Petrowest Corporation announces refinancing update; corporate review update; and 2016 annual and fourth quarter financial results
Petrowest Corporation ("Petrowest" or the "Company") (TSX:PRW) announces an update on its refinancing initiatives, corporate review process and the release of its consolidated financial results for the quarter and year ended December 31, 2016.
Petrowest continues to work towards a refinancing of its existing bank loans and has received proposals from numerous financial sources. The Company is currently in negotiations with two lenders, one of which is a Canadian chartered bank, for separate facilities that combined would provide sufficient funding to retire the existing bank loans and provide additional working capital (the "Refinancing"). The existing bank syndicate has agreed in principal to extend the waiver period past March 31, 2017 subject to formal approvals and documentation. Subject to credit committee approvals and final documentation, Petrowest anticipates closing the Refinancing in April 2017.
CORPORATE REVIEW UPDATE
In response to financial results in 2016 that were unacceptable, the Board has approved a strategic plan developed by management under the guidance of a new President and a new Chief Financial Officer.
The strategic planning process was initiated with an assessment of current and expected conditions in the two heavy construction markets the Company serves – namely oil & gas and infrastructure. In the oil & gas sector, it appears the dramatic downturn witnessed in 2015 and 2016 is giving way to a recovery driven by improving commodity prices. In the infrastructure market, based in part on announced plans by all levels of government, it is expected that spending will be robust over the coming years.
Within the context of this broader market outlook, Petrowest has assessed its core competencies and competitive position which include: (1) a large fleet of well-maintained heavy earth moving equipment with an appraised value of over $100 million, (2) excellent customer relationships built over many years of providing quality service, and (3) a favorable market position in the Edmonton, AB to Fort St. John, B.C. corridor where a significant portion of Canada's oil & gas activity and spending is focused.
Sami Saad, President & COO stated "Our analysis has concluded Petrowest is well positioned competitively in its markets. However, the Company needs to improve its profitability through a three-pronged approach including (1) optimizing equipment utilization, (2) reducing costs, and (3) expanding its service offerings aligned with our corporate strategy."
Fundamental to the long-term profitability of a heavy construction company is the efficient utilization of its equipment. Petrowest has identified opportunities to improve upon the measurement and analysis of actual revenue hours generated by each major piece of equipment. This will allow for better information such as the existence and extent of surplus equipment and ensuring that the fleet, once right-sized, will generate acceptable returns above the cost of capital.
On the cost reduction front, Petrowest has reduced general & administrative costs where possible and has negotiated facility rent reductions. In addition, a full review of the Company's buildings, workshops and yards has been completed and consolidation opportunities identified, some of which can be implemented in 2017 and others when leases expire.
A key element of the corporate review process was a thorough analysis of Petrowest's divisional operations to assess the contribution of each to the consolidated financial performance. In addition to profitability measures based on Adjusted EBITDA(1) levels and gross margins, the analysis was extended to include free cash flow generation (Adjusted EBITDA(1) less maintenance capital spending) as well as working capital requirements. Each division was also assessed in terms of cross-divisional synergies and how it complemented the longer term strategic plan.
On considering the results of the divisional analysis, the go-forward business plan, and the Company's current financial position, the Company has determined to monetize a number of non-core assets, and to sell the R Bee Crushing division ("RB"). RB operates western Canada's largest fleet of rock crushing equipment that provides custom sized aggregate for use primarily in road construction and the production of concrete and asphalt. President & COO Sami Saad summarized by stating "While RB is a market leader and operates a very strong business, it is also a capital intensive business which is a challenge for the Company given our current debt levels. While both a difficult and transformative decision, Petrowest believes the sale of RB will accomplish the goal of reducing debt to a manageable and sustainable level. Thereafter, the Company can focus exclusively on improving operational efficiencies, increasing profitability and undertaking accretive growth initiatives."
Ernst & Young Orenda has been retained to solicit offers for both RB and the non-core assets, and the process is underway.
2016 FINANCIAL RESULTS
In the three months ended December 31, 2016 compared to the same quarter in 2015, the Company:
INDUSTRY OVERVIEW AND OUTLOOK
2016 provided significant weather challenges in Western Canada, including early spring forest fires, heavy summer and fall rains, the latter resulting in unprecedented fall road bans. In aggregate, Petrowest lost approximately 500 operating days in 2016. Nevertheless, the ramp-up of major projects in 2016 and the recent stability in commodity prices has strongly positioned Petrowest entering 2017.
Activity levels in the energy sector across Western Canada remained significantly impacted by the slowdown in drilling activity by the oil and natural gas industry due to the low commodity prices in 2016. Entering 2017, industry activity levels have seen a significant increase year over year with the stability of commodity prices. As of March 1, 2017, the active rig count in Western Canada has increased to ~55%, which compares to ~20% at the same time last year. In addition to rising capital programs in the exploration and production sector to date in 2017, significant pipeline expansions and midstream work have been publicly announced. Petrowest has maintained key relationships in the energy sector throughout the downturn, and remains strategically positioned to benefit from increased drilling activity.
The Alberta Government progressed with the development of additional infrastructure projects in 2016, reaffirming that 2016 marked the commencement of a multi-year infrastructure development build out in Western Canada. The roll out of additional infrastructure projects was slower than industry expected in 2016, however the Alberta budget was reconfirmed on March 16, 2017, including $3.0 billion for roads and bridges from 2017-2022 of which $900 million is expected in 2017.
Peace River Hydro Partners
BC Hydro provides construction bulletin updates bi-weekly located on www.sitecproject.com. In addition, BC Hydro provides quarterly updates on the project. As of March 17, 2016, BC Hydro disclosed that the Main Civil Works contractors are well underway on both the north and south banks, including the south bank drainage tunnel, cofferdam and approach channel. Petrowest has been a key contributor to the Peace River Hydro Partners to accelerate production in the second half of 2016 and into 2017. Petrowest currently has approximately 60 pieces of equipment rented to the Peace River Hydro Partners.
Petrowest is a diversified infrastructure company with primary operations based in northeastern British Columbia and Alberta. Petrowest's operations are focused on industrial and civil infrastructure projects, gravel crushing and hauling activities, as well as pre-drilling and post-completion energy services.
SOURCE: Petrowest Corporation
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