CALGARY - Total Energy Services Inc. ('Total Energy' or the 'Company') (TSX: TOT) announces its consolidated financial results for the three and nine months ended September 30, 2020.
Total Energy's results for the three months ended September 30, 2020 reflect the Company's continued focus on operational safety and efficiency and capital discipline in the face of extremely challenging industry conditions in North America and a moderation of industry activity levels in Australia. Included in the financial results for the three months ended September 30, 2020 was $4.2 million of incremental depreciation expense resulting from a change in depreciation estimates in the Contract Drilling Services ('CDS') segment effective April 1, 2020. Also included in the Company's 2020 third quarter results was $0.6 million of unrealized foreign exchange losses on the translation of intercompany working capital balances of foreign subsidiaries, a $0.3 million increase to the Company's allowance for doubtful accounts and $7.4 million of funds received under various COVID-19 relief programs in Canada, the United States and Australia.
Total Energy's CDS segment achieved 8% utilization during the third quarter of 2020, recording 717 operating days (spud to rig release) with a fleet of 98 drilling rigs, compared to 2,183 operating days, or 22% utilization, during the third quarter of 2019 with a fleet of 107 drilling rigs. Revenue per operating day was $22,563 in the third quarter of 2020, a 3% increase from the third quarter of 2019. This increase was due to a combination the mix of rigs operating and the depreciation of the Canadian dollar against the United States and Australian dollars over the past year. During the third quarter of 2020, the CDS segment had 372 operating days in Canada with a fleet of 80 rigs (5% utilization), 127 days in the United States with a fleet of 13 rigs (11% utilization) and 218 days (including paid standby days) in Australia with a fleet of 5 rigs (47% utilization). During the third quarter of 2020 two drilling rigs in Australia were removed from service in order to complete necessary recertifications and upgrades that are currently expected to be completed by the second quarter of 2021.
The Rentals and Transportation Services ('RTS') segment achieved a utilization rate on major rental equipment of 7% during the third quarter of 2020 compared to 14% utilization during the third quarter of 2019. Segment revenue per utilized rental piece in the third quarter of 2020 was 23% lower than the third quarter of 2019 due to the mix of equipment operating and lower pricing. This segment exited the third quarter of 2020 with 10,640 pieces of major rental equipment (excluding access matting) and 87 heavy trucks as compared to 10,590 pieces of equipment and 95 heavy trucks at September 30, 2019. A substantial portion of the heavy truck fleet was taken out of service during 2020 to reduce operating costs and equipment wear and tear until such time as North American industry conditions warrant placing such units back into service.
Revenue in the Compression and Process Services ('CPS') segment decreased 55% to $32.3 million for the three months ended September 30, 2020 compared to $72.1 million for the third quarter of 2019. This decrease was primarily due to a decrease in fabrication bookings over the past year and resultant decline in fabrication sales. This segment exited the third quarter of 2020 with a $37.0 million backlog of fabrication sales orders as compared to $39.8 million at September 30, 2019 and $43.8 million at June 30, 2020. At September 30, 2020, there was 53,100 horsepower in the compression rental fleet, of which approximately 35,400 horsepower was on rent as compared to 34,000 horsepower on rent at September 30, 2019. The gas compression rental fleet operated at an average utilization rate of 66% during the third quarter of 2020 as compared to 70% in the third quarter of 2019.
The Company's Well Servicing ('WS') segment generated $22.8 million of revenue during the third quarter of 2020 on 26,069 service hours, or $876 per service hour, with a fleet of 83 service rigs that were located in Canada (57 rigs), the United States (14 rigs) and Australia (12 rigs). This compares to $35.8 million of revenue during the third quarter of 2019 on 42,210 service hours, or $848 per service hour. Service rig utilization for the three months ended September 30, 2020 was 18% in Canada, 15% in the United States and 56% in Australia.
Total Energy's capital expenditure budget for 2020 remains at $10.0 million plus $3.7 million of carryforward from 2019. To September 30, 2020, capital expenditures totaled $12.3 million. Proceeds from the sale of capital assets for the first nine months of 2020 amounted to $5.5 million such that year to date net capital expenditures total $6.8 million. Capital equipment disposals resulted in a gain on sale of $2.9 million, representing a 113% premium to the net book value of the disposed assets.
During the first nine months of 2020, the Company has reduced bank debt by $34.2 million, or approximately 12%. Total Energy exited the third quarter of 2020 with $139.0 million of positive working capital (including $24.9 million of cash) and $115 million was available on the Company's $295 million of revolving bank credit facilities. The weighted average interest rate on the Company's outstanding debt at September 30, 2020 was 2.85%.
Outlook
In a challenging and uncertain business environment, Total Energy's focus remains on the safe and efficient operation of its business and the disciplined use of capital. For the first nine months of 2020, after changes in working capital, Total Energy generated $66.9 million of cash from operating activities. During the same period, $9.6 million of cash was used to fund capital expenditures, $8.1 million of interest expense was incurred and $2.7 million was paid in dividends. Having suspended its dividend following payment of a first quarter dividend, the Company has generated approximately $46.5 million in free cash flow from the beginning of 2020 to September 30, 2020, of which $40.5 million has been directed towards the repayment of bank debt and lease liabilities. The Company's cash position increased by $5.0 million from December 31, 2019 to $24.9 million as at September 30, 2020.
Given its strong liquidity position, focus on debt repayment and desire to further reduce costs, on November 10, 2020, at the request of the Company, Total Energy's primary revolving bank credit facility was reduced by $40 million to $250 million and its maturity extended to November 10, 2023. All other terms and conditions of such facility, including pricing and covenants, remain unchanged. Subsequent to September 30, 2020, a further $5.0 million of bank debt was repaid such that $175 million is currently drawn on this facility, leaving $75 million of remaining available credit. The Company also maintains a $5.0 million subsidiary revolving credit facility that remains undrawn and fully available.
On October 7, 2020, the Company renewed its normal course issuer bid pursuant to which it may purchase for cancellation up to 1.5 million shares, or approximately 3.3% of the shares currently issued and outstanding. Going forward, Total Energy expects to direct its free cash flow towards continued debt repayment and the purchase of shares under its normal course issuer bid.
Contact:
Tel: +1 403-216-3939
TOTAL ENERGY SERVICES INC. 
