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CanElson Announces A New Drilling Rig Commitment, A First Nations Partnership and Strong Performance in the Fourth Quarter

Jan 7 2013 12:00AM

Marketwire

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CALGARY, ALBERTA -- (Marketwire) -- 01/07/13 -- CanElson Drilling Inc. ("CanElson" or the "Company") (TSX: CDI) today provided an update on recent activities, including a new drilling rig commitment, a First Nations partnership agreement and strong performance compared with the Canadian and US oil services industry in the fourth quarter of 2012. CanElson also announced an update on progress with its bi-fuel drilling rigs initiative.

"We continue to expand our footprint in our core areas of operation," said Randy Hawkings, President and CEO. "Our recent activities demonstrate our ability to deploy and operate our drilling rigs at industry leading levels of efficiency while finding unique ways to work with other groups for our mutual benefit."

New Texas Drilling Rig

CanElson has entered into a two-year commitment and will receive a cash advance for a new drilling rig with a customer in the Permian Basin of West Texas. The new contract was obtained in part due to CanElson's commitment and approach to health and safety. The new rig (Rig #36) is expected to cost approximately $8 million. It will be assembled at CanElson's facility in Nisku, Alberta and is scheduled for delivery in March 2013.

As previously disclosed, CanElson is also assembling Rig #35 at Nisku under a long term contract with a West Texas producer. Rig #35 is scheduled for delivery in January 2013. When Rig #35 and Rig #36 are both deployed, CanElson will have 12 rigs in West Texas, double the number it had at end of January 2012, significantly strengthening the Company's position in the most active drilling basin in North America.

The Company's previously announced capital budget included provision for $4.5 million of long lead items for Rig #36. CanElson will now order long lead items for another new rig (Rig #37). Pending a signed contract, construction of Rig #37 is possible in Q2, 2013. CanElson continues to require commitments from operators prior to full assembly of additional rigs. As a result, CanElson will expand its previously announced capital program by approximately $8.0 million to complete rig #36 and purchase the long lead items for Rig #37.

First Nations Partnership

Through negotiations with File Hills Qu'Appelle Tribal Council ("FHQTC"), CanElson entered into a partnership with FHQTC Developments Limited Partnership. Each of CanElson and FHQTC Developments Limited Partnership own a 50% interest in a limited partnership that owns one existing CanElson drilling rig. CanElson will continue to operate the drilling rig as the General Partner.

CanElson believes this partnership will provide it with an opportunity to gain further access to an expanded labour force while also providing FHQTC with an opportunity to participate in the economic upside of the oil and gas drilling business in Saskatchewan. CanElson will pursue similar opportunities with other First Nations in situations where all parties involved can benefit.

"This partnership is an excellent business, training and employment opportunity for our community members," said Edmund Bellegarde, President of FHQTC.

During the past three years, CanElson has established various forms of partnership relationships and training initiatives to better support growth in all the countries in which it does business. It is CanElson's belief that it can execute a growth strategy that provides top decile returns in a socially responsible fashion.

Fourth Quarter 2012 Operational Update

CanElson is also providing an update for operations in Canada and the US during the fourth quarter of 2012. In both geographic areas, CanElson has outperformed the industry as a whole amid subdued markets.

In Canada, CanElson achieved utilization rates that were 1.5 times better than current industry estimates for the fourth quarter. In the United States, CanElson has seen a 38% increase in operating days for the fourth quarter, relative to the same period in 2011, even though the US industry has seen an approximate 12% decline in the land drilling rig count year over year.

Results of operations for Canada and the United States during the fourth quarter are as follows:

Canada United States Three months ended Three months ended December 31, December 31, 2012 2011 % change 2012 2011 % change ------------------------------------------------------Operating days (spud to rig release) 1,300 1,436 -9% 1,068 772 38%Average gross rig fleet size 22.3 20.3 10% 13.9 10.0 39%----------------------------------------------------------------------------



Mexican Operations

The customer of CanElson's Mexico joint venture has signed its production sharing contract with PEMEX. Through its Mexico Joint Venture, CanElson expects that this new contract should provide it with an opportunity to expand the service offering and increase exposure to performance-related contract terms in 2013 and beyond.

Bi-Fuel Drilling Rigs Progress

CanElson's subsidiary CanGas Solutions continues to advance previously announced bi-fuel (natural gas and diesel fuel) drilling rig initiatives in Alberta and Saskatchewan. The objective of these initiatives is to displace as much diesel fuel as possible with lower-cost natural gas on CanElson drilling rigs, for the benefit of both CanElson and its contract-drilling customers.

In the fourth quarter of 2012 CanGas began delivery of compressed natural gas (CNG) by truck transport to fuel two bi-fuel CanElson drilling rigs in Alberta. The rigs are operated by CanElson under long-term contract to an oil and gas producer. CanGas is also delivering CNG by truck transport to several of CanElson's rigs in Saskatchewan. Conversion of CanElson's Saskatchewan fleet is ongoing. CanElson is using temporary gas compression facilities as a supply source while a permanent facility is developed under a previously disclosed agreement. The permanent facility is scheduled to become operational in 2013.

About CanElson

CanElson operates contract drilling rigs in Canada, the US and Mexico for oil and natural gas exploration and development companies. CanElson also assembles new drilling rigs at a facility in Nisku, Alberta, operates contract oil and gas service rigs in Mexico, and operates a CNG transportation and related services business. CanGas is a Calgary-based CNG transport company and a North American leader in the development and utilization of containerized natural gas transport. More information on CanElson can be found on its website: www.canelsondrilling.com.

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, statements pertaining to receipt of a cash advance; the expected cost to construct rig #36; the expected location and timing of deployment of new rig build #35 and #36; the expected timing for assembly of Rig #37; the expectation that the partnership with FHQTC will provide an opportunity to gain further access to an expanded labour force while providing FHQTC an opportunity to participate in the economic benefits of a drilling rig business; the expectation that CanElson can execute a growth strategy that provides top decile returns in a socially responsible fashion; the expectation that CanElson should have an opportunity to expand its services in Mexico; and the timing for the permanent compression facility in Saskatchewan to become operational in, contain forward looking information or achievements that may be expressed or implied by such forward looking information. 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 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

CanElson Drilling Inc.
700, 808 - 4th Avenue SW
Calgary, Alberta T2P 3E8
www.canelsondrilling.com





Source: Marketwire


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