporation made payments totalling $4.3 million under third party license
and technology development agreements that the Corporation entered into in the
second quarter of 2013. PHX Energy also made additional investments of $3.0
million and $1.2 million in RMS and RMII, respectively, earlier in the year, and
acquired $0.3 million of cash upon the acquisition of RMII.
Financing Activities
The Corporation reported cash flows used in financing activities of $12.5
million in 2013 as compared to $27.6 million (source of cash) in 2012. In the
2013-year:
-- through a short form prospectus equity financing and a concurrent
private placement, the Corporation realized net proceeds of $34.3
million through the issuance of 3,490,000 common shares;
-- the Corporation made an aggregate re-payments of $31.7 million on its
operating facility and syndicated facility;
-- the Corporation paid dividends of $21.4 million to shareholders, or
$0.73 per share; and
-- through its option and DRIP programs the Corporation received cash
proceeds of $6.3 million to acquire 714,903 common shares of the
Corporation.
Equity Financing
On October 18, 2013, PHX Energy closed a bought deal financing pursuant to a
short form prospectus offering for aggregate gross proceeds of $31.1 million. An
aggregate of 2,990,000 common shares of the Corporation were issued at a price
of $10.40 per common share. Concurrent with the closing of the public offering,
certain directors, officers and employees of PHX Energy and their associates,
purchased a total of 500,000 common shares at a price of $10.40 per share on a
private placement basis. The gross proceeds from the public offering and
concurrent private placement totaled to approximately $36.3 million. The net
proceeds of the offerings were used to temporarily reduce indebtedness, which
were then made available to be re-drawn and applied to fund the Corporation's
ongoing capital expenditure program and for general corporate purposes.
Acquisition of Subsidiaries
On May 29, 2013, the Corporation completed the purchase of 20,000,000 common
shares of RMS at a price of $0.15 per common share, or $3.0 million, through a
private placement, thereby increasing PHX Energy's ownership interest in RMS to
39.8 percent at that time from 19.5 percent at the end of 2012. On July 10,
2013, the Corporation subscribed for RMII's preferred shares for $1.0 million.
On September 25, 2013, PHX Energy and RMS entered into an Arrangement Agreement
whereby the Corporation agreed to acquire all of the issued and outstanding
shares of RMS pursuant to a plan of arrangement under the Business Corporations
Act (Alberta) (the "Arrangement"). Under the terms of the Arrangement, all
shareholders of RMS received 0.037209 of a common share of PHX Energy for each
RMS share held. Upon the completion of the Arrangement on November 28, 2013, RMS
became a wholly-owned subsidiary of the Corporation. RMS was also PHX Energy's
only partner to the joint venture entity, RMII. As a result of the acquisition
of RMS, RMII also became a wholly-owned subsidiary of the Corporation. RMS and
PHX Energy were subsequently amalgamated on January 1, 2014.
The acquisition of RMS and RMII will allow PHX Energy to access the information
and data management segment of the oilfield services industry, which compliments
the Corporation's current services. RMS has completed upgrades to its technology
to create a more competitive product. PHX Energy expects that it can
successfully market this technology through its existing client relationships
and will be able to expand market share by leveraging its existing
infrastructure in different geographical areas.
Capital Resources
As at December 31, 2013, the Corporation has access to a $10.0 million operating
facility. The facility bears interest based primarily on the Corporation's
senior debt to EBITDA ratio, as defined in the agreement. At the Corporation's
option, interest is at the bank's prime rate plus a margin that ranges from a
minimum of 0.75 percent to a maximum of 2 percent, or the bank's bankers'
acceptance rate plus a margin that ranges from a minimum of 1.75 percent to a
maximum of 3 percent. As of December 31, 2013, the Corporation had nil drawn on
this facility.
As at December 31, 2013, the Corporation also has access to a $95.0 million
syndicated facility and a US$25.0 million operating facility in the US. The
facilities bear interest at the same rates disclosed above. On August 7, 2013,
the terms of the Corporation's syndicated loan agreement with its bank were
amended to extend the maturity date of the syndicated facility and US operating
facility from September 6, 2015 to September 5, 2016. The aggregate carrying
amounts of the syndicated facility and the US operating facility of $50.0
million and $20.2 million, respectively, as at December 31, 2013, were
classified as non-current in the statement of financial position.
All credit facilities are secured by a general security agreement over all
assets of the Corporation located in Canada and the US. As at December 31, 2013,
the Corporation was in compliance with all of its bank debt covenants.
As at
December 31,
Ratio Covenant 2013
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Senior debt to EBITDA less than or = 3.00:1.00 1.03:1.00
Working capital ratio greater than or = 1.25:1.00 1.96:1.00
Interest coverage ratio greater than or = 3.00:1.00 14.23:1.00
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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
2014 capital budget has been set at $34.7 million subject to quarterly review of
the Board of Directors. 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 2014, 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
Throughout 2013 PHX Energy forecasted that operations would exceed activity
levels in 2012, and announced increased operating days in each quarter of the
year. In the fourth quarter this performance continued and the Corporation is
pleased to announce it ended the year with all-time record revenue and activity.
To operate at this record level, qualified personnel and reliable equipment must
be delivered to each well site. This meant hiring and training new employees,
maximizing equipment utilization, reducing equipment turnaround time and renting
components when demand exceeded capacity. These activities, along with other
factors, created downward pressure on operating margins. Although activity was
robust and capital expenditures related to equipment expansion is ongoing,
additions to the MWD fleet were and will continue to be limited as PHX Energy is
developing a new platform which it believes will propel future growth when
commercial.
In Canada, a robust winter drilling season created positive results for PHX
Energy. In certain basins, particularly those focused on horizontal
applications, drilling continued through the typically slower holiday season.
The Corporation therefore sustained a steadier pace through December.
PHX Energy has operated in the US for over a decade and this is presently the
largest horizontal drilling market in the world. The Corporation set a strategic
direction to capture a greater share of this market and in the fourth quarter of
2013, US operations achieved new financial and operating benchmarks. Given the
opportunity created by the US industry's sheer size, it remains a targeted area
of growth for PHX Energy.
International records were set during the fourth quarter as a result of Russian
growth adding to the consistent performance in Albania. PHX Energy believes it
can continue this positive momentum in Russia as it is a large market with a
healthy demand for horizontal and directional drilling services. Additionally,
the rig count outside of North America is large, and an increasing number of
areas are adopting horizontal drilling techniques. As such, PHX Energy remains
posed to evaluate future opportunities that may materialize.
PHX Energy's outlook for 2014 is positive as it forecasts operations will
continue to generate operating day growth quarter-over-quarter, exceeding the
already robust 2013 levels. However, the Corporation cautions that the rate of
growth achieved in the past quarters will be most difficult to maintain and
operating at peak levels can potentially erode operating margins. The 2014
strategy is heavily focused on managing costs and capturing additional revenue
streams to strengthen operating margins and although the tactics to do so will
take time to implement, the Corporation believes an impact will be seen before
the end of the year.
John Hooks, Chairman of the Board, President and Chief Executive Officer
February 26, 2014
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 ended Years ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings 22,259 4,537 36,567 17,707
Add:
Depreciation and amortization 6,362 5,800 24,403 21,336
Provision for income taxes 2,617 2,147 6,880 6,561
Finance expense 1,131 1,091 4,789 3,233
----------------------------------------------------------------------------
EBITDA as reported 32,369 13,575 72,639 48,837
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 ended Years ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from operating
activities 17,367 13,748 35,378 33,070
Add (deduct):
Changes in non-cash working
capital (3,972) (1,285) 12,254 13,054
Interest paid 1,469 866 4,201 2,863
Income taxes paid 297 561 1,327 1,634
----------------------------------------------------------------------------
Funds from operations 15,161 13,890 53,160 50,621
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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.
3) Senior Debt to EBITDA Ratio
Senior debt is represented by loans and borrowings. EBITDA, for purposes of the
calculation of this covenant ratio, is represented by EBITDA as defined in
Non-GAAP Measures above and adding share-based payments less interest and income
taxes paid.
4) Adjusted EBITDA
Adjusted EBITDA, defined as earnings before interest, taxes, depreciation and
amortization, gains from the re-measurement to fair value of pre-existing
ownership interests in RMS and RMII, gains on sale of land and operations
centre, and write-off of tools, is not a financial measure that is recognized
under GAAP. However, Management believes that adjusted 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 and excluding extraordinary items. Investors should be
cautioned, however, that adjusted EBITDA should not be construed as an
alternative measure to net earnings determined in accordance with GAAP. PHX
Energy's method of calculating adjusted EBITDA may differ from that of other
organizations and, accordingly, its adjusted EBITDA may not be comparable to
that of other companies.
The following is a reconciliation of net earnings to adjusted EBITDA:
(Stated in thousands of dollars)
Three-month
periods ended Years ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings 22,259 4,537 36,567 17,707
Add:
Depreciation and amortization 6,362 5,800 24,403 21,336
Provision for income taxes 2,617 2,147 6,880 6,561
Finance expense 1,131 1,091 4,789 3,233
----------------------------------------------------------------------------
EBITDA as reported 32,369 13,575 72,639 48,837
----------------------------------------------------------------------------
Add (deduct):
Gains from pre-existing ownership
interest in RMS and RMII (14,758) - (14,758) -
Gain on sale of land and
operations centre - - (2,196) -
Write-down of technological assets - - 1,245 -
----------------------------------------------------------------------------
Adjusted EBITDA as reported 17,611 13,575 56,930 48,837
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Adjusted 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 adjusted
EBITDA per share on a dilutive basis does not include anti-dilutive options.
About PHX Energy Services Corp.
The Corporation, through its directional drilling subsidiary entities, provides
horizontal and directional drilling technology and services to oil and natural
gas producing companies in Canada, the US, Albania, Russia, and Colombia. PHX
Energy develops and manufactures its E-360 EM and P-360 positive pulse MWD
technologies that are made available for internal operational use. In addition,
PHX Energy, with the acquisition of RMS Systems Inc., provides EDR technology
and services through newly establish subsidiaries.
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 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, Russia, and Colombia, and an
administrative office in Nicosia, Cyprus.
As at December 31, 2013, PHX Energy had 1,011 full-time employees and the
Corporation utilized over 200 additional field consultants in 2013.
The common shares of PHX Energy trade on the Toronto Stock Exchange under the
symbol PHX.
Consolidated Statements of Financial Position
December 31, December 31,
2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,663,880 $ 4,329,969
Trade and other receivables 97,660,559 67,189,884
Inventories 30,024,019 21,833,051
Prepaid expenses 2,913,514 3,476,559
Assets held for sale - 9,436,462
----------------------------------------------------------------------------
Total current assets 136,261,972 106,265,925
Non-current assets:
Drilling and other equipment 165,771,615 144,370,109
Goodwill 31,229,756 8,876,351
Intangible assets 17,113,924 -
Equity-accounted investees - 5,010,292
----------------------------------------------------------------------------
Total non-current assets 214,115,295 158,256,752
----------------------------------------------------------------------------
Total assets $ 350,377,267 $ 264,522,677
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating facility $ - $ 5,897,711
Trade and other payables 64,815,732 38,165,118
Dividends payable 2,239,910 1,626,287
Current tax liabilities 2,410,198 97,020
Current portion of finance leases 215,697 -
Loans and borrowings - 15,000,000
----------------------------------------------------------------------------
Total current liabilities 69,681,537 60,786,136
Non-current liabilities:
Loans and borrowings 70,208,400 80,000,000
Deferred tax liabilities 9,833,710 8,641,858
Deferred income 1,966,667 -
Finance leases 209,935 -
----------------------------------------------------------------------------
Total non-current liabilities 82,218,712 88,641,858
Equity:
Share capital 165,451,599 99,101,118
Contributed surplus 6,361,710 7,860,658
Retained earnings 24,284,690 9,764,748
Accumulated other comprehensive income 2,379,019 (1,631,841)
----------------------------------------------------------------------------
Total equity 198,477,018 115,094,683
----------------------------------------------------------------------------
Total liabilities and equity $ 350,377,267 $ 264,522,677
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income
Three-month periods ended Years ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited) (unaudited)
Revenue $115,542,950 $ 79,473,206 $380,663,302 $301,719,813
Direct costs 93,293,464 62,989,673 307,680,358 238,167,915
----------------------------------------------------------------------------
Gross profit 22,249,486 16,483,533 72,982,944 63,551,898
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Expenses:
Selling, general
and
administrative
expenses 13,490,502 8,456,052 43,632,454 34,466,938
Research and
development
expenses 564,883 320,810 2,004,384 1,985,404
Finance expense 1,130,527 1,090,636 4,789,168 3,232,978
Other income (18,455,352) (378,248) (22,836,329) (954,849)
----------------------------------------------------------------------------
(3,269,440) 9,489,250 27,589,677 38,730,471
Share of loss of
equity-accounted
investees (net of
tax) 642,468 310,327 1,946,892 552,931
----------------------------------------------------------------------------
Earnings before
income taxes 24,876,458 6,683,956 43,446,375 24,268,496
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Provision for income
taxes:
Current (292,463) 209,368 3,572,010 1,579,789
Deferred 2,909,985 1,937,809 3,307,688 4,981,679
----------------------------------------------------------------------------
2,617,522 2,147,177 6,879,698 6,561,468
----------------------------------------------------------------------------
Net earnings 22,258,936 4,536,779 36,566,677 17,707,028
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other comprehensive
income:
Foreign currency
translation 2,288,659 1,587,768 4,010,860 (873,637)
----------------------------------------------------------------------------
Total comprehensive
income for the
period $ 24,547,595 $ 6,124,547 $ 40,577,537 $ 16,833,391
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share -
basic $ 0.69 $ 0.16 $ 1.24 $ 0.63
Earnings per share -
diluted $ 0.68 $ 0.16 $ 1.23 $ 0.63
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Consolidated Statements of Cash Flows
Three-month periods ended Years ended
December 31, December 31,
2013 2012 2013 2012
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flows from
operating
activities: (unaudited) (unaudited)
Net earnings $ 22,258,936 $ 4,536,779 $ 36,566,677 $ 17,707,028
Adjustments for:
Depreciation and
amortization 6,361,933 5,799,949 24,403,158 21,335,874
Provision for
income taxes 2,617,522 2,147,177 6,879,698 6,561,468
Unrealized foreign
exchange loss 7,099 62,396 581,933 1,188,443
Gain on
disposition of
drilling
equipment (3,488,320) (575,431) (7,419,366) (2,727,295)
Write down of
technological
assets - - 1,244,946 -
Gain on sale of
land and
operations centre - - (2,195,886) -
Share-based
payments 300,641 409,895 1,061,177 2,264,706
Finance expense 1,130,527 1,090,636 4,789,168 3,232,978
Provision for bad
debts 87,830 108,197 59,374 15,059
Share of loss of
equity-accounted
investees 642,468 310,327 1,946,892 552,931
Gains from pre-
existing
ownership
interest in
acquired
subsidiaries (14,757,588) - (14,757,588) -
Change in fair
value of
investment in
equity securities - - - 490,245
Change in non-cash
working capital 3,971,513 1,284,738 (12,254,284) (13,053,739)
----------------------------------------------------------------------------
Cash generated from
operating
activities 19,132,561 15,174,663 40,905,899 37,567,698
Interest paid (1,468,922) (866,164) (4,200,775) (2,863,421)
Income taxes paid (296,660) (560,668) (1,327,187) (1,633,970)
----------------------------------------------------------------------------
Net cash from
operating
activities 17,366,979 13,747,831 35,377,937 33,070,307
----------------------------------------------------------------------------
Cash flows from
investing
activities:
Proceeds on
disposition of
drilling
equipment 5,103,689 2,045,771 13,435,619 9,039,942
Acquisition of
drilling and
other equipment (13,271,734) (5,334,438) (41,818,387) (51,452,063)
Acquisition of
intangible assets (584,968) - (4,344,168) -
Acquisition of
subsidiary, cash
acquired 334,150 - 334,150 -
Investment in pre-
existing equity-
accounted
investees - (1,960,000) (4,200,000) (6,053,468)
Proceeds from sale
of land and
operations centre - - 23,100,000 -
Payments relating
to the land and
operations centre - - (18,904,114) -
Change in non-cash
working capital 4,730,047 (4,946,603) 10,849,065 (16,239,576)
----------------------------------------------------------------------------
Net cash used in
investing
activities (3,688,816) (10,195,270) (21,547,835) (64,705,165)
----------------------------------------------------------------------------
Cash flows from
financing
activities:
Proceeds from
issuance of share
capital 35,675,852 276,006 40,622,300 1,286,060
Dividends paid to
shareholders (6,058,376) (5,079,636) (21,432,880) (18,595,288)
Proceeds on
(Repayment of)
loans and
borrowings (35,841,000) 2,000,000 (25,787,900) 39,000,000
Proceeds on
(Repayment of)
operating
facility (6,076,407) (298,747) (5,897,711) 5,897,711
----------------------------------------------------------------------------
Net cash from
financing
activities (12,299,931) (3,102,377) (12,496,191) 27,588,483
----------------------------------------------------------------------------
Net increase
(decrease) in cash
and cash
equivalents 1,378,232 450,184 1,333,911 (4,046,375)
Cash and cash
equivalents,
beginning of year 4,285,648 3,879,785 4,329,969 8,376,344
----------------------------------------------------------------------------
Cash and cash
equivalents, end of
year $ 5,663,880 $ 4,329,969 $ 5,663,880 $ 4,329,969
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FOR FURTHER INFORMATION PLEASE CONTACT:
PHX Energy Services Corp.
John Hooks
President and CEO
403-543-4466
403-543-4485 (FAX)
PHX Energy Services Corp.
Cameron Ritchie
Senior Vice President Finance and CFO
403-543-4466
403-543-4485 (FAX)
www.phxtech.com
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