Ensign Energy Services Inc. Reports 2014 First Quarter Results

CALGARY, May 12, 2014 /CNW/ -

Overview

Revenue for Ensign Energy Services Inc. ("Ensign" or the "Company") for the first quarter of 2014 was $624.2 million, an increase of seven percent from first quarter 2013 revenue of $581.1 million.  Operating earnings, expressed as Adjusted EBITDA (defined as earnings before interest, income taxes, depreciation, share-based compensation expense (recovery) and foreign exchange and other), totaled $160.1 million ($1.05 per common share) in the first quarter of 2014, three percent lower than adjusted EBITDA of $164.4 million ($1.08 per common share) in the first three months of 2013.  Net income for the first quarter of 2014 decreased seven percent to $60.4 million ($0.40 per common share), compared to net income of $65.0 million ($0.43 per common share) for the first quarter of 2013.  Adjusted net income (defined as net income before share-based compensation expense (recovery) and foreign exchange and other, tax-effected using an income tax rate of 35 percent), for the first quarter of 2014 was $54.0 million ($0.35 per common share), 19 percent lower than adjusted net income of $66.6 million for the first quarter of 2013 ($0.44 per common share).  Funds from operations decreased two percent to $137.0 million ($0.90 per common share) in the first three months of 2014 from $139.8 million ($0.92 per common share) in the first three months of the prior year.  Operating days in Canadian operations were lower in the first quarter of 2014 when compared to the first quarter of 2013, while results from the United States and the eastern hemisphere operations were higher due to increased demand and upgrades in recent years to the Company's equipment fleets in these areas.  A strengthening of the United States dollar against the Canadian dollar positively impacted United States and international financial results on translation to Canadian dollars.  The average United States exchange rate for the first three months of 2014 increased nine percent, compared to the first three months of 2013.

Gross margin decreased to $182.2 million (29.2 percent of revenue) for the first quarter of 2014 compared with gross margin of $183.9 million (31.7 percent of revenue) for the first quarter of 2013.  The decrease in gross margin in the first quarter of 2014 compared to the first quarter of 2013 was primarily attributed to weaker Canadian activity levels, higher costs related to ongoing maintenance and start-up costs of international rigs preparing for work later in 2014.

Working capital at March 31, 2014 was a deficit of $81.0 million, compared to a deficit of $71.1 million at December 31, 2013.  Available borrowings at March 31, 2014 were $36.9 million compared to $70.7 million at December 31, 2013 as additional draws were used to support first quarter activity levels; the first quarter dividend payment; and the ongoing new build and major retrofit program that delivered one new ADR® drilling rig and completed two major retrofits to existing drilling rigs during the first three months of 2014.

FINANCIAL AND OPERATING HIGHLIGHTS                     
($ thousands, except per share data and operating information)           
            Three months ended March 31
            2014   2013   % change
Revenue           624,194   581,142   7
Adjusted EBITDA 1           160,069   164,382   (3)
Adjusted EBITDA per share 1                    
  Basic           $1.05   $1.08   (3)
  Diluted           $1.04   $1.07   (3)
Adjusted net income 2           53,958   66,617   (19)
Adjusted net income per share 2                    
  Basic           $0.35   $0.44   (20)
  Diluted           $0.35   $0.43   (19)
Net income           60,411   64,987   (7)
Net income per share                    
  Basic           $0.40   $0.43   (7)
  Diluted           $0.39   $0.42   (7)
Funds from operations 3           137,011   139,802   (2)
Funds from operations per share 3                    
  Basic           $0.90   $0.92   (2)
  Diluted           $0.89   $0.91   (2)
Weighted average shares - basic (000s)           152,864   152,708   -
Weighted average shares - diluted (000s)           153,654   153,391   -
Drilling                    
  Number of marketed rigs                    
    Canada 4           104   120   (13)
    United States           111   116   (4)
    International 5           55   53   4
    Rigs in transit 6           2   -   -
  Operating days                    
    Canada 4           4,792   5,329   (10)

  United States           5,673   5,504   3
    International 5           3,152   2,712   16
Well Servicing                    
  Number of marketed rigs                    
    Canada           91   91   -

  United States           45   46   (2)
  Operating hours                    
    Canada           34,680   35,137   (1)
    United States           28,861   22,777   27


1 Adjusted EBITDA is defined as "income before interest expense, income taxes, depreciation, share-based compensation expense (recovery) and foreign exchange and other".  Management believes that in addition to net income, Adjusted EBITDA and Adjusted EBITDA per share are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities prior to consideration of how these activities are financed, how the results are taxed in various jurisdictions, how the results are impacted by foreign exchange or how the results are impacted by the accounting standards associated with the Company's share-based compensation plans.  Adjusted EBITDA and Adjusted EBITDA per share as defined above are not recognized measures under International Financial Reporting Standards and accordingly, may not be comparable to measures used by other companies.
2 Adjusted net income is defined as "net income before share-based compensation expense (recovery) and foreign exchange and other, tax-effected using an income tax rate of 35 percent".  Adjusted net income and Adjusted net income per share are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities prior to consideration of how the results are impacted by foreign exchange and how the results are impacted by the accounting standards associated with the Company's share-based compensation plans, net of income taxes.  Adjusted net income and Adjusted net income per share as defined above are not recognized measures under International Financial Reporting Standards and accordingly, may not be comparable to measures used by other companies.
3 Funds from operations is defined as "cash provided by operating activities before the change in non-cash working capital".  Funds from operations and Funds from operations per share are measures that provide additional information regarding the Company's liquidity and its ability to generate funds to finance its operations.  Management utilizes these measures to assess the Company's ability to finance operating activities and capital expenditures.  Funds from operations and Funds from operations per share are not measures that have any standardized meaning prescribed by International Financial Reporting Standards and accordingly, may not be comparable to similar measures used by other companies.
4 Excludes coring rigs.
5 Includes workover rigs.
6 Drilling rigs being retrofitted and transferred to a new geographic market.

First Quarter Highlights

  • Revenue for the first three months of 2014 was $624.2 million, up 16 percent from the fourth quarter of 2013 and seven percent from the first quarter of 2013.
  • One new ADR® drilling rig was added to the Company's United States drilling fleet in the first quarter of 2014.  The new build and major retrofit program also completed two major retrofits to existing drilling rigs: one transferred from the United States to Canada and one transferred from Canada to Australia.
  • First quarter revenue by segment:
    • Canada - 36 percent;
    • United States - 40 percent; and
    • International - 24 percent.
  • Adjusted EBITDA for the first quarter of 2014 was $160.1 million, a three percent decrease from adjusted EBITDA of $164.4 million for the first quarter of 2013.  Funds from operations for the first quarter of 2014 decreased two percent to $137.0 million from $139.8 million in the first quarter of the prior year.
  • Canadian drilling recorded 4,792 operating days in the first three months of 2014, a 10 percent decrease from 5,329 operating days in the first three months of 2013.  Canadian well servicing hours decreased by one percent in the first quarter of 2014 compared to the first quarter of 2013.
  • United States drilling recorded 5,673 operating days in the first quarter of 2014, a three percent increase from 5,504 operating days in the first quarter of 2013.  United States well servicing hours increased by 27 percent in the first three months of 2014 compared to the first three months of 2013.
  • International drilling recorded 3,152 operating days in the first quarter of 2014, a 16 percent increase from 2,712 operating days recorded in the first quarter of 2013.
  • The Company declared a quarterly cash dividend on common shares of $0.1175 per common share payable July 4, 2014.
  • The Company's construction in progress currently includes 11 new ADR® drilling rigs, one new well servicing rig and eight major retrofits to existing drilling rigs.  In addition, due to increases in customer demand for the Company's ADR® drilling rigs, the Company's Board of Directors has approved a pre-committed new build program that will deliver 1 ADR® drilling rig a month in the first and second quarters of 2015 and 1.5 ADR® drilling rigs per month in the third and fourth quarters of 2015.

Revenue and Oilfield Services Expense

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Revenue                    
  Canada       226,468   255,988   (29,520)   (12)
  United States       248,363   200,470   47,893   24
  International       149,363   124,684   24,679   20
                       
          624,194   581,142   43,052   7
Oilfield services expense       442,020   397,201   44,819   11
Gross margin       182,174   183,941   (1,767)   (1)
Gross margin percentage (%)       29.2   31.7        

Revenue recorded in the first quarter of 2014 totaled $624.2 million, an increase of seven percent from the first quarter of 2013 and was the second highest quarterly revenue in the Company's history.  As a percentage of revenue, gross margin for the first quarter of 2014 decreased to 29.2 percent from 31.7 percent for the first quarter of 2013.

The Company continued to upgrade and grow its equipment fleet throughout 2013 and the first quarter of 2014 which led to stronger revenue in the current year first quarter when compared to the first quarter of 2013.  During the first three months of 2014 the Company added one new build ADR® to its United States drilling fleet and completed two major retrofits to existing drilling rigs; one in Canada and one in Australia.  In addition, the United States dollar strengthened by nine percent in the first three months of 2014 compared to the first three months of 2013 and contributed to the higher revenue levels.  Offsetting these positive impacts to consolidated revenue was uneven demand levels in certain areas in Canada and continuing challenges in Venezuela during the first quarter of 2014, as discussed further below under "International Oilfield Services".

Canadian Oilfield Services

Revenue decreased 12 percent to $226.5 million for the three months ended March 31, 2014, from $256.0 million for the three months ended March 31, 2013, but was 43 percent higher than the immediately preceding quarter as the seasonal winter drilling season peaked in the first quarter.  Canadian revenue accounted for 36 percent of the Company's total revenue in the first quarter of 2014, compared with 44 percent in the first quarter of 2013. Demand for the Company's Canadian oilfield services was mixed as some areas experienced higher activity levels in the current quarter compared with the prior year first quarter while others, particularly the oil sands coring division, saw decreases in the current quarter when compared to the first quarter of 2013.  Through the current new build and major retrofit program the Company is continuing to transition its Canadian drilling fleet from shallow drilling rigs to deeper drilling rigs as the industry shifts toward deeper, longer reach drilling.  The expansion of the Company's Canadian directional drilling business and oilfield rental business through the 2013 second quarter acquisitions of substantially all of the assets of Departure Energy Services Inc. ("Departure") and EGOC Enviro Group of Companies Ltd. ("EGOC") helped to partially offset the year-over-year reduction in Canadian drilling revenue.

The Company recorded 4,792 drilling days in the first quarter of 2014, a 10 percent decrease from the 5,329 drilling days recorded in the first quarter of 2013, but up 39 percent over the immediately preceding quarter.  Canadian well servicing hours were mainly consistent with the prior year, decreasing only one percent in the first quarter of 2014 to 34,680 operating hours, compared with 35,137 operating hours in the corresponding period of 2013.

During the three months ended March 31, 2014, the Company added one retrofitted drilling rig transferred from the United States fleet to the Canadian fleet; decommissioned 13 inactive drilling rigs and four inactive well servicing rigs; and transferred two drilling rigs to the oil sands coring fleet and one retrofitted drilling rig to Australia.  In addition two drilling rigs have been removed from the Canadian fleet and are undergoing major retrofit for the Australian market.

United States Oilfield Services

The Company's United States operations recorded revenue of $248.4 million in the first quarter of 2014, a 24 percent increase from the $200.5 million recorded in the corresponding period of the prior year.  The Company's United States operations accounted for 40 percent of the Company's revenue in the first quarter of 2014, compared to 35 percent in the first quarter of 2013.  Drilling rig operating days increased by three percent to 5,673 drilling days in the first quarter of 2014 from 5,504 drilling days in the first quarter of 2013.  Well servicing activity increased by 27 percent in the first quarter of 2014 to 28,861 operating hours from 22,777 operating hours in the first quarter of 2013.

Activity levels and revenue rates in United States oilfield services began to pick up late in 2013 after a slowdown earlier in the year.  This combined with the positive translational impact of a stronger United States dollar and upgrades to the United States fleet throughout 2013 and the first quarter of 2014 resulted in higher revenue in the current quarter compared to the first quarter of the prior year.

In 2013, the Company added three new build ADRs and one new well servicing rig to the United States fleet.  An additional ADR® was added in the first quarter of 2014.  The Company also decommissioned six inactive drilling rigs and transferred one retrofitted drilling rig to Canada in the first quarter of 2014.

Current quarter results from the Company's United States operations were positively impacted on translation to Canadian dollars by a strengthening United States dollar against the Canadian dollar.  In the first three months of 2014 the United States dollar increased by nine percent when compared to the same period of the prior year.

International Oilfield Services

The Company's international operations recorded revenue of $149.4 million in the first quarter of 2014, a 20 percent increase from $124.7 million recorded in the corresponding period of the prior year.  International operations contributed 24 percent of the Company's revenue in the first quarter of 2014, compared with 21 percent in the same period of 2013.  International operating days for the three months ended March 31, 2014 totaled 3,152 drilling days, compared with 2,712 drilling days in 2013, an increase of 16 percent.

Changes to the Company's international fleet in the latter half of 2013 and in the first quarter of 2014 helped to drive international revenue up when compared to the first quarter of the prior year.  Late in 2013, the Company expanded its operations into Kurdistan with one drilling rig being deployed there, resumed operations with an additional drilling rig in Libya and transferred a retrofitted drilling rig to Australia from the Company's United States fleet.  In the first quarter of 2014 an additional retrofitted drilling rig was transferred from the Canadian fleet to Australia.  Two additional retrofitted drilling rigs are currently in transit from Canada to Australia and are expected to begin working in the second quarter of 2014.

Similar to the Company's United States operations, international operations were positively impacted from the strengthening United States dollar versus the Canadian dollar on translation into Canadian dollars for reporting purposes in the first quarter of 2014 compared to the first quarter of the prior year.

As part of the Company's international operations, it provides oilfield services in Venezuela pursuant to long-term contracts. Many of these existing contracts are due to expire in 2014 and as a result of the current political unrest in Venezuela, there is and there can be no assurance that the Company will be able to renew all of such contracts on terms acceptable to the Company or at all. In addition, as at March 31, 2014, the Company had net accounts receivable of approximately $37.4 million for work performed in Venezuela and, due to the continuing political unrest in Venezuela, there is and there can be no assurance that the Company will be successful in collecting all or any of such outstanding balance.

Depreciation

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Depreciation       73,309   57,190   16,119   28

Depreciation expense increased 28 percent to $73.3 million for the three months ended March 31, 2014, compared with $57.2 million for the three months ended March 31, 2013.  Higher depreciation expense in the current quarter when compared to the first quarter of 2013 was attributable to the utilization of higher-valued equipment during the current quarter, the additions to the Company's global fleet throughout the latter half of 2013 and in the first quarter of 2014, the impact of the 2013 second quarter acquisitions of assets from EGOC and Departure and the negative translational impact of a stronger United States dollar on United States and international depreciation in the current quarter.

General and Administrative Expense

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
General and administrative       22,105   19,559   2,546   13
% of revenue       3.5   3.4        

General and administrative expense was $22.1 million (3.5 percent of revenue) for the first quarter of 2014 increasing 13 percent, compared with $19.6 million (3.4 percent of revenue) for the first quarter of 2013.  The increase in general and administrative expense reflects the negative translational impact of a stronger United States dollar on United States and international administrative expenses in the current quarter and increased costs to support growing international operations.

Share-Based Compensation (Recovery) Expense

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Share-based compensation       (913)   6,396   (7,309)   (114)

Share-based compensation (recovery) expense arises from the Black-Scholes valuation accounting associated with the Company's share-based compensation plans, whereby the liability associated with share-based compensation is adjusted for the effect of granting and vesting of employee stock options and changes in the underlying price of the Company's common shares.

For the three months ended March 31, 2014, share-based compensation (recovery) expense was a recovery of $0.9 million, compared with an expense of $6.4 million recorded in the first quarter of 2013.  The decrease in the share-based compensation expense in the first quarter of 2014 was a result of the change in the fair value of the share-based compensation liability primarily resulting from a decrease in the price of the Company's common shares during the first three months of 2014.  The closing price of the Company's common shares was $16.34 at March 31, 2014 ($17.32 at March 31, 2013), compared with $16.73 at December 31, 2013 ($15.37 at December 31, 2012).

Interest Expense

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Interest expense       5,426   4,121   1,305   32
Interest income       (336)   (168)   (168)   100
                     
          5,090   3,953   1,137   29

Interest is incurred on the Company's $10.0 million Canadian-based revolving credit facility (the "Canadian Facility"), the $400.0 million global revolving credit facility (the "Global Facility") and the United States dollar $300.0 million senior unsecured notes (the "Notes") issued in February 2012.  The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense in both quarters.

Interest expense in the first quarter of 2014 increased over interest expense in the first quarter of 2013 due to increased draws on the Global Facility and the negative translational impact of a stronger United States dollar on United States and international interest expense in the current quarter.

Foreign Exchange and Other

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Foreign exchange and other       (9,015)   (3,888)   (5,127)   132

Included in this amount are foreign currency movements in the Company's subsidiaries that have functional currencies other than Canadian dollars.  During the three months ended March 31, 2014 the Australian dollar strengthened by approximately four percent against the United States dollar causing a foreign currency gain on translation of the Company's United States dollar denominated debt into Australian dollars.  In general the United States dollar was stronger in the first three months of 2014, compared to the first three months of 2013 when compared to other world currencies. 

Income Taxes

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Current income tax       19,476   24,205   (4,729)   (20)
Deferred income tax       11,711   11,539   172   1
                     
         31,187   35,744   (4,557)   (13)
Effective income tax rate (%)       34   35.5        

The effective income tax rate for the three months ended March 31, 2014 was 34.0 percent, compared with 35.5 percent for the three months ended March 31, 2013.  The decrease in the effective income tax rate in the current quarter compared to the first quarter of the prior year was due to the tax impact of the currency devaluation in Venezuela that occurred in February 2013 being included in the prior year quarter.

Financial Position

The following chart outlines significant changes in the consolidated statement of financial position from December 31, 2013 to March 31, 2014:

($ thousands)     Change     Explanation
             
Cash and cash equivalents     (38,365)     See consolidated statements of cash flows.
             
Accounts receivable     116,987     Increase was due to increased operating activity in the first quarter of 2014 when compared to the fourth quarter of 2013. It also includes the impact of foreign exchange fluctuations on the consolidation of the Company's foreign subsidiaries.
             
Inventories and other     (9,282)     Decrease was due to normal course use of consumables and amortization of prepaid expenses, offset by additional  inventory.
             
Property and equipment     129,729     Increase was due to additions from the current new build and major retrofit construction program and the impact of an increase in the quarter-end foreign exchange rate on the consolidation of the Company's foreign subsidiaries, offset by depreciation. 
             
Accounts payable and accruals     38,593     Increase was due to increased operating activity in the first quarter of 2014 when compared to the fourth quarter of 2013. It also includes the impact of foreign exchange fluctuations on the consolidation of the Company's foreign subsidiaries and changes in the timing of payments to external vendors during the period.
             
Operating lines of credit     30,874     Increase was due to additional draws during the period on the Global Facility and the impact of foreign exchange fluctuations on the consolidation of the Company's foreign subsidiaries, offset by repayments during the period.
             
Share-based compensation     (1,368)     Decrease was due to the decrease in the price of the Company's common shares as at March 31, 2014 compared with December 31, 2013.
             
Income taxes payable     11,545     Increase was due to the current income tax provision for the period, offset by tax instalments made.
             
Long-term debt     12,533     Increase was due to foreign exchange fluctuations on the United States dollar denominated long-term debt.
             
Deferred income taxes     12,757     Increase was primarily due to accelerated tax depreciation of assets added during the current quarter.
             
Shareholders' equity     94,200     Increase was due to net income for the current quarter and the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries, offset by the amount of dividends declared in the first quarter.

Funds from Operations and Working Capital

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Funds from operations       137,011   139,802   (2,791)   (2)
Funds from operations per share       $0.90   $0.92   $(0.02)   (2)
Working capital (deficit) 1        (80,987)   (71,146)   (9,841)   14

1 Comparative figure as of December 31, 2013.

During the three months ended March 31, 2014, the Company generated funds from operations of $137.0 million ($0.90 per common share), compared with funds from operations of $139.8 million ($0.92 per common share) for the three months ended March 31, 2013, a decrease of two percent.  This decrease was due to reduced operating and financial results for Canadian oilfield services and higher first quarter spending on continuing equipment maintenance that the Company generally expenses as incurred, offset by stronger results in the United States and the eastern hemisphere in the current quarter.

At March 31, 2014, the Company's working capital totaled a deficit of $81.0 million, compared to a deficit of $71.1 million at December 31, 2013.  The decrease in working capital in the first three months of 2014 was mainly related to spending on the ongoing new build and major retrofits construction program that as at March 31, 2014 is anticipated to deliver an additional 26 new build ADR® drilling rigs, one new well servicing rig and eight major retrofits of existing drilling rigs.  The Company expects funds generated by operations, combined with current and future credit facilities, to fully support current operating and capital requirements.  Existing revolving credit facilities provide for total borrowings of $410.0 million, of which $36.9 million was available at March 31, 2014.

Investing Activities

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Purchase of property and equipment       (120,753)   (62,757)   (57,996)   92
Net change in non-cash working capital       5,491   485   5,006   1,032
                     
Cash used in investing activities       (115,262)   (62,272)   (52,990)   85

Purchases of property and equipment during the first quarter of 2014 totaled $120.8 million (2013 - $62.8 million).  The purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's ongoing new build and major retrofit program.

Financing Activities

        Three months ended March 31
($ thousands)       2014   2013   Change   % change
Net increase in operating lines of credit       18,042   72,553   (54,511)   (75)
Issue of capital stock       -   1,238   (1,238)   (100)
Purchase of shares held in trust       (489)   (510)   21   (4)
Dividends       (18,019)   (16,863)   (1,156)   7
Net change in non-cash working capital       3,224   2,957   267   9
                     
Cash provided by financing activities       2,758   59,375   (56,617)   (95)

The Company's available operating lines of credit consist of a $400.0 million Global Facility and a $10.0 million Canadian Facility. The Global Facility is available to the Company and certain of its wholly owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $400.0 million Canadian dollars. The amount available under the Canadian Facility is $10.0 million or the equivalent in United States dollars.

Net draws of the operating lines of credit were mainly used to fund the ongoing new build and major retrofit program that added one new ADR® drilling rig to the Company's United States fleet in the first quarter of 2014; as well as completed two major retrofits to existing drilling rigs, one in Canada and one in Australia.  As of March 31, 2014, the operating lines of credit are primarily being used to fund the completion of the most recent new build and major retrofit program and to support international operations.

During the first quarter of 2014, the Company secured a $20.0 million uncommitted facility, solely for issuing letters of credit, primarily used for bidding on contracts in the normal course of business.

The Board of Directors of the Company has declared a second quarter dividend of $0.1175 per common share to be payable July 4, 2014 to all Common Shareholders of record as of June 20, 2014.  The dividend is pursuant to the quarterly dividend policy adopted by the Company.  Pursuant to subsection 89(1) of the Canadian Income Tax Act ("ITA"), the dividend being paid is designated as an eligible dividend, as defined in subsection 89(1) of the ITA.

New Builds and Major Retrofits

During the three months ended March 31, 2014, the Company commissioned one new ADR® drilling rig in the United States; retrofitted one drilling rig transferred from the United States to Canada; and retrofitted one drilling rig transferred from Canada to Australia.

In response to contracts and advanced bid activity for Ensign's higher technology drilling rigs, the Company has ramped up its new build program and plans to deliver 26 new ADR® drilling rigs through to the end of 2015.  In Canada the Company is continuing to transition from shallow drilling to deeper drilling, building new ADRs and upgrading existing drilling rigs for deeper resource plays in the northwest part of the Western Canada Sedimentary Basin.  In the United States the Company builds new ADRs for specific resource plays and has been upgrading existing drilling rigs for pad drilling operations.  Internationally, the Company has been increasing its capabilities, through a combination of new ADRs and major retrofits of existing drilling rigs, to meet the requirements of specific markets.  In addition, the Company is in discussions with numerous customers for the possible supply of a number of additional new drilling rigs that may be constructed and delivered into operations between now and December 31, 2015, beyond these 26 new ADR® drilling rigs currently set for delivery.

The estimated delivery schedule for new ADRs and major retrofits of existing drilling rigs currently under construction at March 31, 2014, and as approved by the Company's Board of Directors, is as follows:

    Estimated Delivery Date    
    Q2   Q3   Q4   Q1   Q2   Q3   Q4    
    2014   2014   2014   2015   2015   2015   2015   Total
New Build ADRs   2   2   5   4   4   4   5   26
Major Retrofits   2   4   -   2   -   -   -   8
    4   6   5   6   4   4   5   34

Outlook

The Company continues to believe that the global economy is improving, despite flattening economic growth in China and uncertainty in some other regions of the world. Less volatile energy prices are starting to provide support for increased development activities. Current geopolitical tensions are giving rise to concerns about global crude oil supply disruptions. Minor supply issues for natural gas in North America may emerge after a cold winter ended with unusually low storage levels. Except for delivery infrastructure development delays, downside factors for energy commodity prices currently appear limited for the next year or two. In particular, Canada's energy prices have recently been positively affected by a weaker currency and narrower transportation differentials.

Canadian exploration and development activities trended upward slightly in the first quarter of 2014, and capital investment activities may increase further in the second half of the year, based on increased industry cash flows from higher commodity prices. The trend is toward only a slightly higher well count, but with increased depths and longer reaches, particularly in key resource plays. Ensign's Canadian fleet utilization improved in the first quarter, with positive prospects for the balance of the year, as the Company continues with the fleet modernization program to more closely match industry demand.

Land-based drilling continues to expand in the United States, albeit at a slow and steady pace, as illustrated by weekly changes to the industry drilling rig count.  Oil and natural gas liquids projects continue to be preferred, but dry natural gas prospects are starting to improve, due to planned LNG exports. Typical with prior years, the Company's United States fleet activities were fairly flat with those in the immediately preceding quarter. The Company expects improving operating and financial results for the balance of the year.

The Company's international revenue and operating days were stronger in the current quarter compared to both the immediately preceding quarter and the prior year quarter, despite challenges in certain African and Latin American countries. The Company's activity levels are expected to continue to expand throughout 2014, particularly as drilling rigs are added or as existing rigs are repositioned into the international fleet to fulfill contracts.

The demand for higher technology drilling rigs, such as the Company's ADR®, remains robust.  Accordingly, current plans for the remainder of 2014 and 2015 include the addition of 26 new ADR® drilling rigs and one new well servicing rig, with eight major drilling rig retrofits planned for 2014 and 2015.  The Company has the ability to ramp up new build activity as future customer demand dictates.

Risks and Uncertainties

This document contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties.  The factors that could cause results to differ materially include, but are not limited to, political and economic conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the Company's defense of lawsuits and the ability of oil and natural gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions which could impact on the use of the services supplied by the Company.

Conference Call

A conference call will be held to discuss the Company's first quarter 2014 results at 2:00 p.m. MST (4:00 p.m. EST) on Monday, May 12, 2014.  The conference call number is (647) 427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto).  A taped recording will be available until May 19, 2014 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 36001986.  A live broadcast may be accessed through the Company's web site at www.ensignenergy.com.

Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI.

Ensign Energy Services Inc.                    
Consolidated Statements of Financial Position                     
As at           March 31       December 31
            2014       2013
                     
(Unaudited, in thousands of Canadian dollars)                    
                     
Assets                    
Current Assets                    
  Cash and cash equivalents       $   40,493   $   78,858
  Accounts receivable           557,777       440,790
  Inventories and other           57,565       66,847
  Income taxes receivable           -       8,572
                     
             655,835       595,067
                     
Property and equipment            2,918,060       2,788,331
Note receivable            4,345       4,280
                     
        $   3,578,240   $   3,387,678
                     
Liabilities                    
Current Liabilities                    
  Accounts payable and accruals       $   345,740   $   307,147
  Operating lines of credit           357,399       326,525
  Dividends payable            18,019       18,019
  Share-based compensation           12,691       14,522
  Income taxes payable           2,973       -
                     
             736,822       666,213
                     
Long-term debt           329,940       317,407
Share-based compensation           3,456       2,993
Deferred income taxes           451,253       438,496
                     
             1,521,471       1,425,109
                     
Shareholders' Equity                    
  Share capital           170,046       168,155
  Contributed surplus           3,589       4,614
  Foreign currency translation reserve           76,007       25,065
  Retained earnings           1,807,127       1,764,735
                     
            2,056,769       1,962,569
                     
        $   3,578,240   $   3,387,678
                        

 

Ensign Energy Services Inc.                      
Consolidated Statements of Income                       
For the three months ended                      
                       
(Unaudited, in thousands of Canadian dollars, except per share data)
                     
              March 31       March 31
              2014       2013
                       
Revenue         $   624,194   $   581,142
                       
Expenses                      
  Oilfield services             442,020       397,201
  Depreciation             73,309       57,190
  General and administrative             22,105       19,559
  Share-based compensation             (913)       6,396
  Foreign exchange and other             (9,015)       (3,888)
                       
              527,506       476,458
                       
Income before interest and income taxes             96,688       104,684
                       
Interest income             336       168
Interest expense             (5,426)       (4,121)
                       
Income before income taxes             91,598       100,731
                       
Income taxes                       
  Current tax             19,476       24,205
  Deferred tax             11,711       11,539
                       
              31,187       35,744
                       
Net income         $   60,411   $   64,987
                       
                       
Net income per share                       
  Basic         $   0.40   $   0.43
  Diluted         $   0.39   $   0.42
                         

 

Ensign Energy Services Inc.                        
Consolidated Statements of Cash Flows                        
For the three months ended                        
                         
(Unaudited, in thousands of Canadian dollars)
                       
                         
                March 31       March 31
                2014       2013
Cash provided by (used in)                        
                         
Operating activities                        
Net income           $   60,411   $   64,987
Items not affecting cash                        
  Depreciation               73,309       57,190
  Share-based compensation, net of cash paid               (182)       6,836
  Unrealized foreign exchange and other               (8,326)       (830)
  Accretion on long-term debt               88       80
  Deferred income tax               11,711       11,539
Net change in non-cash working capital               (58,867)       (32,958)
                         
                78,144       106,844
                         
Investing activities                        
Purchase of property and equipment                (120,753)       (62,757)
Net change in non-cash working capital               5,491       485
                         
                (115,262)       (62,272)
                         
Financing activities                        
Net increase in operating lines of credit               18,042       72,553
Issue of capital stock               -       1,238
Purchase of shares held in trust               (489)       (510)
Dividends               (18,019)       (16,863)
Net change in non-cash working capital               3,224       2,957
                         
                2,758       59,375
                         
Net (decrease) increase in cash and cash equivalents               (34,360)       103,947
                         
Effects of foreign exchange on cash and cash equivalents               (4,005)       1,524
                         
Cash and cash equivalents - beginning of period               78,858       33,208
                         
Cash and cash equivalents - end of period           $   40,493   $   138,679
                           
                           
Supplemental information                         
  Interest paid           $   899   $   107
  Income taxes paid           $   7,931   $   31,588
                           

 

SOURCE Ensign Energy Services Inc.

For further information:

Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361.