Ensign Energy Services Inc. Reports 2012 Second Quarter Results

CALGARY, Aug. 13, 2012 /CNW/ -

Overview

Ensign Energy Services Inc. ("Ensign" or the "Company") recorded increased revenues and profits in the three and six months ended June 30, 2012 over comparable periods in the prior year.  Revenue for the second quarter of 2012 was $463.9 million, 39 percent higher than revenue of $334.4 million recorded in the second quarter of 2011.  Revenue for the six months ended June 30, 2012 was $1,141.5 million, 36 percent higher than revenue of $836.7 million for the six months ended June 30, 2011.  Net income for the second quarter of 2012 increased 16 percent to $18.7 million ($0.12 per common share) compared to net income of $16.1 million ($0.11 per common share) for the second quarter of 2011.  Net income for the six months ended June 30, 2012 increased 30 percent to $124.2 million ($0.81 per common share) compared to net income of $95.8 million ($0.63 per common share) for the first six months of 2011.  EBITDA, defined as "income before interest, income taxes, depreciation, and share-based compensation expense (recovery)", totaled $84.5 million ($0.55 per common share) in the second quarter of 2012, 30 percent higher than EBITDA of $65.1 million ($0.43 per common share) in the second quarter of 2011.  For the first six months of 2012 EBITDA was $295.7 million ($1.94 per common share); 26 percent higher than EBITDA of $235.4 million ($1.54 per common share) for the first six months of 2011.  Similarly, funds from operations increased 24 percent to $82.5 million ($0.54 per common share) in the second quarter of 2012 from $66.4 million ($0.43 per common share) in the second quarter of the prior year.  For the six months ended June 30, 2012, funds from operations increased 17 percent to $259.5 million compared to $220.9 million for the six months ended June 30, 2011.

Consistent with prior years, the Company's Canadian operations were negatively impacted in the second quarter of 2012 by spring break-up weather conditions which restricted activity levels for much of the quarter. Allowing for the impact of the 2011 third quarter acquisition of the land drilling division of Rowan Companies, Inc. ("Rowan Land Drilling"), subsequently renamed Ensign US Southern Drilling LLC ("Ensign US Southern"), activity levels in the Company's United States and international operations were comparable to similar periods of the prior year.  A stronger United States dollar versus the Canadian dollar for the three and six months ended June 30, 2012 helped to improve the operating results of the Company's United States and international operations when translated into Canadian dollars for reporting purposes.

During the current quarter, increases to the Company's credit facilities resulted in an increase in available borrowings to $87.2 million as of June 30, 2012 compared with $10.1 million at December 31, 2011.  Long-term debt at June 30, 2012 was reduced to $303.6 million and consists of USD $300.0 million of senior unsecured notes, issued in February 2012.  The senior unsecured notes consist of: USD $100.0 million in five year notes with an interest rate of 3.43 percent; USD $100.0 million in seven year notes with an interest rate of 3.97 percent; and USD $100.0 million in ten year notes with an interest rate of 4.54 percent.  Proceeds from the issuance of the senior unsecured notes, along with the Company's credit facilities and funds generated from operations, were used to fully repay the USD $400 million term loan in the first half of 2012.

FINANCIAL AND OPERATING HIGHLIGHTS

($ thousands, except per share data and operating information)

  Three months ended June 30   Six months ended June 30
  2012    2011   % Change    2012   2011   % Change
Revenue   463,878     334,445     39    1,141,549    836,656     36
EBITDA 1   84,525    65,143     30     295,672    235,406     26
EBITDA per share 1                      
  Basic   $0.55     $0.43    28     $1.94     $1.54    26
  Diluted   $0.55     $0.43    28    $1.93     $1.54    25
Adjusted net income 2   16,536    18,941    (13)    120,161   106,641    13
Adjusted net income per share 2                      
  Basic   $0.11     $0.12    (8)     $0.79     $0.70    13
  Diluted   $0.11     $0.12   (8)    $0.79     $0.70    13
Net income   18,677    16,073    16    124,201    95,764    30
Net income per share                      
  Basic   $0.12     $0.11    9     $0.81     $0.63    29
  Diluted   $0.12     $0.11    9    $0.81    $0.63   29
Funds from operations 3   82,460    66,395    24    259,496   220,936    17
Funds from operations per share 3                      
  Basic   $0.54     $0.43    26    $1.70     $1.44    18
  Diluted   $0.54     $0.43     26    $1.70    $1.44    18
Weighted average shares - basic (000s)   152,668   152,891     -   152,779    152,920    -
Weighted average shares - diluted (000s)   152,668    152,954     -    152,890   152,934     -
Drilling                      
  Number of marketed rigs                      
    Canada                      
      Conventional and ADRs   132     128   3    132    128    3
      Oil sands coring/coal bed methane   23     38   (39)    23     38   (39)
    United States   114     85    34    114     85    34
    International 4   56     59    (5)     56     59   (5)
Operating days                      
  Canada 5   2,281     2,380    (4)    9,712   10,307    (6)
  United States   6,188   4,412    40    12,501    8,678    44
  International   2,845    2,604     9    5,642   5,269    7
Well Servicing                      
  Number of marketed rigs                      
    Canada   103    101    2    103    101    2
    United States   41     31    32    41    31    32
  Operating hours                      
    Canada   30,691    28,960    6   70,826   68,481    3
    United States   30,491    18,907    61    60,640   36,357     67

1 EBITDA is defined as "income before interest expense, income taxes, depreciation and share-based compensation
(recovery) expense".  Management believes that in addition to net income, EBITDA and 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 or how the results
are impacted by the accounting standards associated with the Company's share-based compensation plans.  EBITDA and
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 (recovery)/expense, tax-effected using
an income tax rate of 35 %".  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 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 Includes workover rigs.
5 Excludes coring rig operating days.

  

Revenue and Oilfield Services Expense            
  Three months ended June 30   Six months ended June 30
($ thousands) 2012   2011   % Change   2012   2011   % Change
Revenue                      
  Canada 108,818   93,093   17   433,670   368,306   18
  United States 244,366   153,189   60   493,799   301,653   64
  International 110,694   88,163   26   214,080   166,697   28
                       
  463,878   334,445   39   1,141,549   836,656   36
Oilfield services expense 353,631   254,560   39   796,974   584,880   36
                       
  110,247   79,885   38    344,575   251,776   37
Gross margin (%) 23.8   23.9       30.2   30.1

 

Revenue for the three months ended June 30, 2012 increased 39 percent to $463.9 million compared to $334.4 million for the comparable period in 2011.  Revenue for the six months ended June 30, 2012 increased 36 percent to $1,141.5 million over revenue of $836.7 million recorded for the six months ended June 30, 2011.  As a percentage of revenue, gross margin for the second quarter of 2012 decreased slightly to 23.8 percent (2011 - 23.9 percent) and increased slightly to 30.2 percent for the six months ended June 30, 2012 (2011 - 30.1 percent).  Second quarter gross margins were negatively impacted by expenditures incurred to perform planned major maintenance during the break-up quarter.

Revenue growth in 2012 over the prior year was a result of the expanded operations of the Company through the addition of Ensign US Southern in the third quarter of 2011 and additions to the Company's rig fleet through the new build program.  The Company added 10 ADR®-style drilling rigs and 16 well servicing rigs in 2011, all through the new build program.  As of June 30, 2012 seven additional ADR®-style drilling rigs and six additional well servicing rigs have been delivered to the Company's North American operations.  Overall pricing increases in the Company's North American operations also improved financial results in 2012 over the prior year while international operating results were higher in 2012 as comparative results in 2011 were negatively impacted by regional flooding in the Company's operations in Australia.

Canadian Oilfield Services

Revenue increased 17 percent to $108.8 million for the three months ended June 30, 2012, from $93.1 million for the three months ended June 30, 2011. For the six months ended June 30, 2012, revenue increased 18 percent to $433.7 million compared to $368.3 million for the same period in 2011. Canadian revenues accounted for 23 percent of the Company's total revenue in the second quarter of 2012, compared with 28 percent in the second quarter of 2011, and during the six months ended June 30, 2012, Canadian revenues were 38 percent of total revenue (2011 - 44 percent). Revenue growth in Canada in the three and six months ended June 30, 2012, compared to the prior year was primarily a result of improved pricing for Canadian oilfield services as activity levels decreased slightly in the three and six months ended June 30, 2012 over similar periods of the prior year.

The Company recorded 2,281 drilling days in the second quarter of 2012, compared to 2,380 drilling days for the second quarter of 2011, a four percent decrease, due to wet weather setbacks in the latter half of the quarter.  For the six months ended June 30, 2012 drilling days were 9,712 compared to 10,307 for the six months ended June 30, 2011, a six percent decrease.  The reduced operating activity in 2012 over 2011 was due to a longer spring break-up period which limited mobility of the Company's equipment.  Canadian well servicing hours increased by six percent to 30,691 operating hours in the second quarter of 2012 compared with 28,960 operating hours in the corresponding period of 2011.  For the six months ended June 30, 2012 well servicing hours increased by three percent to 70,826 operating hours compared with 68,481 operating hours for the six months ended June 30, 2011.

During the six months ended June 30, 2012, the Company added four newly constructed ADRs to its Canadian drilling rig fleet, with one added in the second quarter of 2012.  The Company also decommissioned three inactive drilling rigs in the first quarter of 2012 and disposed of 14 inactive oil sands coring rigs in the second quarter of 2012.

United States Oilfield Services

Bolstered by the addition of Ensign US Southern in the third quarter of 2011, the Company's United States operations recorded revenue of $244.4 million in the second quarter of 2012, a 60 percent increase from the $153.2 million recorded in the corresponding period of the prior year. During the six months ended June 30, 2012, revenue of $493.8 million was recorded, an increase of 64 percent from the $301.7 million recorded for the six months ended June 30, 2011. The Company's United States operations accounted for 53 percent of the Company's revenue in the second quarter of 2012 (2011 - 46 percent) and 43 percent of total revenue in the six months ended June 30, 2012 (2011 - 36 percent).  Drilling rig operating days increased by 40 percent to 6,188 drilling days in the second quarter of 2012 from 4,412 drilling days in the second quarter of 2011.  For the six months ended June 30, 2012 drilling days increased by 44 percent to 12,501 drilling days from 8,678 drilling days in the six months ended June 30, 2011.  Well servicing activity increased by 61 percent in the second quarter of 2012 to 30,491 operating hours from 18,907 operating hours in the second quarter of 2011.  For the six months ended June 30, 2012 well servicing activity increased 67 percent to 60,640 operating hours from 36,357 operating hours in the first six months of 2011.

Increased revenue and operating activity in the Company's United States operations was mainly a result of an expanded rig fleet through the 2011 third quarter acquisition of Rowan Land Drilling, which added 30 ADR®-style drilling rigs to the fleet, and additions from the Company's new build program.  In 2011 eight new ADR® drilling rigs and 12 new well servicing rigs were added through the new build program, with a further three new ADR® drilling rigs and six new well servicing rigs added in the first half of 2012.  In addition, the Company decommissioned six inactive drilling rigs in the first quarter of 2012 and disposed of one well servicing rig in the second quarter of 2012.

A strengthening United States dollar against the Canadian dollar in the first six months of 2012 further improved operating results from the Company's United States operations on translation to Canadian dollars.  In the first six months of 2012 the average United States dollar exchange rate increased by three percent to 1.01 when compared to the same period of the prior year.

International Oilfield Services

The Company's international operations recorded revenue of $110.7 million in the second quarter of 2012, a 26 percent increase from $88.2 million recorded in the corresponding period of the prior year. International revenues for the six months ended June 30, 2012 increased by 28 percent to $214.1 million from $166.7 million recorded for the six months ended June 30, 2011. International operations contributed 24 percent of the Company's revenue in the second quarter of 2012 (2011 - 26 percent) and 19 percent of the Company's revenue in the first half of 2012 (2011 - 20 percent). International operating days for the three months ended June 30, 2012 totaled 2,845 drilling days compared with 2,604 drilling days in 2011, an increase of nine percent.  For the six months ended June 30, 2012 international operating days totaled 5,642 drilling days compared with 5,269 drilling days for the six months ended June 30, 2011, an increase of seven percent.

Higher revenue and activity levels for the three and six months ended June 30, 2012 compared to similar periods in the prior year were mainly a result of increased revenue rates across the Company's Latin America and Eastern Hemisphere operations as well as increased activity from the Company's Australian operations compared to the first half of 2011 when Australian activity levels were reduced due to flooding in certain regions.  Similar to the Company's United States operations, international operations benefited from the strengthening of the United States dollar over the Canadian dollar on translation into Canadian dollars for reporting purposes in the second quarter of 2012 compared to the second quarter of the prior year.

Depreciation
  Three months ended June 30   Six months ended June 30
($ thousands)   2012     2011    % Change     2012     2011     % Change
Depreciation   50,440     35,081    44     108,599    75,859    43

The Company uses the unit of production method of calculating depreciation for the majority of its property and equipment.  Depreciation expense totalled $50.4 million for the second quarter of 2012 compared with $35.1 million for the second quarter of 2011, an increase of 44 percent.  Depreciation expense for the first six months of 2012 was $108.6 million, an increase of 43 percent over the $75.9 million recorded for the first six months of 2011.  Increased depreciation reflects the impact from the growth of the Company's North American fleet through the addition of Ensign US Southern in the third quarter of 2011 and recent additions from the Company's new build program.

General and Administrative Expense
  Three months ended June 30   Six months ended June 30
($ thousands)   2012     2011     % Change     2012     2011     % Change
General and administrative   20,685     13,190    57    40,092    28,206    42
% of revenue   4.5     3.9          3.5    3.4

General and administrative expense increased 57 percent to $20.7 million (4.5 percent of revenue) for the second quarter of 2012 compared with $13.2 million (3.9 percent of revenue) for the second quarter of 2011. For the six months ended June 30, 2012, general and administrative expense totaled $40.1 million (3.5 percent of revenue) compared with $28.2 million (3.4 percent of revenue) recorded for the six months ended June 30, 2011, an increase of 42 percent. The overall increase in general and administrative expense was to support the increased operating activity during the first half of 2012, including the impact from the addition of Ensign US Southern in the third quarter of 2011, and also includes the negative translational impact of a stronger United States dollar on United States and international administrative expenses in the current periods.

Share-Based Compensation (Recovery) Expense
  Three months ended June 30   Six months ended June 30
($ thousands) 2012     2011     % Change     2012     2011    % Change
Share-based compensation   (3,294)     4,412   (175)    (6,216)   16,734    (137)

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 June 30, 2012, share-based compensation (recovery) expense was a recovery of $3.3 million compared with an expense of $4.4 million recorded in the second quarter of 2011. For the six months ended June 30, 2012, share-based compensation was a recovery of $6.2 million compared with an expense of $16.7 million for the six months ended June 30, 2011.   The decrease in share-based compensation expense in the three and six months ended June 30, 2012 compared to similar periods in the prior year was a result of the change in the fair value of share-based compensation liability primarily resulting from a decrease in the price of the Company's common shares during the first half of 2012.  The closing price of the Company's common shares was $14.00 at June 30, 2012 ($19.12 at June 30, 2011), compared with $14.91 at March 31, 2012 ($18.26 at March 31, 2011) and $16.25 at December 31, 2011 ($15.03 at December 31, 2010).

Interest Expense
  Three months ended June 30   Six months ended June 30
($ thousands) 2012     2011     % Change    2012     2011   % Change
Interest expense   5,624     341    1,549     9,878     760    1,200
Interest income   (123)    (160)    (23)    (220)    (295)   (25)
  5,501     181   2,939     9,658    465    1,977

The Company increased its global revolving credit facility (the "Global Facility") by $150.0 million to $400.0 million in the second quarter of 2012.  Interest is incurred on the Company's $10.0 million Canadian-based revolving credit facility (the "Canadian Facility"), the $400.0 million Global Facility, the USD $300.0 million senior unsecured notes issued in February 2012 and the USD $100.0 million remaining balance of the term loan which was repaid in full in the second quarter of 2012.  The amortization of deferred financing costs associated with the issuance of the Company's long-term debt are included in interest expense in the three and six months ended June 30, 2012.

The increase in interest expense in the first half of 2012 reflects the additional debt incurred by the Company in connection with the Rowan Land Drilling acquisition, completed in the third quarter of 2011.

Foreign Exchange and Other (Loss/(Gain))
  Three months ended June 30   Six months ended June 30
($ thousands) 2012     2011     % Change   2012     2011    % Change
Foreign exchange and other   5,037    1,552   225    8,811    (11,836)    (174)

Included in this amount is the impact of the conversion of the Australian operations from Australian dollars to United States dollars.  The Australian currency weakened against the United States dollar during the first half of 2012 but strengthened during the first half of 2011.

Income Taxes
  Three months ended June 30   Six months ended June 30
($ thousands) 2012   2011   % Change   2012   2011   % Change
Current income tax   (519)    (105)    394    31,222   16,155    93
Deferred income tax 13,720   9,501   44   28,208   30,429    (7)
                       
  13,201    9,396   40    59,430    46,584    28
Effective income tax rate (%)   41.4    36.9          32.4    32.7  

The effective income tax rate for the three months ended June 30, 2012 was 41.4 percent compared with 36.9 percent for the three months ended June 30, 2011. The effective income tax rate was higher in the current quarter due to a higher proportion of income earned in high tax-rate jurisdictions.  The effective income tax rate for the six months ended June 30, 2012 was 32.4 percent compared with 32.7 percent for the six months ended June 30, 2011. The effective income tax rate in both the first half of 2012 and 2011 was comparable to the expected annualized income tax rate for the Company.

Financial Position

The following chart outlines significant changes in the consolidated statement of financial position from December 31, 2011 to June 30, 2012:

($ thousands)     Change    Explanation 
Cash and cash equivalents     50,964   See consolidated statements of cash flows.
         
Accounts receivable     (67,788)   Decrease was due to reduced operating activity in Canada in the second quarter of 2012 compared to the fourth quarter of 2011 as a result of spring break-up and wet weather conditions.
         
Inventories and other 
   (9,304)
  Decrease due to normal course use of consumables offset by additional inventory.
         
Property and equipment   

  52,317 


  Increase was due to a slight increase in the quarter end foreign exchange rate on the consolidation of the Company's foreign subsidiaries and additions from the current new build construction program offset by depreciation.
         
Note receivable   

  (995) 

  Decrease was due to the reclassification of the current portion of the note receivable to accounts receivable offset by accretion of interest income during the first half of 2012.
         
Accounts payable and accruals   
  (61,643) 

  Decrease was due to reduced operating activity in Canada in the second quarter of 2012 compared to the fourth quarter of 2011 as a result of spring break-up and wet weather conditions.
         
Operating lines of credit   

  71,163 


  Increase was due to additional draws during the period on the expanded Global Facility and the impact of foreign exchange fluctuations on the consolidation of the Company's foreign subsidiaries offset by repayments during the period.
         
Income taxes payable    
  4,257 
  Increase was due to the current income tax provision for the period, net of tax instalments and refunds.
         
Share-based compensation   
  (6,154) 

  Decrease was due to the decrease in the price of the Company's common shares as at June 30, 2012 compared with December 31, 2011.
         
Long-term debt   

  (102,312) 

  Decrease reflects the repayment of the term loan and accounting of financing costs associated with long-term debt offset by the issuance of senior unsecured notes in February 2012.
         
Deferred income taxes      27,872    Increase primarily due to accelerated tax depreciation of assets added during the first half of 2012.
         
Shareholders' equity   


  92,011 


  Increase was due to net income for the period and the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries, offset by the amount of dividends declared in the period.

Funds from Operations and Working Capital
  Three months ended June 30   Six months ended June 30
($ thousands)   2012   2011    % Change   2012     2011    % Change
Funds from operations   82,460    66,395    24    259,496   220,936    17
Funds from operations per share  $ 0.54    $ 0.43    26    $ 1.70   $ 1.44   18
Working capital 1   (43,985)   (10,233)   330   (43,985)   (10,233)    330
1 Comparative figure as of December 31, 2011.

During the three months ended June 30, 2012, the Company generated funds from operations of $82.5 million ($0.54 per common share) compared with funds from operations of $66.4 million ($0.43 per common share) for the three months ended June 30, 2011, an increase of 24 percent. For the six months ended June 30, 2012, the Company generated funds from operations of $259.5 million ($1.70 per common share), an increase of 17 percent over funds from operations of $220.9 million ($1.44 per common share) generated in the first half of 2011.   This increase was primarily attributable to the Company's expanded operations in the United States through the addition of Ensign US Southern in the third quarter of 2011 and additions from the new build program to the Company's North American equipment fleet throughout 2011 and 2012.

At June 30, 2012, the Company's working capital totaled negative $44.0 million, compared to negative $10.2 million at December 31, 2011.  In the second quarter of 2012 the Company repaid the remaining balance of the USD $100.0 million term loan using internally generated cash flows and the recently expanded credit facilities which put downward pressure on working capital.  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 borrowing of $410.0 million, of which $87.2 million was available at June 30, 2012.

Investing Activities
  Three months ended June 30   Six months ended June 30
($ thousands) 2012     2011    % Change    2012    2011     % Change
Purchase of property and equipment   (76,055)    (114,326)    (33)    (156,609)   (181,009)   (13)
Net change in non-cash working capital (1,140)    14,380   (108)    (13,449)   3,698   (464)
Cash used in investing activities   (77,195)    (99,946)    (23)    (170,058)   (177,311)    (4)

Purchases of property and equipment during the second quarter of 2012 totaled $76.1 million (2011 - $114.3 million).  Purchases of property and equipment during the first half of 2012 totaled $156.6 million (2011 - $181.0 million).  The purchase of property and equipment for the three and six months ended June 30, 2012 relate predominantly to expenditures made pursuant to the Company's ongoing new build program.

Financing Activities
  Three months ended June 30    Six months ended June 30
($ thousands)   2012     2011    % Change     2012     2011     % Change
Net increase (decrease) in operating lines of credit   75,666    10,614     613     69,681    (3,880)    (1,896)
Issue of senior unsecured notes   -     -     -    300,000     -     -
Repayment of term loan   (103,279)     -     -    (403,279)    -     -
Issue of capital stock   -     -    -    43     -    -
Purchase of shares held in trust   (6,887)    (4,247)    62    (7,520)   (4,911)    53
Deferred financing costs   -     -    -    (2,156)    -    -
Dividends   (16,088)    (14,555)    11    (32,175)   (29,110)   11
Net change in non-cash working capital   (21)   (65)    (68)    995    (32)    (3,209)
                       
Cash used in financing activities   (50,609)    (8,253)    513    (74,411)    (37,933)   96

The Company's Global Facility was increased by $150.0 million during the second quarter to a new limit of $400.0 million.  Additionally, the Company has available 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 United States dollars.

Net draws of the operating lines of credit in the second quarter of 2012 were mainly the result of the repayment of the USD $100.0 million remaining balance of the term loan.  As of June 30, 2012, the operating lines of credit are primarily being used to fund the completion of the most recent new build program and to support international operations.

In February 2012, the Company completed the private placement of USD $300.0 million of senior unsecured notes (the "Notes"), with the proceeds from the issuance being used to repay a portion of the term loan.  The Notes consist of: USD $100.0 million in five year notes with an interest rate of 3.43 percent and a maturity date of February 22, 2017; USD $100.0 million in seven year notes with an interest rate of 3.97 percent and a maturity date of February 22, 2019; and USD $100.0 million in ten year notes with an interest rate of 4.54 percent and a maturity date of February 22, 2022.  The Notes rank equally with the Company's Global Facility. 

On June 14, 2012 the Company received approval from the Toronto Stock Exchange to acquire for cancellation up to three percent of the Company's issued and outstanding common shares under a Normal Course Issuer Bid (the "Bid").  The Company may purchase up to 4,596,397 common shares for cancellation.  The Bid commenced on June 18, 2012 and will terminate on June 17, 2013 or such earlier time as the Bid is completed or terminated at the option of the Company.  As at June 30, 2012, no common shares have been purchased and cancelled pursuant to the Bid.

The Company previously had a Bid that commenced on June 7, 2011 and terminated on June 6, 2012, under which no common shares were purchased and cancelled.

The Board of Directors of the Company has declared a third quarter dividend of $0.105 per common share to be payable October 5, 2012 to all Common Shareholders of record as of September 20, 2012.  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

During the six months ended June 30, 2012, the Company commissioned three new ADR® drilling rigs and six new well servicing rigs in the United States; and four new ADR® drilling rigs in Canada.

The remaining new build estimated delivery schedule, by geographic area, is as follows:

  Estimated Delivery Date 
  Q3-2012    Q4-2012    Q1-2013    Q2-2013   Q3-2013     Total
ADRs                      
  Canada   2    -    1    -    -    3
  United States   2   -   1    1    1    5
  International   2   -    -    -    -   2
Total   6   -   2   1   1   10
Well Servicing                      
  Canada   -   4    -    -    -    4
  United States   5    -    -    -   -   5
  International   -    -    -   -    -   -
Total 5   4   -   -   -   9

Outlook

The softening in crude oil prices that began in the second quarter of 2012 has weakened the cash flows of exploration and production companies and caused many of them to reassess projects planned for the remainder of the year.  Natural gas prices have improved slightly due to hotter than normal weather conditions throughout much of North America, but prices and the outlook for natural gas have not recovered sufficiently to encourage expanding natural gas-directed oilfield service activity.  The headline price for crude oil is, generally, still supportive of development of many of the oil and liquids rich natural gas plays within North America; however, concerns remain regarding the impact of generally soft global economic conditions on the outlook for crude oil demand and crude oil prices, and the impact of reduced commodity prices on the cash flows of the exploration and production companies.  In particular, reduced cash flow levels have negatively impacted the ability of the small to intermediate sized exploration and production companies to finance planned development programs.  Historically, such smaller companies have often spent in excess of their internally generated funds, making up the shortfall using a combination of bank debt and funds raised in capital market transactions.  While the banks appear supportive of the industry, recent reductions to the price deck for oil and natural gas have resulted in reduced levels of borrowing capacity.  Additionally, the capital markets are less attractive alternatives at current prices as many investors appear to be waiting on the sidelines for general economic fundamentals to improve.  Against this backdrop, the Company expects that activity levels within North America could experience some downward pressure through the remainder of 2012.

Activity levels in the Company's Canadian operations during the second quarter of 2012 were generally comparable to the second quarter of the prior year, but wet weather in the latter stages of the current year's second quarter hampered the ability to resume many oilfield operations.  The rig count in Canada started to improve at the start of the third quarter as weather and field conditions improved, but activity levels remain below the levels of the prior year.  Exploration and production companies appear to be delaying or reducing oilfield activity in response to reduced levels of commodity prices against a challenging global economic backdrop.  The margin levels for oilfield services have also fallen slightly as the Company's revenue rates have been reduced to maintain market share in an increasingly challenging oilfield services market.  The Company's ADR® drilling rigs remain fully committed as demand weakness has thus far been directed towards other rig categories.  The Company is currently completing three new ADRs and four new well servicing rigs that will be deployed into the Canadian market pursuant to the current new build program.

The Company's United States operations during the recently completed second quarter were up compared to the second quarter of 2011, due to the positive impact arising from the September 2011 acquisition of Rowan Land Drilling. Industry activity levels, as measured by the industry active drilling rig count, appear to have leveled off as the decrease in the natural gas directed drilling rig count has been mostly offset by increases in crude oil and liquids rich natural gas directed drilling activity.  The Company believes there may be some downside risk to such activity levels through the remainder of 2012 in light of the recent pull back in crude oil commodity prices and the resultant impact on customer cash flows and expected demand for oilfield services.  At present, activity levels remain fairly strong, especially for ADR®-style drilling rigs.  An additional five new ADRs and five new well servicing rigs will be delivered by the Company into the United States market under the current new build program.  The last of these new builds will be delivered in the third quarter of 2013.

International operations continue to be influenced not only by global fundamentals, but also by specific geopolitical influences in each country.  The Company expects international operations to remain steady through the remainder of 2012 as long-term contracts remain in place in many of its key markets.  Latin America remains a challenge and operations in Libya have not yet recommenced.  These under-performing areas continue to be a focus of the Company.  Two new ADRs have recently been completed for Australia and the first of these rigs will be operational before the end of the third quarter.

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 and the ability of oil and natural gas companies to 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 second quarter 2012 results at 2:00 p.m. MST (4:00 p.m. EST) on Monday, August 13, 2012.  The conference call number is (647) 427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto).  A taped recording will be available until August 20, 2012 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 43349364.  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 
  June 30 
2012 
  December 31
2011
         
(Unaudited, in thousands of Canadian dollars)           
Assets        
Current Assets        
  Cash and cash equivalents    $    53,577 $    2,613
  Accounts receivable         409,355      477,143
  Inventories and other         72,674      81,978
           
    535,606      561,734
Property and equipment         2,531,935      2,479,618
Note receivable         5,766      6,761
         
  $ 3,073,307 $ 3,048,113
Liabilities  
Current Liabilities   
  Accounts payable and accruals    $  227,898 $  289,541
  Operating lines of credit         309,603      238,440
  Income taxes payable         15,751      11,494
  Dividends payable          16,087      16,087
  Share-based compensation         10,252      16,405
           
    579,591     571,967
         
Long-term debt         303,641     405,953
Share-based compensation         5,303      5,304
Deferred income taxes         369,339     341,467
         
    1,257,874     1,324,691
Shareholders' Equity        
  Share capital         161,890     166,864
  Contributed surplus         4,170      3,448
  Foreign currency translation reserve         5,269    1,032
  Retained earnings         1,644,104     1,552,078
         
    1,815,433     1,723,422
         
  $ 3,073,307 3,048,113
 
           

.

Ensign Energy Services Inc.
Consolidated Statements of Income
For the three and six months ended June 30
(Unaudited, in thousands of Canadian dollars, except per share data)
  Three months ended   Six months ended

  June 30
2012
    June 30
2011
     June 30
 2012
     June 30
 2011
                 
Revenue   $   463,878   $  334,445    $  1,141,549    $  836,656
                         
Expenses                      
  Oilfield services        353,631      254,560       796,974      584,880 
  Depreciation        50,440       35,081      108,599       75,859 
  General and administrative        20,685       13,190       40,092      28,206 
  Share-based compensation        (3,294)       4,412       (6,216)       16,734 
  Foreign exchange and other       5,037       1,552       8,811      (11,836)
                       
    426,499       308,795     948,260       693,843 
                         
Income before interest and income taxes      37,379      25,650     193,289       142,813
                         
Interest income       123        160      220      295 
Interest expense       (5,624)        (341)       (9,878)       (760)
                         
Income before income taxes      31,878       25,469     183,631       142,348
                         
Income taxes                      
  Current tax       (519)       (105)      31,222       16,155
  Deferred tax       13,720       9,501       28,208      30,429
                         
    13,201        9,396      59,430      46,584
Net income   $   18,677   $  16,073    $  124,201    $  95,764
                         
                         
Net income per share                      
  Basic    $   0.12   $    0.11   $  0.81   $   0.63
  Diluted   $    0.12   $  0.11   $  0.81   $   0.63
                 
                 

Ensign Energy Services Inc.
Consolidated Statements of Cash Flows
For the three and six months ended June 30
(Unaudited, in thousands of Canadian dollars)
  Three months ended   Six months ended

  June 30
2012 
   June 30
2011
     June 30
2012
  June 30
2011
Cash provided by (used in)                
Operating activities                
Net income   $   18,677   $   16,073    $  124,201   $  95,764
Items not affecting cash                      
  Depreciation        50,440       35,081      108,599      75,859
  Share-based compensation, net of cash paid      (1,195)        5,740       (2,941)        18,884
  Accretion on long-term debt        818       -      1,429        -
  Deferred income tax        13,720       9,501       28,208       30,429
Net change in non-cash working capital      74,822      109,572       33,181       15,298
                         
    157,282       175,967     292,677      236,234
Investing activities                      
Purchase of property and equipment       (76,055)       (114,326)     (156,609)      (181,009)
Net change in non-cash working capital      (1,140)       14,380      (13,449)       3,698
                         
    (77,195)      (99,946)     (170,058)      (177,311)
Financing activities                      
Net increase (decrease) in operating lines of credit      75,666       10,614      69,681      (3,880)
Issue of senior unsecured notes              -      300,000        -
Repayment of term loan        (103,279)        -      (403,279)      -
Issue of capital stock        -        -      43       -
Purchase of shares held in trust         (6,887)       (4,247)      (7,520)      (4,911)
Deferred financing costs        -        -      (2,156)       -
Dividends        (16,088)     (14,555)      (32,175)      (29,110)
Net change in non-cash working capital      (21)       (65)      995       (32)
                         
    (50,609)       (8,253)     (74,411)      (37,933)
Net increase in cash and cash equivalents      29,478      67,768      48,208      20,990
  Effects of foreign exchange on cash and
cash equivalents    

 1,231  
  2,268
   2,756
    (303)
Cash and cash equivalents                      
  Beginning of period        22,868      40,171       2,613       89,520
                         
  End of period    $   53,577   $   110,207   $  53,577   $   110,207
                         
Supplemental information                      
  Interest paid    $   5,061    $   365   $  7,495   $   793
  Income taxes paid    $   16,541    $   9,162   $  26,965    $   15,225
                         
                     

 

 

SOURCE: Ensign Energy Services Inc.

For further information:

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


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