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Corporation
ELECTRONICS | Technical & Scientific Instrumentation
desertndt.com

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Stage

Acquired | Acquired

Valuation

$0000 

About Desert NDT

Desert NDT, formerly Desert Industrial X-Ray, is a full service non-destructive testing (NDT) company. The company offers traditional X-Ray and ultrasonic testing, digital X-Ray and integrity management services that ensure the safe installation and operation of new gathering pipelines and other midstream oil & gas infrastructure. Its solutions span the entire life cycle of oil and gas assets, from initial installation through ongoing integrity program management.

Desert NDT Headquarter Location

P.O. Box 13988

Odessa, Texas, 79768,

United States

432-363-0669

Latest Desert NDT News

ShawCor Ltd. Announces Third Quarter 2014 Results

Nov 6, 2014

1.0 KEY DEVELOPMENTS Acquisition of Desert NDT LLC On July 8, 2014, the Company completed the acquisition of all of the outstanding shares of Desert NDT LLC ("Desert"), first announced on May 8, 2014, for a total consideration of US$264.4 million. Desert is a Houston-based provider of non-destructive testing ("NDT") services for new oil and gas gathering pipelines and infrastructure integrity management services. Desert operates through 18 branches located in major U.S. oil and gas basins. The acquisition was funded with cash and through available revolving credit facilities. The transaction is expected to be accretive to ShawCor's earnings per share within the next 12 months. Completion of Sale of Brazilian Joint Venture Interest On September 4, 2014 the Company completed the sale of its Socotherm division's joint venture interest in Socotherm Brasil, first announced in December 2013, to its joint venture partner, Tenaris. Socotherm Brasil operates a pipe coating facility which is managed by Tenaris and which is located at the Confab welded pipe mill in Pindamonhangaba, Brazil. From the sale, ShawCor realized net proceeds of US$28.5 million, with a further payment of approximately US$1.2 million to be received later this year. The sale of Socotherm's joint venture interest in Socotherm Brasil is consistent with ShawCor's strategy to focus its pipe coating investments on operations it manages and controls. Following the sale, ShawCor will continue to serve Tenaris' global pipe coating needs and the Brazilian pipe coating market from its global pipe coating plant network. Impairment of Thermotite do Brasil Ltda Net Assets In Brazil, ShawCor will continue to supply its deep water pipeline insulation coating products through its wholly-owned subsidiary Thermotite do Brasil Ltda. This Bredero Shaw company is currently completing the insulation coating of subsea flowlines and risers for the Petrobras Sapinhoa North field. Although the Company is committed to continuing to serve the Brazil market for deep water pipe coatings, as a result of anticipated changes in Petrobras' development plans for the pre-salt Santos basin, the Company incurred a net impairment charge of $28.5 million (net of tax of $12.0 million) in the third quarter of 2014, relating primarily to goodwill and intangible assets that arose from the 2010 purchase of the Company's joint venture partners in Thermotite do Brasil Ltda. The write-down has been calculated based on a variety of factors, including currently anticipated Brazilian market developments, and represents a non-cash charge that will not impact the Company's ability to generate revenue or income from its operations in Brazil. $200 Million Offering of Common Shares On September 10, 2014 the Company agreed to sell, on a bought deal basis, 3,650,000 common shares at a price of $54.85 per common share (the "Issue Price") for gross proceeds of $200,202,500 (the "Offering"). On September 19, 2014 the Company closed its bought public offering of 3,650,000 common shares (the "Shares") at a price of $54.85 per Share (the "Offering") for gross proceeds of $200,202,500. The bought public offering was underwritten by a syndicate led by TD Securities Inc. and included Cormark Securities Inc., RBC Dominion Securities Inc., AltaCorp Capital Inc., BMO Nesbitt Burns Inc., CIBC World Markets Inc., National Bank Financial Inc. and Scotia Capital Inc. (collectively, the "Underwriters"). In addition, ShawCor granted the Underwriters an option to purchase, in whole or part, up to an additional 547,500 common shares at the Issue Price to cover over-allotments for a period of 30 days following the closing of the Offering. On October 3, 2014 the Underwriters exercised in full the over-allotment option and purchased an additional 547,500 common shares of the Company at a price of $54.85 per common share. The closing of the over-allotment option increases the total gross proceeds of the Offering to $230,232,875. The Company will use the net proceeds from the Offering for general corporate purposes, including to repay a portion of its outstanding revolving debt in the normal course in order to create debt availability to fund future corporate investments, which may potentially include future acquisitions. Significant Business Contracts On July 3, 2014, the Company's field-applied pipeline coatings and services division, Canusa-CPS, received a contract with a value of approximately $30 million from Saipem SpA to provide field joint coating services for Line 1 of the South Stream Offshore Pipeline. This contract involves the manufacture of 3-layer polypropylene heat shrink sleeves, and their application on each pipe weld of the 900 km 32" offshore pipeline utilizing the Canusa-CPS patented IntelliCOAT™ automated system. Contract execution is expected to commence in 2014. On September 26, 2014 the Company's Bredero Shaw pipe coating division received contracts with a value of approximately US$200 million from BP Exploration (Shah Deniz) Limited for pipeline coating and other services in connection with the Shah Deniz Stage 2 development project. The contracts are scheduled to be executed from plants within Bredero Shaw's Europe, Middle East, Africa, Russia ("EMAR") region. The contracts awarded involve the application of a full suite of coatings, including "Thermotite" multilayer polypropylene insulation, anti-corrosion and concrete weight coatings. Coating will commence in late 2014 and continue through the 2015 to 2018 period. Bredero Shaw is currently bidding on other contracts relating to the Shah Deniz Stage 2 project. 1.1 OUTLOOK As a result of continuing growth in a number of its North American and EMAR business units and the contribution of revenue in the second half of this year from the recently acquired Desert NDT business, the Company expects that consolidated revenue in 2014, will exceed the level reported in 2013. However, the Company continues to expect that income from operations will lag the prior year as a result of lower margins on the products and services that are growing in volume in comparison with the revenue lost from the decline in large pipe coating project activity in Asia Pacific. The potential exists for an improvement in margins in 2015 over the second half 2014 levels as a result of the planned launch of production on a number of large pipe coating projects in the EMAR region. Barring a commodity price driven reduction in global oil and gas infrastructure investment, improved operating margins coupled with continued organic revenue growth would provide a basis for year over year growth in income from operations and net income in 2015. Further detail on the outlook for the Pipeline and Pipe Services segment by region and in the Petrochemical and Industrial segment is set out below: Pipeline and Pipe Services Segment - North America In 2014, ShawCor's North American Pipeline segment businesses are expected to generate solid revenue growth over 2013 levels and this expectation for growth has been evident throughout the first nine months of 2014. Revenue growth in 2014 is being led by increased pipe coating volumes from a full year of production at the Socotherm Gulf of Mexico plant, by increased activity in the US land market for Flexpipe composite pipe, Guardian OCTG pipe inspection and refurbishment, and Shaw Pipeline Services real-time radiography pipeline girth weld inspection. In the fourth quarter of 2014 and continuing in 2015, these sources of growth will be enhanced following the acquisition on July 8, 2014 of the Desert NDT business, which is currently operating at a full year revenue level of approximately $120 million. Pipeline and Pipe Services Segment - Latin America The Company is projecting modest growth in 2014 over 2013 from Latin America as a result of increased offshore and large diameter gas transmission pipeline projects in Mexico, the increased downhole tubular and insulation coating production at the Socotherm Argentina facility, an increase in revenue in Brazil from the Sapinhoa deepwater insulation coating project, and increased shipments of Flexpipe composite pipe to Latin America. These sources of revenue growth will be partially offset by the fact that 2013 Latin America revenue had included approximately $55 million from the now completed Technip project that was executed through the deployment of two portable concrete weight coating plants in Trinidad. Pipeline and Pipe Services Segment - EMAR In the first nine months of 2014, the Company's EMAR region has reported solid revenue growth over 2013 levels and this is expected to continue in the fourth quarter. Primary drivers of growth will continue to be stronger project revenues from the insulation coating facility in Orkanger, Norway, production on the South Stream Line 1 project at Leith, Scotland and the South Stream Line 2 and SCPX projects at Ras Al Khaimah, UAE, and the ramp up of production at Socotherm's Pozzallo, Sicily pipe coating facility to execute the Moho Nord deepwater insulation project. Pipeline and Pipe Services Segment - Asia Pacific In 2013, the Company generated record revenues in the Asia Pacific region as a result of the execution of the Inpex Ichthys gas export pipeline, Chevron Wheatstone export pipeline and flowlines, and Apache Julimar flowlines projects. These projects produced over $510 million in revenue in 2013 and contributed to a level of activity that will decline by at least 50% in 2014. This decline was very evident in the third quarter and the Company expects that Asia Pacific revenue and earnings in the fourth quarter of 2014 will be consistent with the third quarter level. Beyond 2014, the Company remains confident that the Asia Pacific region will continue to provide compelling opportunities, particularly with the emergence of deepwater oil and gas developments that create opportunities for the Company to utilize its operational capability and unique product technologies. Petrochemical and Industrial Segment ShawCor's Petrochemical and Industrial segment businesses are significantly exposed to demand in the North American and European automotive, industrial and nuclear refurbishment markets. The Company expects that demand in the global industrial markets served by the Petrochemical and Industrial segment businesses will enable the Company to achieve modest growth in revenue in 2014. Income from operations ("Operating income") growth should exceed revenue growth due to the one-time charges of $3.2 million incurred in 2013 and as a result of improved operational efficiencies associated with the consolidation of production activities at DSG-Canusa's new EMAR facility in Rheinbach, Germany. Order Backlog The Company's order backlog consists of firm customer orders only and represents the revenue the Company expects to realize on booked orders over the succeeding twelve months. The Company reports the twelve month billable backlog because it provides a leading indicator of significant changes in consolidated revenue. The order backlog at September 30, 2014 increased to $739 million from $684 million at June 30, 2014 and from $617 million at the beginning of the year. The Company has also seen an increase in bidding activity with the value of outstanding firm bids now exceeding $1 billion. The growth in backlog and bidding activity coupled with the acquisition of Desert NDT and increasing activity in a number of the Company's businesses that generate small order and recurring revenues that don't enter the backlog, support the Company's outlook for growth in revenue and earnings in 2015 and beyond. 2.0 CONSOLIDATED INFORMATION AND RESULTS FROM OPERATIONS 2.1 Revenue The following table sets forth revenue by reportable operating segment for the following periods:   (in thousands of Canadian dollars) Three Months Ended

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