Ensign Energy Services Announces Record 2006 Financial Results



    Overview

    CALGARY, March 19 /CNW/ - The year ended December 31, 2006 was a record
financial year for the Company, and the fourth consecutive year in which the
Company has delivered year-over-year growth in all key financial measures. The
2006 fiscal year started strong, with customer demand and operating activity
levels building on the momentum gained in 2005. Oil and natural gas commodity
prices remained strong during the first half of 2006 and supported high levels
of oil and natural gas exploration and development activity throughout North
America and internationally. Significant growth in Canada in the first half of
2006, steady performance by the Company's United States oilfield services
division throughout the year, and gradual improvements in the international
market all contributed to the record financial performance of 2006.
    The Company operates in a cyclical industry, the effects of which were
felt in the latter half of 2006. Concerns over natural gas commodity prices
began to impact demand for the Company's services in the Canadian market. As
natural gas commodity prices began to decline as a result of concerns over
rising natural gas inventory levels and predictions of warm winter weather in
North America, the Company's customers began to curtail their drilling
programs, particularly in the shallow natural gas and coal bed methane markets
of the Western Canada Sedimentary Basin. These factors negatively impacted
equipment utilization rates in Canada late in the third quarter, and
throughout the fourth quarter of 2006. As a result, the Canadian oilfield
services division exited 2006 at utilization levels lower than that
experienced in the prior year. Operating activities in the Company's United
States oilfield services division in the fourth quarter of 2006 were not
impacted as significantly by these short-term fluctuations in natural gas spot
market prices as customers' drilling programs in these regions tend to have a
longer-term focus. The strong financial performance delivered by the Company's
United States oilfield services division in the fourth quarter of 2006
partially mitigated the softness noted in the Canadian market and the
quarter-over-quarter decline in operating activity in the international
oilfield services division.

    
    -------------------------------------------------------------------------
    FINANCIAL AND OPERATING HIGHLIGHTS
    ($ thousands, except per share data and operating information)
    -------------------------------------------------------------------------
                           Three months ended               Year ended
                               December 31                  December 31
    -------------------------------------------------------------------------
                                             %                             %
                        2006       2005   change      2006       2005  change
    -------------------------------------------------------------------------
    Revenue          421,908    476,192    (11)  1,807,230  1,520,724     19
    -------------------------------------------------------------------------
    EBITDA(1)        122,194    152,414    (20)    593,334    448,163     32
    EBITDA per
     share(1,6)
      Basic            $0.80      $1.01    (21)      $3.91      $2.97     32
      Diluted          $0.78      $0.97    (20)      $3.80      $2.87     32
    -------------------------------------------------------------------------
    Adjusted net
     income(2)        66,155     81,796    (19)    337,352    231,685     46
    Adjusted net
     income per
     share(2,6)
      Basic            $0.44      $0.54    (19)      $2.22      $1.53     45
      Diluted          $0.42      $0.52    (19)      $2.16      $1.49     45
    -------------------------------------------------------------------------
    Net income        63,938     59,969      7     341,284    169,665    101
    Net income per
     share(6)
      Basic            $0.42      $0.40      5       $2.25      $1.12    101
      Diluted          $0.41      $0.38      8       $2.18      $1.09    100
    -------------------------------------------------------------------------
    Funds from
     operations(3)   109,579    112,154     (2)    420,173    337,186     25
    Funds from
     operations per
     share(3,6)
      Basic            $0.72      $0.74     (3)      $2.77      $2.23     24
      Diluted          $0.70      $0.71     (1)      $2.69      $2.16     25
    -------------------------------------------------------------------------
    Weighted average
     shares - basic
     (000s)(6)       151,975    151,338      -     151,775    151,202      -
    Weighted average
     shares - diluted
     (000s)(6)       155,779    157,590     (1)    156,229    156,224      -
    -------------------------------------------------------------------------
    Drilling
      Number of
       marketed rigs
        Canada
          Conventional   164        159      3         164        159      3
          Oil sands
           coring/
           coal-bed
           methane        22         21      5          22         21      5

        United States     64         61      5          64         61      5
        International(4)  47         47      -          47         47      -
    Operating
     days(5)
      Canada           6,793     10,098    (33)     32,689     33,683     (3)
      United States    4,538      4,103     11      18,252     15,897     15
      International    2,453      2,794    (12)      9,151     10,282    (11)
    -------------------------------------------------------------------------
    Well Servicing
      Number of
       marketed
       rigs/units
        Canada           114        116     (2)        114        116     (2)
        United States     11          8     38          11          8     38
    Operating hours
      Canada          48,009     59,579    (19)    206,951    209,667     (1)
      United States    5,169      1,732    198      21,383      1,732  1,135
    -------------------------------------------------------------------------
    (1) EBITDA is defined as "Income before interest expense, income taxes,
        depreciation and stock-based compensation 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
        stock-based compensation plans. EBITDA and EBITDA per share as
        defined above are not recognized measures under Canadian generally
        accepted accounting principles and accordingly may not be comparable
        measures used by other companies.
    (2) Adjusted net income is defined as "Net income before stock-based
        compensation 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 stock-based compensation
        plans, net of income taxes. Adjusted net income and adjusted net
        income per share as defined above are not recognized measures under
        Canadian generally accepted accounting principles 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 shareholders and potential investors with 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 Canadian generally accepted accounting
        principles and accordingly may not be comparable to similar measures
        used by other companies.
    (4) Includes workover rigs.
    (5) All segments now report operating days based on "spud to rig
        release". Accordingly, certain prior period comparatives may have
        been changed to conform to the current year's presentation.
    (6) All share and per share data has been restated to reflect the two-
        for-one common share split in May 2006.



    Revenue and Oilfield Services Expense

                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Revenue
      Canada         231,430    302,912    (24)  1,074,491    916,974     17
      United States  128,185    110,388     16     505,748    387,050     31
      International   62,293     62,892     (1)    226,991    216,700      5
                     --------------------------------------------------------
                     421,908    476,192    (11)  1,807,230  1,520,724     19
    Oilfield
     services
     expense         283,982    308,000     (8)  1,161,213  1,031,412     13
                     --------------------------------------------------------
                     137,926    168,192    (18)    646,017    489,312     32
                     --------------------------------------------------------
    Gross margin       32.7%      35.3%              35.7%      32.2%
    -------------------------------------------------------------------------
    

    For the year ended December 31, 2006, revenue totaled $1,807.2 million,
the highest recorded in the Company's history and a 19 percent increase over
the prior year. Increased operating activity and pricing strength in the
Company's United States oilfield services division, as well as a strong
operating and pricing environment in Canada in the first three quarters of
2006, were the largest contributors to the increase. Revenue for the fourth
quarter of 2006 totaled $421.9 million compared with $476.2 million for the
fourth quarter of 2005, a decrease of 11 percent. The net decrease in revenue
on a quarter-over-quarter basis is due to a decline in operating activity in
Canada resulting from softening demand, partially offset by an increase in
operating activity in the United States oilfield services division.
    Oilfield services expense totaled $1,161.2 million for the year ended
December 31, 2006, a 13 percent increase from the prior year. Robust levels of
oilfield services activity around the globe in 2006 caused a marked increase
in demand for the skilled labour and materials that are critical to providing
the Company's services. This inflationary pressure on labour and material
costs is the primary cause of the increase in oilfield services expense on a
year-over-year basis. Oilfield services expense declined eight percent in the
fourth quarter of 2006 compared with the fourth quarter of 2005 due to a
decline in operating activity; however, increasing labour costs continued to
be a factor as labour rate increases became effective in Canada in October
2006.
    Gross margin increased to 35.7 percent in 2006, compared with
32.2 percent in the prior year. The improvement in gross margin is
attributable to higher revenue rates, partially offset by higher labour and
material costs. Gross margin was negatively impacted in the fourth quarter of
2006 by lower equipment utilization rates and pricing pressure in Canada, as
well as annual maintenance activities in the Company's international oilfield
services division.

    Canadian Oilfield Services
    --------------------------

    The Company's Canadian oilfield services division delivered solid
financial performance in 2006, growing revenue by 17 percent over the prior
year. The majority of this growth was achieved in the first half of 2006, when
strong oil and natural gas commodity prices drove operating activity to record
levels. High demand for the Company's services over this period also supported
strong pricing, with 2005/2006 winter pricing holding through most of the
summer and fall. However, towards the end of the third quarter of 2006 the
Company's Canadian operations noted a downward trend in operating activity.
The concern over declining natural gas prices and the resultant slow down in
shallow natural gas drilling activity were the contributing factors to this
decrease. Softening commodity prices continued to be a concern in the fourth
quarter of 2006, when the Company's Canadian operations experienced a decline
in operating activity and pricing pressure from customers. These factors
negatively impacted revenue and gross margins, both of which declined in the
fourth quarter of 2006 compared with the same period of the prior year.
    During the year ended December 31, 2006, the Canadian oilfield services
division added five newly constructed drilling rigs, and one specialty
drilling rig to its fleet of equipment. These new drilling rigs have bolstered
the fleet in that the new equipment commands higher revenue rates and supports
the Company's ongoing safety initiatives. Two of the five drilling rigs
introduced in 2006 are Automated Drill Rigs (ADR(TM)s). The Company continues
to experience high demand for its proprietary ADR(TM) technology and has
expanded the technology to accommodate slant drilling capabilities and greater
depth capacity. As of December 31, 2006, the Canadian oilfield services
division had two slant well servicing rigs under construction. It is expected
that these well servicing rigs will be completed and placed into service in
the second quarter of 2007. The addition of these two slant well servicing
rigs in 2007 will offset the transfer of two well servicing rigs to the United
States, which occurred in the fourth quarter of 2006.

    United States Oilfield Services
    -------------------------------

    The United States oilfield services division generated record financial
results in 2006 on the strength of heightened drilling activity in the Rocky
Mountain and California regions of the United States. The factors negatively
impacting Canadian operations in the latter half of 2006 did not meaningfully
impact United States operations, which continued to achieve revenue, gross
margin and operating activity increases on both a year-over-year and
quarter-over-quarter basis. Revenue for the year ended December 31, 2006
increased 31 percent over the prior year. Revenue increased 16 percent in the
fourth quarter of 2006 compared with the fourth quarter of 2005. In addition
to improved revenue rates and increased operating activity levels, these
increases also reflect contributions from the well servicing acquisition
completed near the end of 2005.
    As the Company continues to introduce new equipment into the United
States market, it mitigates the impact of volatile commodity prices on
operating activity levels by ensuring that the new equipment is constructed
and operated under long-term take-or-pay contracts. Of the 16 new drilling
rigs approved for construction in 2006, three were completed and placed into
service by December 31, 2006. Construction of the remaining 13 ADR(TM)
drilling rigs is continuing as planned and will be completed throughout 2007.
Due to the early success of the United States well servicing acquisition
completed in 2005 and the potential for growth in this market, the Company
transferred two well servicing units from its Canadian fleet to the United
States in the fourth quarter of 2006.

    International Oilfield Services
    -------------------------------

    The Company's international operations achieved moderate improvements in
financial performance in 2006, increasing revenue by five percent compared
with 2005. This was accomplished despite an 11 percent decline in operating
activity in 2006 compared with 2005. Revenue remained flat in the fourth
quarter of 2006 compared with the fourth quarter of 2005, while operating
activity declined 12 percent over this same period. The decline in operating
activity was partially due to contract renewal delays in Venezuela and the
relocation of two workover rigs from Ecuador to Argentina. These negative
events were partially offset by increases in operating activity in other
international locations, as well as by gradual price increases in these areas.
    The Company continuously evaluates the international markets in which it
operates, and relocates equipment in response to changing market conditions
and to capitalize on opportunities in other regions. During 2006, the Company
entered the Thailand market, transferring one rig from New Zealand, and added
two rigs to its fleet of equipment based in Libya. Of the two rigs transferred
to Libya, one rig was redeployed from the Company's operations in Oman and the
other from New Zealand. The Company is also planning to bolster its equipment
fleet based in the Middle East and Africa with the refurbishment of two
drilling rigs and the reactivation of one previously idle drilling rig. In
addition, the Company plans to transfer one drilling rig from its Canadian
fleet to Australia in early 2007.

    Depreciation

    
                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Depreciation      18,604     20,117     (8)     80,921     74,917      8
    -------------------------------------------------------------------------
    

    Depreciation expense totaled $80.9 million for the year ended
December 31, 2006, an increase of eight percent over the prior year. Although
2006 operating activity levels remained fairly flat compared with 2005,
depreciation expense has increased due to a higher capital asset base
associated with the Company's rig building program.
    For the three months ended December 31, 2006, depreciation expense
totaled $18.6 million compared with $20.1 million for the three months ended
December 31, 2005, a decline of eight percent. The decline in depreciation
expense in the fourth quarter of 2006 is due to a decline in operating
activity levels, offset by a higher capital asset base, compared with the
prior period.

    General and Administrative Expense

    
                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    General and
     administrative   15,732     15,778      -      52,683     41,149     28
    % of revenue        3.7%       3.3%               2.9%       2.7%
    -------------------------------------------------------------------------
    

    General and administrative expense totaled $52.7 million for the year
ended December 31, 2006, an increase of 28 percent over the prior year. The
increase is consistent with the expanded operations of the Company and the
revenue growth achieved during 2006. As a percentage of revenue, general and
administrative expense was 2.9 percent for 2006 compared 2.7 percent for the
year ended December 31, 2005.
    For the three months ended December 31, 2006, general and administrative
expense totaled $15.7 million, consistent with the same period of the prior
year. As a percentage of revenue, general and administrative expense was
3.7 percent in the fourth quarter of 2006 compared with 3.3 percent in the
fourth quarter of 2005.

    Stock-Based Compensation Expense

    
                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Stock-based
     compensation      3,410     33,580    (90)     (6,050)    95,415   (106)
    -------------------------------------------------------------------------
    

    Stock-based compensation expense arises from the intrinsic value
accounting associated with the Company's stock option plan, whereby the
liability associated with stock-based compensation is adjusted on a quarterly
basis for the effect of vesting and exercising of stock options, as well as
changes in the underlying price of the Company's common shares. For the year
ended December 31, 2006, stock-based compensation is a net recovery of
$6.1 million. The net recovery is due to a decline in the price of the
Company's common shares, net of the impact of additional granting and vesting
of stock options. Stock-based compensation expense for the three months ended
December 31, 2006 totaled $3.4 million and is predominantly comprised of
additional vesting of stock options. The closing price of the Company's common
shares was $18.39 at December 31, 2006, compared with $18.55 at September 30,
2006 and $23.46 at December 31, 2005.

    Interest Expense

    
                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Interest           1,177      1,818    (35)      5,127      6,823    (25)
    -------------------------------------------------------------------------
    

    Interest expense is incurred on the Company's operating lines of credit.
The decrease in interest expense on both a year-over-year and
quarter-over-quarter basis is due to a decrease in the average utilized
balance outstanding of the Company's operating lines of credit, partially
offset by a slight increase in interest rates.

    Income Taxes

    
                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Current income
     tax               6,236     32,602    (81)    131,436     80,841     63
    Future income
     tax              28,829      4,328    566      40,616     20,502     98
                      -------------------------------------------------------
                      35,065     36,930     (5)    172,052    101,343     70
                      -------------------------------------------------------
    Effective
     income tax
     rate (%)          35.4%      38.1%              33.5%      37.4%
    -------------------------------------------------------------------------
    

    The effective income tax rate for the year ended December 31, 2006 was
33.5 percent compared with 37.4 percent in 2005. The decrease in the Company's
effective income tax rate on a year-over-year basis is primarily due to
substantively enacted federal and provincial income tax rate reductions in
Canada. The income tax rate reductions not only impact the current and future
income tax provision in 2006, but also resulted in a favourable adjustment to
the opening future income tax liability balance.
    The effective income tax rate for the fourth quarter of 2006 was
35.4 percent compared with 38.1 percent in the fourth quarter of 2006. The
movement in the Company's effective income tax rate on a quarter-over-quarter
basis is partially due to the recognition of substantively enacted income tax
rate reductions in Canada. The impact of rate reductions in Canada is offset
by the fact that a greater proportion of pre-tax net income was generated in
the United States in the fourth quarter of 2006 compared with the fourth
quarter of 2005. Income generated in the United States is subject to higher
income tax rates than Canada.

    Financial Position

    The following chart outlines significant changes in the consolidated
balance sheets from December 31, 2005 to December 30, 2006:

    
    ($ thousands)            Change   Explanation
    -------------------------------------------------------------------------
    Cash and cash
     equivalents             (17,423) See consolidated statements of cash
                                      flows.
    Accounts receivable      (22,031) Decrease due to a decline in operating
                                      activity in the fourth quarter of 2006
                                      compared with the fourth quarter of
                                      2005.
    Inventory and other       24,764  Increase due to additions to drill pipe
                                      inventory in late 2006.
    Property and equipment   264,024  Increase due to ongoing capital
                                      expenditures and equipment under
                                      construction, offset by depreciation
                                      for the year.
    Accounts payable and
     accrued liabilities      (4,708) Decrease due to a decline in operating
                                      activity in the fourth quarter of 2006
                                      compared with the fourth quarter of
                                      2005, offset by ongoing capital
                                      expenditure activity.
    Operating lines
     of credit               (95,790) Decrease due to net repayments during
                                      the year.
    Stock-based compensation (53,958) Decrease due to a decline in the price
                                      of the Company's common shares and the
                                      exercise of employee stock options in
                                      the year.
    Income taxes payable      22,478  Increase due to the current income tax
                                      provision for the year, offset by
                                      income tax installments.
    Dividends payable          4,589  Increase due to a 60-percent increase
                                      in the quarterly dividend rate.
    Future income taxes       41,020  Increase due to the future income tax
                                      provision for the year, offset by a
                                      one-time reduction associated with
                                      substantively enacted income tax rate
                                      reductions in Canada.
    Shareholders' equity     335,703  Increase due to the aggregate impact of
                                      net income for the year, increase in
                                      capital stock due to exercises of
                                      employee stock options, impact of
                                      foreign exchange rate fluctuations on
                                      the net assets of foreign self-
                                      sustaining subsidiaries, less dividends
                                      declared in the year.
    -------------------------------------------------------------------------


    Working Capital and Funds from Operations

                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Funds from
     operations      109,579    112,154     (2)    420,173    337,186     25
    Funds from
     operations
     per share         $0.72      $0.74     (3)      $2.77      $2.23     24
    Working capital   63,162    (11,878)   632      63,162    (11,878)   632
    -------------------------------------------------------------------------
    

    During 2006, the Company generated sufficient funds from operations to
finance its investing activities and dividend payments, as well as support a
net repayment of its operating lines of credits. Funds from operations totaled
$420.2 million ($2.77 per common share) in the year ended December 31, 2006, a
25 percent increase from the $337.2 million ($2.23 per common share) generated
in the year ended December 31, 2005. For the three months ended December 31,
2006, funds from operations totaled $109.6 million ($0.72 per common share)
compared with $112.2 million ($0.74 per common share) for the three months
ended December 31, 2005, a decline of two percent.
    The Company's working capital position as at December 31, 2006 was
$63.2 million, a $75.0 million improvement over the working capital deficit of
$11.9 million at December 31, 2005. As of December 31, 2006, the Company
continued to operate with sufficient liquidity to meet its obligations as they
come due. The Company anticipates that its capital expenditure program and
quarterly dividend distributions will continue to be financed with internally
generated funds and available credit facilities.

    Investing Activities

    
                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Acquisitions           -    (17,430)  (100)          -    (79,021)  (100)
    Net purchase of
     property and
     equipment       (85,662)   (84,506)     1    (325,483)  (247,696)    31
    Net change in
     non-cash
     working capital  12,000     17,750    (32)     40,053     14,956    168
                     --------------------------------------------------------
    Cash used in
     investing
     activities      (73,662)   (84,186)    13    (285,430)  (311,761)     8
    -------------------------------------------------------------------------
    

    The Company strives to provide its customers with safe and modern
equipment. In support of this goal, the Company expended $325.5 million in
2006 in connection with the modernization of its existing rig fleet and
new-build program, $85.7 million of which was expended in the fourth quarter
of 2006. Capital projects approved in 2006 included 16 newly constructed or
refurbished drilling rigs for the United States (including 13 ADR(TM)s); and
six drilling rigs (including two ADR(TM)s) and two slant well servicing rigs
for Canada. Of the United States additions, two conventional drilling rigs and
one ADR(TM) were completed and placed into service in 2006, with the remaining
ADR(TM)s expected to be delivered throughout 2007. All six of the new drilling
rigs constructed for the Canadian market were completed and placed into
service in 2006. The two new slant well servicing rigs are expected to be
completed and in service by the second quarter of 2007. The Company is also
planning to bolster its international equipment fleet with the refurbishment
of two drilling rigs and the reactivation of one previously idle drilling rig.
The remaining 2006 capital projects scheduled for completion in 2007 will be
financed with internally generated funds and available credit facilities.
    The Company did not complete any corporate acquisitions during the year
ended December 31, 2006. In the year ended December 31, 2005, the Company
completed two corporate acquisitions totaling $79.0 million. In January 2005,
the Company acquired all of the issued and outstanding shares of Servicios
Petroleros Flint, C.A. and Flintco del Ecuador C.A. (subsequently renamed
Ensign de Venezuela C.A. and Ensign del Ecuador, C.A., respectively). Ensign
de Venezuela provides contract drilling and workover services in Venezuela.
The Company ceased operations in Ecuador in 2006 and repositioned the two
workover rigs previously operating in that country to Argentina. In November
2005, the Company entered the well servicing market in the United States
through the acquisition of Action Energy Services and Action Oil Field
Services, Inc. (subsequently renamed Ensign Well Services Inc.). Ensign Well
Services Inc. operates 11 well servicing units in the Rocky Mountain region of
the United States.

    Financing Activities

    
                     Three months ended December 31   Year ended December 31
                     --------------------------------------------------------
                                            %                             %
    ($ thousands)       2006       2005  change       2006       2005  change
    -------------------------------------------------------------------------
    Net (decrease)
     increase in
     operating lines
     of credit       (24,670)   (10,534)   134     (95,790)    68,842   (239)
    Issue of capital
     stock             3,623        663    446       6,556      3,132    109
    Dividends        (12,155)    (7,565)    61     (42,505)   (25,706)    65
    Net change in
     non-cash
     working capital     769      1,515    (49)      4,589      1,530    200
                     --------------------------------------------------------
    Cash (used in)
     provided by
     financing
     activities      (32,433)   (15,921)   104    (127,150)    47,798   (366)
    -------------------------------------------------------------------------
    

    During the year ended December 31, 2006, the Company generated cash flows
in excess of its operating and capital requirements, thereby allowing the
Company to reduce the utilized balance of its operating lines of credit. The
Company repaid a net $95.8 million and $24.7 million in the year ended
December 31, 2006 and in the three months ended December 31, 2006,
respectively. Subsequent to December 31, 2006, the Company increased the
amount available under its United States operating line of credit to
USD $50.0 million to finance its new build projects and support its expanded
operations in the United States. As of March 19, 2007, the Company had not yet
drawn on this United States based credit facility.
    During the year ended December 31, 2006, the Company declared dividends
of $0.28 per common share, an increase of 65 percent over $0.17 per common
share declared in 2005. During 2006, the Company announced two increases to
its quarterly dividend rate: a 50 percent increase in the second quarter; and
a further seven percent increase in the fourth quarter of 2006. The Company
has increased its dividend every year since it began paying a dividend in
1995. Subsequent to December 31, 2006, the Company declared a dividend for the
first quarter of 2007. A quarterly dividend of approximately $12.2 million,
being $0.08 per common share, was declared for payment on April 2, 2007, to
all shareholders of record as of March 20, 2007. All dividends paid by the
Company subsequent to January 1, 2006 qualify as an eligible dividend as
defined by subsection 89(1) of the Income Tax Act.
    Other financing activities include the issue of capital stock on the
exercise of employee stock options. During the year ended December 31, 2006,
$6.6 million was received on the exercise of employee stock options,
$3.6 million of which was received in the fourth quarter of 2006.

    Outlook

    The record financial results achieved by the Company during the 2006
fiscal year were generated despite a softening in demand for oilfield services
in Canada in late 2006. The demand for oilfield services in the Company's core
Canadian market was negatively impacted by the effect of reduced natural gas
commodity prices on the cash flows and operating plans of the Company's
customers. While natural gas and crude oil commodity prices have recovered
somewhat from recent lows, the Company does not anticipate a recovery in
demand for oilfield services in Canada until such time as the market is
satisfied with natural gas supply and demand fundamentals. At this point, we
have seen reduced winter level activity in Canada compared to the prior year
and the outlook for the second and third quarters calls for lower utilization
accompanied by reduced margins.
    In contrast, the Company's United States operations have not only enjoyed
its most successful year ever, but this important market has yet to show any
significant signs of slow down. In 2007 the Company will complete its
previously announced build program in the United States, that will result in a
larger, very modern, technically-efficient rig fleet that will better position
the Company in the Rocky Mountain region and California markets. Activity
levels in the Rocky Mountain region will primarily be determined by natural
gas fundamentals and in this regard it is possible that demand for oilfield
services in the United States will follow Canada's lead and decrease later in
the year. Should activity levels begin to decrease, the Company's United
States drilling divisions have some protection given the term contracts
associated with the newly built or refurbished drilling equipment.
    The Company's international operations continue to show steady
improvement in operational and financial results. A tighter global drilling
rig market has resulted in less downtime between contracts and improved
margins as contracts are renewed or negotiated. While there has not been a
"step change" in the magnitude of the improvements in the international
onshore drilling market, the direction of the changes have been positive and
the outlook is optimistic given favorable indicators around global supply and
demand fundamentals for crude oil. There remain a number of geopolitical
issues in key international onshore markets; however, the risks are being
monitored and managed to the extent that the Company is able.
    The overall uncertainty around the current outlook for oilfield services
creates not only volatility with respect to the Company's financial results,
but also opportunities within the sector. The Company's strong balance sheet
and growth strategy will enable it to search for and take advantage of
opportunities to continue to grow through any real or perceived downturn in
activity in all of its market segments.

    Recent Developments

    The Company is pleased to announce the appointment of Mr. Bob Geddes and
Mr. Barth Whitham to its Board of Directors effective March 15, 2007.
Effective January 1, 2007, Mr. Geddes assumed the role of President and Chief
Operating Officer of the Company and has been with the Company for over
15 years. Mr. Whitham currently holds the position of President and Chief
Executive of Enduring Resources, LLC., based in Denver, Colorado. Mr. Whitham
also serves on several boards, including Western Bank Corporation and First
National Bank. Mr. Whitham holds a BS in Petroleum Engineering and a MS in
Economics.

    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.

    A conference call will be held to discuss the Company's fourth quarter
results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, March 19, 2007. The
conference call number is 1-416-644-3418 or toll free 1-800-731-5774. A taped
recording will be available until March 26, 2007 by dialing 1-416-640-1917 or
toll free 1-877-289-8525 and entering reservation number 21223758 followed by
the number sign. 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.



    
    CONSOLIDATED BALANCE SHEETS
    As at December 31, 2006 and 2005
    (in thousands of dollars)

                                                    December 31  December 31
                                                        2006         2005
                                                        ----         ----
    Assets

    Current assets
    Cash and cash equivalents                            14,570       31,993
    Accounts receivable                                 365,075      387,106
    Inventory and other                                  77,228       52,464
    Future income taxes                                  11,010       20,534
                                                    -------------------------

                                                        467,883      492,097

    Property and equipment                            1,294,266    1,030,242
                                                    -------------------------

                                                      1,762,149    1,522,339
                                                    -------------------------
                                                    -------------------------

    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities            241,976      246,684
    Operating lines of credit                            69,989      165,779
    Current portion of stock-based compensation          33,818       59,641
    Income taxes payable                                 46,783       24,305
    Dividends payable                                    12,155        7,566
                                                    -------------------------

                                                        404,721      503,975

    Stock-based compensation                             17,999       46,134

    Future income taxes                                 231,824      200,328
                                                    -------------------------

                                                        654,544      750,437
                                                    -------------------------

    Shareholders' Equity

    Capital stock                                       154,838      136,972
    Cumulative translation adjustment                   (20,163)     (39,221)
    Retained earnings                                   972,930      674,151
                                                    -------------------------

                                                      1,107,605      771,902
                                                    -------------------------

                                                      1,762,149    1,522,339
                                                    -------------------------
                                                    -------------------------



    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    (in thousands of dollars, except per share data)

                                Three months ended                Year ended
                                       December 31               December 31
                                 2006         2005         2006         2005
                                 ----         ----         ----         ----

    Revenue
    Oilfield services         421,908      476,192    1,807,230    1,520,724

    Expenses
    Oilfield services         283,982      308,000    1,161,213    1,031,412
    Depreciation               18,604       20,117       80,921       74,917
    General and
     administrative            15,732       15,778       52,683       41,149
    Stock-based compensation    3,410       33,580       (6,050)      95,415
    Interest                    1,177        1,818        5,127        6,823
                             ------------------------------------------------

                              322,905      379,293    1,293,894    1,249,716
                             ------------------------------------------------

    Income before
     income taxes              99,003       96,899      513,336      271,008

    Income taxes
    Current                     6,236       32,602      131,436       80,841
    Future                     28,829        4,328       40,616       20,502
                             ------------------------------------------------

                               35,065       36,930      172,052      101,343
                             ------------------------------------------------

    Net income for the year    63,938       59,969      341,284      169,665

    Retained earnings -
     beginning of year        921,147      621,747      674,151      530,192

    Dividends                 (12,155)      (7,565)     (42,505)     (25,706)
                             ------------------------------------------------

    Retained earnings -
     end of year              972,930      674,151      972,930      674,151
                             ------------------------------------------------
                             ------------------------------------------------

    Net income per share
    Basic                      $ 0.42       $ 0.40       $ 2.25       $ 1.12
    Diluted                    $ 0.41       $ 0.38       $ 2.18       $ 1.09
                             ------------------------------------------------
                             ------------------------------------------------




    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (in thousands of dollars)

                                Three months ended                Year ended
                                       December 31               December 31
                                 2006         2005         2006         2005
                                 ----         ----         ----         ----

    Cash provided by (used in)

    Operating activities
    Net income for the year    63,938       59,969      341,284      169,665
    Items not affecting cash:
      Depreciation             18,604       20,117       80,921       74,917
      Stock-based
       compensation,
       net of cash paid        (1,792)      27,740      (42,648)      72,102
      Future income taxes      28,829        4,328       40,616       20,502
                             ------------------------------------------------

    Cash provided by
     operating activities
     before the change
     in non-cash working
     capital                  109,579      112,154      420,173      337,186
    Net change in non-cash
     working capital           (9,854)     (12,771)     (25,016)     (56,941)
                             ------------------------------------------------

                               99,725       99,383      395,157      280,245
                             ------------------------------------------------
    Investing activities
    Acquisitions                    -      (17,430)           -      (79,021)
    Net purchase of
     property and equipment   (85,662)     (84,506)    (325,483)    (247,696)
    Net change in non-cash
     working capital           12,000       17,750       40,053       14,956
                             ------------------------------------------------

                              (73,662)     (84,186)    (285,430)    (311,761)
                             ------------------------------------------------
    Financing activities
    Net (decrease) increase
     in operating lines
     of credit                (24,670)     (10,534)     (95,790)      68,842
    Issue of capital stock      3,623          663        6,556        3,132
    Dividends                 (12,155)      (7,565)     (42,505)     (25,706)
    Net change in non-cash
     working capital              769        1,515        4,589        1,530
                             ------------------------------------------------

                              (32,433)     (15,921)    (127,150)      47,798
                             ------------------------------------------------

    (Decrease) increase
     in cash and cash
     equivalents during
     the year                  (6,370)        (724)     (17,423)      16,282

    Cash and cash
     equivalents -
     beginning of year         20,940       32,717       31,993       15,711
                             ------------------------------------------------

    Cash and cash
     equivalents  -
     end of year               14,570       31,993       14,570       31,993
                             ------------------------------------------------
                             ------------------------------------------------

    Supplemental information
    Interest paid               1,069        1,984        5,358        7,350
    Income taxes paid          22,078       16,464      108,958       76,189
                             ------------------------------------------------
                             ------------------------------------------------
    
    %SEDAR: 00001999E




For further information:

For further information: Glenn Dagenais, Executive Vice President
Finance and Chief Financial Officer, (403) 262-1361


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