Ensign Energy Services Inc. - 2007 Third Quarter Earnings



    CALGARY, Nov. 5 /CNW/ -

    Overview

    Ensign Energy Services Inc. (the "Company") reports net income of
$49.7 million ($0.33 per common share) for the third quarter of 2007, a
decrease of $53.1 million or 52 percent from net income of $102.9 million
($0.68 per common share) recorded in the third quarter of 2006. EBITDA (as
defined below) for the three months ended September 30, 2007 totaled
$103.5 million ($0.68 per common share) compared with EBITDA of $159.5 million
($1.05 per common share) in the three months ended September 30, 2006, a
decline of 35 percent.
    Net income of $177.2 million ($1.16 per common share) for the nine months
ended September 30, 2007 compares with net income of $277.3 million ($1.83 per
common share) recorded in the nine months ended September 30, 2006, a decrease
of 36 percent. EBITDA for the nine months ended September 30, 2007 totaled
$359.6 million ($2.36 per common share), a decrease of 24 percent from EBITDA
of $471.1 million ($3.11 per common share) in the first three quarters of
2006.
    The decline in financial results in the third quarter of 2007 and the
nine months ended September 30, 2007 is primarily the result of declining
contributions from the Company's Canadian oilfield services division. Weaker
demand for oilfield services throughout the Western Canada Sedimentary Basin
("WCSB"), combined with an over-supply of equipment, negatively impacted
equipment utilization and operating margins in 2007 compared to the record
levels of 2006. The Company's expansion of its United States operations and
the stable returns generated by its international oilfield services division
partially mitigated the challenging operating environment experienced in
Canada in the first nine months of 2007.


    
    -------------------------------------------------------------------------
    FINANCIAL AND OPERATING HIGHLIGHTS
    ($ thousands, except per share data and operating information)
    -------------------------------------------------------------------------
                         Three months ended            Nine months ended
                             September 30                 September 30
    -------------------------------------------------------------------------
                       2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Revenue         383,316  459,778      (17) 1,189,340  1,385,322      (14)
    -------------------------------------------------------------------------
    EBITDA(1)       103,519  159,464      (35)   359,624    471,140      (24)
    EBITDA per
     share(1)
      Basic           $0.68    $1.05      (35)     $2.36      $3.11      (24)
      Diluted         $0.67    $1.02      (34)     $2.31      $3.00      (23)
    -------------------------------------------------------------------------
    Adjusted net
     income(2)       50,157   88,279      (43)   182,227    271,197      (33)
    Adjusted net
     income per
     share(2)
      Basic           $0.33    $0.58      (43)     $1.20      $1.79      (33)
      Diluted         $0.32    $0.56      (43)     $1.17      $1.73      (32)
    -------------------------------------------------------------------------
    Net income       49,748  102,850      (52)   177,204    277,346      (36)
    Net income
     per share
      Basic           $0.33    $0.68      (51)     $1.16      $1.83      (37)
      Diluted         $0.32    $0.66      (52)     $1.14      $1.77      (36)
    -------------------------------------------------------------------------
    Funds from
     operations(3)   53,257   99,653      (47)   210,743    310,594      (32)
    Funds from
     operations
     per share(3)
      Basic           $0.35    $0.66      (47)     $1.38      $2.05      (33)
      Diluted         $0.34    $0.64      (47)     $1.35      $1.98      (32)
    -------------------------------------------------------------------------
    Weighted
     average
     shares -
     basic (000s)   152,516  151,786        -    152,456    151,708        -
    Weighted
     average
     shares -
     diluted
     (000s)         155,513  156,800       (1)   155,534    156,913       (1)
    -------------------------------------------------------------------------
    Drilling
      Number of
       marketed
       rigs
        Canada
          Conven-
           tional       162      162        -        162        162        -
          Oil sands
           coring/
           coal-bed
           methane       31       21       48         31         21       48

        United States    74       65       14         74         65       14
        Interna-
         tional(4)       49       47        4         49         47        4
      Operating days
        Canada        5,760    8,861      (35)    18,108     25,896      (30)
        United
         States       5,118    4,735        8     14,271     13,714        4
        Interna-
         tional       2,274    2,138        6      6,929      6,698        3
    -------------------------------------------------------------------------
    Well Servicing
      Number of
       marketed
       rigs/units
        Canada          115      116       (1)       115        116       (1)
        United
         States          12        8       50         12          8       50
      Operating
       hours
        Canada       39,674   49,378      (20)   129,899    158,942      (18)
        United
         States       7,035    5,505       28     19,421     16,214       20
    -------------------------------------------------------------------------
    (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
        to 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.


    Revenue and Oilfield Services Expense

                         Three months ended           Nine months ended
                             September 30                September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Revenue
      Canada        169,726  271,124      (37)   592,884    843,061      (30)
      United
       States       149,108  132,988       12    416,739    377,563       10
      Interna-
       tional        64,482   55,666       16    179,717    164,698        9
                   ----------------------------------------------------------
                    383,316  459,778      (17) 1,189,340  1,385,322      (14)
    Oilfield
     services
     expense        268,270  288,678       (7)   791,151    877,231      (10)
                   ----------------------------------------------------------
                    115,046  171,100      (33)   398,189    508,091      (22)
                   ----------------------------------------------------------
    Gross margin      30.0%    37.2%               33.5%      36.7%
    -------------------------------------------------------------------------
    

    The Company's Canadian oilfield services division faced an increasingly
competitive market in the first nine months of 2007. Although the Company
maintains a strong presence in key crude oil regions of the WCSB and offers a
diverse range of services, the majority of exploration and development
activity in western Canada remains focused on natural gas. Lower natural gas
commodity prices persisted throughout the first three quarters of 2007,
resulting in a decrease in drilling and well servicing demand. The reduction
in the number of natural gas wells being drilled in Western Canada comes at a
time of a significant increase in industry-wide capacity, compounding the
impact to utilization and pricing. These factors contributed to the decline in
revenue generated by the Company's Canadian oilfield services division, which
decreased 37 percent and 30 percent in the third quarter of 2007 and nine-
month period ended September 30, 2007, respectively, compared with the
corresponding periods of 2006.
    The Company's gradual expansion of its United States operations has
successfully diversified its operations geographically, providing growth in
revenue and operating activity levels during periods of declining demand in
Canada. On a year-to-date basis, revenue generated by the Company's United
States oilfield services division now accounts for 35 percent of consolidated
revenue compared with 27 percent one year ago. Revenue generated by the United
States oilfield services division in the third quarter of 2007 totaled
$149.1 million compared with $133.0 million in the third quarter of 2006, an
increase of 12 percent. For the nine months ended September 30, 2007, revenue
of $416.7 million compares with revenue of $377.6 million for the nine months
ended September 30, 2006, an increase of 10 percent. The improved financial
contributions are largely the result of the successful deployment of the
Company's proprietary Automated Drill Rig ("ADR(TM)") technology to that
market. During the first three quarters of 2007, a total of 11 ADRs were added
to the equipment fleet in the United States, with an additional two ADRs
scheduled to commence operations in the fourth quarter of 2007.
    Revenue generated by the Company's international oilfield services
division totaled $64.5 million for the three months ended September 30, 2007
compared with $55.7 million for the three months ended September 30, 2006, an
increase of 16 percent. For the nine months ended September 30, 2007, revenue
increased nine percent to $179.7 million compared with revenue of $164.7
million recorded in the nine months ended September 30, 2006. The Company
continuously assesses growth opportunities around the globe and relocates
equipment accordingly. During 2007, the Company relocated two drilling rigs
from Canada to Australia where they will operate under long-term contracts.
During the third quarter of 2007, one of these drilling rigs commenced
operations while the second will be introduced into service in the fourth
quarter of 2007. The Company is nearing completion of the construction of two
drilling rigs for operations in the Middle East, with delivery anticipated in
the fourth quarter of 2007. The upgrade and reactivation of one drilling rig
in Africa is in progress and is expected to be complete in the first quarter
of 2008.
    Oilfield services expense totaled $268.3 million in the three months
ended September 30, 2007, a decline of seven percent compared with the third
quarter of 2006. For the nine months ended September 30, 2007, oilfield
services expense declined 10 percent to $791.2 million compared with the nine
months ended September 30, 2006. The decline in oilfield services expense is
due to a decline in consolidated operating activity levels on a period-over-
period basis, partially offset by an increase in labour and material costs.
Gross margin was 30.0 percent for third quarter of 2007 compared with
37.2 percent for the third quarter of 2006. On a year-to-date basis, gross
margin was 33.5 percent in 2007 compared with 36.7 percent in 2006. The
weakening Canadian market and the resultant lower pricing is the largest
factor contributing to the decline in gross margin on a period-over-period
basis.

    
    Depreciation

                         Three months ended           Nine months ended
                            September 30                 September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Depreciation     22,028   22,309       (1)    64,938     62,317        4
    -------------------------------------------------------------------------

    Depreciation expense totaled $22.0 million for the third quarter of 2007
compared with $22.3 million for the third quarter of 2006. For the nine months
ended September 30, 2007, depreciation expense totaled $64.9 million compared
with $62.3 million for the nine months ended September 30, 2006. Depreciation
expense is calculated on a unit-of-production basis for rigs and related
equipment. Throughout the first nine months of 2007, a higher cost base of
equipment in operation offset the impact of lower equipment utilization rates
on depreciation expense. Depreciation expense per operating day increased in
2007 as the Company introduced newly constructed and higher valued assets to
its equipment fleet.


    General and Administrative Expense

                         Three months ended           Nine months ended
                            September 30                 September 30
                    ---------------------------------------------------------
    ($ thousands)       2007    2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    General and
     administrative  11,527   11,636       (1)    38,565     36,951        4
    % of revenue       3.0%     2.5%                3.2%       2.7%
    -------------------------------------------------------------------------

    As a percentage of revenue, general and administrative expense for the
third quarter of 2007 was 3.0 percent compared with 2.5 percent for the third
quarter of 2006. On a year-to-date basis, general and administrative expense
as a percentage of revenue is 3.2 percent in 2007 compared with 2.7 percent in
2006. Costs contributing to general and administrative expense are relatively
fixed and, as a result, general and administrative expense as a percentage of
revenue will increase during periods of declining revenue levels. On a gross
dollar basis, general and administrative expense for both the quarter and nine
months ended September 30, 2007 is comparable to the prior periods.


    Stock-Based Compensation Expense

                         Three months ended           Nine months ended
                             September 30                 September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Stock-based
     compensation       630  (22,417)    (103)     7,728     (9,460)    (182)
    -------------------------------------------------------------------------

    Stock-based compensation expense arises from the intrinsic value
accounting of 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 of stock options and changes in the underlying price of
the Company's common shares. Stock-based compensation expense for the third
quarter of 2007 is comprised of $1.7 million for additional vesting of stock
options (net of forfeitures), net of a $1.1 million decrease associated with a
decline in the price of the Company's common shares. For the nine-month period
ended September 30, 2007, stock-based compensation expense is comprised of
$5.3 million for additional granting and vesting of stock options, $4.3
million related to the increase in the price of the Company's common shares,
and a recovery of $1.9 million due to forfeitures during the period. The price
of the Company's common shares was $18.78 at September 30, 2007 compared with
$19.00 at June 30, 2007 and $18.39 at December 31, 2006.

    The significant recovery of stock-based compensation expense in the three
months and nine months ended September 30, 2006 is primarily the result of
decreases in the price of the Company's common shares during these periods.
Share price declines of $4.39 and $4.91 were experienced in the third quarter
of 2006 and in the nine months ended September 30, 2006, respectively.

    Interest Expense

                         Three months ended            Nine months ended
                            September 30                  September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Interest          1,190    1,213       (2)     4,095      3,950        4
    -------------------------------------------------------------------------

    Interest expense is incurred on the Company's operating lines of credit.
Interest expense totaled $1.2 million for the third quarter of 2007 and $4.1
million for the nine months ended September 30, 2007, both of which are
comparable to the corresponding periods of 2006.

    Income Taxes

                         Three months ended            Nine months ended
                            September 30                  September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Current income
     tax             48,944   53,635       (9)   130,776    125,200        4
    Future income
     tax            (19,021)   1,874   (1,115)   (25,117)    11,787     (313)
                    ---------------------------------------------------------
                     29,923   55,509      (46)   105,659    136,987      (23)
                    ---------------------------------------------------------
    Effective income
     tax rate (%)     37.6%    35.1%               37.4%      33.1%
    -------------------------------------------------------------------------
    

    The effective income tax rate for the third quarter of 2007 was
37.6 percent compared with 35.1 percent in the third quarter of 2006. For the
nine months ended September 30, 2007, the effective income tax rate was
37.4 percent compared with 33.1 percent in the nine months ended September 30,
2006. The increase in the Company's effective income tax rate on a year-over-
year basis is partially due to the recognition of substantively enacted income
tax rate reductions in Canada in the second quarter of 2006. During the second
quarter of 2006, a one-time reduction in the Company's opening future income
tax liability of $11.5 million was recognized.
    Current income tax expense for the nine months ended September 30, 2007
includes $4.0 million related to Omani tax assessments. As previously
disclosed, the Company's Oman operating entity was appealing income tax
assessments received for the 1994, 1995 and 1996 financial years. The Company
was appealing these assessments; however, the Company's appeal was dismissed
during the second quarter of 2007. Excluding the impact of the Omani tax
assessments, the effective income tax rate would have been 35.9 percent for
the nine months ended September 30, 2007.
    The future income tax recovery in 2007 is due to partnership timing
differences and an income tax rate reduction in Canada. Taxable income
generated by Canadian partnerships was a significant component of the future
income tax liability as at December 31, 2006. This balance declined as of
September 30, 2007 due to the decline in income generated by Canadian
partnerships. Also, a further income tax rate reduction in Canada of
0.5 percent was enacted in the second quarter of 2007. The application of this
rate reduction on opening future income tax balances resulted in a one-time
reduction in the Company's opening future income tax liability of
$2.2 million.

    Financial Position

    The following chart outlines significant changes in the consolidated
balance sheets from December 31, 2006 to September 30, 2007:

    
    ($ thousands)        Change   Explanation
    -------------------------------------------------------------------------
    Cash and cash           731   See consolidated statement of cash flows.
    equivalents

    Accounts receivable (82,681)  Decrease due to the reduction in
                                  operating activity within the Canadian
                                  oilfield services division.

    Inventory and other   7,726   Increase due to additions to drill
                                  pipe inventory.

    Property and         87,379   Increase due to ongoing capital
     equipment                    expenditures and equipment under
                                  construction, offset by depreciation
                                  for the period.

    Accounts payable    (58,481)  Decrease due to the reduction in operating
     and accrued                  activity within the Canadian oilfield
     liabilities                  services division.

    Operating lines      42,375   Increase in utilization of the available
     of credit                    United States and Australian-based
                                  operating lines of credit, net of
                                  repayments in Canada during the period

    Stock-based          (9,412)  Decrease due to stock option exercises,
     compensation                 net of the increase associated with
                                  additional vesting and share price
                                  increases.

    Income taxes        (10,292)  Decrease due to income tax payments, net
     payable                      of the current income tax provision
                                  for the period.

    Dividends payable        47   Increase due to a slight increase in the
                                  number of outstanding common shares
                                  compared with the fourth quarter of 2006.

    Future income       (27,773)  Decrease due to the future income tax
     taxes                        recovery in the period and an income
                                  tax rate reduction in Canada.

    Shareholders'        76,691   Increase due to the aggregate impact of
     equity                       net income for the period, increase in
                                  capital stock due to exercises of
                                  employee stock options, impact of foreign
                                  exchange rate fluctuations on net assets
                                  of foreign self-sustaining subsidiaries,
                                  net of dividends declared in the period.
    -------------------------------------------------------------------------


    Working Capital and Funds from Operations

                         Three months ended             Nine months ended
                            September 30                  September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Funds from
     operations      53,257   99,653      (47)   210,743    310,594      (32)
    Funds from
     operations per
     share            $0.35    $0.66      (47)     $1.38      $2.05      (33)
    Working
     capital(1)      16,558   63,162      (74)    16,558     63,162      (74)
    -------------------------------------------------------------------------
    (1) Comparative figures as of December 31, 2006.
    

    During the three months ended September 30, 2007, the Company generated
funds from operations of $53.3 million ($0.35 per common share) compared with
funds from operations of $99.7 million ($0.66 per common share) for the three
months ended September 30, 2006, a decline of 47 percent. Funds from
operations totaled $210.7 million ($1.38 per common share) in the first nine
months of 2007, a decline of 32 percent from funds from operations of $310.6
million ($2.05 per common share) generated in the nine months ended September
30, 2006. The decline from the record levels of funds from operations
generated in 2006 is predominantly due to a reduction in operating activity
and compressed margins in the Company's Canadian oilfield services division on
a period-over-period basis. Compared to the corresponding periods of 2006,
reduced oilfield services activity in Canada in both the third quarter of 2007
and the nine months ended September 30, 2007 was partially offset by increased
contributions from the Company's United States oilfield services division.
    The Company had a positive working capital position of $16.6 million at
September 30, 2007 compared with working capital of $63.2 million at December
31, 2006. The decline in working capital is largely due to an increase in the
utilized balance of the Company's United States and international operating
lines of credit, which are supporting capital expenditure initiatives in those
segments.
    As of September 30, 2007, the Company continues to operate with no long-
term debt. The Company's strong balance sheet positions the Company to weather
the downturn in the Canadian market, as well as provides the financial
strength to pursue potential growth opportunities as they may arise.


    
    Investing Activities

                          Three months ended          Nine months ended
                             September 30                September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Net purchase of
     property and
     equipment      (62,850) (74,716)     (16)  (223,967)  (239,821)      (7)
    Net change in
     non-cash
     working
     capital         12,183  (13,296)    (192)   (14,218)   (14,342)      (1)
                    ---------------------------------------------------------
    Cash used in
     investing
     activities     (50,667) (88,012)     (42)  (238,185)  (254,163)      (6)
    -------------------------------------------------------------------------
    

    A substantial portion of the Company's 2007 capital expenditure program
was directed toward expansion of its equipment fleet in the United States.
During the nine months ended September 30, 2007, construction of 11 ADRs was
completed within the United States, including three within the third quarter
of 2007. An additional two ADRs were completed subsequent to September 30,
2007, with one being introduced into service in October 2007 and the second in
early November 2007. The delivery of these additional ADRs in the fourth
quarter of 2007 completes the Company's 2007 13-ADR(TM)-build program.
    Capital expenditure activity within Canada in the third quarter of 2007
included the addition of two newly constructed slant well servicing rigs.
Other capital expenditures completed by the Company in the first nine months
of 2007 include the addition of one triple drilling rig to its fleet of
equipment in southeastern Saskatchewan in the second quarter of 2007, a double
drilling rig slated for operations in northeastern British Columbia and nine
oilsands coring rigs in the first quarter of 2007. The Canadian oilfield
services division also recently completed the construction of a new ADR(TM),
which will commence operations in the fourth quarter of 2007 under a long-term
contract in northern Alberta. Within the international arena, the Company is
currently refurbishing two drilling rigs for operations in the Middle East and
reactivating one previously idle drilling rig for operations in Libya.
    Other equipment movements during 2007 include the transfer of two
drilling rigs from the Canadian fleet of equipment to Australia, where they
will both operate under long-term contracts. One well servicing rig was also
transferred from Canada to the Rocky Mountain region of the United States.
These movements demonstrate the Company's ability to leverage its established
operational bases around the globe and to relocate idle equipment to areas of
higher demand.

    
    Financing Activities

                         Three months ended            Nine months ended
                            September 30                   September 30
                    ---------------------------------------------------------
    ($ thousands)      2007     2006  % change      2007       2006  % change
    -------------------------------------------------------------------------
    Net increase
     (decrease) in
      operating
      lines of
      credit         48,243   10,826      346     42,375    (71,120)    (160)
    Issue of
     capital stock      276      422      (35)     1,942      2,933      (34)
    Dividends       (12,202) (11,386)       7    (36,591)   (30,350)      21
    Net change in
     non-cash
     working capital      1        5      (80)        47      3,820      (99)
                    ---------------------------------------------------------
    Cash provided
     by (used in)
     financing
     activities      36,318     (133) (27,407)     7,773    (94,717)    (108)
    -------------------------------------------------------------------------
    

    The Company increased the utilized balance of its operating lines of
credit during both the three months and nine months ended September 30, 2007.
Net repayments made by the Company's Canadian oilfield services division were
offset by increases in the United States and Australian-based operating lines
of credit. During the first quarter of 2007, the Company amended the terms of
its United States-based operating line of credit and increased the amount
available to US$50.0 million. The increased credit facility is being used to
finance the Company's new build projects and support its expanded operations
in the United States. The Company also temporarily increased its available
Australia-based facility by AUD$22.2 million in the third quarter of 2007 to
finance the three additional drilling rigs being prepared for long-term
contracts in the international market.
    Other financing activities during the third quarter of 2007 include the
receipt of $0.3 million on the exercise of employee stock options and the
payment of dividends in the amount of $12.2 million. Dividends were declared
at a quarterly dividend rate of $0.08 per common share for the three months
ended September 30, 2007, an increase of seven percent over the third quarter
of 2006. For the nine months ended September 30, 2007, cash received on
employee stock option exercises totaled $1.9 million and dividends totaled
$36.6 million. During the first nine months of 2007, the Company declared
year- to-date dividends totaling $0.24 per common share compared with $0.20
during the first nine months of 2006. All dividends paid by the Company
subsequent to January 1, 2006 qualify as an eligible dividend, as defined by
subsection 89(1) of the Canadian Income Tax Act ("ITA").
    The Company also announces an increase of three percent in its regular
quarterly dividend to $0.0825 per common share. The Company has increased the
cumulative amount of dividends declared in each fiscal year since the Company
began paying a dividend in September 1995. The Board of Directors of the
Company has declared the dividend of $0.0825 to be payable on January 2, 2008
to all Common Shareholders of record as of December 20, 2007. The dividend
payment is pursuant to the quarterly dividend policy adopted by the Company.
Pursuant to subsection 89(14) of the ITA, the dividend being paid is being
designated as an eligible dividend, as defined in subsection 89(1) of the ITA.

    Outlook

    The third quarter financial results reflect the deteriorating market
conditions in Canada, the growing positive impact of the Company's United
States operations and continued steady improvement of the Company's
international operations.
    The fundamentals around natural gas remain weak as North American storage
levels are at peak levels heading into the winter heating season. The Canadian
market has been especially hard hit as operators have experienced reduced
economic returns due to relatively low commodity price levels for natural gas
and a stronger Canadian dollar. Such reduced economics have resulted in
reduced levels of demand for oilfield services at a time when the oilfield
services industry's fleet of equipment has reached record levels. There is
currently too much equipment chasing a reduced number of jobs. Accordingly,
the deterioration of day rates experienced in the latter part of the third
quarter has continued into the fourth quarter. As if basic supply and demand
fundamentals were not enough, the government of the Province of Alberta chose
to conduct a royalty review thereby adding another layer of uncertainty onto
an already uncertain market. The government of Alberta announced proposed
changes to the royalty rate structure on October 25, 2007. These proposed
changes have been deemed by some to be a reasonable compromise between the
status quo and the proposals of a royalty review panel commissioned by the
government of Alberta. Only time will tell the ultimate impact of the royalty
changes on each sub-sector of the oil and natural gas industry within Alberta.
Unfortunately for the Company, the damage in the near-term has been done as
many customers have reduced planned expenditures in Alberta for the upcoming
winter drilling season due to reduced economics and uncertainty around the
impact of the new royalty regime. Accordingly, utilization and margins will be
negatively impacted until such time as natural gas commodity prices improve to
a level that is attractive for more investment by the Company's customers in
western Canada, particularly those affected by Alberta's new royalty
environment. The challenges facing the Company and the Canadian industry are
summarized in the Canadian Association of Oilwell Drilling Contractors
forecast for 13,735 wells to be drilled in western Canada in 2008, for an
average drilling rig utilization of 35 percent for the year, numbers not seen
since 2002 when the drilling rig fleet was substantially smaller.
    Partially offsetting the expected weakness in the Canadian market is the
Company's growing presence in the United States and international markets. The
United States operations are subject to similar natural gas fundamentals that
are challenging the Canadian market, but to this point operators appear to be
committed to continuing with the unconventional plays that underscore the
increased level of activity in the Rocky Mountain region. However, another
mild winter and high season-ending natural gas storage levels could result in
reduced levels of demand in the United States in the second half of 2008 if
operators choose to adjust their programs following the winter season. The
California market, which is largely crude oil based, is expected to continue
at a steady level of activity. The international market segment is also
primarily driven by crude oil pricing levels, which are currently at
historical highs. Further, the international market is experiencing increased
demand for oilfield services in support of increased development of the liquid
natural gas (LNG) sector. Accordingly, the Company continues to experience
continued improvements in its international operations.
    The Company continues to face many challenges in its operations, mainly
within Canada at this time. The Company has the people, the experience, the
quality equipment fleet (including the advanced technology of our growing
ADR(TM) drilling fleet), the geographic diversification and the financial
strength and discipline that give it an advantage over many of its
competitors. The next year will be full of challenges and opportunities, which
the Company is well positioned to meet head on.

    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 third quarter
results at 2:00 p.m. MST (4:00 p.m. EST) on Monday, November 5, 2007. The
conference call number is 1-800-733-7571. A taped recording will be available
until November 12, 2007 by dialing 1-877-289-8525 and entering reservation
number 21252523 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 September 30, 2007 and December 31, 2006
    (Unaudited, in thousands of dollars)

                                                September 30     December 31
                                                    2007            2006
                                                    ----            ----

    Assets

    Current assets
    Cash and cash equivalents                         15,301          14,570
    Accounts receivable                              282,394         365,075
    Inventory and other                               84,954          77,228
    Future income taxes                               10,418          11,010
                                               ------------------------------

                                                     393,067         467,883

    Property and equipment                         1,381,645       1,294,266
                                               ------------------------------

                                                   1,774,712       1,762,149
                                               ------------------------------
                                               ------------------------------

    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities         183,495         241,976
    Operating lines of credit                        112,364          69,989
    Current portion of stock-based
     compensation                                     31,957          33,818
    Income taxes payable                              36,491          46,783
    Dividends payable                                 12,202          12,155
                                               ------------------------------

                                                     376,509         404,721

    Stock-based compensation                          10,448          17,999

    Future income taxes                              203,459         231,824
                                               ------------------------------

                                                     590,416         654,544
                                               ------------------------------

    Shareholders' Equity

    Capital stock (note 2)                           159,910         154,838
    Accumulated other comprehensive income
     (note 1)                                        (89,871)        (20,163)
    Retained earnings                              1,114,257         972,930
                                               ------------------------------

    Contingencies and commitments (note 5)         1,184,296       1,107,605
                                               ------------------------------

                                                   1,774,712       1,762,149
                                               ------------------------------
                                               ------------------------------

    See accompanying notes to the consolidated financial statements.



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

                               Three months ended       Nine months ended
                                  September 30            September 30
                               2007          2006        2007         2006
                               ----          ----        ----         ----

    Revenue
    Oilfield services         383,316      459,778    1,189,340    1,385,322

    Expenses
    Oilfield services         268,270      288,678      791,151      877,231
    Depreciation               22,028       22,309       64,938       62,317
    General and
     administrative            11,527       11,636       38,565       36,951
    Stock-based
     compensation                 630      (22,417)       7,728       (9,460)
    Interest                    1,190        1,213        4,095        3,950
                            -------------------------------------------------

                              303,645      301,419      906,477      970,989
                            -------------------------------------------------

    Income before income
     taxes                     79,671      158,359      282,863      414,333

    Income taxes
    Current (note 5)           48,944       53,635      130,776      125,200
    Future                    (19,021)       1,874      (25,117)      11,787
                            -------------------------------------------------

                               29,923       55,509      105,659      136,987
                            -------------------------------------------------

    Net income for the
     period                    49,748      102,850      177,204      277,346

    Retained earnings -
     beginning of period,
     as originally
     reported               1,076,711      829,683      972,930      674,151
    Transition adjustment
     on adoption of
     financial instruments
     standard (note 1)              -            -          714            -
                            -------------------------------------------------
    Retained earnings -
     beginning of period,
     as restated            1,076,711      829,683      973,644      674,151

    Dividends (note 2)        (12,202)     (11,386)     (36,591)     (30,350)
                            -------------------------------------------------

    Retained earnings -
     end of period          1,114,257      921,147    1,114,257      921,147
                            -------------------------------------------------
                            -------------------------------------------------

    Net income per share
     (note 2)
    Basic                      $ 0.33       $ 0.68       $ 1.16        $1.83
    Diluted                    $ 0.32       $ 0.66       $ 1.14        $1.77
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited - in thousands of dollars)

                               Three months ended       Nine months ended
                                  September 30            September 30
                               2007          2006        2007         2006
                               ----          ----        ----         ----

    Cash provided by
     (used in)

    Operating activities
    Net income for the
     period                    49,748      102,850      177,204      277,346
    Items not affecting
     cash:
      Depreciation             22,028       22,309       64,938       62,317
      Stock-based
       compensation, net
       of cash paid               502      (27,380)      (6,282)     (40,856)
      Future income taxes     (19,021)       1,874      (25,117)      11,787
                            -------------------------------------------------

    Cash provided by
     operating activities
     before the change in
     non-cash working
     capital                   53,257       99,653      210,743      310,594
    Net change in non-cash
     working capital
     (note 4)                 (33,538)     (13,593)      20,400       27,233
                            -------------------------------------------------

                               19,719       86,060      231,143      337,827
                            -------------------------------------------------
    Investing activities
    Net purchase of
     property and equipment   (62,850)     (74,716)    (223,967)    (239,821)
    Net change in non-cash
     working capital
     (note 4)                  12,183      (13,296)     (14,218)     (14,342)
                            -------------------------------------------------

                              (50,667)     (88,012)    (238,185)    (254,163)
                            -------------------------------------------------
    Financing activities
    Net increase
     (decrease) in
     operating lines of
     credit                    48,243       10,826       42,375      (71,120)
    Issue of capital
     stock                        276          422        1,942        2,933
    Dividends (note 2)        (12,202)     (11,386)     (36,591)     (30,350)
    Net change in non-cash
     working capital
     (note 4)                       1            5           47        3,820
                            -------------------------------------------------

                               36,318         (133)       7,773      (94,717)
                            -------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents during
     the period                 5,370       (2,085)         731      (11,053)

    Cash and cash
     equivalents -
     beginning of period        9,931       23,025       14,570       31,993
                            -------------------------------------------------

    Cash and cash
     equivalents - end of
     period                    15,301       20,940       15,301       20,940
                            -------------------------------------------------
                            -------------------------------------------------

    Supplemental information
    Interest paid               1,485        1,191        3,812        4,289
    Income taxes paid          37,145       26,595      141,068       86,880
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (Unaudited - in thousands of dollars)

                               Three months ended       Nine months ended
                                  September 30            September 30
                               2007          2006        2007         2006
                               ----          ----        ----         ----

    Net income for the
     period                    49,748      102,850      177,204      277,346
    Other comprehensive
     income
      Foreign currency
       translation
       adjustment             (31,357)       1,816      (69,708)     (16,749)
                            -------------------------------------------------
    Comprehensive income       18,391      104,666      107,496      260,597
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
    (Unaudited - in thousands of dollars)

                               Three months ended       Nine months ended
                                  September 30            September 30
                               2007          2006        2007         2006
                               ----          ----        ----         ----

    Accumulated other
     comprehensive
     income - beginning
     of period                (58,514)     (57,786)     (20,163)     (39,221)
      Foreign currency
       translation
       adjustment             (31,357)       1,816      (69,708)     (16,749)
                            -------------------------------------------------
    Accumulated other
     comprehensive
     income - end of
     period                   (89,871)     (55,970)     (89,871)     (55,970)
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.


        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

        For the nine months ended September 30, 2007 and 2006
        (Unaudited - in thousands of dollars, except per share data)

        The interim consolidated financial statements have been prepared in
        accordance with Canadian generally accepted accounting principles,
        and include the accounts of Ensign Energy Services Inc. and all of
        its subsidiaries and partnerships (the "Company"), substantially all
        of which are wholly-owned. The interim consolidated financial
        statements have been prepared following the same accounting policies
        and methods of computation as the consolidated financial statements
        for the year ended December 31, 2006, except as noted below. The
        disclosures provided below are incremental to those included with the
        annual consolidated financial statements. These interim consolidated
        financial statements should be read in conjunction with the
        consolidated financial statements and the notes thereto in the
        Company's annual report for the year ended December 31, 2006.

    1.  Change in accounting policies

        Effective January 1, 2007, the Company adopted the Canadian Institute
        of Chartered Accountants Handbook Section 1530 "Comprehensive
        Income", Section 3251 "Equity" and Section 3855 "Financial
        Instruments - Recognition and Measurement". As required by the new
        standards, prior periods have not been restated except to reclassify
        the cumulative translation adjustment balance.

        Comprehensive income

        The new standards introduce comprehensive income, which consists of
        net income and other comprehensive income ("OCI"). For the Company,
        OCI is comprised entirely of the movement in the cumulative
        translation adjustment balance. The Company's consolidated financial
        statements now include Consolidated Statements of Comprehensive
        Income, which outline the components of comprehensive income.

        The cumulative changes in OCI are included in accumulated other
        comprehensive income ("AOCI"), which is presented as a new category
        within shareholders' equity in the Consolidated Balance Sheets. The
        cumulative translation adjustment, formerly presented as a separate
        category within shareholders' equity, is now included in AOCI. The
        Company's consolidated financial statements now include Consolidated
        Statements of Accumulated Other Comprehensive Income, which provide
        the continuity of the AOCI balance.

        Financial instruments

        The financial instruments standard establishes the recognition and
        measurement criteria for financial assets and financial liabilities.
        All financial instruments are required to be measured at fair value
        on initial recognition of the instrument. Measurement in subsequent
        periods depends on how the financial instruments have been classified
        in accordance with the standard. The adjustment to recognize
        financial instruments at fair value on the balance sheet was recorded
        as an adjustment to the opening balance of retained earnings.

    2.  Capital stock

        Authorized
        Unlimited common shares
        Unlimited preferred shares, issuable in series

        Outstanding

                                                   Number of
                                               Common Shares          Amount
        ---------------------------------------------------------------------
        Balance at January 1, 2007               152,267,928   $     154,838
        Issued under employee stock option
         plan                                        262,550           5,072
                                               ------------------------------
        Balance at September 30, 2007            152,530,478   $     159,910
        ---------------------------------------------------------------------

        Options

        A summary of the status of the Company's stock option plan as of
        September 30, 2007, and the changes during the nine-month period then
        ended, is presented below:

                                                                    Weighted
                                                                     Average
                                                   Number of        Exercise
                                                     Options           Price
        ---------------------------------------------------------------------
        Outstanding at January 1, 2007            11,112,100   $       13.16
        Granted                                    2,515,000           19.83
        Exercised for common shares                 (262,550)          (7.40)
        Exercised for cash                        (1,271,000)          (7.97)
        Forfeited                                   (642,800)         (16.44)
        ---------------------------------------------------------------------
        Outstanding at September 30, 2007         11,450,750   $       15.08
        ---------------------------------------------------------------------
        Exercisable at September 30, 2007          4,260,450   $       10.86
        ---------------------------------------------------------------------


                          Options Outstanding        Options Exercisable
        ---------------------------------------------------------------------
                                      Average   Weighted            Weighted
                            Options   Vesting    Average    Options  Average
        Exercise           Outstan- Remaining   Exercise   Exercis- Exercise
        Price                  ding (in years)     Price       able    Price
        ---------------------------------------------------------------------
        $6.25 to $8.75    1,893,750      0.11    $  6.74  1,687,750  $  6.49
        $9.45 to $13.50   4,608,500      1.51      11.77  2,062,900    11.48
        $16.55 to $23.33  4,948,500      3.37      21.36    509,800    22.83
                        -----------------------------------------------------
                         11,450,750      2.08    $ 15.08  4,260,450  $ 10.86
        ---------------------------------------------------------------------

        Common share dividends

        During the nine months ended September 30, 2007, the Company declared
        dividends of $36,591 (2006 - $30,350), being $0.24 per common share
        (2006 - $0.20 per common share).

        Net income per share

        Net income per share is calculated by dividing net income by the
        weighted average number of common shares outstanding during the
        period. Diluted net income per share is calculated using the treasury
        stock method, which assumes that all outstanding stock options are
        exercised, if dilutive, and the assumed proceeds are used to purchase
        the Company's common shares at the average market price during the
        period.

        The weighted average number of common shares outstanding for the
        nine months ended September 30, 2007 and 2006 are as follows:

                                                        2007            2006
                                               ------------------------------
        Weighted average number of common
         shares outstanding - basic              152,455,715     151,707,915
        Weighted average number of common
         shares outstanding - diluted            155,533,693     156,913,449
                                               ------------------------------

        Stock options of 4,806,000 (2006 - 2,769,500) were excluded from the
        calculation of diluted weighted average number of common shares
        outstanding, as the options' exercise price was greater than the
        average market price of the common shares for the period.

    3.  Segmented information

        The Company operates in three geographic areas within one industry
        segment. Oilfield services are provided in Canada, the United States
        and internationally. The amounts related to each geographic area are
        as follows:

        Nine months ended September 30, 2007
        ---------------------------------------------------------------------
                                              United      Inter-
                                  Canada      States    national       Total
        ---------------------------------------------------------------------
        Revenue                 $592,884    $416,739    $179,717  $1,189,340
        Property and equipment,
         net                    $815,320    $289,265    $277,060  $1,381,645
        Capital expenditures,
         net                     $71,794    $105,685     $46,488    $223,967
        Depreciation             $34,255     $15,201     $15,482     $64,938
        ---------------------------------------------------------------------


        Nine months ended September 30, 2006
        ---------------------------------------------------------------------
                                              United      Inter-
                                  Canada      States    national       Total
        ---------------------------------------------------------------------
        Revenue                 $843,061    $377,563    $164,698  $1,385,322
        Property and equipment,
         net                    $730,529    $220,797    $239,252  $1,190,578
        Capital expenditures,
         net                    $131,096     $95,924     $12,801    $239,821
        Depreciation             $37,536     $10,572     $14,209     $62,317
        ---------------------------------------------------------------------

    4.  Supplemental disclosure of cash flow information

                                      Three months             Six months
                                      September 30            September 30
                                    2007        2006        2007        2006
                               ----------------------------------------------
        Net change in non-cash
         working capital
          Accounts receivable   $(39,649)   $(46,767)    $82,681     $18,543
          Inventory and other     (1,026)     (4,939)     (7,726)     (9,263)
          Accounts payable and
           accrued liabilities     7,521      (2,223)    (58,481)    (34,709)
          Income taxes payable    11,799      27,040     (10,292)     38,320
          Dividends payable            1           5          47       3,820
                               ----------------------------------------------
                                $(21,354)   $(26,884)     $6,229     $16,711
                               ----------------------------------------------
                               ----------------------------------------------
        Relating to
          Operating activities  $(33,538)   $(13,593)    $20,400     $27,233
          Investing activities    12,183     (13,296)    (14,218)    (14,342)
          Financing activities         1           5          47       3,820
                               ----------------------------------------------
                                $(21,354)   $(26,884)     $6,229     $16,711
                               ----------------------------------------------
                               ----------------------------------------------


    5.  Contingencies and commitments

        The Company's Oman operating entity had previously received income
        tax assessments for the 1994, 1995 and 1996 financial years. The
        Company was appealing these assessments on the basis that they were
        without merit under Omani law; however, the Company's appeal was
        dismissed during the nine-month period ended September 30, 2007.
        Current income tax expense for the nine months ended September 30,
        2007 includes $4,000 (2006: $nil) related to this matter.

    6.  Prior period amounts

        Certain prior year amounts have been reclassified to conform to the
        current year's presentation.
    





For further information:

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


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