PSN.TO outlook indicates some drillers are slowing cap ex as we head into the last quarter of the year.
It looks like the concern about raising further capital in the stock and bond market is having a cooling effect on drilling new wells.
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Outlook
We are excited about the opportunity to market Poseidon's greatly expanded product and service offerings to the energy sector throughout North America. For our core tank rental business, we have a cautious outlook for the remainder of the fourth quarter, anticipating flat activity quarter-over-quarter, and a cautiously optimistic outlook for the first quarter of 2013.
Due to the lower activity in some of our core operating regions, the pause in E&P spending heading into year-end, and a somewhat uncertain commodity price environment, we are reducing 2012 EBITDA guidance to a range of $140 million to $150 million, coupled with a reduction of 42 percent in capital expenditures to $35 million. The ability to quickly curtail capital expenditures demonstrates the flexibility of our business model, as we are able to scale back or halt tank construction with minimal notice and without a costly stream of parts or components in the supply chain. Similarly, we can resume tank construction as soon as customer demand warrants. Poseidon's balance sheet remains strong, with working capital of $103 million and $56 million drawn on our $100 million revolving credit facility exiting the third quarter. Poseidon's monthly dividend of $0.09 per share is unchanged.
Our short-term market outlook for the core tank rental business is mixed given the lack of urgency and cautious tone exhibited by many E&P customers heading into year-end. We anticipate activity in several of our key U.S. operating regions to remain muted for the remainder of the fourth quarter, with an increase anticipated in the new year as 2013 capital budgets are approved. The pause in drilling and the record backlog of uncompleted wells in the North Dakota Bakken is unlikely to persist should oil prices remain firm, as full-cycle economics remain robust for the play, boding well for 2013. Our southern U.S. business, meanwhile, which now accounts for a material proportion of the active tank rental fleet, continues to show growth potential.
The modest rally in natural gas prices from a very low base is showing signs of positive effects in western Canada, especially in some of the larger resource plays in Alberta's Deep Basin and northeast B.C. We were recently engaged in field trials of Poseidon tanks for several of the most active intermediate producers, which is highly encouraging for our go-forward business. With colder weather beginning in the second half of October, the Volcano(TM) tank heating rental business has been gaining traction and is starting to generate material revenue. We are cautiously optimistic on the winter drilling season as the acceleration of key resource plays that are both fracturing- and water-intensive, such as the Duvernay Shale and Montney, bode well for our new integrated service package.
We continue to find that many customers recognize added value in Poseidon's strong track record, reliability, safety, environmental protection and availability of complementary services. Such strengths are important for producers executing multi-well, multi-pad drilling programs in a tightly scheduled winter season, and provide Poseidon with a clear competitive advantage. Poseidon is very proud of its operational record, which includes having executed close to 3,000 fluid handling jobs without a tank failure or reportable incident. We believe customers recognize this as a differentiating feature and competitive advantage.
Thanks to our focus on evolving into a full-cycle fluid management solutions provider, we exited the third quarter with more than 500 rental pieces in our combined fleet, including 440 large-capacity storage tanks. We are continuing to expand the overall business with the manufacture of Volcano(TM) tank heaters and Iris(TM) monitoring systems and we are also adding water transfer equipment on a project-by-project basis. Our first international tank rental contract is ongoing, and we continue to pursue other high-graded opportunities in selected international markets. In summary, we are establishing our long-term business model - to field a suite of rental products and value-added services beyond the core North American tank rental business, providing a true portfolio of revenue-generating sources. |
