Flint Sees Signs of Recovery



Flint Energy released its first quarter results after markets closed.

Highlights

  • Revenues for the three month period ending March 31, 2010 were $521.4 million, up $59.0 million sequentially from Q4 2009 and down $8.8 million or 1.7% from the first quarter of 2009.
  • Net earnings for the first quarter 2010 were $17.7 million, up $3.2 million sequentially from Q4 2009 and down $0.9 million from the first quarter of 2009. Earnings per fully diluted share were $0.38 for the quarter compared to $0.32 in the fourth quarter of 2009, and $0.40 per fully diluted share in the first quarter of 2009.
  • General and administrative (G&A) expenses for the first quarter of 2010 were $36.3 million, down $2.1 million from Q4 2009 and down $6.0 million from the first quarter in 2009 due to Flint's continuing focus on cost controls. As a percentage of revenue, G&A expenses were 7.0% compared to 8.3% in Q4 2009 and 8.0% in Q1 2009.
  • EBITDA for the three month period ending March 31, 2010 was $44.1 million, up $0.7 million sequentially from Q4 2009 and down $2.7 million from Q1 2009. EBITDA margins for Q1 2010 were 8.5%, down 0.9% sequentially from Q4 2009, and down 0.3% from the first quarter of 2009.
  • Interest expenses (net of interest income) for the first quarter 2010 were $3.2 million, down from $4.1 million in Q4 2009 and down from $5.2 million in the first quarter of 2009.
  • Flint's cash holdings as of March 31, 2010 were $135.6 million and operating loans remained undrawn in the first quarter of 2010.

W. J. (Bill) Lingard, President and Chief Executive Officer of the Company said, "While we saw some signs of recovery, especially in oil related activities in Canada, this was still a tough quarter with our US operations not yet benefiting from the recovery due to the typical lag between drilling and midstream construction activities. We are, however, seeing lots of future construction and maintenance work in oil sands, and we are very actively engaged in bidding for this work to replenish our backlog for 2011 and 2012."

First Quarter

Revenues for the three months ended March 31, 2010 were $521.4 million compared to $530.2 million in the comparative quarter of 2009, representing a decrease of $8.8 million or 1.7%. The decrease in revenues for the first quarter of fiscal 2010 was the result of both the foreign exchange impact and reduced activities in the United States operations of the Production Services segment over the same quarter in the prior year. The decrease in Production Services revenues was partially offset by stronger revenues in the Maintenance Services segment. As well, both the Facility Infrastructure and Oilfield Services segments saw modest declines in quarterly revenues from the comparative quarter in 2009.

Direct costs in the first quarter were $441.3 million compared to $441.3 million in the first quarter of 2009 for gross margins of 15.4% in the first quarter of 2010, compared to 16.7% in the first quarter of 2009. This compression of margins was the result of continued pricing pressures notably in the Oilfield Services and Maintenance Services segments. While rig moving revenues and margins improved in Q1 2010, pressure, vacuum and fluid hauling margins were down as a result of lower revenues and equipment utilization in 2010. Maintenance Services margins were also lower in Q1 2010 as a result of a write-down in accounts receivable incurred in one of Flint's Northern joint venture companies. Additionally, Maintenance Services received a large contract bonus in Q1 2009 for 2008 related activities. Since then, any bonuses have been recognized on a quarterly basis.

EBITDA for the three months ended March 31, 2010 was $44.1 million, down $2.7 million from $46.8 million in the comparative period in 2009. EBITDA margins were 8.5% compared to 8.8% in the first quarter of 2009. EBITDA margins were down in all segments except Facility Infrastructure which posted EBITDA margins of 13.4%, up from 8.5% in the first quarter of 2009.

General and administrative expenses for the three months ended March 31, 2010 decreased $6.0 million or 14.2% to $36.3 million, compared to $42.3 million in the first quarter of 2009. G&A expenses as a percentage of revenue in the quarter were 7.0% compared to 8.0% in the comparative quarter of 2009.

During the three months ended March 31, 2010, the Company's net earnings were $17.7 million ($0.38 per common share - diluted) compared to net earnings of $18.5 million ($0.40 per common share - diluted) in the first quarter of 2009.

Outlook

The first quarter of 2010 showed some signs of recovery with improving oil and gas prices and increased drilling activity in Canada. However, this did not have an immediate impact on Flint's Production Services activities due to the typical five to six month lag between drilling and midstream activities. As a result, Canadian revenues were down 6% over last year. United States drilling activity in Q1 2010 was flat with Q4 2009 and US Production Services activities, which similarly lag drilling, experienced lower revenues and margins than the first quarter of 2009.

Production Services activity in both Canada and the US saw some sequential benefit from increased production related expenditures in Q1 compared to Q4 2009. Increased bidding opportunities on pipeline and facilities projects in the shale gas plays of Northeast BC and in Northern Alberta's oil sands region, are showing signs of an increase in activity later this year. The United States is also seeing increased activity in oil drilling and shale gas plays. Flint has recently opened three new offices and redeployed equipment and resources to take advantage of these opportunities. Flint has also recently been awarded a pipeline contract in the Haynesville shale gas play, and a large production equipment order from one of our major US customers. These are good indications that Flint saw the bottom of the cycle in late 2009.

In Oilfield Services, rig moving revenues were up due to an increase in Canadian drilling activity in the first quarter. However, Oilfield Services' overall revenues were down slightly as a result of lower revenues in its other businesses. Both Fluid Haul and Specialty Hauling revenues were down in Q1 due to reduced levels of work in the Fort McMurray region as a result of project delays, and both planned and unplanned outages at customer facilities.

During the normally slower Q2 breakup period in Canada, Flint should see seasonally lower rig moving revenues offset by improving Fluid Haul revenues. Flint is very well positioned in the areas of higher activity, and with drilling activity forecast to improve in the second half of the year, Flint believes the Oilfield Services division will see improvements over 2009.

While gas prices have weakened at the end of the withdrawal season, management believes that drilling and production activities will continue to remain ahead of 2009 activity, due to the strength of crude oil prices and increased interest in crude oil and shale gas drilling in both the United States and Canada.

Flint's Facility Infrastructure division continued work on the Shell Albian Sands Froth Treatment facility and Statoil's Leismer SAGD demonstration project near Fort McMurray. Work will be substantially completed on both projects by the end of the second quarter. Earlier in Q1 2010, Flint announced it had been awarded a construction contract by Suncor Energy to provide site wide construction, pre-commissioning and commissioning work on Suncor's Firebag 3 SAGD project. Work will continue on this contract through the end of 2010 and into early 2011. While activities will be lower for Facility Infrastructure in the second half of 2010, Flint anticipates increasing activity levels in 2011 and 2012 as Flint adds contract work to its backlog for this division. Flint is currently bidding on a number of major construction contracts for oil sands projects, for work which would commence in early 2011.

Flint's Maintenance Services division benefited from increased maintenance work and outages in oil sands in the first quarter. FT Services is working on two turnaround projects in the second quarter of this year and is planning a larger turnaround later in the year, all of which should provide for increased revenues in 2010. Bidding activity has also increased in Maintenance Services with good potential to add new contracts to this long term and stable business.

The two recently announced additions to Flint's services (the acquisition of Paintearth Surface Equipment and the joint venture with Sub-One Technology), are growth focused acquisitions for specific market opportunities. Production equipment in Canada is shifting to large multi-well configurations for natural gas shale plays and increased quantities of oil treating equipment due to the increase in oil drilling. Paintearth provides the platform for Flint to expand this service into Canada. Flint InnerArmor is being developed to fill a market demand for better wear products to combat internal corrosion and abrasion in process equipment and piping. The primary marketing opportunity for Flint InnerArmor is oil sands production equipment and facilities in Alberta. Flint also sees much potential with "frac" iron, wellheads and other expensive production equipment exposed to abrasive and corrosive substances.

Overall, management is cautiously optimistic about the outlook for 2010. While revenues from the Facility Infrastructure segment will begin to decline in the second half of 2010, increased activity in the other three segments will partially offset the decline in oil sands construction related revenues. For the remainder of 2010, management will continue to focus on: increasing Flint's backlog of construction work; efficient project execution; and pursuing strategic growth initiatives.


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