In the first quarter of 2013, Aveda anticipates a decrease in revenue in Canada between 25% and 35% compared to the same period in 2012. In Canada, 2013 as whole remains highly uncertain due to the market conditions described, including the risk of additional delays or cancellations in major upstream projects in Canada and continually depressed natural gas prices.
Opportunities for expansion and growth continue to appear strongest in the US. According to the Baker Hughes Rig Count(5), drilling activity in the Eagle Ford and Permian basins remains close to the highest levels experienced in the last 10 years, although in both basins, rig counts have stabilized roughly at the same levels as the previous year as of the first week of March 2012. The high activity levels have allowed Aveda to grow significantly in these areas, with the opening of two new branches (Pleasanton and Midland) in 2012. In contrast, the Mineral Wells branch has faced a significant decline in rig counts in the Dallas/Ft. Worth Basin (Barnett Shale play), and the Company is working to minimize revenue and EBITDA declines by focusing efforts at acquiring new customers in higher activity areas. However, the terminal still faces significant decreases in revenue compared to 2012, and no major recovery is expected due to the significant reductions in rig counts in the region (40% to 50% decline in rig counts) and a portion of the revenue from this branch shifted to the Midland branch. Pennsylvania's early results, on the other hand, show a strong recovery both in revenue and EBITDA compared to the same period in 2012 - this despite the 30% decline in active rigs. These results, however, are subject to strong downward price pressures stemming from a fierce competitive environment and a shrinking market size. The Company continues to make efforts to obtain the best possible results under these circumstances. It is expected that rig counts will continue the downward trend in Pennsylvania gas plays, however management believes the decline may be partially offset by the relocation of rigs to oil plays further west in the state.
(5) Baker Hughes Rig Count, accessed on March 7, 2013, at http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm
The Midland branch, Aveda's newest, continues to increase its activities as it is established within the Permian Basin client base. The terminal is expected to realize its full potential in mid-2013.
As discussed earlier, when utilizing third party equipment the Company charges its customers a minimal markup. A significant portion of the Company's third party revenue is derived from the US. By utilizing more Company owned equipment instead of hiring third party contractors, the Company anticipates being able to enjoy better gross margin contribution going forward in 2013.
In contrast with Canada, in the US, Aveda expects an increase in revenue between 40% and 50% in the first quarter of 2013, compared to the same period in 2012. The anticipated revenue increase should result in higher EBITDA both on an absolute basis and as a percentage of revenue as compared to the first quarter of 2012. The year as whole, however, remains uncertain due to the market conditions of natural gas focused plays such as the ones serviced by the Mineral Wells and Pennsylvania branches.
The North American economy faces several macro-economic uncertainties, such as the anemic gross domestic product growth rate, and political uncertainties that relates to the oil and gas industries. It is not clear at this time what impact, if any, these uncertainties will have on the North American oil and gas industry and conversely on the operations of the Company. The Company is monitoring these macro-economic issues through feedback from its customers and will adjust its operations as necessary.