Pantera Drilling Income Trust Announces Fourth Quarter and Year End Financial Results - December 31, 2007
Tue Mar 25, 9:26 AM/NOT FOR DISSEMINATION INTO THE UNITED STATES/
(TSX: RIG-UN.TO)
CALGARY, March 25 /CNW/ - Pantera Drilling Income Trust ("Pantera" or the "Trust") is pleased to release its fourth quarter and year end 2007 financial and operating results. Additional information relating to the Trust, including the Trust's financial statements and management's discussion and analysis for the year ended December 31, 2007 will be available by March 26, 2008 under the Trust's profile on SEDAR at www.sedar.com or the Trust's website at www.panteradrilling.com.
Pantera generated revenue of $28.5 million for the year ended December 31, 2007, which resulted in net earnings for the year of $3.4 million. Funds from operations, representing cash flow from operating activities before changes in non-cash operating working capital, decreased to $5.8 million in 2007 from $7.9 million in 2006.
Pantera's rig utilization for 2007 was 36%. This compares to 37% achieved by the industry in the same year. The significant drop in the industry utilization average from 55% in 2006 to 37% in 2007 was attributable to the following: 19,167 wells were drilled in 2007 as compared with 21,256 in 2006, a decrease in activity of 10%; and the average number of rigs in 2007 was 881 as compared to 803 in 2006, a 10% increase in available rigs.
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HIGHLIGHTS
Years ended December 31
FINANCIAL 2007 2006 2005
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($000s, except for units and per
unit amounts)
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Revenue 28,461 30,911 22,661
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Gross margin(1) 10,055 11,661 8,809
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Net earnings 3,395 5,963 3,891
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Per unit (basic and diluted) .54 1.06 1.18
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Funds from operations(1) 5,782 7,884 5,451
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Per unit (basic and diluted) .92 1.40 1.66
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Cash distributions declared per unit .73 .78 -
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EBITDA(2) 7,376 8,740 7,359
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Total assets 54,637 55,057 31,813
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Total long-term financial liabilities 22,609 19,460 675
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Units outstanding (weighted average) 6,266,569 5,649,400 3,286,404
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Units outstanding (end of period) 6,487,573 6,066,365 3,500,000
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OPERATING
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Number of rigs (end of year)
Conventional 7 7 3
Coil - 1 2
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Total 7 8 5
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Number of rigs (weighted average)(4) 7.4 5.6 4.3
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Operating days 1,003 1,099 890
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Industry utilization average(3) 37% 55% 59%
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Pantera utilization rates (4)
Conventional 36% 72% 64%
Coil -% 17% 49%
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Weighted average 36% 54% 57%
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(1) Funds from operations as used in this report represents cash flow
from operating activities before changes in non-cash operating
working capital. Gross margin represents revenue less operating
expenses. Readers are cautioned that funds from operations and gross
margin do not have a standardized meaning prescribed by GAAP and
therefore may not be comparable to similar measures presented by
other issuers. However, Pantera does compute funds from operations
and gross margin on a consistent basis for each reporting period.
Management believes that in addition to net earnings, funds from
operations is a useful supplemental measure as it provides an
indication of the funds that are available for investing and
financing activities, including distributions to unitholders.
Management believes gross margin is a useful supplemental measure of
operating performance and is particularly relevant to readers within
the investment community.
(2) EBITDA means net earnings before interest, taxes, depreciation,
amortization and losses or gains on disposal of equipment. Readers
are cautioned that EBITDA does not have a standardized meaning
prescribed by GAAP and therefore may not be comparable to similar
measures presented by other issuers. However, Pantera does compute
EBITDA on a consistent basis for each reporting period. Management
believes that, in addition to net earnings, EBITDA is a significant
indication of success for Pantera and is particularly relevant to
readers within the investment community.
(3) Source: Canadian Association of Oilwell Drilling Contractors (CAODC).
(4) For purposes of calculating utilization rates the number of rigs
(weighted average) for Q4, 2006 has been adjusted to reflect the
temporary removal of Rigs No. 3 and 4 on October 1, 2006 as they were
unavailable for use by Pantera and during Q3, 2007 the utilization
rates were adjusted to reflect the de-listing of Rig No. 2.
In October of 2006, Pantera made the decision to temporarily remove Rigs No. 3 and 4 from service in order to complete upgrades. The upgrades were completed in the first quarter of 2007. Rig No. 3 was converted from a coil drilling rig into a 1,600 metre stepdown telescopic single rig and Rig No. 4 was converted from a 3,000 metre capacity range 3 single into a 3,400 metre capacity stepdown telescopic double, identical to the other conventional rigs owned by the Trust. Increased demand for additional rigs similar to the Trust's fleet of doubles was a key factor in the decision to convert Rig No. 4. These telescopic doubles have proven to be the ideal rig for pad drilling in the heavy oil areas of northern Alberta. The efficiencies of running a fleet of rigs that is consistent, across each rig, in rig up and design are evident.
Late in the third quarter of 2007, a contract was executed that enabled Pantera to mobilize Rig No. 3 to a drilling program near Sarnia, Ontario. The rig will initially be drilling horizontal gas storage wells. Additional work has been secured in Ontario and it is expected that the rig will now remain active in this area throughout the majority of 2008.
Rig No. 2 is no longer being marketed as a coil rig and was de-listed in the third quarter due to the increased supply of coil rigs, the evolution of coil drilling technology and the decrease in activity in this market segment. The non coil-specific equipment from this rig (pump, tank, combination building and boiler) could be utilized to build a purpose-built top drive rig ideally suited for exploration drilling and coring in the oil sands areas. Management will work to obtain a contract for this rig prior to committing any funds to the conversion process. Pantera intends to finance this conversion, if it occurs, through a combination of funds from operations and the use of its current debt facility.
The Trust implemented a distribution reinvestment plan (the "Plan") on September 30, 2006. The Plan provides eligible unitholders with the opportunity to reinvest their cash distributions payable toward the purchase of additional trust units from treasury at a price equal to 95% of the average market price on the applicable distribution payment date, as defined in the Plan. Participation in the Plan in 2007 averaged approximately 44% and resulted in the issuance of 421,208 units for net proceeds of $2.1 million. Funds reinvested in the Trust through the Plan will be available to fund capital expenditures and reduce debt.
On November 6, 2007, Pantera extended its credit facility with its existing lender to a term-out date of December 27, 2008. The credit facility consists of a $5 million revolving operating demand loan, a $35 million committed 364 day extendible revolving loan facility, and a $500,000 demand standby letter of credit.
Effective January 30, 2008, Pantera is pleased to announce the appointment of Mr. Blair Wagner as Vice President, Operations. Blair has more than 20 years of drilling experience and will report directly to Mr. Terry Rosentreter, President and Chief Executive Officer.
OPERATING HIGHLIGHTS
Revenue
Revenue for the year ended December 31, 2007 was $28.5 million, a decrease of $2.4 million (8%) from the $30.9 million achieved in 2006. This decrease in revenue was primarily due to the decrease in rig utilization.
The number of operating days for the year ended December 31, 2007 decreased by 9% to 1,003 from 1,099 in 2006, however on a weighted average basis the number of operating days per rig decreased 31%, from 196 to 136. The decrease experienced by Pantera was consistent with the slow down for the industry.
Pantera's revenue, cash flow and net earnings are substantially dependent upon, and affected by, the level of activity associated with oil and gas exploration and production. Both short-term and long-term trends in oil and gas prices affect the level of such activity. Worldwide military, political and economic events, including initiatives by the Organization of Petroleum Exporting Countries, may affect both the demand for, and the supply of, oil and gas. Weather conditions, governmental regulation, levels of consumer demand, the availability of pipeline capacity, and other factors beyond Pantera's control may also affect the supply of and demand for oil and gas and thus lead to future price volatility.
Management believes that any prolonged reduction in oil and gas prices would depress the level of exploration and production activity, which would likely result in a corresponding decline in the demand for Pantera's services and could have a material adverse effect on revenues, cash flows and profitability. Lower oil and gas prices could also: cause Pantera's customers to seek to terminate, renegotiate or fail to honour contracts; affect the fair market value of Pantera's assets which, in turn, could trigger a writedown for accounting purposes; affect Pantera's ability to retain skilled personnel; and, affect Pantera's ability to obtain access to capital to finance and expand its contract drilling business. Pantera cannot assure that the future level of demand for its services or future conditions in the oil and gas and oilfield services industries will not decline.
Operating Expenses
Operating expenses for the year decreased $844,000 (4%), from $19.3 million in 2006 to $18.4 million in 2007. This decrease in operating expenses is directly related to the decrease in operating days.
Pantera includes third party charges in its revenue. This revenue inclusion is offset by the corresponding inclusion of the third party charges in operating expenses. This accounting treatment has no impact on the gross margin amount, however it reduces gross margin as a percentage of revenue. Gross margins expressed without third party charges in revenue and operating expenses for 2007 and 2006 are 43% and 45% respectively. Gross margin expressed with third party charges in revenue and operating expenses for 2007 and 2006 are 35% and 38% respectively.
General and Administrative Expenses
General and administrative expenses ("G&A") for 2007 decreased 8% to $2.7 million from $2.9 million in 2006. The decrease in general and administrative expenses is primarily due to lower incentive compensation and professional fees.
As a percentage of revenue, G&A in 2007 remained consistent with 2006 at 9.4%.
Depreciation
Depreciation of property and equipment for the year ended December 31, 2007 was $2.4 million, an increase of $400,000 from $2.0 million for 2006. Depreciation is calculated on the number of drilling days achieved, therefore depreciation expense increases as utilization of each rig and construction costs increase.
Interest Expense
Interest expense on debt increased to $1.6 million in 2007 from $893,000 in 2006. The increase is a result of the growth in debt to finance capital expenditures. The average bank debt in the year was $22.6 million, bearing interest at an average rate of 6.9% as compared to $11.5 million bearing interest at an average rate of 7.2% in 2006. Interest on the debenture is payable monthly at a bank's prime rate. The Canadian prime bank rate averaged 6.10% in 2007 as compared to 5.81% in 2006. The total debt, including Pantera's operating demand loan, debenture, extendible loan facility and capital leases, at December 31, 2007 was $23.6 million.
The Trust is exposed to interest rate risk on debt subject to floating interest rates, being the operating demand loan, debenture and extendible loan facility. Pantera pays interest at the Trust's option of the bank's prime rate plus .75% or bankers acceptance rate plus 2.0%.
Income Taxes
The Trust is a taxable entity under the Income Tax Act (Canada) and is taxable only on the income that is not distributed or distributable to the unitholders. The Canadian federal government in 2007 enacted legislation, such that distributions to unitholders will be taxable for publicly traded income trusts and, income retained in these trust's will be taxed similar to corporations. The new tax will not apply to the Trust until January 1, 2011. The Trust has measured future income tax assets and liabilities associated with the change in the legislation. There is no impact, on the future tax recognized in the financial statements, resulting from the implementation of this tax legislation as it is expected that substantially all existing taxable temporary differences will reverse prior to January 1, 2011. Accordingly, all taxable temporary differences have been recognized at a zero taxation rate. The scheduling of the reversal of temporary differences is based on management's best estimates and current assumptions, which may change.
At December 31, 2007 the tax basis for property and equipment exceeds the accounting basis by an amount in excess of $1.4 million. Other tax balances including financing and underwriting costs exceed their respective book values by an amount of $1.2 million.
Net Earnings
For the year ended December 31, 2007 net earnings totaled $3.4 million or $.54 per unit compared with $6.0 million or $1.06 per unit for the year ended December 31, 2006. The decrease in net earnings was principally attributable to a decrease in operating days. For the year ended December 31, 2007 compared with 2006, the number of operating days decreased 9% from 1,099 to 1,003.
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SUMMARY OF QUARTERLY
RESULTS
FINANCIAL 2007 2006
HIGHLIGHTS Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
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($000s except
for units and
per unit
amounts)
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Revenue 6,480 8,419 1,195 12,368 8,486 8,088 4,870 9,467
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Gross
margin(1) 2,535 2,585 (170) 5,105 3,187 3,101 1,366 4,007
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Net earnings
(loss) 682 733 (1,086) 3,067 1,799 1,587 147 2,430
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Per unit
(basic
and
diluted)(2) .11 .12 (.17) .50 .30 .26 .02 .53
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Funds from
operations(1) 1,347 1,575 (1,027) 3,887 2,220 2,142 479 3,043
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Per unit
(basic
and
diluted)(2) .21 .25 (.17) .64 .37 .36 .08 .67
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EBITDA(3) 1,779 1,984 (632) 4,246 2,495 2,251 598 3,396
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Per unit
(basic and
diluted)(2) .28 .31 (.10) .69 .43 .38 .10 .75
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Capital
expenditures - 900 868 3,061 12,421 6,523 3,126 2,206
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OPERATING HIGHLIGHTS
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Number of rigs
(weighted
average)(4) 7.0 7.6 8.0 7.0 5.1 6 6 5.1
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Operating days 260 334 16 393 267 313 170 349
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Utilization rate 40% 48% 2% 62% 58% 57% 31% 75%
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Industry
average(5) 37% 38% 16% 58% 47% 63% 36% 81%
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(1) Funds from operations as used in this report represents cash flow
from operating activities before changes in non-cash operating
working capital. Gross margin represents revenue less operating
expenses. Readers are cautioned that funds from operations and gross
margin do not have a standardized meaning prescribed by GAAP and
therefore may not be comparable to similar measures presented by
other issuers. However, Pantera does compute funds from operations
and gross margin on a consistent basis for each reporting period.
Management believes that in addition to net earnings, funds from
operations is a useful supplemental measure as it provides an
indication of the funds that are available for investing and
financing activities, including distributions to unitholders.
Management believes gross margin is a useful supplemental measure of
operating performance and is particularly relevant to readers within
the investment community. Funds from operations has replaced the term
cash flow from operations as shown in Pantera's previous filings.
(2) The units outstanding give effect to the restructuring of Pantera in
2005 and the February 8, 2006 split of units of the Trust on the
basis of 10.739754 units for each trust unit of the Trust held
immediately prior to the effective time of the split.
(3) EBITDA means net earnings before interest, taxes, depreciation,
amortization and losses or gains on disposal of equipment. Readers
are cautioned that EBITDA does not have a standardized meaning
prescribed by GAAP and therefore may not be comparable to similar
measures presented by other issuers. However, Pantera does compute
EBITDA on a consistent basis for each reporting period. Management
believes that, in addition to net earnings, EBITDA is a significant
indication of success for Pantera and is particularly relevant to
readers within the investment community.
(4) For purposes of calculating utilization rates, the number of rigs
(weighted average) for Q4, 2006 has been adjusted to reflect the
temporary removal of Rigs No. 3 and 4 on October 1, 2006 as they were
unavailable for use by Pantera and during Q3, 2007 the utilization
rates were adjusted to reflect the de-listing of Rig No. 2.
(5) Source: Canadian Association of Oilwell Drilling Contractors (CAODC).
Fourth Quarter Analysis
Drilling activity continued to decline throughout the fourth quarter of 2007. Industry utilization rates declined 21% from 47% in the fourth quarter 2006 to 37% in the fourth quarter 2007. This is a direct result of the average of 65 more rigs competing in a quarter that drilled 5,212 wells in the fourth quarter 2007 as compared to 6,758 wells in the fourth quarter 2006. On an operating day basis, Pantera experienced only a slight decrease of 7 days (3%) from 267 days in the fourth quarter 2006 to 260 days in the fourth quarter 2007. However the growth in Pantera's number of rigs on a weighted average from 5.1 rigs in the fourth quarter 2006 to 7 rigs in the fourth quarter 2007 resulted in a decline in Pantera's utilization rate from 58% in the fourth quarter 2006 to 40% in the fourth quarter 2007.
The downward pressure in day rates combined with the increase in repairs, labour and other operating costs resulted in a decrease in net earnings. Pantera recorded net earnings for the three months ended December 31, 2007 of $682,000 as compared with $1.8 million in 2006.
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DISTRIBUTIONS Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
2007 2006 2005
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($000s)
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Cash flow from operating
activities(1) 6,461 7,566 4,299
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Net earnings 3,395 5,963 3,891
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Distributions declared(2) 4,572 4,429 -
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Excess of cash flow from
operating activities over
distributions declared 1,889 3,137 4,299
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Excess (shortfall) of net
earnings over distributions
declared (1,177) 1,534 3,891
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(1) Takes into account changes in non-cash working capital balances.
(2) Cash distributions paid were lower due to distributions reinvestment
plan. Please refer to statements of cash flow for paid amounts.
For the year ended December 31, 2007 the Trust declared for distribution $4.6 million, and of that amount, $2.1 million was reinvested in additional trust units by unitholders participating in the distribution reinvestment plan. This resulted in a net cash outflow to unitholders of $2.5 million. The Trust declared for distributions 79% of the funds from operations. After taking into consideration the amount of distributions reinvested under the Plan, the cash paid to unitholders on a year-to-date basis equated to 43% of funds from operations. In determining the amount to distribute consideration is given, but not limited to, Pantera's interest and debt principal repayment obligations, capital requirements to maintain its defined assets, capital investment opportunities, external growth opportunities, the seasonality of Pantera's business, and legislative change in tax laws by governments in Canada.
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DISTRIBUTIONS Year ended December 31,
2007 2006
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($000s except for per unit amounts)
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Cash flow from operating activities 6,461 7,566
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Add: Changes in non-cash working capital (679) 318
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Funds from operations(1) 5,782 7,884
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Distributions declared 4,573 4,429
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Cash distributions paid(2) 2,494 4,091
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Funds retained for future distributions,
capital expenditures, and debt reduction 1,209 3,455
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Funds from operations per unit(1) .92 1.40
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Distributions declared per unit(1) .73 .78
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Funds retained per unit(1) .19 .62
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(1) Readers are cautioned that funds from operations does not have a
standardized meaning prescribed by GAAP and therefore may not be
comparable to similar measures presented by other issuers. However,
Pantera does compute funds from operations and the per unit
information on a consistent basis for each reporting period.
(2) Represents the distributions declared less the proceeds from the
distribution reinvestment plan.
OUTLOOK
Pantera experienced a year of moderate growth in 2007, completing the conversions of Rig No. 4 to a 3,400 metre double and Rig No. 3 to a 1,600 metre single. In 2007 drilling activity in western Canada declined by 10% to 19,167 wells, and the average rig count increased 10% to 881 rigs. These two significant factors have reduced the Canadian rig fleet utilization levels by approximately 33% over the past year. The 38% utilization rate recorded in 2007 is the first year under 50% since 2002.
The CAODC 2008 Forecast (issued October 29, 2007) for wells to be drilled is 13,735 wells, representing a 28% decrease from the 2007 total. The available rig fleet is expected to drop by 40 rigs in 2008, which would be the first year of decline since 1993. Equipment is being de-listed, and re-located to stronger markets within North America and other countries in the world. Canadian oilfield technology is sought after by many countries, and it is anticipated that international contracts on exportation of new and existing equipment will continue in 2008.
With record oil prices and seemingly stable natural gas prices, it appears that the economic conditions needed for a renewed interest in drilling in western Canada may be on the horizon. Pantera will endeavor to maintain its equipment in top notch condition and poised for growth when higher activity returns. Future growth of the Trust will consist of new rig construction and the possible acquisition of other businesses complimentary to the Trust's.
FORWARD-LOOKING STATEMENTS
Certain statements included in this release constitute forward-looking statements including, without limitation, such things as revenue expectations, capital expenditures, legislative changes, changes in industry conditions, the impact of weather and other seasonal factors that affect business operations, fluctuations in prevailing commodity prices, the competitive environment to which Pantera is, or may be, exposed in all aspects of its business and expected future availability and utilization of Pantera's rigs. Such forward-looking statements that involve unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of Pantera, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, general economic and business conditions, the ability of Pantera to implement its business strategy, and changes in, or failure to comply with government regulations, especially health, safety and environment laws, regulations and guidelines. Additional information on these and other factors that could affect Pantera's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com) under Pantera's profile. Forward-looking statements in this discussion may include, but are not limited to, revenue, commodity prices, rig utilization and availability, capital expenditures and legislative changes. For this purpose, any statements that are contained in this release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements often contain terms such as "may", "will", "should", "anticipate", "expects", "intends" and similar expressions. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Furthermore, the forward-looking statements contained herein are made as at the date hereof and Pantera does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
The Trust is an open-ended, investment trust governed by the laws of the Province of Alberta pursuant to the Deed of Trust. The Trust was established for the purpose of investing in property including the securities of Pantera Drilling Limited Partnership and Pantera Drilling Inc. The beneficiaries of the Trust are the holders of the trust units. The business of Pantera involves the provision of contract drilling services to oil and natural gas exploration and production companies operating in Canada.
ContactsTerry Rosentreter
President and Chief Executive Officer or Lorna Pollock
Chief Financial Officer at: Ph: (403) 515-8400
Fax: (403) 515-8405
E-mail: terryr@panteradrilling.com
lpollock@panteradrilling.com
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