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Canadian Energy Services & Technology Corp. Announces Results

Canadian Energy Services & Technology Corp. Announces Results for the
Third Quarter and Declares Increased Cash Dividend 
CALGARY, ALBERTA -- (Marketwire) -- 11/07/12 -- Canadian Energy
Services & Technology Corp. ("CES" or the "Company") (TSX:CEU)
(OTCQX:CESDF) is pleased to report its financial and operating
results for the three and nine months ended September 30, 2012. CES
also announced today that it will pay a cash dividend of $0.055 per
common share on December 14, 2012 to the shareholders of record at
the close of business on November 30, 2012, representing an increased
dividend of $0.005 per common share or 10% to the monthly dividend.
This is the sixth dividend increase announced by CES since converting
to a corporate structure on January 1, 2010. 
Coming out of spring break-up, activity in Canada has failed to
realize 2011 levels as operators have scaled back drilling programs
in the face of high costs, weaker netback prices, and reduced access
to the capital markets. The US market has remained relatively flat
but a shift continues to oil and or liquids rich drilling targets,
resulting in reductions in CES' Marcellus activity which has not been
fully offset by pick-ups in other plays such as the Utica and the
Eagleford. CES' Q3 2012 results reflect the decrease in activity over
the comparable period in 2011. CES generated gross revenue of $115.6
million during the third quarter of 2012, compared to $122.0 million
for the three months ended September 30, 2011, a decrease of $6.4
million or 5% on a year-over-year basis. For the three month period
ended September 30, 2012, CES recorded gross margin of $27.9 million
or 24% of revenue, compared to gross margin of $30.5 million or 25%
of revenue generated in the same period last year. 
Net earnings before interest, taxes, amortization, loss on disposal
of assets, goodwill impairment, unrealized foreign exchange gains and
losses, unrealized derivative gains and losses, and stock-based
compensation ("EBITDAC") for the three months ended September 30,
2012, was $17.3 million as compared to $18.6 million for the three
months ended September 30, 2011, representing a decrease of $1.3
million or 7%. CES recorded EBITDAC per share of $0.31 ($0.30
diluted) for the three months ended September 30, 2012 as 
compared
with EBITDAC per share of $0.34 ($0.33 diluted) in 2011. 
CES recorded net income of $8.0 million for the three month period
ended September 30, 2012, as compared to $9.5 million in the prior
year, representing a decrease of $1.56 million or 16%. CES recorded
net income per share of $0.14 ($0.14 diluted) for the three months
ended September 30, 2012 versus $0.17 ($0.17 diluted) in 2011,
representing a decrease of 18%. Year-over-year net income was
negatively impacted by higher non-cash depreciation and amortization
expenses and stock-based compensation as well as higher income tax
expense for the quarter. 
Revenue from drilling fluids related sales of products and services
in Canada was $39.7 million for the three months ended September 30,
2012 compared to $50.2 million for the three months ended September
30, 2011, representing a decrease of $10.5 million or 21%. Average
revenue per operating day for the three months ended September 30,
2012, was $4,308 compared to $4,341 for the three months ended
September 30, 2011, representing a decrease of 1%. Year-to-date,
daily average revenue per operating day was $4,531 compared to $4,036
in 2011, representing a year-over-year increase of 12%. Average
revenue per operating day has trended upward over the last several
years as operators continue to drill more complex, deeper, and longer
horizontal wells in the WCSB. These wells require more fluids in
general but also more technically advanced fluids in order for the
wells to be successfully drilled and cased. Estimated Canadian market
share was approximately 30% for the three months ended September 30,
2012, up from 28% for the three months ended September 30, 2011. CES'
operating days were estimated to be 9,217 for the three month period
ended September 30, 2012, a decrease of 20% from 11,565 operating
days during the same period last year. Overall industry activity
decreased approximately 25% from an average monthly rig count in Q3
2011 of 454 to 339 in Q3 2012 based on CAODC published monthly data
for Western Canada. 
Revenue generated in the United States ("US") from drilling fluid
sales of products and services for the three months ended September
30, 2012, was $66.2 million as compared to the third quarter of 2011
with revenue of $61.8 million, representing an increase of $4.4
million or 7% on a year-over-year basis. Daily average revenue per
operating day for the three months ended September 30, 2012, was
$6,972 compared to $6,320 for the three months ended September 30,
2011, representing an increase of 10%. Year-to-date, daily average
revenue per operating day was $7,144 compared to $6,167 in 2011,
representing a year-over-year increase of 16%. Estimated US market
share for the three months ended September 30, 2012, was estimated to
be 6%, consistent with 6% for the three months ended September 30,
2011.US operating days were estimated to be 9,492 operating days for
the three month period ended September 30, 2012, a decrease of 3%
from 9,771 operating days during the same period last year. 
EQUAL Transport's ("EQUAL") trucking revenue for the three month
period ended September 30, 2012, gross of intercompany eliminations,
totalled $4.2 million, a decrease of $1.3 million or 24% from the
$5.5 million for the three months ended September 30, 2011. The
decrease in trucking revenue is tracking the overall reduction in the
industry wide Canadian drilling activity. 
Clear Environmental Solutions division ("Clear") generated $5.7
million of revenue for the three month period ended September 30,
2012, an increase of $1.0 million compared to $4.7 million during the
prior year. Clear has continued to market its services aggressively
and has capitalized on new regulations in Alberta that have required
additional environmental disclosures and procedures by operators. 
CES also announced today that it has declared a cash dividend of
$0.055 per common share to shareholders of record on November 30,
2012. CES expects to pay this dividend on or about December 14, 2012. 
CES' business is focused on the design and delivery of technically
advanced fluids for the oil and gas industry. CES' business model
requires limited re-investment capital to grow. As a result, CES has
been able to capitalize on the growing market demand for drilling and
production fluids in North America while generating free cash flow.
CES returns much of this free cash flow back to shareholders through
its monthly dividend. 
The core business of CES is to design and implement drilling fluid
systems for the North American oil and natural gas industry. CES
operates in the Western Canadian Sedimentary Basin ("WCSB") and in
various basins in the United States ("US"), with an emphasis on
servicing the ongoing major resource plays. The drilling of those
major resource plays includes wells drilled vertically,
directionally, and, with increasing frequency, horizontally.
Horizontal drilling is a technique utilized in tight formations like
tight gas, liquids rich gas, tight oil, heavy oil, and in the oil
sands. The designed drilling fluid encompasses the functions of
cleaning the hole, stabilizing the rock drilled, controlling
subsurface pressures, enhancing drilling rates, and protecting
potential production zones while cons
erving the environment in the
surrounding surface and subsurface area. CES' drilling fluid systems
are designed to be adaptable to a broad range of complex and varied
drilling scenarios, to help clients eliminate inefficiencies in the
drilling process, and to assist them in meeting operational
objectives and environmental compliance obligations. CES markets its
technical expertise and services to oil and natural gas exploration
and production entities by emphasizing the historical success of both
its patented and proprietary drilling fluid systems and the technical
expertise and experience of its personnel. 
Clear, CES' environmental division, provides environmental and
drilling fluids waste disposal services primarily to oil and gas
producers active in the WCSB. The business of Clear involves
determining the appropriate processes for disposing of or recycling
fluids produced by drilling operations and to carry out various
related services necessary to dispose of drilling fluids. 
EQUAL, CES' transport division, provides its customers with trucks
and trailers specifically designed to meet the demanding requirements
of off-highway oilfield work, and trained personnel to transport and
handle oilfield produced fluids and to haul, handle, manage and
warehouse drilling fluids. EQUAL operates from two terminals and
yards located in Edson, Alberta and Carlyle, Saskatchewan. 
PureChem Services ("PureChem"), CES' drilling fluid and production
chemical manufacturing division, designs, manufactures, and sells
specialty drilling fluids to CES, as well as stimulation and
production chemicals to operators. The PureChem production facility
is strategically located in Carlyle, Saskatchewan. 
CES' corporate head office and its sales and services headquarters
are located in Calgary, Alberta and its stock point facilities and
other operations are located throughout Alberta, British Columbia,
and Saskatchewan. CES' indirect wholly-owned subsidiary, AES Drilling
Fluids, LLC ("AES") head office is located in Houston, Texas and
conducts operations in thirteen states with stock point facilities
located in Oklahoma, Texas, Louisiana, Pennsylvania, West Virginia,
Colorado, North Dakota, New Mexico, and Utah. 


 
Financial Highlights                                                        
                                        Three Months             Nine Months
                                               Ended                   Ended
                                           September               September
                                                 30,                     30,
                            ------------------------------------------------
($000's, except per share                                                   
 amounts)                           2012        2011        2012        2011
----------------------------------------------------------------------------
Revenue                          115,585     121,958     376,271     320,464
Gross margin (1)                  27,885      30,520      88,766      86,115
Income before taxes               12,165      14,250      39,697      40,580
  per share - basic                 0.22        0.26        0.71        0.74
  per share - diluted               0.21        0.25        0.69        0.72
Net income                         7,952       9,501      25,022      26,822
  per share - basic                 0.14        0.17        0.45        0.49
  per share - diluted               0.14        0.17        0.44        0.48
EBITDAC (1)                       17,326      18,601      54,877      51,895
  per share - basic                 0.31        0.34        0.99        0.95
  per share - diluted               0.30        0.33        0.96        0.93
Funds flow from operations                                                  
 (1)                              13,073      17,315      39,631      45,958
  per share - basic                 0.23        0.32        0.71        0.84
  per share - diluted               0.23        0.31        0.69        0.82
Dividends declared                 8,367       6,582      24,447      18,962
  per share                         0.15        0.12        0.44        0.35
----------------------------------------------------------------------------
                                                                            
                                        Three Months             Nine Months
                                               Ended                   Ended
                                           September               September
                                                 30,                     30,
                            ------------------------------------------------
Shares Outstanding                  2012        2011        2012        2011
----------------------------------------------------------------------------
End of period                 55,873,073  54,842,035  55,873,073  54,842,035
Weighted average                                                            
  - basic                     55,749,999  54,834,583  55,525,233  54,659,033
  - diluted                   57,356,168  56,244,549  57,261,864  56,015,520
----------------------------------------------------------------------------
                                                 September 30,  December 31,
Financial Position ($000's)                               2012          2011
----------------------------------------------------------------------------
Net working capital                                    142,329       153,660
Total assets                                           355,329       385,351
Long-term financial liabilities (2)                     85,412        96,779
Shareholders' equity                                   209,846       204,060
----------------------------------------------------------------------------

 
Notes: 
(1)CES uses certain performance measures that are not recognizable
under International Financial Reporting Standards ("IFRS"). These
performance measures include earnings before interest, taxes,
amortization, goodwill impairment, stock-based compensation
("EBITDAC"), gross margin, funds flow from operations, and
distributable funds. Management believes that these measures provide
supplemental financial information that is useful in the evaluation
of CES' operations. Readers should be cautioned, however, that these
measures should not be construed as alternatives to measures
determined in accordance with IFRS as an indicator of CES'
performance. CES' 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 of CES'
MD&A for the three and nine months ended September 30, 2012. 
(2) Includes long-term portion of the Senior Facility, vehicle
financing loans, and finance leases, excluding current portions. 
Outlook 
Coming out of spring break-up, activity in Canada has failed to
realize 2011 levels as operators scaled back drilling programs in the
face of high costs, weaker netback prices, and reduced access to the
capital markets. The US market has remained relatively flat but a
shift continues to oil and or liquids rich drilling targets,
resulting in reductions in CES' Marcellus activity which has not been
fully offset by pick-up
s in other plays such as the Utica and the
Eagleford. CES' Q3 2012 results reflect the decrease in activity over
the comparable period in 2011. Despite the slowdown in overall
drilling activity, CES' dominant business line, the drilling fluids
segment, has experienced increases in revenue per day as the industry
trend to drill more complex, deeper and longer horizontal wells
continues. CES has benefited from this trend as these types of wells
require more fluids in general, but also more technically advanced
fluids in order to be successfully drilled and cased. The result is
the drilling fluids portion of the typical well cost has increased,
while the average well cost has also increased. Based on the reported
well economics of the different North American play types and the
reported drilling plans of operators, this trend looks to continue. 
CES' strategy is to utilize its patented and proprietary technologies
and superior execution to increase market share in North America. As
a larger percentage of the wells being drilled require more complex
drilling fluids to best manage down hole conditions, drilling times
and costs, CES will leverage its superior customer service and its
unique products like its patented Seal-AX(TM) line; its advanced
synthetic oil mud systems EnerDrill(TM) and ABS40(TM); and other
proprietary solutions such as PureStar(TM) and
Liquidrill(TM)/Tarbreak to demonstrate its superior performance. CES
believes that its unique value proposition in this increasingly
complex drilling environment makes it the premier independent
drilling fluids provider in North America. 
Despite the decrease in activity in the WCSB, the EQUAL Transport
division has remained profitable. It is expected this business will
continue to be economically viable and may be expanded further as
attractive opportunities emerge. 
The PureChem Services division continues to grow. PureChem
manufactures and sells drilling fluid chemicals and production
chemicals. PureChem began operations with the opening of its chemical
blending facility in February 2011. PureChem is a complimentary
business to both CES' drilling fluids business and EQUAL's production
hauling businesses in Canada. CES' strategy is to continue to build
out PureChem from its southeast Saskatchewan roots, through both
organic growth off of our established North American platforms and
through strategic fit acquisitions. 
The Clear Environmental Solutions division continues to complement
CES' core drilling fluids business. The Environmental Services
division has focused on expanding its operational base in the WCSB
and is pursuing opportunities in the oil sands and horizontal
drilling markets. 
As drilling has become more complex, advanced down-hole technologies
are becoming increasingly important in driving success for operators.
CES will continue to invest in research and development to be a
leader in technology advancements in the drilling fluids and
production chemical markets. CES operates three separate lab
facilities located in Carlyle, Saskatchewan; Calgary, Alberta; and
Houston, Texas. CES also leverages third party partner relationships
to drive innovation in the fluids business. 
On a corporate level, CES continually assesses integrated business
opportunities that will keep CES competitive and enhance
profitability. However, all acquisitions must meet our stringent
financial and operational metrics. CES will also closely manage its
dividend levels and capital expenditures in order to preserve its
financial strength, its low capital re-investment model and its
strong liquidity position. 
Despite the slowdown in overall drilling activity in Q3 2012, CES
remains optimistic about the prospects of its business. Lower
commodity prices have constrained operators' cash flow and taxed
their available credit lines, while at the same time access to
capital through the equity markets has been constrained. All of these
factors have affected the amount of capital available to drill wells.
Recent improvement in natural gas prices and an opening in the
capital markets, which has seen certain operators access equity
markets, are signs of near-term optimism. However, CES expects that
overall activity levels in Canada in the near-term will be muted and
US activity will remain somewhat flat. The low capex, unleveraged
business model CES deploys is well suited to withstand these activity
troughs, while at the same time CES continues to pursue opportunities
to grow and expand the business. 
Except for the historical and present factual information contained
herein, the matters set forth in this news release, may constitute
forward- looking information or forward-looking statements
(collectively referred to as "forward-looking information") which
involves known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of
CES, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking information. When used in this press release, such
information uses such words as "may", "would", "could", "will",
"intend", "expect", "believe", "plan", "anticipate", "estimate", and
other similar terminology. This information reflects CES' current
expectations regarding future events and operating performance and
speaks only as of the date of this press release. Forward-looking
information involves significant risks and uncertainties, should not
be read as a guarantee of future performance or results, and will not
necessarily be an accurate indication of whether or not such results
will be achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward- looking
information, including, but not limited to, the factors discussed
below. The management of CES believes the material factors,
expectations and assumptions reflected in the forward-looking
information and statements are reasonable but no assurance can be
given that these factors, expectations and assumptions will prove to
be correct. The forward-looking information and statements contained
in this press release speak only as of the date of the press release,
and CES assumes no obligation to publicly update or revise them to
reflect new events or circumstances, except as may be required
pursuant to applicable securities laws or regulations. 
In particular, this press release contains forward-looking
information pertaining to the following: future estimates as to
dividend levels, including the payment of a dividend to shareholders
of record on November 30, 2012; capital expenditure programs for oil
and natural gas; supply and demand for CES' products and services;
industry activity levels; commodity prices; treatment under
governmental regulatory and taxation regimes; dependence on equipment
suppliers; dependence on suppliers of inventory and product inputs;
equipment improvements; dependence on personnel; collection of
accounts receivable; operating risk liability; expectations regarding
market prices and costs; expansion of services in Canada, the United
States, and internationally; development of new technologies;
expectations regarding CES' growth opportunities in the United
States; expectations regarding the performance or expansion of CES'
environmental and transportation operations; expectations regarding
demand for CES' services and technology if drilling activity levels
increase; investments in research and development and technology
advancements; access to debt and capital markets; and competitive
conditions. 
CES' actual results could differ materially from those anticipated in
the forward-looking information as a result of the following factors:
general economic conditions in Canada, the United States, and
internationally; demand for oilfield services for drilling and
completion of oil and natural gas wells; volatility in market prices
for oil, natural gas, and natural gas liquids and the effect of this
volatility on the deman
d for oilfield services generally;
competition; liabilities and risks, including environmental
liabilities and risks inherent in oil and natural gas operations;
sourcing, pricing, and availability of raw materials, consumables,
component parts, equipment, suppliers, facilities, and skilled
management, technical and field personnel; ability to integrate
technological advances and match advances of competitors;
availability of capital; uncertainties in weather and temperature
affecting the duration of the oilfield service periods and the
activities that can be completed; changes in legislation and the
regulatory environment, including uncertainties with respect to
programs to reduce greenhouse gas and other emissions and tax
legislation; reassessment and audit risk associated with the
corporate conversion; changes to the royalty regimes applicable to
entities operating in Canada and the US; access to capital and the
liquidity of debt markets; changes as a result of IFRS adoption;
fluctuations in foreign exchange and interest rates and the other
factors considered under "Risk Factors" in CES' Annual Information
Form for the year ended December 31, 2011, and "Risks and
Uncertainties" in CES' MD&A. 
Without limiting the foregoing, the forward-looking information
contained in this press release is expressly qualified by this
cautionary statement. 
CES has filed its Q3 2012 condensed consolidated financial statements
and notes thereto as at and for the three months and nine months
ended September 30, 2012, and accompanying management discussion and
analysis in accordance with National Instrument 51-102 - Continuous
Disclosure Obligations adopted by the Canadian securities regulatory
authorities. Additional information about CES will be available on
CES' SEDAR profile at www.sedar.com and CES' website at
www.CanadianEnergyServices.com. 
THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE. 
Contacts:
Canadian Energy Services & Technology Corp.
Tom Simons
President and Chief Executive Officer
(403) 269-2800 
Canadian Energy Services & Technology Corp.
Craig F. Nieboer, CA
Chief Financial Officer
(403) 269-2800
info@ceslp.ca
www.CanadianEnergyServices.com
 
 
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