"Steep declines in the prices for our recovered products and reduced drilling activity in western Canada dampened otherwise solid performance in the quarter and for the year," said Al Cadotte, President and CEO of Newalta. "Most of the challenges we faced are dissipating and commodity prices are stabilizing. Returns from our 2012 capital and strengthening market demand are expected to drive improved results in the quarters ahead."
Fourth quarter results were below management's expectations as outlined in our Q3 2012 outlook, primarily due to the following key factors:
-- Sharp decline in recovered crude oil and base oil prices in the latter part of the quarter, directly impacting our results -- Our pricing for conventional and heavy oil fell dramatically from October over the latter part of the quarter, by 22% and 37%, respectively, due to the wider differentials experienced across the Western Canadian Sedimentary Basin ("WCSB"). The prices we receive for conventional and heavy oil are tied to Edmonton Par and Bow River. Further, Motiva (base oil) prices followed a similar pattern declining by 7% during the quarter.
Commodity Pricing August 2012 to January 2013: http://media3.marketwire.com/docs/213nal_graphs.pdf
-- Decline in drilling activity in western Canada -- Active rigs fell by 28% in the quarter, year-over-year, much more than anticipated. Reduced drilling activity primarily impacted our drill site equipment rental business in western Canada, as evidenced by equipment utilization declining from 68% in Q4 2011 to 36% in Q4 2012. Reduced waste volumes at oilfield facilities were offset by increased recovered crude oil volumes as well as operational efficiencies.
Active Rigs - Western Canada(1): http://media3.marketwire.com/docs/213nal_graphs.pdf
(1) Source - Canadian Association of Oilwell Drilling Contractors ("CAODC")
-- Early winter freeze-up, impacting processing volumes of Mature Fine Tailings ("MFT") -- Production delays driven by colder than expected weather restricted processing of MFT. Most, if not all, of the shortfall is anticipated to be recovered in 2013.
"Potential in our key growth areas remains unchanged and our business fundamentals remain strong," said Mr. Cadotte. "We made significant progress with our long-range growth plan in 2012, preparing us to capitalize on the many opportunities present in all areas of the business in 2013.
We met a number of objectives in 2012, specifically, we:
-- increased our long-term onsite contract revenue base to 9% of revenue, up from 3% in 2011;-- established a leadership position in the area of MFT processing which may lead to additional contract work;-- grew our U.S. revenue by 25%;-- aligned the organization in three new divisions to enhance customer service and to support key growth areas;-- strengthened the organization through talent development programs and the addition of new talent, growing our employee base by 10% to over 2,200 people;-- invested $137 million to drive growth in 2013;-- increased the dividend by 25% compared to 2011; and,-- completed a $77 million equity offering to strengthen our balance sheet.
"Our markets continue to improve but progress remains choppy. We have the financial capacity, including proceeds from the recent equity financing, to weather short-term fluctuations in commodity prices and market demand as we experienced in the fourth quarter. We will continue to execute our long-term plan to deliver strong, profitable growth and outstanding returns to investors for many years ahead."