Ensign Energy Services Inc. Reports Record Revenue and Funds from Operations in 2012

CALGARY, March 18, 2013 /CNW/ -

Overview

Ensign Energy Services Inc. ("Ensign" or the "Company") generated record revenue of $2,197.3 million for the year ended December 31, 2012, an increase of 16 percent over revenue of $1,890.4 million recorded in the prior year.  Net income for the year ended December 31, 2012 was $217.5 million ($1.42 per common share), a two percent increase from $212.4 million ($1.39 per common share) recorded in 2011.  Operating earnings, expressed as EBITDA (defined as earnings before interest, income taxes, depreciation, and share-based compensation expense (recovery)), for 2012 were $554.5 million ($3.63 per common share), a 10 percent increase from EBITDA of $502.0 million ($3.28 per common share) for the year ended December 31, 2011.  Funds from operations were also the highest in the Company's history, increasing five percent to $500.5 million ($3.28 per common share) from $475.6 million ($3.11 per common share) in the prior year.

During the fourth quarter of 2012, the Company generated revenue of $530.1 million, a decrease of eight percent from revenue of $578.0 million recorded in the fourth quarter of 2011.  Net income decreased eight percent to $48.5 million ($0.32 per common share) compared to $52.6 million ($0.34 per common share) recorded in 2011.  EBITDA was $123.3 million ($0.81 per common share) for the fourth quarter of 2012, a decrease of 21 percent from EBITDA of $155.2 million ($1.02 per common share) recorded in the fourth quarter of 2011.  Funds from operations were $117.1 million ($0.77 per common share) for the fourth quarter of 2012, a 17 percent decrease from $140.5 million ($0.92 per common share) recorded in the fourth quarter of 2011.

The financial results for the three and twelve months ended December 31, 2012 reflect what was a mixed year overall for the Company's operations.  North American oilfield services, particularly in Canada, experienced a strong start in 2012; however, a slowdown towards the latter half of the year, as customers reacted to unfavorable price differentials for Canadian commodities, a continuing over-supply of natural gas and uncertainty in global economic conditions, weakened activity levels and financial contributions in the last half of the year.  The Company's United States operations recorded an increase to revenues in 2012 compared to the prior year primarily due to the positive impact from the first full year of operations from the land drilling division of Rowan Companies, Inc. ("Rowan Land Drilling", subsequently referred to as "Ensign US Southern") which was acquired in September 2011.  For the Company's international operations, higher activity levels and revenue rates in Latin America and the eastern hemisphere generated improved financial and operating results for the three and twelve months ended December 31, 2012.

In 2012 the Company added 13 new Automated Drill Rigs ("ADR®") to its drilling rig fleet: six in the Canadian market; five in the United States market; and two in Australia through the new build program.  All of the newly constructed ADRs are subject to long-term contracts.  The new build program also added 12 new well servicing rigs in the United States.

The Company increased its dividend in 2012 with a 4.8 percent fourth quarter increase in the quarterly dividend rate to $0.110 per common share from the previous quarterly dividend rate of $0.105 per common share.  During the year ended December 31, 2012, the Company declared dividends of $0.4250 per common share, an increase of nine percent over dividends of $0.3900 per common share declared in 2011.  The dividend has been increased at a 17 percent compound annual growth rate since the Company first paid a dividend in 1995.

The Company issued USD $300.0 million of senior unsecured notes (the "Notes") in February 2012.  The proceeds from the issuance of the Notes, along with an expanded global revolving credit facility (the "Global Facility") and funds generated from operations, were used to repay the USD $400.0 million term loan, incurred to finance the September 2011 acquisition of Rowan Land Drilling.  The 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.  The Company also increased its credit facilities in 2012 resulting in an increase in available borrowings to $164.3 million at December 31, 2012 compared to $10.1 million at December 31, 2011.  Changes to the Company's capital structure during 2012 provide the Company with a measure of financial stability and support for future growth opportunities.

FINANCIAL AND OPERATING HIGHLIGHTS

($ thousands, except per share data and operating information)
  Three months ended December 31 Year ended December 31
  2012 2011 % change 2012 2011 % change
Revenue   530,106 577,967 (8) 2,197,321 1,890,372 16 
EBITDA 1   123,262 155,167 (21) 554,529  502,031 10 
EBITDA per share 1            
  Basic   $0.81 $1.02 (21)  $3.63 $3.28 11 
  Diluted   $0.81 $1.01 (20)  $3.62 $3.28 10 
Adjusted net income 2   47,943 57,926  (17) 215,314 216,654  (1)
Adjusted net income per share 2            
  Basic   $0.31 $0.38 (18) $1.41 $1.42  (1)
  Diluted  $0.31   $0.38    (18)  $1.41  $1.42  (1)
Net income   48,489 52,640 (8)  217,522 212,393
Net income per share            
  Basic   $0.32 $0.34 (6)  $1.42 $1.39
  Diluted   $0.32 $0.34 (6)  $1.42 $1.39
Funds from operations 3   117,088 140,465 (17) 500,517 475,587
Funds from operations per share 3            
  Basic   $0.77 $0.92 (16)  $3.28 $3.11
  Diluted   $0.77 $0.92 (16) $3.27 $3.11
             
Weighted average shares - basic (000s)   152,617 152,844  -   152,664 152,865
Weighted average shares - diluted (000s)   152,921 152,994  -    152,995 153,062
             
Drilling            
  Number of marketed rigs            
    Canada4   124 131 (5)  124 131  (5)
    United States   121 117  3   121 117
    International 5   54  59  (8)  54 59 (8)
Operating days            
  Canada 4   4,135 6,000  (31)  18,398 22,750 (19)
  United States   5,555 6,671 (17)  24,226 20,827 16 
  International 5   3,010 2,698 12  11,612 10,748
             
Well Servicing            
  Number of marketed rigs            
    Canada   99 103 (4) 99 103 (4)
    United States   46 36  28   46 36 28 
  Operating hours            
    Canada   35,054 38,663 (9)  140,978 145,220 (3)
    United States   28,097 25,559 10  121,766 82,453 48 

1 EBITDA is defined as "income before interest, income taxes, depreciation and share-based compensation expense (recovery)".  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 expense (recovery), 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 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.

2012 Highlights

  • Revenue for 2012 was at record levels, reaching $2,197.3 million, up 16 percent from 2011.
  • 13 new ADRs were added to the Company's drilling fleet: six in the Canadian market; five in the United States market; and two in Australia through the new build program.  The new build program also added 12 new well servicing rigs in the United States.
  • For the first time in the Company's history, United States oilfield services generated the largest contribution to consolidated revenues in 2012, representing 43 percent of total revenue.
  • EBITDA for 2012 was $554.5 million, a ten percent increase from EBITDA of $502.0 million for the year ended December 31, 2011.  Funds from Operations were the highest in the Company's history, increasing five percent to $500.5 million from $475.6 million in the prior year.
  • The Company issued USD $300.0 million of senior unsecured notes (the "Notes") in February 2012.  The proceeds from the issuance of the Notes, along with expanded credit facilities and funds generated from operations, were used to repay the USD $400.0 million term loan, incurred to finance the September 2011 acquisition of Rowan Land Drilling.  The Company also increased its credit facilities in 2012 resulting in an increase in available borrowings to $164.3 million as of December 31, 2012 compared to $10.1 million at December 31, 2011.
  • The Company declared a quarterly cash dividend on common shares of $0.110 per common share payable April 5, 2013.  In 2012 the Company declared dividends of $0.4250 per common share, an increase of nine percent over dividends of $0.3900 per common share declared in 2011.  The Company has increased its dividend every year since the first dividend was paid in 1995.
  • Canadian drilling operating days totaled 18,398 in 2012, a 19 percent decrease from 22,750 operating days in the previous year.  Canadian well servicing hours decreased by three percent in the year ended December 31, 2012 from the prior year.
  • United States drilling operating days totaled 24,226 in 2012, a 16 percent increase from 20,827 operating days in 2011.  United States well servicing hours increased by 48 percent in 2012 compared with 2011.
  • International drilling operating days totaled 11,612 in 2012, an eight percent increase from 10,748 operating days recorded in 2011.

Revenue and Oilfield Services Expense

  Three months ended December 31   Year ended December 31
($ thousands)   2012   2011   % change    2012   2011   % change
Revenue          
  Canada   176,693   225,153   (22)    774,444   786,158   (1)
  United States   213,667   236,821    (10)   944,580   727,678   30 
  International   139,746   115,993   20    478,297   376,536     27 
                         
  530,106   577,967    (8)    2,197,321   1,890,372   16 
Oilfield services expense   384,553   411,040    (6)   1,555,509   1,322,926    18 
                         
Gross margin   145,553   166,927   (13)    641,812   567,446   13 
Gross margin percentage %   27.5   28.9        29.2   30.0

The Company generated the highest revenue in its history for the year ended December 31, 2012, totaling $2,197.3 million, an increase of 16 percent over $1,890.4 million for the year ended December 31, 2011.  Revenue recorded in the fourth quarter of 2012 totaled $530.1 million, a decrease of eight percent from $578.0 million recorded in the fourth quarter of 2011.  Growth in the Company's operations, particularly in the United States through the 2011 acquisition of Rowan Land Drilling, as well as additions to the Company's global fleet through an active new build program led to increased revenues in 2012 compared to the prior year.  The acquisition of Rowan Land Drilling added 30 drilling rigs to the Company's United States operations; and the new build program added 13 new ADR® drilling rigs: six in Canada, five in the United States and two in Australia throughout 2012.  Positive contributions from the aforementioned growth of the Company's operations were dampened by reduced demand for North American oilfield services, particularly in Canada, in the latter half of the year as customers reacted to volatile commodity prices and the general uncertainty of global economic conditions.

Gross margin as a percentage of revenue was similar to the prior year decreasing only slightly to 29.2 percent from 30.0 percent in 2011.  Gross margin as a percentage of revenue for the fourth quarter of 2012 decreased to 27.5 percent compared to 28.9 percent for the fourth quarter of the prior year.  With the softening of demand for North American oilfield services, certain equipment classes experienced reduced revenue rates when compared to the prior year; however, revenue rates in the Company's international operations were higher in 2012 compared to 2011 as certain areas experienced improved levels of demand for oilfield services.  Expenditures for major maintenance were higher for the year ended December 31, 2012 compared to the year ended December 31, 2011, negatively impacting margins as these costs are generally expensed as incurred.  Higher spending on major maintenance in the current year compared to the prior year resulted primarily from the increased activity levels in the first half of 2012 compared to 2011.  The reduction in gross margin in the fourth quarter of 2012 compared to the same period in 2011 was due in part to higher direct costs associated with ongoing maintenance programs and slightly lower margins for certain equipment classes.

Canadian Oilfield Services

      Three months ended   Year ended
      December 31   December 31
  2012     2011   % change    2012    2011    % change
Drilling rigs1          
  Opening balance   133   130       131   136    
    Additions   1   1       6   2    
    Transfers2   (10)    -       (10)   1    
    Decommissions / Disposals   -     -         (3)    (8)    
                           
  Ending balance   124   131   (5)   124   131   (5)
Drilling operating days1   4,135   6,000   (31)   18,398   22,750   (19)
Drilling rig utilization %   36.2   50.0   (28)    38.8   48.3   (20)
         
Well servicing rigs          
  Opening balance   99   103        103    99    
    Additions   -   -       -   4    
    Decommissions / Disposals   -   -        (4)     -    
                           
  Ending balance   99   103    (4)   99   103   (4)
Well servicing operating hours   35,054   38,663   (9)   140,978   145,220    (3)
Well servicing utilization %   38.5   40.8   (6)   38.1   39.5    (4)

1 Excludes coring rigs.

2 Includes transfers to coring rigs.

The Company recorded revenue of $774.4 million in Canada for the year ended December 31, 2012, a one percent decrease from $786.2 million recorded in the year ended December 31, 2011.  Revenue generated in Canada decreased 22 percent to $176.7 million for the three months ended December 31, 2012, from $225.2 million for the three months ended December 31, 2011.  In the fourth quarter of 2012, Canadian revenues accounted for 33 percent of total revenue (2011 - 39 percent), and during the year ended December 31, 2012, Canadian revenues were 35 percent of total revenue (2011 - 42 percent).

The Company's Canadian operations saw a strong start to 2012 as increased levels of demand and improved pricing for Canadian oilfield services that began in 2011 continued into the current year. However, as the year progressed, the Company's customers reacted to reduced levels of cash flows from natural gas and crude oil production, and a softening in demand for oilfield services occurred, negatively impacting operating and financial results for the year.

During the year ended December 31, 2012, operating days recorded by the Company's Canadian operations decreased 19 percent compared to the level of activity in the prior year.  Operating days in the fourth quarter of 2012 decreased 31 percent from the comparable quarter in the prior year.  Similarly, Canadian well servicing hours decreased by three percent in the year ended December 31, 2012 and by nine percent in the fourth quarter of 2012 compared to the corresponding periods in the prior year.

The Company decommissioned or disposed of three inactive drilling rigs and four inactive well servicing rigs during 2012 and transferred nine drilling rigs to the oil sands coring fleet and one drilling rig to the Australian market.  Six new build ADRs were added to the Company's Canadian equipment fleet in 2012.  Subsequent to December 31, 2012, the Company disposed of its manufacturing facility located in Calgary, Alberta.

United States Oilfield Services

  Three months ended   Year ended
  December 31   December 31
  2012     2011     % change     2012   2011    % change
Drilling rigs          
  Opening balance   116     116      117     80        
    Additions   -     1          5    38    
    Transfers   5    -          5     (1)    
    Decommissions / Disposals   -     -          (6)     -     
                           
  Ending balance   121     117     3     121     117     3
Drilling operating days   5,555     6,671     (17)     24,226   20,827    16
Drilling rig utilization %   50.2     62.5    (20)     57.4    60.7    (5)
         
Well servicing rigs        
  Opening balance   46    34         36    24    
    Additions   1     2         12    12    
    Decommissions / Disposals   (1)     -         (2)     -    
                           
  Ending balance   46     36    28     46   36   28
Well servicing operating hours   28,097    25,559    10     121,766    82,453    48
Well servicing utilization %   66.4    78.6   (16)     78.1    73.4    6

The Company's United States operations recorded revenue of $944.6 million during the year ended December 31, 2012, an increase of 30 percent from the $727.7 million recorded in the year ended December 31, 2011.  Revenue recorded in the United States was $213.7 million in the fourth quarter of 2012, a 10 percent decrease from the $236.8 million recorded in the corresponding period of the prior year.  The United States segment accounted for 40 percent of the Company's revenue in the fourth quarter of 2012 (2011 - 41 percent); and 43 percent of the Company's revenue in the current year (2011 - 38 percent) making it the largest contributor to consolidated revenue in 2012.

The number of operating days recorded by the Company's United States operations for the year ended December 31, 2012 increased 16 percent to 24,226 operating days from 20,827 operating days in 2011.  During the fourth quarter of 2012 the Company recorded 5,555 operating days in the United States, a decrease of 17 percent over 6,671 operating days recorded during the fourth quarter of the prior year.  United States well servicing hours in the fourth quarter of 2012 were up 10 percent compared to the prior year and well servicing hours for 2012 were up 48 percent compared to 2011 due to expansions in the Company's United States well servicing rig fleet.

The Company's presence in the United States oilfield services market continued to grow in 2012 through the addition of five new ADR® drilling rigs and 12 new well servicing rigs constructed under the Company's ongoing new build program.  These equipment additions, combined with the positive impact from a full year of contribution from Ensign US Southern, strengthened operating and financial results in 2012 compared to 2011.

The Company transferred six drilling rigs to the United States equipment fleet from the Company's operations in Mexico late in 2012.  Other changes to the Company's United States equipment fleet during 2012 included the decommissioning or disposal of six inactive drilling rigs and two inactive well servicing rigs; and the transfer of one drilling rig to the international segment.

Operating results for the United States segment were further improved on translation to Canadian dollars by the strengthening of the United States dollar through 2012 compared to the prior year. The average exchange rate for the year increased one percent during the twelve months ended December 31, 2012 to 1.00, compared to an average of 0.99 during the prior year.

International Oilfield Services

      Three months ended Year ended
      December 31 December 31
      2012  2011 % change   2012 2011  % change
Drilling and workover rigs
  Opening balance   58   59      59   59  
    Additions   -   -      2   -  
    Transfers   (4)  -     (4)  -  
    Decommissions / Disposals   -  -   (3)   -  
             
  Ending balance   54 59  (8)  54  59  (8)
Drilling operating days   3,010 2,698  12 11,612  10,748  8
Drilling rig utilization %   59.9 49.7 21  56.9 49.9  14

The Company's international operations recorded revenue of $478.3 million for the year ended December 31, 2012, a 27 percent increase from revenue of $376.5 million in 2011.  International revenue totaled $139.7 million in the fourth quarter of 2012, a 20 percent increase from $116.0 million recorded in the corresponding period of the prior year.  International operations contributed 27 percent of the Company's revenue in the fourth quarter of 2012 (2011 - 20 percent) and 22 percent in the year ended December 31, 2012 (2011 - 20 percent).

The Company's international operations recorded 11,612 operating days in 2012, an eight percent increase from 10,748 operating days recorded in 2011.  International operating days for the three months ended December 31, 2012 increased 12 percent over the comparable prior year period to 3,010 operating days compared to 2,698 operating days in the fourth quarter of 2011.

Stronger demand for oilfield services in Latin America and throughout the eastern hemisphere increased operating activity and revenue rates in 2012 leading to improved operating and financial results when compared to 2011.  In 2011 international operating results were weakened due to the disruption of operations arising from challenges outside of the Company's control, including severe flooding in Australia and political unrest in parts of the Middle East and North Africa.  The Company resumed its operations in Libya late in 2012 with the start-up of one drilling rig and a second drilling rig is expected to start-up in the first half of 2013.

The Company added two new ADRs to its Australian equipment fleet in 2012.  In addition, one drilling rig was transferred to Australia from the Company's Canadian drilling rig fleet and one drilling rig was transferred to Latin America from the Company's United States drilling rig fleet during the year.  The Company also decommissioned or disposed of three inactive drilling rigs from its international operations during the year and six drilling rigs were transferred from Mexico to the United States operations.

Consistent with the translation of results from the Company's United States operations, the operating results from the Company's international operations were further improved on translation into Canadian dollars by the strengthening of the United States dollar relative to the Canadian dollar in 2012 when compared to the prior year.

Depreciation

  Three months ended December 31 Year ended December 31
($ thousands)   2012 2011 % change 2012 2011  % change
Depreciation   54,029 57,540  (6)  220,227 177,927  24

Depreciation expense increased 24 percent to $220.2 million for the year ended December 31, 2012 compared with $177.9 million for the year ended December 31, 2011.  Depreciation expense totaled $54.0 million for the fourth quarter of 2012 compared with $57.5 million for the fourth quarter of 2011, a decrease of six percent.  The decrease in depreciation for the fourth quarter of 2012 reflects the reduced operating activity for the three months ended December 31, 2012 compared to the three months ended December 31, 2011.  Higher depreciation expense in 2012 over 2011 is attributable to higher-valued drilling and well servicing rigs being added to the equipment fleet throughout 2012 as well as a full year of depreciation being taken on the drilling rigs operating in Ensign US Southern. 

General and Administrative Expense

  Three months ended December 31 Year ended December 31
($ thousands)   2012  2011  % change   2012 2011   % change
General and administrative   21,638 20,878  4  80,837  70,258  15
% of revenue   4.1 3.6      3.7 3.7

General and administrative expense totaled $80.8 million (3.7 percent of revenue) for the year ended December 31, 2012 compared with $70.3 million (3.7 percent of revenue) for the year ended December 31, 2011, an increase of 15 percent.   General and administrative expense increased four percent to $21.6 million (4.1 percent of revenue) for the fourth quarter of 2012 compared with $20.9 million (3.6 percent of revenue) for the fourth quarter of 2011.  The increase in general and administrative expense was incurred to support the expectations for increased operating activity, the addition of Ensign US Southern in the third quarter of 2011, and reflects the negative translational impact of a stronger United States dollar on United States and international administrative expenses in the current year.

Share-Based Compensation (Recovery) Expense

  Three months ended December 31   Year ended December 31
($ thousands)   2012  2011  % change   2012 2011 % change
             
Share-based compensation   (840)  8,132 (110)  (3,397) 6,555 (152)

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 2012 fiscal year, share-based compensation was a recovery of $3.4 million compared with an expense of $6.6 million for the year ended December 31, 2011.  For the three months ended December 31, 2012, share-based compensation recovery was $0.8 million compared with an expense of $8.1 million recorded in the fourth quarter of 2011.  The decrease in share-based compensation expense for the three and twelve months ended December 31, 2012 arises from the change in the fair value of share-based compensation liability primarily due to a decrease in the price of the Company's common shares during the year and the expiry of options in the year.  The closing price of the Company's common shares was $15.37 at December 31, 2012, compared with $16.25 at December 31, 2011.

Interest Expense

  Three months ended December 31 Year ended December 31
($ thousands)   2012  2011  % change 2012 2011  % change
Interest expense   3,862   4,071  (5)  18,666  6,586  183
Interest income   (139)   (136)  2   (504) (647)  (22)
             
  3,723 3,935  (5)  18,162  5,939  206

The Company increased its Global Facility by $150.0 million to $400.0 million in the second quarter of 2012; and also repaid in full the USD $400.0 million term loan incurred to finance the September 2011 acquisition of Rowan Land Drilling during the first half of the year.  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 Notes issued in February 2012 and the portion of the USD $400.0 million term loan outstanding during the first half of 2012.  The amortization of deferred financing costs associated with the issuance of the Company's long-term debt is included in interest expense for the three and twelve month periods ended December 31, 2012 and 2011.

The increase in interest expense in 2012 compared to 2011 reflects the increases in credit facilities in 2012 and a full year of interest being incurred on the Company's long-term debt which was added to the Company's capital structure in September 2011.

Foreign Exchange and Other (Loss/(Gain))

  Three months ended December 31  Year ended December 31
($ thousands)   2012   2011   % change   2012 2011  % change
             
Foreign exchange and other   653   (9,118)  (107)  6,446  (4,843)   (233)

Included in this amount are foreign currency movements in the Company's subsidiaries which have functional currencies other than Canadian dollars.  In general the United States dollar strengthened in 2012 compared to 2011 when compared to other world currencies but weakened against the Canadian dollar at December 31, 2012 compared to December 31, 2011.

Income Taxes

  Three months ended December 31 Year ended December 31
($ thousands) 2012  2011 % change  2012 2011 % change
Current income tax   4,172  12,985 (68)   45,189 26,882   68
Deferred income tax   13,689 19,935 (31)  56,826 72,335  (21)
             
  17,861  32,920 (46)   102,015  99,217  3
Effective income tax rate %   26.9 38.5    31.9 31.8

The effective income tax rate for the year ended December 31, 2012 was 31.9 percent compared with 31.8 percent for the year ended December 31, 2011.  The effective income tax rate for the three months ended December 31, 2012 was 26.9 percent compared with 38.5 percent for the three months ended December 31, 2011.  The increase in the current portion and decrease in the proportion of deferred income tax in the year ended December 31, 2012 when compared with the prior year is primarily attributable to the phased elimination of the deferral of income tax related to the Company's partnerships operating in Canada.

Financial Position

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

($ thousands)      Change    Explanation 
         
Cash and cash equivalents      30,595   See consolidated statements of cash flows.
         
Accounts receivable

     (53,983)


  Decrease is consistent with decreased operating activity in the fourth quarter of 2012 compared to the fourth quarter of 2011 and also reflects foreign exchange fluctuations on the consolidation of the Company's foreign subsidiaries.
         
Inventories and other   
 
  (5,633)
 
  Decrease is due to normal course use of consumables and amortization of prepaid expenses offset by additional inventory.
         
Property and equipment   
 
  53,625
  
  Increase was due to additions from the current new build construction program offset by depreciation and a decrease in the year-end foreign exchange rate on the consolidation of the Company's foreign subsidiaries.
         
Note receivable   
 
   (1,740)
 
  Decrease is due to partial collection of the note receivable and the reclassification of the current portion to accounts receivable offset by accretion of interest income during 2012.
         
Accounts payable and accruals
 
     (44,929)
  
  Decrease is consistent with reduced operating activity in the fourth quarter of 2012 compared to the fourth quarter of 2011 and also reflects foreign exchange fluctuations on the consolidation of the Company's foreign subsidiaries and timing of payments to external vendors during the year.
         
Operating lines of credit 
 

    (6,450)
 
 
  Decrease is due to repayments during the year offset by additional draws of the expanded operating lines of credit to partially repay the term loan incurred to finance the acquisition of Rowan Land Drilling in 2011 and fund the ongoing new build construction program.
         
Share-based compensation  

   (3,390)

  Decrease is due to a decrease in the price of the Company's common shares as at December 31, 2012 compared with December 31, 2011, as well as options expiring at the end of the current year.
         
Income taxes payable 
    (297)
  Decrease is due to the current income tax provision for the period, net of tax instalments.
         
Dividends payable  

   766

  Increase is due to a 4.8 percent increase in the quarterly dividend rate in the fourth quarter of 2012 compared to the dividend rate in the fourth quarter of 2011.
         
Long-term debt  


   (109,364)


  Decrease reflects the repayment of the term loan and accounting for financing costs associated with long-term debt and the impact of foreign exchange fluctuations on the United States dollar denominated debt, offset by the issuance of senior unsecured notes in February 2012.
         
Deferred income taxes      51,992   Increase primarily due to accelerated tax depreciation of assets added during the current year.
         
Shareholders' equity  

   134,536

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

Funds from Operations and Working Capital

      Three months ended December 31     Year ended December 31
($ thousands)       2012     2011     % change      2012     2011     % change
Funds from operations       117,088     140,465     (17)      500,517     475,587     5
Funds from operations per share      $0.77      $0.92     (16)     $3.28     $3.11     5
Working capital        13,861      (10,233)     235      13,861      (10,233)     235

Funds from operations totaled a record $500.5 million ($3.28 per common share) for 2012, an increase of five percent compared to $475.6 million ($3.11 per common share) generated in 2011.  During the three months ended December 31, 2012, the Company generated funds from operations of $117.1 million ($0.77 per common share) compared with $140.5 million ($0.92 per common share) for the three months ended December 31, 2011, a decrease of 17 percent.  The decrease in funds from operations for the fourth quarter of 2012 compared to the fourth quarter of 2011 reflects the reduced operating activity in North America in the fourth quarter of the current year compared to the fourth quarter of 2011.  The increase in funds from operations in 2012 compared to 2011 is due to growth of the Company's operations, particularly in the United States and increased demand for international oilfield services.

At December 31, 2012, the Company's working capital totaled $13.9 million compared to negative working capital of $10.2 million at December 31, 2011.  In 2011 the Company utilized its cash resources to partially fund the acquisition of Rowan Land Drilling.  This resulted in a temporary negative working capital balance in the prior year.  The Company expects the growth in operating results, 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 $164.3 million was available as at December 31, 2012.

Investing Activities

      Three months ended December 31     Year ended December 31
($ thousands)       2012     2011     % change     2012     2011     % change
Purchase of property and equipment       (80,329)     (134,209)     (40)     (306,689)      (386,833)     (21)
Acquisition       -       -             -       (497,352)     (100)
Net change in non-cash working capital       (23,392)     (14,892)     57     (15,040)      31,510     (148)
                                     
Cash used in investing activities       (103,721)     (149,101)     (30)     (321,729)      (852,675)     (62)

The Company did not complete any significant acquisitions in 2012.  Effective September 1, 2011 the Company acquired Rowan Land Drilling for USD $510.0 million plus working capital of USD $5.5 million.  Rowan Land Drilling was comprised of 30 deeper capacity electric land drilling rigs in the southern United States. The purchase was funded with existing cash balances and expanded credit facilities, including an unsecured term loan of USD $400.0 million.

Purchases of property and equipment for the year ended December 31, 2012 totaled $306.7 million (2011 - $386.8 million).  The purchases of property and equipment relate primarily to expenditures made pursuant to the Company's ongoing new build program.  Significant additions as a result of the new build program included:

  • Completion of six new ADR® drilling rigs in Canada (three in the first quarter and one in each of the second, third and fourth quarters);
  • Completion of five new ADR® drilling rigs in the United States (two in the first quarter, one in the second quarter and two in the third quarter);
  • Construction of 12 new well servicing rigs in the United States (three in each of the first and second quarters, five in the third quarter and one in the fourth quarter); and
  • Completion of two new ADR® drilling rigs in Australia, both in the third quarter.

Financing Activities

      Three months ended December 31     Year ended December 31
($ thousands)       2012     2011     % change     2012     2011     % change
Net (decrease) increase in operating lines of credit       (30,586)     6,604     (563)     (1,398)     73,601     (102)
Issue of senior unsecured notes       -       -       -       300,000     -       -
(Repayment) issue of unsecured term loan             -       -       (403,279)     390,080     (203)
Issue of capital stock        -       -            43     -       -
Purchase of shares held in trust       (535)     (674)     (21)      (8,579)     (6,202)     38
Deferred financing costs        -       -            (2,156)     (2,078)     4
Dividends       (16,854)     (16,087)     5      (65,116)     (59,752)     9
Net change in non-cash working capital       2,570     1,468     75      3,500     1,371     155
                                     
Cash (used in) provided by financing activities       (45,405)     (8,689)     423      (176,985)     397,020      (145)

The Company's Global Facility was increased by $150.0 million during the second quarter of 2012 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 in United States dollars.

The change in the operating lines of credit for the year ended December 31, 2012 reflects funding for the ongoing new build program which is anticipated to deliver an additional eight new ADR® drilling rigs and six new well servicing rigs throughout 2013.  As of December 31, 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.  Proceeds from the issuance of the Notes in combination with internally generated cash flows and expanded credit facilities were used to fully repay the USD $400.0 million unsecured term loan incurred in the prior year to partially finance the acquisition of Rowan Land Drilling.   Financing costs associated with the issuance of the Company's long-term debt are being deferred and amortized using the effective interest method.

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 December 31, 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 Company increased its dividend in 2012 with a 4.8 percent fourth quarter increase in the quarterly dividend rate to $0.110 per common share from the previous quarterly dividend rate of $0.105 per common share.  During the year ended December 31, 2012, the Company declared dividends of $0.4250 per common share, an increase of nine percent over dividends of $0.3900 per common share declared in 2011.  The Company had nominal receipts from the issuance of common shares in connection with the employee stock option program in 2012 compared to nil in 2011.

Subsequent to December 31, 2012, the Company declared a dividend for the first quarter of 2013. A quarterly dividend of $0.110 per common share is payable April 5, 2013 to all Common Shareholders of record as of March 27, 2013.  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 year ended December 31, 2012, the Company commissioned six new ADR® drilling rigs in Canada; five new ADR® drilling rigs and 12 new well servicing rigs in the United States; and two new ADR® drilling rigs in Australia.

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

      Estimated Delivery Date
      Q1-2013     Q2-2013     Q3-2013     Q4-2013     Total
ADRs                              
  Canada       1     1     -     -     2
  United States       1     1     1     1     4
  International       -     -     -     2     2
Total       2     2     1     3     8
                               
Well Servicing                              
  Canada       3     3     -     -     6
  United States       -      -     -     -     -
  International       -     -     -      -     -
Total        3     3     -     -     6

Outlook

Recently, there have been encouraging signs of improvement in the general global economic outlook.  The stimulus commitments by the European Central Bank and commitments to austerity appear to signal a recovery for the Eurozone, although at a very gradual pace.  Continued job growth and an early housing recovery are positive factors in the United States, subject to ongoing debates regarding budgetary policies in the President's second term of office.  Against this improving economic backdrop, global crude oil commodity prices remain firm, in part due to geopolitical tensions; however, widening regional crude oil price differentials between Brent and WTI for the United States and a further regional discount in Canada, produced drag on the industry.  Natural gas prices in North America have stabilized at low levels and prospects for recovery appear weak for the foreseeable future; given the abundance of shale resources, it remains to be seen when the balance of supply and demand for natural gas will equalize.

Activity levels in the Company's Canadian operations trended down over the latter three quarters of 2012 compared to the prior year and increased competitive pressures are continuing to place downward pressure on activity and revenue rates.  The Company expects the coming year to present continuing challenges in sustaining current activity levels.  This condition will likely persist until regional deliverability discounts on crude oil netbacks are largely eliminated by new pipeline capacity.  Increases in demand and improvements in prices for natural gas are likely an eventual outcome, but game-changing technologies and anemic economic growth prospects will continue to delay recovery in this highly export-dependent market.

In the United States, Company activity levels remained fairly consistent throughout the year in the face of softening industry demand in the latter half of the year.  The redirection of oilfield services equipment away from natural gas development to crude oil and liquids-rich plays added to the challenge of maintaining equipment utilization.  The coming year is expected to be a continuation of the current year, with stable activity in liquids and ongoing weakness in natural gas development.

The Company's international operations exceeded expectations during the year, with operating days up eight percent and total annual revenues up 27 percent over the previous year.  In addition to a broad base of long-term contracts in most of the Company's operating regions, growth in international operations is expected to continue in 2013, as new opportunities are pursued and global demand for crude oil and natural gas increases in developing regions.

Despite the headwinds encountered during 2012, the Company continued to successfully pursue its fleet expansion, modernization and redeployment program.  In addition, debt net of cash was reduced by $146.4 million year-over-year. This improving financial strength will position the Company well in pursuing its strategy of opportunistic growth in the coming year and beyond.

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 year-end 2012 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, March 18, 2013.  The conference call number is (647) 427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto).  A taped recording will be available until March 25, 2013 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 20090003.  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      December 31      December 31
    2012      2011
(Unaudited, in thousands of Canadian dollars)             
           
Assets          
Current Assets          
  Cash and cash equivalents     $   33,208   $ 2,613
  Accounts receivable         423,160     477,143
  Inventories and other        76,345     81,978
    532,713     561,734
           
Property and equipment         2,533,243     2,479,618
Note receivable        5,021     6,761
  $ 3,070,977   $ 3,048,113
           
Liabilities          
Current Liabilities          
  Accounts payable and accruals    $ 244,612   $   289,541
  Operating lines of credit        231,990     238,440
  Income taxes payable         11,197     11,494
  Dividends payable         16,853      16,087
  Share-based compensation        14,200     16,405
    518,852      571,967
           
Long-term debt         296,589       405,953
Share-based compensation         4,119      5,304
Deferred income taxes         393,459       341,467
    1,213,019     1,324,691
           
Shareholders' Equity          
  Share capital         164,670     166,864
  Contributed surplus         4,811       3,448
  Foreign currency translation reserve         (16,007)     1,032
  Retained earnings        1,704,484       1,552,078
    1,857,958      1,723,422
  $   3,070,977   $   3,048,113
             




                 
                 
Ensign Energy Services Inc.                
Consolidated Statements of Income                
For the three months and year ended December 31                
                 
(Unaudited, in thousands of Canadian dollars, except per share data)                
                 
    Three months ended     Year ended
    December 31     December 31      December 31     December 31
    2012     2011     2012     2011
                       
Revenue   $ 530,106   $ 577,967    $ 2,197,321   $   1,890,372
                       
Expenses                      
  Oilfield services        384,553     411,040     1,555,509     1,322,926
  Depreciation        54,029     57,540     220,227     177,927
  General and administrative        21,638     20,878     80,837      70,258
  Share-based compensation       (840)      8,132       (3,397)      6,555
  Foreign exchange and other       653      (9,118)     6,446     (4,843)
    460,033     488,472      1,859,622      1,572,823
                       
Income before interest and income taxes      70,073     89,495     337,699     317,549
                       
Interest income      139     136     504     647
Interest expense       (3,862)     (4,071)     (18,666)      (6,586)
                       
Income before income taxes      66,350      85,560     319,537      311,610
                       
Income taxes                      
  Current tax       4,172     12,985     45,189      26,882
  Deferred tax       13,689     19,935     56,826     72,335
    17,861     32,920     102,015     99,217
                       
Net income   $   48,489   $   52,640   $  217,522   $  212,393
                       
                       
Net income per share                      
  Basic    $   0.32   $    0.34    $  1.42    $   1.39
  Diluted   $    0.32   $  0.34    $  1.42   $   1.39




                 
                 
Ensign Energy Services Inc.                
Consolidated Statements of Cash Flows                
For the three months and year ended December 31                
                 
(Unaudited, in thousands of Canadian dollars)                
                 
    Three months ended     Year ended
    December 31     December 31      December 31     December 31
    2012     2011     2012     2011
Cash provided by (used in)                      
                       
Operating activities                      
Net income     48,489   $   52,640   $  217,522   $  212,393
Items not affecting cash                      
  Depreciation        54,029     57,540     220,227     177,927
  Share-based compensation, net of cash paid      805     9,499     4,363     11,778
  Accretion on long-term debt        76     851      1,579     1,154
Deferred income tax        13,689     19,935     56,826     72,335
Net change in non-cash working capital      18,164      (7,641)     25,038      (105,101)
    135,252     132,824     525,555      370,486
                       
Investing activities                      
Purchase of property and equipment       (80,329)     (134,209)       (306,689)      (386,833)
Acquisition        -      -       -      (497,352)
Net change in non-cash working capital      (23,392)     (14,892)     (15,040)     31,510
    (103,721)      (149,101)     (321,729)      (852,675)
                       
Financing activities                      
Net (decrease) increase in operating lines of credit      (30,586)      6,604     (1,398)     73,601
Issue of senior unsecured notes        -       -       300,000      -
(Repayment) issue of unsecured term loan      -           (403,279)     390,080
Issue of capital stock        -          43     -
Purchase of shares held in trust        (535)     (674)      (8,579)      (6,202)
Deferred financing costs        -      -       (2,156)      (2,078)
Dividends        (16,854)      (16,087)      (65,116)      (59,752)
Net change in non-cash working capital      2,570      1,468     3,500     1,371
    (45,405)      (8,689)     (176,985)     397,020
                       
Net (decrease) increase in cash and cash equivalents    (13,874)     (24,966)     26,841      (85,169)
  Effects of foreign exchange on cash and cash equivalents        (2,057)      21,125      3,754      (1,738)
                       
Cash and cash equivalents                      
  Beginning of period        49,139     6,454      2,613     89,520
  End of period     $  33,208   $   2,613   $  33,208   $   2,613
                           
Supplemental information                      
  Interest paid    $   6,840   $   3,295   $  16,162   $   5,425
  Income taxes paid (received)    $   8,572   $   (2,318)   $  45,486   $  21,186
                           

 

  

 

SOURCE: Ensign Energy Services Inc.

For further information:

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