Total Energy (TOTZF) Q1 2016 Earnings

posted in: Earnings, Notes | 0

Total Energy (TOTZF) CEO Daniel Haylk characterized the oil services market as “dysfunctional”  

“ur first quarter results reflect what is arguably the most difficult industry environment faced by Total Energy since we commenced our operations in 1997. The decline in North American oil and natural gas, drilling and completion activity that began in 2014 accelerated during the first three months of 2016, define the Canadian seasonal upswing in oil field activity that typically occurs during the winter months.  This difficult environment is led to what we have characterized as a dysfunctional market in certain of Total’s business lines. Evidence supporting our characterization includes unsustainable pricing, cannibalization of equipment and willingness to take excessive counterparty credit risks, which in turn is leading to business failures.”

Expects bankruptcies of some of their competitors

“With no clear and substantial improvement industry conditions in near sight, we fully expect business failures in our industry to accelerate over the next few months. In such circumstances, Total Energy has elected to remain disciplined, so as to preserve its equipment base, minimize operating losses and protect its financial strength and flexibility.”

Total Energy (TOTZF) CFO Yuliya Gorbach said revenues contracted substantially from last year

“Consolidated revenues for the first quarter of 2016 were $50 million, a 46% decrease from the first quarter of 2015.  Revenue per spud to release operating day in our contract drilling division during the first quarter was $16,260, an 18% decrease from the $19,888 per day realized during 2015. Decreased day-rate pricing was the primary reason for the decrease.”

Experienced price erosion of their services

“Within the rental and transportation services division, severe price competition resulted in significant declines in equipment utilization and divisional revenue. First quarter rental equipment utilization decreased 61% to 15% in 2016 compared to 38% in 2015.

Despite reducing costs, still not profitable

“Despite ongoing effort to reduce operating cost, a significant fixed cost structure of this division contributed to the fact that for the first time ever this division was not profitable during the first quarter, which is typically its busiest quarter.”