Ensign Energy Services Inc. Reports 2010 Second Quarter Earnings

CALGARY, Aug. 9 /CNW/ -

Overview

Ensign Energy Services Inc. (the "Company") recorded revenue for the three months ended June 30, 2010 of $257.6 million, a 14 percent increase from the $226.0 million recorded for the second quarter of the prior year. The Company recorded revenue of $610.4 million for the six months ended June 30, 2010, a three percent decrease from revenue of $626.4 million for the six months ended June 30, 2009. The Company's net income for the second quarter of 2010 was $9.3 million ($0.06 per share), a decline of 30 percent compared with net income of $13.2 million ($0.09 per share) for the second quarter of 2009. Net income for the six months ended June 30, 2010 totalled $49.3 million ($0.32 per share), a decrease of 43 percent from net income of $85.9 million ($0.56 per share) recorded in the first six months of 2009.

In spite of overall increased levels of operating activity in the second quarter and first half of 2010 compared to the corresponding periods of the prior year, the Company's financial results declined compared to 2009. The reduced financial results are a result of lower revenue rates in certain geographic segments, temporarily higher operating costs associated with the deployment of additional equipment and the seasonality impact of spring conditions in Canada that limit or prevent the movement of oilfield services equipment. Additionally, the reported results from the Company's United States and international segments were negatively impacted by the stronger Canadian dollar compared to the prior year. In the six months ended June 30, 2010, the Canadian dollar strengthened by approximately 14 percent compared to the United States dollar when compared to the same period in 2009.

Gross margin decreased in the second quarter of 2010 to 23.2 percent compared to 31.0 percent recorded in the second quarter of 2009. For the six months ended June 30, 2010, gross margin was 27.4 percent compared to 33.6 percent for the same period in 2009. Gross margin deterioration was attributable to generally lower revenue rates in certain geographic segments and higher operating costs in Canada. Canadian costs included major maintenance expenditures incurred to activate additional oilfield services equipment needed to meet customer demand in the near term.

Working capital at June 30, 2010 was $125.5 million, compared with $107.9 million at December 31, 2009. Positive working capital and no long-term debt means that the balance sheet remains a source of strength for the Company.

    
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    FINANCIAL AND OPERATING HIGHLIGHTS
    ($ thousands, except per share data and operating information)
    -------------------------------------------------------------------------
                          Three months ended             Six months ended
                                June 30                       June 30
    -------------------------------------------------------------------------
                                              %                             %
                         2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Revenue           257,578   226,010      14     610,417   626,430     (3)
    -------------------------------------------------------------------------
    EBITDA(1)          45,710    60,151     (24)    140,653   188,566    (25)
    EBITDA per
     share(1)
      Basic          $   0.30  $   0.39     (23)   $   0.92  $   1.23    (25)
      Diluted        $   0.30  $   0.39     (23)   $   0.92  $   1.23    (25)
    -------------------------------------------------------------------------
    Adjusted net
     income(2)          8,387    23,083     (64)     48,211    93,233    (48)
    Adjusted net
     income per
     share(2)
      Basic          $   0.05  $   0.15     (67)   $   0.31  $   0.61    (49)
      Diluted        $   0.05  $   0.15     (67)   $   0.31  $   0.61    (49)
    -------------------------------------------------------------------------
    Net income          9,305    13,212     (30)     49,335    85,898    (43)
    Net income per
     share
      Basic          $   0.06  $   0.09     (33)   $   0.32  $   0.56    (43)
      Diluted        $   0.06  $   0.09     (33)   $   0.32  $   0.56    (43)
    -------------------------------------------------------------------------
    Funds from
     operations(3)     43,592    61,924     (30)    130,888   143,929     (9)
    Funds from
     operations
     per share(3)
      Basic          $   0.28  $   0.40     (30)   $   0.85  $   0.94    (10)
      Diluted        $   0.28  $   0.40     (30)   $   0.85  $   0.94    (10)
    -------------------------------------------------------------------------
    Weighted average
     shares - basic
     (000s)           153,228   153,144       -     153,228   153,140      -
    Weighted average
     shares -
     diluted (000s)   153,229   153,707       -     153,297   153,383      -
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    Drilling
      Number of
       marketed
       rigs
        Canada
          Conventional    146       158      (8)        146       158     (8)
          Oil sands
           coring/
           coal-bed
           methane         28        28       -          28        28      -
        United States      80        77       4          80        77      4
        International(4)   58        48      21          58        48     21
      Operating days
        Canada          2,051     1,264      62       8,605     6,400     34
        United States   3,760     2,121      77       7,022     4,996     41
        International   2,480     1,856      34       4,708     3,824     23
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    Well Servicing
      Number of marketed
       rigs/units
        Canada            112       108       4         112       108      4
        United States      20        18      11          20        18     11
      Operating hours
        Canada         25,504    20,098      27      63,784    51,747     23
        United States  12,041     6,843      76      23,545    16,379     44
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    (1) EBITDA is defined as "income before interest expense, income taxes,
        depreciation and stock-based compensation (recovery)/expense".
        Management believes that in addition to net income, EBITDA and EBITDA
        per share are useful supplemental measures as they provide an
        indication of the results generated by the Company's principal
        business activities prior to consideration of how these activities
        are financed, how the results are taxed in various jurisdictions or
        how the results are impacted by the accounting standards associated
        with the Company's stock-based compensation plan. 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 (recovery)/expense, tax-effected using an income tax
        rate of 35%". Adjusted net income and adjusted net income per share
        are useful supplemental measures as they provide an indication of the
        results generated by the Company's principal business activities
        prior to consideration of how the results are impacted by the
        accounting standards associated with the Company's stock-based
        compensation plan, 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             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Revenue
      Canada           66,799    52,108      28     245,677   233,222      5
      United States   115,635    94,617      22     219,590   222,321     (1)
      International    75,144    79,285      (5)    145,150   170,887    (15)
                      -------------------------------------------------------
                      257,578   226,010      14     610,417   626,430     (3)
    Oilfield services
     expense          197,927   155,993      27     443,095   415,790      7
                      -------------------------------------------------------
                       59,651    70,017     (15)    167,322   210,640    (21)
                      -------------------------------------------------------
    Gross margin        23.2%     31.0%               27.4%     33.6%
    -------------------------------------------------------------------------
    

The Company recorded revenue of $257.6 million in the second quarter of 2010, an increase of 14 percent over $226.0 million recorded in the second quarter of 2009. Revenue was $610.4 million for the six months ended June 30, 2010, a three percent decrease from $626.4 million recorded in the six months ended June 30, 2009. As a percentage of revenue, gross margin fell to 23.2 percent for the second quarter of 2010 (2009 - 31.0 percent), and 27.4 percent for the six months ended June 30, 2010 (2009 - 33.6 percent).

The increased revenue in North America was a reflection of stronger demand for oilfield services equipment as evidenced by the increased operating days for the three months ended June 30, 2010. While operating activity levels have also increased in the six months ended June 30, 2010 relative to the comparable period of 2009, pricing pressures continue to persist resulting in slightly overall lower revenues for the first half of 2010 compared to the prior year. Spot prices for uncontracted oilfield services equipment appear to have bottomed in the second quarter of 2010 with the increased activity levels in most regions.

Further, the financial results generated by the United States and international operations in the three and six month periods ended June 30, 2010 were negatively impacted upon translation to Canadian dollars due to the strengthening of the Canadian dollar, compared to the corresponding periods in 2009.

Canadian Oilfield Services

Revenue generated in Canada increased 28 percent to $66.8 million for the three months ended June 30, 2010, from $52.1 million for the three months ended June 30, 2009. For the six months ended June 30, 2010, revenue increased five percent to $245.7 million compared to $233.2 million for the same period in 2009. In the second quarter of 2010, Canadian revenues accounted for 26 percent of total revenue (2009 - 23 percent), and during the six months ended June 30, 2010, Canadian revenues were 40 percent of total revenue (2009 - 37 percent).

Canadian operating and financial results are affected by seasonality in the second quarter, when spring break-up and wet weather conditions hinder the Company's ability to move heavy equipment and to gain access to Canadian drilling locations. Generally, the demand for Canadian oilfield services improved gradually throughout the first half of 2010 as crude oil prices stabilized and operators focused drilling efforts on oil plays and liquids rich natural gas projects. Operating activity levels recorded in Canada in the second quarter of 2010 exceeded the Company's initial estimates and surpassed the total operating days recorded in the second quarter of 2009.

Drilling days recorded by the Canadian division in the second quarter of 2010 increased 62 percent from the comparable period of the prior year. During the six months ended June 30, 2010, Canadian drilling days increased 34 percent from the same period of the prior year. Similarly, Canadian well servicing hours increased by 27 percent in the second quarter of 2010 and by 23 percent in the six months ended June 30, 2010 compared to the corresponding periods in the prior year.

The Canadian financial results in the three and six month periods ended June 30, 2010 were negatively impacted by a decrease in pricing compared to the same periods of the prior year. These pricing pressures were partially offset by improved Canadian operating levels in the first half of 2010 compared to 2009. Further, during the first half of 2010, higher operating and maintenance costs were incurred as the Company prepared additional equipment to return to work in anticipation of growing levels of customer demand for oilfield services through the remainder of the year.

United States Oilfield Services

The Company's United States operations recorded revenue of $115.6 million in the second quarter of 2010, a 22 percent increase from $94.6 million recorded in the second quarter of 2009. During the six months ended June 30, 2010, revenue of $219.6 million was recorded, comparable to revenue of $222.3 million recorded in same period of 2009. The United States segment accounted for 45 percent of the Company's revenue in the second quarter of 2010 (2009 - 42 percent), and 36 percent of the Company's revenue for the six months ended June 30, 2010 (2009 - 36 percent).

The number of drilling days recorded by the United States segment in the second quarter of 2010 increased 77 percent from the same period of the prior year. United States drilling days for the first six months of 2010 increased 41 percent from the prior year. United States well servicing hours in the second quarter of 2010 were up 76 percent compared to the prior year and well servicing hours for the first half of 2010 were up 44 percent compared to the first half of 2009. The increase in United States operating activity experienced by the Company is consistent with the overall increase seen in the United States industry's land drilling rig count through the first half of 2010.

The increase in revenue recorded by the Company in the United States in the second quarter of 2010 compared to the second quarter of 2009 is mainly attributable to improved levels of operating activity in the unconventional natural gas plays and in crude oil focused areas, such as North Dakota and California. The impact of improved activity levels was partially offset by lower revenue rates and the translational impact of a weakening United States dollar relative to the Canadian dollar. The average Canadian/United States dollar exchange rate at which the Company's United States results were translated to Canadian dollars for presentation purposes was 1.034 for the first half of 2010 compared to 1.206 for the first half of 2009, a 14 percent decrease.

International Oilfield Services

The Company's international operations recorded revenue of $75.1 million in the second quarter of 2010, a five percent decrease from the $79.3 million recorded in the second quarter of 2009. International revenues for the six months ended June 30, 2010 decreased by 15 percent to $145.1 million from $170.9 million recorded in the corresponding period of the prior year. Similar to the United States segment, the decrease in revenues is mainly attributable to the weakening United States dollar relative to the Canadian dollar during the first half of 2010 compared to the first half of 2009.

The international segment contributed 29 percent of the Company's revenue in the second quarter of 2010 (2009 - 35 percent). During the six months ended June 30, 2010, international revenue accounted for 24 percent of the Company's revenue (2009 - 27 percent). Drilling days recorded by the Company's international operations in the quarter ended June 30, 2010 increased 34 percent from the second quarter of 2009, while drilling days recorded in the six months ended June 30, 2009 increased 23 percent from the same period in 2009.

Consistent with the past few quarters, certain regions of the Company's international segment are continuing to meet expectations and such positive financial results are being offset by continued challenges in the Latin American market.

Depreciation

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Depreciation       31,180    22,854      36      65,430    51,794     26
    -------------------------------------------------------------------------
    

The Company uses the unit of production method for calculating depreciation for the majority of its property and equipment. Depreciation expense totalled $31.2 million for the second quarter of 2010 compared with $22.9 million for the second quarter of 2009. Depreciation expense increased to $65.4 million for the six months ended June 30, 2010 compared with $51.8 million for the six months ended June 30, 2009.

The increase in depreciation expense is consistent with the increase in the operating days during the three months and six months ended June 30, 2010 compared to the operating days in the same periods of 2009. Further, depreciation increased due to the utilization of recently constructed higher value equipment added to the Company's fleet over the course of 2009 and 2010.

General and Administrative Expense

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    General and
     administrative    12,634    13,375      (6)     24,013    27,317    (12)
    % of revenue         4.9%      5.9%                3.9%      4.4%
    -------------------------------------------------------------------------
    

General and administrative expense decreased by six percent to $12.6 million (4.9 percent of revenue) for the second quarter of 2010 compared with $13.4 million (5.9 percent of revenue) for the second quarter of 2009. For the six months ended June 30, 2010, general and administrative expense totalled $24.0 million (3.9 percent of revenue), compared with $27.3 million (4.4 percent of revenue) for the six months ended June 30, 2009, a decline of 12 percent. The reduction in general and administrative expense reflects the ongoing efforts of the Company to reduce fixed costs and the translational impact of a weaker United States dollar on United States and international administrative expenses.

Stock-Based Compensation

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Stock-based
     compensation      (1,413)   15,186    (109)     (1,729)   11,284   (115)
    -------------------------------------------------------------------------
    

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 for the effect of granting and vesting of employee stock options and changes in the underlying price of the Company's common shares.

For the quarter-ended ended June 30, 2010, stock-based compensation recovery was $1.4 million compared with an expense of $15.2 million recorded in the second quarter of 2009. For the six months ended June 30, 2010, stock-based compensation recovery was $1.7 million compared with an expense of $11.3 million in the same period of 2009. These recoveries result from a decline in the price of the Company's common shares over these periods, net of the impact of additional granting and vesting of stock options. The closing price of the Company's common shares was $12.52 at June 30, 2010 compared with $14.70 at March 31, 2010 and $15.00 at December 31, 2009.

Interest Expense

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Interest              445       197     126       1,088       926     17
    -------------------------------------------------------------------------
    

Interest is incurred on the Company's $200 million global revolving credit facility at prime interest rates or bankers' acceptance rates/LIBOR plus 0.75 percent.

Other

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Other expense
     (income)           1,307    (3,509)   (137)      2,656    (5,243)  (151)
    -------------------------------------------------------------------------
    

This amount consists primarily of foreign exchange gains and losses on the translation of the Australian operations from Australian dollars to United States dollars. The Australian dollar weakened relative to the United States dollar in the first six months of 2010 compared to the same period in 2009.

Income Taxes

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Current income
     tax                1,673    (7,425)   (123)      8,637    38,253    (77)
    Future income
     tax                4,520    16,127     (72)     17,892       411  4,253
                      -------------------------------------------------------
                        6,193     8,702     (29)     26,529    38,664    (31)
                      -------------------------------------------------------
    Effective income
     tax rate (%)       40.0%     39.7%               35.0%     31.0%
    -------------------------------------------------------------------------
    

The effective income tax rate for the second quarter of 2010 was 40.0 percent, consistent with the 39.7 percent rate in the second quarter of 2009. For the six months ended June 30, 2010, the effective income tax rate was 35.0 percent compared with 31.0 percent for the six months ended June 30, 2009.

The Company's effective tax rate on a quarter-over-quarter basis increased slightly due the cumulative effect of tax rates on income in higher rate jurisdictions. Current income tax increased due to increased taxable income in both Canada and the United States. The effective income tax rate for the six months ended June 30, 2009 is lower due to the impact of future income tax recoveries in the Canadian partnerships. During the six months ended June 30, 2010, the effective income tax rate increased due to a greater proportion of income being generated in foreign jurisdictions that have higher income tax rates.

Financial Position

The following chart outlines significant changes in the consolidated balance sheet from December 31, 2009 to June 30, 2010:

    
    ($ thousands)                Change    Explanation
    -------------------------------------------------------------------------
    Cash and cash equivalents    15,325    See consolidated statement of
                                           cash flows.
    Accounts receivable         (10,467)   Decrease is consistent with a
                                           decrease in operating activity
                                           levels in the second quarter of
                                           2010 compared with the fourth
                                           quarter of 2009.
    Income taxes recoverable     (4,895)   Decrease due to the current income
                                           tax provision for the period, net
                                           of tax instalments.
    Inventory and other          (6,726)   Decrease due to normal course use
                                           of consumables and spare parts.
    Property and equipment       28,214    Increase due to the new build
                                           construction program and the
                                           impact of foreign exchange
                                           fluctuations on the consolidation
                                           of the Company's foreign self-
                                           sustaining subsidiaries, offset
                                           by depreciation.
    Long-term note receivable      (292)   Decrease due to the partial
                                           collection of the long-term note
                                           receivable.
    Accounts payable and        (10,985)   Decrease is consistent with a
     accrued liabilities                   decrease in operating activity
                                           levels in the second quarter of
                                           2010 compared with the fourth
                                           quarter of 2009.
    Operating lines of credit   (12,402)   Decrease due to net repayments of
                                           the operating lines of credit.
    Stock-based compensation     (1,769)   Decrease due to a reduction in the
                                           price of the Company's common
                                           shares as at June 30, 2010
                                           compared with December 31, 2009.
    Dividends payable                 4    Increase due to a slight increase
                                           in the number of outstanding
                                           common shares.
    Future income taxes          14,280    Increase due to a higher estimated
                                           tax depreciation in Canada.
    Shareholders' equity         32,031    Increase due to net income for the
                                           period and the impact of foreign
                                           exchange rate fluctuations on net
                                           assets of foreign self-sustaining
                                           subsidiaries offset by the amount
                                           of dividends declared in the
                                           period.
    -------------------------------------------------------------------------
    

Funds from Operations and Working Capital

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
    ($ thousands, except                      %                             %
     per share data)     2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Funds from
     operations        43,592    61,924    (30)    130,888    143,929     (9)
    Funds from
     operations
     per share       $   0.28  $   0.40    (30)   $   0.85   $   0.94    (10)
    Working
     capital(1)       125,515   107,894     16     125,515    107,894     16
    -------------------------------------------------------------------------
    (1) Comparative figure as of December 31, 2009.
    

During the three months ended June 30, 2010, the Company generated funds from operations of $43.6 million ($0.28 per common share) compared with funds from operations of $61.9 million ($0.40 per common share) for the three months ended June 30, 2009, a decrease of 30 percent. Funds from operations totalled $130.9 million ($0.85 per common share) in the first six months of 2010, a decrease of nine percent compared to $143.9 million of funds from operations ($0.94 per common share) generated in the six months ended June 30, 2009. The decrease in funds from operations in both the second quarter of 2010 and the six months ended June 30, 2010 compared to the same periods in 2009 is due to lower margin levels resulting from a continued over-supply of oilfield services equipment.

At June 30, 2010, the Company's working capital totalled $125.5 million, compared to $107.9 million at December 31, 2009. The Company's strong working capital position and existing credit facilities are expected to adequately support its future operations and capital expansion initiatives. Existing credit facilities provide for total borrowings of $210.0 million, of which approximately $36.3 million was available as at June 30, 2010. The Company continues to operate with no long-term debt and exited the second quarter with a strong balance sheet.

Investing Activities

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Net purchase of
     property and
     equipment        (62,193)  (26,688)    133     (87,745)  (72,782)    21
    Net change in
     non-cash
     working capital     (393)  (38,695)    (99)      3,090   (18,865)  (116)
                      -------------------------------------------------------
    Cash used in
     investing
     activities       (62,586)  (65,383)     (4)    (84,655)  (91,647)    (8)
    -------------------------------------------------------------------------
    

Net purchases of property and equipment during the second quarter of 2010 totalled $62.2 million compared to $26.7 million during the second quarter of the prior year. Net purchases of property and equipment for the six months ended June 30, 2010 totalled $87.7 million compared with $72.8 million for the six months ended June 30, 2009. The net purchase of property and equipment relates predominantly to the Company's most recent new build program. Additional details regarding the new build program are provided in the "New Builds" section below.

Financing Activities

    
                          Three months ended             Six months ended
                                June 30                       June 30
                      -------------------------------------------------------
                                              %                             %
    ($ thousands)        2010      2009  change        2010      2009  change
    -------------------------------------------------------------------------
    Net decrease in
     operating lines
     of credit         (2,234)   (2,761)    (19)    (12,402)  (39,263)   (68)
    Net decrease in
     promissory note
     payable                -   (20,000)   (100)          -   (20,000)  (100)
    Issue of capital
     stock                  -       152    (100)          -       152   (100)
    Dividends         (13,408)  (13,018)      3     (26,815)  (26,034)     3
    Net change in
     non-cash working
     capital              198         2   9,800         296         2 14,700
                      -------------------------------------------------------
    Cash used in
     financing
     activities       (15,444)  (35,625)    (57)    (38,921)  (85,143)   (54)
    -------------------------------------------------------------------------
    

The Company's available operating lines of credit consist of a $200 million global revolving credit facility (the "Global Facility") and a $10 million Canadian-based revolving credit facility (the "Canadian Facility"). The Global Facility is available to the Company and any of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $200 million Canadian dollars. The amount available under the Canadian Facility is $10 million or the equivalent United States dollars.

Net repayments of the operating lines of credit were the result of operating cash flows generated by the Company's United States and international divisions in excess of capital expenditure requirements. As of June 30, 2010, the operating lines of credit are primarily being used to fund the completion of the most recent new build program and to support international operations.

The Board of Directors of the Company has declared a third quarter dividend of $0.0875 per common share to be payable October 5, 2010 to all Common Shareholders of record as of September 23, 2010. The dividend is pursuant to the quarterly dividend policy adopted by the Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act ("ITA"), the dividend being paid is designated as an eligible dividend, as defined in subsection 89(1) of the ITA.

Normal Course Issuer Bid

On May 10, 2010, the Company announced its intent to file with the Toronto Stock Exchange a Normal Course Issuer Bid (the "Bid") to acquire for cancellation up to five percent of the Company's issued and outstanding common shares. On May 28, 2010, the Company received approval from the Toronto Stock Exchange to purchase up to 7,661,411 common shares for cancellation. The Bid commenced on June 1, 2010 and will terminate on May 31, 2011 or such earlier time as the Bid is completed or terminated at the option of the Company. As at June 30, 2010, no common shares have been purchased pursuant to the Bid.

New Builds

In anticipation of continued opportunities for new oilfield services equipment to meet the growing technical demands of exploration and production companies, the Company has commenced a 2010 new build program that will result in 12 new ADR(TM) style drilling rigs being constructed for delivery starting late in 2010 and early 2011 and six new well servicing rigs being constructed for delivery in 2010. Currently, two well servicing rigs from this latest new build program have been commissioned in the United States. Ten drilling rigs and three of the remaining well servicing rigs have been allocated to the United States, while the remaining two drilling rigs and one well servicing rig will be operated in Canada. The Company plans to fund the construction program using internally generated cash flows and available operating lines of credit. All of the new build drilling rigs are expected to be contracted prior to the completion of their construction.

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

    
    -------------------------------------------------------------------------
                   Actual                   Forecast
                 -----------------------------------------------------  Total
                  Q2-2010  Q3-2010  Q4-2010  Q1-2011  Q2-2011  Q3-2011
    -------------------------------------------------------------------------
    ADR's
      Canada            -        -        -        -        -        2     2
      United States     -        -        1        4        3        2    10
    -------------------------------------------------------------------------
      Total             -        -        1        4        3        4    12
    -------------------------------------------------------------------------
    Well Servicing
      Canada            -        -        1        -        -        -     1
      United States     2        2        1        -        -        -     5
    -------------------------------------------------------------------------
      Total             2        2        2        -        -        -     6
    -------------------------------------------------------------------------
    

Outlook

Economic developments in the most recent quarter have maintained the sense of uncertainty regarding the extent and timing of the global recovery. While credit easing and economic improvements have occurred in several advanced economies, equity markets in general have faltered in response to sovereign debt issues in the Eurozone and the potential impact on large trading partners such as China. Expectations for persistently high unemployment, even under current conditions, as well as worries about a potential double-dip recession, have led policy-makers in some jurisdictions to advocate a delay in stimulus withdrawals, even though these are necessary to restore national balance sheets. The demand for energy and related oilfield services depends on improved general economic conditions. Another quarter of relatively stable and robust crude oil pricing has further increased oil-directed drilling, but lack luster natural gas prices, a consequence of a current over-supply of the commodity, continue to disappoint. Until natural gas fundamentals improve, the North American oilfield services industry will not be able to once again attain its potential.

The Company's Canadian operations exited the "spring break-up" quarter with a 34 percent increase in drilling operating days for the first half of 2010 versus the first half of 2009. Conditions in Canada are expected to remain at improved levels for the remainder of the year, based on the continued strength of crude oil and unconventional natural gas resource plays, along with some positive reaction to the apparent resolution of uncertainties in the new Alberta royalty regime. In late May, the Canadian Association of Oilwell Drilling Contractors increased its forecast for rig activity levels by approximately 75 percent for the second half of 2010. Similarly, the Company expects utilization to increase through the balance of the year, however it may take several quarters of sustained growth in demand to abate competitive pricing pressures. In addition to new builds already in progress for Canada, the Company continues to cautiously evaluate opportunities for additional capital investment.

The United States oilfield services sector continues to be relatively active, with the land-based drilling industry's active rig count recently reaching the highest levels since early 2009, but still below the peak level recorded in the latter half of 2008. The proportion of industry drilling directed at crude oil versus natural gas has increased considerably, based on the relative commodity price shifts. Additionally, the number of natural gas-directed active rigs in the industry has recovered to early 2009 levels, based on the continued strength of natural gas shale plays and the economics associated with liquids rich natural gas production. However, caution regarding the sustainability of high activity levels in natural gas drilling is warranted, as these are not fully supported by pricing and new permitting; approximately half of current shale play activity is driven by lease retention requirements. Drilling days in the Company's United States operations for the first six months of 2010 were up 41 percent over the same period in 2009, based on strong demand for crude oil drilling projects and increasing positions in key natural gas resource plays. The Company anticipates a continuation of higher drilling days and utilization for the remainder of 2010 in the United States, together with reasonable prospects for pricing improvements from increased levels of demand for oilfield services.

Our international operations experienced a 23 percent increase in drilling days in the first half of 2010 versus the same period in 2009, reflecting a similar growth in activity levels for the industry. Other than in Mexico, where disappointing second quarter results are expected to carry forward for the balance of the year, improving results in Latin America are expected to add to strong and steadily growing results from the Company's eastern hemisphere operations.

The 2010 fiscal year continues to present both challenges and opportunities, as we expected. Expansion of the current new build program to a total of 12 drilling rigs and six well servicing rigs is underway; and other value creation opportunities will be pursued as these present themselves.

Risks and Uncertainties

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

Conference Call

A conference call will be held to discuss the Company's second quarter 2010 results at 2:00 p.m. MST (4:00 p.m. EST) on Monday, August 9, 2010. The conference call number is (647) 427-7450 in Toronto and internationally or 1-888-231-8191 for Canada and the United States. A taped recording will be available until August 16, 2010 by dialing 1-800-642-1687 (local calls 1-416-849-0833) and entering reservation number 88393132. A live webcast of the conference call can be accessed via the Company's website at www.ensignenergy.com. An archived version of the call will be available shortly after the call ends.

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 June 30, 2010 and December 31, 2009
    (Unaudited - in thousands of Canadian dollars)

                                                       June 30   December 31
                                                          2010          2009
                                                  ------------- -------------

    Assets

    Current assets
    Cash and cash equivalents                     $    150,478  $    135,153
    Accounts receivable                                231,885       242,352
    Income taxes recoverable                             1,531         6,426
    Inventory and other                                 54,305        61,031
    Future income taxes                                      -           377
                                                  ---------------------------

                                                       438,199       445,339

    Property and equipment                           1,703,358     1,675,144

    Long-term note receivable                            7,315         7,607
                                                  ---------------------------

                                                  $  2,148,872  $  2,128,090
                                                  ---------------------------
                                                  ---------------------------

    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities      $    142,675  $    153,660
    Operating lines of credit                          156,602       169,004
    Current portion of stock-based compensation              -         1,378
    Dividends payable                                   13,407        13,403
                                                  ---------------------------

                                                       312,684       337,445

    Stock-based compensation                                 -           391

    Future income taxes                                273,360       259,457
                                                  ---------------------------

                                                       586,044       597,293
                                                  ---------------------------
    Contingencies and commitments

    Shareholders' Equity

    Capital stock (note 3)                             170,932       170,932
    Accumulated other comprehensive loss               (86,853)      (96,364)
    Retained earnings                                1,478,749     1,456,229
                                                  ---------------------------

                                                     1,562,828     1,530,797
                                                  ---------------------------

                                                  $  2,148,872  $  2,128,090
                                                  ---------------------------
                                                  ---------------------------

    See accompanying notes to the interim consolidated financial statements.



    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    For the three and six months ended June 30, 2010 and 2009
    (Unaudited - in thousands of Canadian dollars - except per share data)

                            Three months ended           Six months ended
                                 June 30                      June 30
                           2010          2009          2010          2009
                      -------------------------------------------------------

    Revenue
    Oilfield services $    257,578  $    226,010  $    610,417  $    626,430

    Expenses
    Oilfield services      197,927       155,993       443,095       415,790
    Depreciation            31,180        22,854        65,430        51,794
    General and
     administrative         12,634        13,375        24,013        27,317
    Stock-based
     compensation           (1,413)       15,186        (1,729)       11,284
    Interest                   445           197         1,088           926
    Other                    1,307        (3,509)        2,656        (5,243)
                      -------------------------------------------------------
                           242,080       204,096       534,553       501,868
                      -------------------------------------------------------

    Income before
     income taxes           15,498        21,914        75,864       124,562

    Income taxes
    Current                  1,673        (7,425)        8,637        38,253
    Future                   4,520        16,127        17,892           411
                      -------------------------------------------------------

                             6,193         8,702        26,529        38,664
                      -------------------------------------------------------
    Net income
     for the period          9,305        13,212        49,335        85,898

    Retained earnings
     - beginning
     of period           1,482,852     1,442,919     1,456,229     1,383,249

    Dividends (note 3)     (13,408)      (13,018)      (26,815)      (26,034)
                      -------------------------------------------------------

    Retained earnings
     - end of period  $  1,478,749  $  1,443,113  $  1,478,749  $  1,443,113
                      -------------------------------------------------------
                      -------------------------------------------------------

    Net income per
     share (note 3)
      Basic           $       0.06  $       0.09  $       0.32  $       0.56
      Diluted         $       0.06  $       0.09  $       0.32  $       0.56
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the interim consolidated financial statements.



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the three and six months ended June 30, 2010 and 2009
    (Unaudited - in thousands of Canadian dollars)


                            Three months ended           Six months ended
                                 June 30                      June 30
                           2010          2009          2010          2009
                      -------------------------------------------------------
    Cash provided by
     (used in)

    Operating
     activities
    Net income for
     the period       $      9,305  $     13,212  $     49,335  $     85,898
    Items not
     affecting cash:
      Depreciation          31,180        22,854        65,430        51,794
      Stock-based
       compensation,
       net of cash
       paid                 (1,413)        9,731        (1,769)        5,826
      Future income
       taxes                 4,520        16,127        17,892           411
                      -------------------------------------------------------

                            43,592        61,924       130,888       143,929
    Net change in
     non-cash working
     capital (note 5)       76,016       104,008         8,013       101,942
                      -------------------------------------------------------

                           119,608       165,932       138,901       245,871
                      -------------------------------------------------------

    Investing
     activities
    Net purchase of
     property and
     equipment             (62,193)      (26,688)      (87,745)      (72,782)
    Net change in
     non-cash working
     capital (note 5)         (393)      (38,695)        3,090       (18,865)
                      -------------------------------------------------------

                           (62,586)      (65,383)      (84,655)      (91,647)
                      -------------------------------------------------------

    Financing
     activities
    Net decrease
     in operating
     lines of credit        (2,234)       (2,761)      (12,402)      (39,263)
    Net decrease
     in promissory
     note payable                -       (20,000)            -       (20,000)
    Issue of capital
     stock                       -           152             -           152
    Dividends (note 3)     (13,408)      (13,018)      (26,815)      (26,034)
    Net change in
     non-cash working
     capital (note 5)          198             2           296             2
                      -------------------------------------------------------

                           (15,444)      (35,625)      (38,921)      (85,143)
                      -------------------------------------------------------
    Increase in
     cash and cash
     equivalents
     during the period      41,578        64,924        15,325        69,081

    Cash and cash
     equivalents -
     beginning of
     period                108,900       100,062       135,153        95,905
                      -------------------------------------------------------

    Cash and cash
     equivalents -
     end of period    $    150,478  $    164,986  $    150,478  $    164,986
                      -------------------------------------------------------
                      -------------------------------------------------------

    Supplemental
     information
      Interest paid   $        710  $        988  $      1,330  $      1,449
      Income taxes
       paid           $      2,613  $     15,517  $      3,742  $     23,623
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the interim consolidated financial statements.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
    For the three and six months ended June 30, 2010 and 2009
    (Unaudited - in thousands of Canadian dollars)

                            Three months ended           Six months ended
                                 June 30                      June 30
                           2010          2009          2010          2009
                      -------------------------------------------------------
    Net income for
     the period       $      9,305  $     13,212  $     49,335  $     85,898
    Other
     comprehensive
     income (loss)
      Foreign currency
       translation
       adjustment           34,673       (62,471)        9,511       (36,933)
                      -------------------------------------------------------
    Comprehensive
     income (loss)
     for the period   $     43,978  $    (49,259) $     58,846  $     48,965
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the interim consolidated financial statements.



    CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
    For the three and six months ended June 30, 2010 and 2009
    (Unaudited - in thousands of Canadian dollars)

                            Three months ended           Six months ended
                                 June 30                      June 30
                           2010          2009          2010          2009
                      -------------------------------------------------------
    Accumulated other
     comprehensive
     (loss) income -
     beginning of
     period           $   (121,526) $     23,955  $    (96,364) $     (1,583)
      Foreign
       currency
       translation
       adjustment           34,673       (62,471)        9,511       (36,933)
                      -------------------------------------------------------
    Accumulated other
     comprehensive
     loss - end of
     period           $    (86,853) $    (38,516) $    (86,853) $    (38,516)
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the interim consolidated financial statements.



    NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    For the three and six months ended June 30, 2010 and 2009
    (Unaudited - in thousands of Canadian dollars, except share
    and per share data)

    The interim consolidated financial statements have been prepared in
    accordance with Canadian generally accepted accounting principles
    ("Canadian GAAP"), and include the accounts of Ensign Energy Services
    Inc. and 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, 2009. 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, 2009.

    1.  Recent accounting pronouncements

    The Canadian Institute of Chartered Accountants ("CICA") Accounting
    Standards Board ("AcSB") confirmed in February 2008 that International
    Financial Reporting Standards ("IFRS") will replace Canadian GAAP in 2011
    for profit-oriented Canadian publicly accountable enterprises. The
    Company has assessed which accounting policies will be affected by the
    change to IFRS and continues to assess the potential impact of these
    changes on its financial position and results of operations.

    As of January 1, 2011, the Company will be required to adopt the
    following CICA Handbook sections:

        a) CICA Handbook Section 1582 "Business Combinations" will replace
           the existing business combinations standard. The new standard
           requires assets and liabilities acquired in a business combination
           and contingent consideration to be measured at fair value as at
           the date of the acquisition. Acquisition costs that are currently
           capitalized as part of the purchase price will be recognized in
           the consolidated statement of income. The adoption of this
           standard will impact the accounting treatment of future business
           combinations.
        b) CICA Handbook Section 1601 "Consolidated Financial Statements" and
           Section 1602 "Non-controlling Interests" will replace the former
           consolidated financial statements standard. These standards
           establish the requirements for the preparation of consolidated
           financial statements and the accounting for a non-controlling
           interest (previously referred to as minority interest) in a
           subsidiary. The new standard requires non-controlling interest to
           be presented as a separate component of equity and requires net
           income and other comprehensive income to be attributed to both the
           parent and non-controlling interest. The adoption of this standard
           is not expected to have a material impact on the Company's
           consolidated financial statements.

    2.  Seasonality of operations

    The Company's Canadian oilfield services operations are seasonal in
    nature and are impacted by weather conditions that may hinder the
    Company's ability to access locations or move heavy equipment. The lowest
    activity levels are experienced during the second quarter of the year
    when road weight restrictions are in place and access to wellsites in
    Canada is reduced.

    3.  Capital Stock

        (a) Authorized

            Unlimited common shares
            Unlimited preferred shares, issuable in series

        (b) Outstanding

                                               ------------------------------
                                                     Number of
                                                 Common Shares        Amount
            -----------------------------------------------------------------
            Balance at January 1, 2010             153,228,106  $    170,932
            Balance at June 30, 2010               153,228,106  $    170,932
            -----------------------------------------------------------------

        (c) Options

            A summary of the Company's stock option plan as of June 30, 2010,
            and the changes during the six month period then ended, is
            presented below:

            -----------------------------------------------------------------
                                                                    Weighted
                                                                     Average
                                                                    Exercise
                                             Number of Options         Price
            -----------------------------------------------------------------
            Outstanding at January 1, 2010          10,719,300  $      18.67
            -----------------------------------------------------------------
            Granted                                    124,500         14.56
            Exercised for cash                         (18,000)       (13.50)
            Forfeited                                  (43,500)       (19.75)
            -----------------------------------------------------------------

            Outstanding at June 30, 2010            10,782,300  $      18.62
            -----------------------------------------------------------------
            Exercisable at June 30, 2010             4,304,200  $      19.09
            -----------------------------------------------------------------


        ---------------------------------------------------------------------
                                      Average
                                      Vesting  Weighted             Weighted
                             Options  Remain-   Average   Options    Average
                                Out-  ing (in  Exercise   Exerci-   Exercise
        Exercise Price      standing  years)      Price     sable      Price
        ---------------------------------------------------------------------
        $11.33 to $13.79   1,416,200    0.08   $  13.52  1,378,400  $  13.52
        $14.56 to $19.95   5,313,100    2.22      17.09    942,000     19.61
        $21.95 to $23.33   4,053,000    1.23      22.42  1,983,800     22.72
        ---------------------------------------------------------------------
                          10,782,300    1.57   $  18.62  4,304,200  $  19.09
        ---------------------------------------------------------------------

        (d) Common share dividends

            During the six months ended June 30, 2010, the Company declared
            dividends of $26,815 (2009 - $26,034), being $0.175 per common
            share (2009 - $0.170 per common share).

        (e) 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
            three and six month periods ended June 30, 2010 and 2009 are as
            follows:

                            Three months ended           Six months ended
                                 June 30                      June 30
                           2010          2009          2010          2009
                      -------------------------------------------------------
            Basic      153,228,106   153,144,299   153,228,106   153,139,715
            Diluted    153,229,173   153,706,696   153,297,466   153,383,401

            Stock options of 9,366,100 (2009 - 8,259,500) 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.

        (f) Normal Course Issuer Bid

            On May 10, 2010, the Company announced its intent to file with
            the Toronto Stock Exchange a Normal Course Issuer Bid (the "Bid")
            to acquire for cancellation up to five percent of the Company's
            issued and outstanding common shares. On May 28, 2010, the
            Company received approval from the Toronto Stock Exchange to
            purchase up to 7,661,411 common shares for cancellation. The Bid
            commenced on June 1, 2010 and will terminate on May 31, 2011 or
            such earlier time as the Bid is completed or terminated at the
            option of the Company. As at June 30, 2010, no common shares have
            been purchased pursuant to the Bid.

    4.  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:

        Three months ended June 30, 2010
        ---------------------------------------------------------------------
                                          United
                            Canada        States  International        Total
        ---------------------------------------------------------------------
        Revenue            $66,799      $115,635       $75,144      $257,578
        Property and
         equipment, net   $776,336      $535,656      $391,366    $1,703,358
        Capital
         expenditures,
         net                $7,003       $37,778       $17,412       $62,193
        Depreciation       $10,661       $11,601        $8,918       $31,180
        ---------------------------------------------------------------------


        Three months ended June 30, 2009
        ---------------------------------------------------------------------
                                          United
                            Canada        States  International        Total
        ---------------------------------------------------------------------
        Revenue            $52,108       $94,617       $79,285      $226,010
        Property and
         equipment, net   $811,296      $518,001      $362,470    $1,691,767
        Capital
         expenditures,
         net                  $164       $24,126        $2,398       $26,688
        Depreciation        $9,426        $7,607        $5,821       $22,854
        ---------------------------------------------------------------------


        Six months ended June 30, 2010
        ---------------------------------------------------------------------
                                          United
                            Canada        States  International        Total
        ---------------------------------------------------------------------
        Revenue           $245,677      $219,590      $145,150      $610,417
        Property and
         equipment, net   $776,336      $535,656      $391,366    $1,703,358
        Capital
         expenditures,
         net               $14,938       $50,471       $22,336       $87,745
        Depreciation       $26,592       $22,334       $16,504       $65,430
        ---------------------------------------------------------------------


        Six months ended June 30, 2009
        ---------------------------------------------------------------------
                                          United
                            Canada        States  International        Total
        ---------------------------------------------------------------------
        Revenue           $233,222      $222,321      $170,887      $626,430
        Property and
         equipment, net   $811,296      $518,001      $362,470    $1,691,767
        Capital
         expenditures,
         net                $1,211       $46,029       $25,542       $72,782
        Depreciation       $23,836       $16,607       $11,351       $51,794
        ---------------------------------------------------------------------

    5.  Supplemental disclosure of cash flow information

        The net change in non-cash working capital for the three and six
        months ended June 30, 2010 and 2009 is determined as follows:

                            Three months ended           Six months ended
                                 June 30                      June 30
                      -------------------------------------------------------
                           2010          2009          2010          2009
                      -------------------------------------------------------
        Net change in
         non-cash
         working
         capital
          Accounts
           receivable $     61,481  $    145,533  $     10,467  $    169,504
          Inventory
           and other         2,119           176         6,726           838
          Accounts
           payable and
           accrued
           liabilities      12,963       (57,454)      (10,985)     (101,895)
          Long-term
           note
           receivable          198             -           292             -
          Income taxes
           recoverable
           (payable)          (940)      (22,942)        4,895        14,630
          Dividends
           payable               -             2             4             2
                      -------------------------------------------------------
                      $     75,821  $     65,315  $     11,399  $     83,079
                      -------------------------------------------------------
        Relating to
          Operating
           activities $     76,016  $    104,008  $      8,013  $    101,942
          Investing
           activities         (393)      (38,695)        3,090       (18,865)
          Financing
           activities          198             2           296             2
                      -------------------------------------------------------
                      $     75,821  $     65,315  $     11,399  $     83,079
                      -------------------------------------------------------

    6.  Prior year amounts

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

%SEDAR: 00001999E

SOURCE Ensign Energy Services Inc.

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


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