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CanElson Announces Strong Third Quarter Financial Results,

CanElson Announces Strong Third Quarter Financial Results, Expands
Its Credit Facility Through Syndication and Declares Third Quarter
Dividend 
CALGARY, ALBERTA -- (Marketwire) -- 11/09/12 -- CanElson Drilling
Inc. (TSX:CDI) today announced strong financial results for the third
quarter and first nine months of 2012 compared with a year earlier.
CanElson also has expanded its credit facility to $120 million from
$60 million previously available and declared a third quarter
dividend of $0.05 per share. 
THIRD QUARTER 2012 SUMMARY (Compared with a year earlier) 


 
--  Services revenue $58.5 million, up 7% from $54.7 million 
--  CanElson's Canadian utilization of 62% was 1.5 times higher than the
    industry average, up from 1.4 
--  Foreign segment (United States and Mexico) revenue grew by 27% to $27.1
    million representing 46% of total revenue for the quarter 
--  EBITDA $22.2 million, up 9% from $20.3 million 
--  Income attributable to shareholders $10.2 million, declined 5% from
    $10.7 million 
--  EPS (diluted) $0.13, declined 13% from $0.15 
--  Weighted average diluted shares outstanding 76.3 million, up 4% from
    73.6 million 
--  Declared third quarter dividend of $0.05 per share, up from nil 

 
NINE MONTHS ENDED 2012 SUMMARY (Compared with a year earlier) 


 
--  Services revenue $161.6 million, up 34% from $120.7 million 
--  CanElson's Canadian utilization of 52% was 1.2 times higher than the
    industry average, which is the same as the prior year 
--  Foreign segment (United States and Mexico) revenue grew by 60% to $78.6
    million representing 49% of total revenue 
--  EBITDA $60.3 million, up 46% from $41.2 million 
--  Income attributable to shareholders $29.7 million, up 48% from $20.0
    million 
--  EPS (diluted) $0.39, up 34% from $0.29 
--  Weighted average diluted shares outstanding 75.2 million, up 10% from
    68.2 million 
--  Declared dividends totaling $0.15 per share, up from nil 

 
"Our highly versatile tele-double and modern drilling rig fleet, and
operations in key oil-weighted basins across North America enabled us
to generate strong financial results during the third quarter even
though the rig activity levels declined in both the United States and
Canada relative to the same period last year," s
tated Randy Hawkings,
President and CEO of CanElson. "Our prudent growth and risk
management strategy continues to prove itself as we remain focused on
delivering superior full-cycle value and growth to our customers and
shareholders." 
OUTLOOK 
Drilling Services 
We believe that our strategy has uniquely positioned us to sustain
relatively strong profitability during the full drilling industry
cycle. The current drilling cycle, as we described in the second
quarter 2012 MD&A, continues to be subdued in Canada and the US. The
cornerstones to our relative industry strength, profitability, and
top quartile financial results are: 


 
1.  operations in four core balanced geographical regions; 
2.  a standardized deep modern rig fleet (average age of less than 4.5 years
    and average vertical rating of greater than 4000 metres); 
3.  new cost saving initiatives such as our natural gas fuel and flare gas
    initiative with CanGas and our new proprietary triple design; 
4.  an established foot print and a growing reputation for efficiency in
    optimization of drilling practices in Mexico where the market appears to
    be poised for growth; and 
5.  a strong balance sheet with excess capacity to take advantage of
    opportunities. 

 
Mexico 
The drilling industry in Mexico appears to be counter cyclical
relative to Canada and the United States. PEMEX is dedicated to
stemming oil production decline and increasing domestic gas
production; and we have demonstrated our ability to effectively and
successfully do business in Mexico. We believe our performance in the
region and our alignment with an experienced and strong local partner
(Grupo Diavaz with 40 years working for PEMEX) will provide an
excellent opportunity for our Mexican joint venture, Diavaz CanElson
de Mexico, S.A. de C.V. ("DCM"), to expand its complement of
services. As previously disclosed we expect DCM's customer will move
to a production sharing contract with PEMEX during the next three
months. Therefore, DCM has experienced the current temporary lull in
activity this year during this transition period. 
Texas 
CanElson has deployed 24% of its fleet focused on oil-directed
drilling to the Permian Basin in Texas. The industry rig count in
this area has recently declined due to the macro industry trends
described above which may result in minor downward pressure on
revenue rates in 2013 for CanElson's rigs operating there, compared
with 2012. We do not expect that this pressure will significantly
impact our overall utilization in west Texas and anticipate that we
will still achieve capacity utilization in excess of 90% for the
remainder of 2012 and into 2013, with downtime caused only by rig
move intervals and planned re-certifications of some of our drilling
equipment. 
Canada and North Dakota 
As a result of the volatility in both oil and natural gas commodity
prices, reduced access to capital, commodity transportation
challenges, and global macro concerns our customers are
understandably cautious with respect to their capital spending
programs. Consequently, we anticipate the current revenue rate
conditions to prevail through the first quarter of 2013 combined with
typical seasonal utilization increases through the winter. Beyond the
first quarter we have less certainty as to the market direction but
we expect that the strong relationships, cost reduction initiatives
(e.g. CanGas) and long term contracts we have established with our
customers will provide a competitive edge in the market place. 
Rig Assembly 
At our Nisku, Alberta facility we are assembling three additional
tele-doubles at an estimated investment of approximately $8 million
per rig. We will deploy these new rigs in Q4 of 2012 and Q1 of 2013,
all with long term committed contracts. These new rigs will expand
the gross size of the fleet to 41 rigs. As in the past, we continue
to order long lead items for an additional tele-double, with full
construction dependent upon obtaining customer commitments. In
addition, progress is continuing on finalizing the detail designs of
a proprietary triple drilling rig that will incorporate similar
characteristics of our successful tele-doubles. 


 
Fleet deployment (by rigs)                                                  
                                           Mexico                           
                                 North    Drilling    Mexico                
              Canada   Texas     Dakota   (Leased)    Service      Total    
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30,                                                               
 2012           22   9 (net 8)     4     1 (net 0.5) 2 (net 1) 38 (net 35.5)
September 30,                                                               
 2011           20   6 (net 5)     4      2 (net 1)  2 (net 1)  34 (net 31) 
----------------------------------------------------------------------------
Change %        10%     50%    unchanged    -50%     unchanged      10%     
                     (net 60%)                                   (net 14%)  
--------------------------------------------------------------------
--------
----------------------------------------------------------------------------
                                                                            
Gross fleet deployment (by %)                                               
                                                                            
                                           Mexico                           
                                 North    Drilling    Mexico                
              Canada   Texas     Dakota   (Leased)    Service      Total    
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30,                                                               
 2012           57%     24%       11%        3%         5%          100%    
September 30,                                                               
 2011           59%     17%       12%        6%         6%          100%    
----------------------------------------------------------------------------
----------------------------------------------------------------------------

 
CanGas Solutions Inc. ("CanGas") 
We believe CanGas is the only provider of compressed natural gas
("CNG") transportation services by truck-hauled CNG trailers in
Western Canada, as such; it is strategically positioned for rapid
growth and cost-savings to customers. Additionally, we look to bring
this expertise to our operations outside the WCSB. 
CanGas provides two unique high value services requiring road
transportation of CNG. The first service provides high pressure
processed natural gas to remote worksites where the natural gas can
displace a significant proportion of diesel burned in conventional
diesel engines converted to bi-fuel (a mixture of natural gas and
diesel fuel) usage. CanGas also sources and supplies high pressure
input compression to fill the road transport CNG trailers, and the
diesel engine bi-fuel conversions. The second service collects low
pressure raw natural gas which would otherwise be flared, and
transports this previously wasted gas under high pressure to a gas
processing facility. In areas with flaring restrictions the
conservation of this raw gas allows the owner to produce more oil
than would otherwise be allowed by regulations as well as the ability
to use this gas for other purposes. Finally, CanGas is developing
proprietary technology that could economically employ portable,
small-scale field facilities to condition raw stranded natural gas so
that it would be suitable for consumption in diesel engines. We hope
to profit both from the commercialization of this technology and from
the additional opportunities that it provides for our CNG engine
conversion and CNG transportation business. 
During the third quarter, CanGas signed a three year natural gas
supply agreement with Bayhurst Energy Services Corporation, a
subsidiary of SaskEnergy, Saskatchewan's Crown-owned natural gas
utility. Under the agreement, SaskEnergy will develop a high-capacity
CNG facility at Weyburn, Saskatchewan allowing CanGas to be the first
commercial supplier in Western Canada of trucked CNG for diesel
engines on drilling rigs. As a result CanGas will have a source of
natural gas for CanGas' CNG delivery trailers to transport natural
gas to the 14 CanElson rigs based in south east Saskatchewan. 
Also during the third quarter, CanGas installed bi-fuel conversion
kits on four of CanElson's rigs. CanGas has commissioned operations
on one of these rigs which has been using natural gas as fuel. The
remaining three are expected to be commissioned and commence
operations imminently. As CanGas continues to convert more CanElson
rigs to run on bi-fuel we expect to realize considerable cost savings
from the substitution of inexpensive natural gas for diesel fuel. We
also expect to be able to optimize bi-fuel operations as we become
more involved within the operations and gain hands-on experience,
which should positively impact the Corporation's financial results. 
Our assessment of CanGas' significant growth prospects is based on
anticipated environmental trends, especially tighter restrictions on
flared gas to reduce greenhouse gas emissions and waste, as well as
the significant cost saving available from the substitution of
inexpensive natural gas for diesel fuel. CanGas is a natural supplier
to our Drilling Services and further differentiate CanElson's
drilling services benefiting both our clients and our shareholders. 
CanGas currently derives revenue principally from the collection of
low pressure raw natural gas from remote locations and the
transportation of that gas to a processing facility. With further
investment we also expect to receive revenue from the conditioning of
wellhead natural gas, if and when our proprietary gas conditioning
technology is proven commercial. 
By 2013, as CanGas expands its fleet of CNG trailers and compression
units and converts more drilling rigs to bi-fuel capacity, the
delivery of CNG to drilling rigs may become the primary source of
CanGas revenue. 
CanGas operated a fleet of 8 CNG trailers as at the end of the third
quarter of 2012, up 33% from 6 CNG trailers at the end of the second
quarter of 2012. Subsequent to the end of the third quarter, CanGas
further expanded the CNG fleet by 8, bringing the total size of the
fleet to 16 trailers at the date of this press release. 
CanGas operated 3 portable compression units as at the end of the
third quarter of 2012, up 50% from 2 portable compression units at
the end of the second quarter of 2012. Subsequent to the end of the
third quarter, CanGas further expanded the number of portable
compression units by 3, bringing the total number of units to 6 at
the date of this press release. 
CAPITAL AVAILABILITY AND CAPITAL PROGRAM 
With net debt (debt less cash) at September 30, 2012 of only $17.7
million and $41.4 million available on our existing credit
facilities, we are well capitalized to take advantage of specific
strategic opportunities. Funds flow continues to be strong and will
support our quarterly dividend rate of $0.05 per share and our
announced 2012 capital program as well as further expansion into
2013. 
A significant percentage of CanElson's 2012 and 2013 capital programs
are being funded by operating cash flows with the remainder
anticipated to be funded through amounts available on the undrawn
portion of the Corporation's loans and borrowings. CanElson's total
2012 and 2013 capital programs are expected to be as follows: 


 
                                 Drilling Services                          
                        ------------------------------------                
                              Spare                                         
                         equipment,                                         
                       facilities &   Upgrades &                            
                           overhead  maintenance   Expansion   CanGas  Total
                                                                            
Capital Expenditures                                                        
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total approved 2013      
                                                   
 capital projects      $        3.0 $       11.5 $       5.6 $    4.9 $ 25.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
  Nine months ended                                                         
   September 30, 2012  $        5.5 $        6.6 $      43.4 $    4.0 $ 59.4
  Anticipated costs to                                                      
   complete 2012                                                            
   capital projects             4.1          1.9        17.1     10.4   33.5
                        ----------------------------------------------------
Total approved costs                                                        
 for 2012 capital                                                           
 projects              $        9.6 $        8.5 $      60.5 $   14.4 $ 92.9
  Previously                                                                
   anticipated costs                                                        
   for 2012 capital                                                         
   projects (i)                 7.0         12.7        58.2     20.3   98.2
                        ----------------------------------------------------
Variance from                                                               
 previously                                                                 
 anticipated 2012                                                           
 capital projects      $        2.6 $      (4.2) $       2.3 $  (5.9) $(5.3)
----------------------------------------------------------------------------

 
(i) See our news release dated September 10, 2012 
2013 Capital Program ($25 million): 
Our modern standardized fleet allows us to minimize capital
expenditures on maintenance and spare equipment. Expansion capital is
primarily limited to additional top drives and completion of
contracted rig builds. As in the past, the Corporation's initial
capital program excludes any potential new rig builds. Construction
of any additional drilling rigs is pending receipt of long-term
committed contracts. 
2012 Capital Program ($92.9 million): 
The reasons for a significant decrease to the 2012 CanGas capital
budget include a decrease of capital requirements as third parties
have initially undertaken the purchasing and installation of high
speed CNG compressors, and no requirements to utilize previously
built in capital contingencies to roll-out drilling rig bi-fuel
projects. We expect that the decrease will not compromise CanGas'
growth plans. 
Key elements of the remaining 2012 capital program are: 
Drilling Services ($23 million): 


 
(1)   $17.1 million for the construction and completion of construction for 
      three contracted and committed tele-doubles (relating to rigs #33, #34
      and #35), long lead items for one tele-double (rig #36) and other     
      growth capital investment; and                                        
(2)   Approximately $5.9 million for spares, shop upgrades and maintenance  
      capital.                                                              

 
CanGas: 
$10.4 million to convert the primary diesel engines on 15 of our
drilling rigs to bi-fuel capability by January 2013 so that the
engines can operate on a mixture of natural gas and diesel fuel; to
expand our fleet of truck-hauled CNG delivery trailers to more than
44 from 22 currently; to expand the portable compression units by 4
to 6 units; and for further research and development associated with
our proprietary small-scale portable, raw gas conditioning technology
to condition raw stranded natural gas so that it would be suitable
for consumption in engines. 
2013 PRIMARY OBJECTIVES 
Looking to 2013, CanElson's primary objectives will be to maintain
and strengthen its industry leading position by consistently
providing operational excellence and drilling efficiencies to its
customers. With this focus, we will be well positioned to obtain
strong customer commitments and to capitalize on new opportunities.
Assuming we continue to obtain satisfactory customer commitments, we
intend to carry out the following activities that will enhance our
competitive positioning: expand our service offering in Mexico;
continue with the rapid conversion of the diesel engines in our fleet
to bi-fuel capacity; tactically develop, contract and deploy a
proprietary triple drilling rig to complement our core tele-double
fleet; and continue to expand our standard tele-double fleet.
Achieving these objectives will present new opportunities for
CanElson, its customers and shareholders. 
SYNDICATION OF CREDIT FACILITIES 
CanElson is also pleased to announce the syndication of its credit
facilities led by HSBC Bank Canada, as Agent, with HSBC Bank Canada,
Royal Bank of Canada, The Bank of Nova Scotia and Alberta Treasury
Branches, as lenders, which increases CanElson's aggregate credit
limit from $60 million to $120 million (consisting of a $110 million
extendible revolving term loan facility and a $10 million extendible
revolving operating loan facility). The Lenders are committed to the
credit facilities for at least 3 years (having a current maturity
date of November 8, 2015), which are to be used by CanElson for
general corporate and working capital requirements as well as to
assist with capital expenditures and acquisitions. At CanElson's
option, and upon the consent of the Lenders, the maturity date of the
credit facilities can be extended upon terms acceptable to the
parties. The credit facilities require interest to be paid monthly
with no scheduled principal repayments until the stated maturity
date. 
DIVIDEND 
The Board of Directors has declared the third quarter dividend of
$0.05 per share for the three month period ended September 30, 2012,
payable on December 4, 2012 to shareholders of record at the close of
business on November 23, 2012. Management believes the Corporation
can pursue disciplined but aggressive growth opportunities while
returning value to our shareholders through a dividend. 
FINANCIAL SUMMARY 
(Tabular amounts are stated in thousands of Canadian dollars, except
per share amounts and rig operating days) 


 
                           Three months ended         Nine months ended     
                              September 30,             September 30,       
                            2012      2011 change      2012      2011 change
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Services revenue       $  58,501 $  54,569     7% $ 161,590 $ 120,660    34%
Rig construction                                                            
 revenue               $       - $       -     nm $       - $   4,377  -100%
EBITDA                 $  22,172 $  20,337     9% $  60,337 $  41,288    46%
Inc
ome attributable                                                         
 to shareholders of                                                         
 the corporation       $  10,172 $  10,724    -5% $  29,656 $  20,005    48%
Income per share                                                            
 Basic                 $    0.13 $    0.15   -11% $    0.39 $    0.30    30%
 Diluted               $    0.13 $    0.15   -11% $    0.39 $    0.29    34%
Funds flow             $  21,854 $  20,838     5% $  56,365 $  39,693    42%
Gross Margin                                                                
 (services)            $  26,370 $  23,701    11% $  72,304 $  47,823    51%
Gross Profit (rig                                                           
 construction)         $       - $       -     nm $       - $     788  -100%
Weighted average                                                            
 diluted shares                                                             
 outstanding              76,335    73,564     4%    75,161    68,158    10%
----------------------------------------------------------------------------

 
FINANCIAL STATEMENTS AND MD&A 
CanElson's complete unaudited interim financial results and
Management's Discussion and Analysis (MD&A) for the third quarter and
nine month period ended September 30 of 2012 have been filed on SEDAR
and posted to the company's website at this link:
http://www.canelsondrilling.com/investor-relations/financial-reports 
FORWARD-LOOKING INFORMATION 
This press release contains certain statements or disclosures
relating to CanElson that are based on the expectations of CanElson
as well as assumptions made by and information currently available to
CanElson which may constitute forward-looking information under
applicable securities laws. In particular, this press release
contains forward-looking information related to: we believe that our
strategy has uniquely positioned us to sustain relatively strong
profitability during the full drilling industry cycle; We believe our
performance in the region and our alignment with an experienced and
strong local partner (Grupo Diavaz with 40 years working for PEMEX)
will provide an excellent opportunity for DCM to expand its
complement of services. As previously disclosed we expect DCM's
customer will move to a production sharing contract with PEMEX during
the next three months; in Texas decline in rig count may result in
some downward pressure on revenue rates in 2013 for the Corporation's
rigs there, compared with 2012. We do not expect that this pressure
will significantly impact our overall utilization in west Texas and
anticipate that we will still achieve capacity utilization in excess
of 90% for the remainder of 2012 and into 2013; in Canada and North
akota we anticipate the current revenue rate conditions to prevail
through the first quarter of 2013 combined with typical seasonal
utilization increases through the winter. Beyond the first quarter we
have less certainty as to the market direction but we expect that the
strong relationships, cost reduction initiatives (e.g. CanGas) and
long term contracts we have established with our customers will
provide a competitive edge in the market place; we will deploy new
rigs in Q4 of 2012 and Q1 of 2012; CanGas is strategically positioned
for rapid growth and cost-savings to customers; we hope to profit
both from the commercialization of this technology and from the
additional opportunities that it provides for our CNG engine
conversion and CNG transportation business; As CanGas continues to
convert more CanElson rigs to run on bi-fuel we expect to make
considerable cost savings from the substitution of inexpensive
natural gas for diesel fuel.  
We also expect to be able to optimize bi-fuel operations as we become
more involved within the operations and gain hands-on experience
which should positively impact the Company's financial results; Our
assessment of CanGas' significant growth prospects is based on
anticipated environmental trends; With further investment we also
expect to receive revenue from the conditioning of wellhead natural
gas if and when our proprietary gas conditioning technology is proven
commercial; By 2013, as CanGas expands its fleet of CNG trailers and
compression units and converts more drilling rigs to bi-fuel
capacity, the delivery of CNG to drill rigs may become the primary
source of CanGas revenue; funds flow continues to be strong and will
support our dividend rate of $0.05 quarterly and our announced 2012
capital program as well as further expansion into 2013; all
references relating to future capital expenditures for 2012 and 2013;
Looking to 2013, CanElson's primary objectives will be to maintain
and strengthen its industry leading position by consistently
providing operational excellence and drilling efficiencies to its
customers. With this focus, we will be well positioned to obtain
strong customer commitments and to capitalize on new opportunities.
Assuming we continue to obtain satisfactory customer commitments, we
intend to carry out the following activities that will enhance our
competitive positioning: expand our service offering in Mexico;
continue with the rapid conversion of the diesel engines in our fleet
to bi-fuel capacity; tactically develop, contract and deploy a
proprietary triple drilling rig to complement our core tele-double
fleet; and continue to expand our standard tele-double fleet.
Achieving these objectives will present new opportunities for
CanElson, its customers and its shareholders. Such forward looking
information involves material assumptions and known and unknown risks
and uncertainties, certain of which are beyond CanElson's control.
Many factors could cause the performance or achievement by CanElson
to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward looking
information. CanElson's Annual Information Form and other documents
filed with securities regulatory authorities (accessible through the
SEDAR website at www.sedar.com) describe the risks, material
assumptions and other factors that could influence actual results and
which are incorporated herein by reference. CanElson disclaims any
intention or obligation to publicly update or revise any forward
looking information, whether as a result of new information, future
events or otherwise, except as may be expressly required by
applicable securities laws.
Contacts:
CanElson Drilling Inc.
Randy Hawkings
President and CEO
(403) 266-3922 
CanElson Drilling Inc.
Robert Skilnick
Chief Financial Officer
(403) 266-3922