Ensign Energy Services Inc. Reports 2015 Second Quarter Results

CALGARY, Aug. 4, 2015 /CNW/ -

OVERVIEW

Revenue for the second quarter of 2015 was $333.8 million, a decrease of 35 percent from revenue for the second quarter of 2014 of $511.6 million. Revenue for the six months ended June 30, 2015 was $783.1 million, 31 percent lower than revenue of $1,135.8 million for the six months ended June 30, 2014. Adjusted EBITDA totaled $69.5 million ($0.46 per common share) in the second quarter of 2015, 28 percent lower than adjusted EBITDA of $97.1 million ($0.64 per common share) in the second quarter of 2014. For the first six months of 2015 adjusted EBITDA was $181.9 million ($1.19 per common share), 29 percent lower than adjusted EBITDA of $257.2 million ($1.68 per common share) for the first six months of 2014.

Net loss for the second quarter of 2015 was $1.0 million ($0.01 per common share), having decreased 107 percent compared to net income of $15.2 million ($0.10 per common share) for the second quarter of 2014. Net income for the six months ended June 30, 2015 decreased 81 percent to $14.4 million ($0.09 per common share) compared to net income of $75.7 million ($0.50 per common share) for the first six months of 2014. Adjusted net income for the second quarter of 2015 was $1.3 million ($0.01 per common share), 91 percent lower than adjusted net income of $14.4 million for the second quarter of 2014 ($0.09 per common share). For the six months ended June 30, 2015 adjusted net income was $29.0 million ($0.19 per common share), 58 percent lower than adjusted net income of $68.3 million ($0.45 per common share) for the six months ended June 30, 2014. The net loss recorded in the second quarter and net income recorded in the first six months of 2015 included a one-time provision of $7.1 million ($0.05 per common share) for the recent 20 percent increase in the Alberta corporate income tax rate.

Funds from operations decreased 23 percent to $69.4 million ($0.46 per common share) in the second quarter of 2015 compared to $90.4 million ($0.59 per common share) in the second quarter of the prior year. For the six months ended June 30, 2015, funds from operations were $179.1 million ($1.18 per common share), 21 percent lower than $227.4 million ($1.49 per common share) for the six months ended June 30, 2014.

Operating days across the Company's fleet were lower in the second quarter of 2015 when compared to the second quarter of 2014 due to weaker demand for oilfield services caused by continued low oil and natural gas commodity prices. A strengthening of the United States dollar against the Canadian dollar positively impacted United States and international financial results on translation to Canadian dollars. The average United States exchange rate versus the Canadian dollar for the first six months of 2015 increased 13 percent compared to the first six months of 2014.

Gross margin decreased to $88.8 million (26.6 percent of revenue) for the second quarter of 2015 compared to a gross margin of $120.8 million (23.6 percent of revenue) for the second quarter of 2014. For the six months ended June 30, 2015, gross margin decreased to $222.7 million (28.4 percent of revenue) compared to $303.0 million (26.7 percent of revenue) for the six months ended June 30, 2014. The decrease in gross margin in the first six months of 2015 compared to the first six months of 2014 was primarily due to weaker activity levels and revenue rates across the oilfield service equipment fleet, costs related to field office restructuring and costs associated with moving idle equipment to storage facilities. Effective cost management contributed to higher gross margin percentages when compared to prior periods.

Working capital at June 30, 2015 was $133.4 million, compared to $189.7 million at December 31, 2014. The Company's bank credit facilities provide available borrowings of $205.9 million at June 30, 2015, compared to $161.5 million at December 31, 2014 as the Company has reduced its capital spending and focused on further strengthening of its balance sheet over the first six months of 2015.


FINANCIAL AND OPERATING HIGHLIGHTS
(Unaudited, in thousands of Canadian dollars, except per share data and operating information)

 



Three months ended June 30


Six months ended June 30

2015


2014


% change



2015


2014


% change


Revenue


333,800


511,581


(35)



783,089


1,135,775


(31)

Adjusted EBITDA 1


69,534


97,137


(28)



181,867


257,206


(29)

Adjusted EBITDA per share 1














Basic

$

0.46

$

0.64


(28)


$

1.19

$

1.68


(29)

Diluted

$

0.46

$

0.63


(27)


$

1.19

$

1.68


(29)

Adjusted net income 2


1,316


14,352


(91)



29,029


68,310


(58)

Adjusted net income per share 2














Basic

$

0.01

$

0.09


(89)


$

0.19

$

0.45


(58)

Diluted

$

0.01

$

0.09


(89)


$

0.19

$

0.45


(58)

Net income (loss)


(1,036)


15,242


(107)



14,391


75,653


(81)

Net income (loss) per share














Basic

$

(0.01)

$

0.10


(110)


$

0.09

0.09

$

0.50


(82)

Diluted

$

(0.01)

$

0.10


(110)


$

$

0.49


(82)

Funds from operations 3


69,389


90,431


(23)



179,150


227,442


(21)

Funds from operations per share 3














Basic

$

0.46

$

0.59


(22)


$

1.18

$

1.49


(21)

Diluted

$

0.46

$

0.59


(22)


$

1.17

$

1.48


(21)

Weighted average shares - basic (000s)


152,295


152,684




152,409


152,772


Weighted average shares - diluted (000s)


152,295


153,411


(1)



152,668


153,469


(1)

Drilling














Number of rigs














Canada 4


90


103


(13)



90


103


(13)

United States


98


111


(12)



98


111


(12)

International 5


54


58


(7)



54


58


(7)

Rigs in transit 6



1


(100)




1


(100)

Operating days














Canada 4


902


2,235


(60)



3,661


7,027


(48)

United States


2,987


5,990


(50)



6,710


11,663


(42)

International 5


2,206


2,828


(22)



4,746


5,980


(21)

Well Servicing














Number of marketed rigs














Canada


72


91


(21)



72


91


(21)

United States


46


45


2



46


45


2

Operating hours














Canada


14,330


28,703


(50)



33,076


63,383


(48)

United States

17,452


30,599


(43)



37,206


59,460


(37)

1.

Adjusted EBITDA is defined as "income before interest, income taxes, depreciation, asset decommissioning and write-downs, share-based compensation and foreign exchange and other". Management believes that in addition to net income, Adjusted EBITDA is a useful supplemental measure as it provides 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, how the results are impacted by foreign exchange or how the results are impacted by the accounting standards associated with the Company's share-based compensation plans. Adjusted EBITDA and Adjusted EBITDA per share are not recognized measures under International Financial Reporting Standards and thus may not be comparable to measures used by other companies.

2.

Adjusted net income is defined as "net income before asset decommissioning and write-downs, share-based compensation and foreign exchange and other, tax-effected using the expected income tax rate for each item or an estimate of 35 percent". Adjusted net income is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how the results are impacted by non-cash charges for equipment write-downs, how the results are impacted by foreign exchange and how the results are impacted by the accounting standards associated with the Company's share-based compensation plans, net of income taxes. Adjusted net income and Adjusted net income per share are not recognized measures under International Financial Reporting Standards and thus 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 is a measure that provides additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes these measures to assess the Company's ability to finance operating activities and capital expenditures. Funds from operations and Funds from operations per share are not measures that have any standardized meaning prescribed by International Financial Reporting Standards and thus may not be comparable to similar measures used by other companies.

4.

Excludes coring rigs. Includes coring drilling days in Q1, 2015.

5.

Includes workover rigs.

6.

Drilling rigs being retrofitted and transferred to a new geographic market.

 

SECOND QUARTER HIGHLIGHTS

  • Revenue for the second quarter of 2015 was $333.8 million, a decrease of 35 percent from revenue for the second quarter of 2014 of $511.6 million.
  • Second quarter revenue by geographic area:
    • Canada - $45.6 million, 14 percent;
    • United States - $146.9 million, 44 percent;
    • International - $141.3 million, 42 percent.
  • Canadian drilling (excluding coring) recorded 902 operating days in the second quarter of 2015, a 60 percent decrease from 2,235 operating days in the second quarter of 2014. Canadian well servicing recorded 14,330 operating hours in the second quarter of 2015, a 50 percent decrease from 28,703 operating hours in the second quarter of 2014.
  • United States drilling recorded 2,987 operating days in the second quarter of 2015, a 50 percent decrease from 5,990 operating days in the second quarter of 2014. United States well servicing recorded 17,452 operating hours in the second quarter of 2015, a 43 percent decrease from 30,599 operating hours in the second quarter of 2014.
  • International drilling recorded 2,206 operating days in the second quarter of 2015, a 22 percent decrease from 2,828 operating days recorded in the second quarter of 2014.
  • Adjusted EBITDA for the second quarter of 2015 was $69.5 million, a 28 percent decrease from adjusted EBITDA of $97.1 million for the second quarter of 2014. Funds from operations for the second quarter of 2015 decreased 23 percent to $69.4 million from $90.4 million in the second quarter of the prior year.
  • One new Automated Drill Rig ("ADR®") was added to the Company's drilling fleet and two major retrofits were completed in the second quarter of 2015 for the Company's United States fleet.
  • The Company's construction in progress at June 30, 2015, includes three new ADR® drilling rigs and one major retrofit to an existing drilling rig.
  • The Company declared its third quarter cash dividend of $0.1200 per common share payable October 2, 2015.

 

REVENUE AND OILFIELD SERVICES EXPENSE

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015

2014

% change


2015

2014

% change

Revenue








Canada

45,607

110,687

(59)


163,597

337,155

(51)

United States

146,910

246,185

(40)


333,310

494,548

(33)

International

141,283

154,709

(9)


286,182

304,072

(6)

Total revenue

333,800

511,581

(35)


783,089

1,135,775

(31)

Oilfield services expense

244,975

390,742

(37)


560,417

832,762

(33)

Gross margin

88,825

120,839

(26)


222,672

303,013

(27)

Gross margin percentage (%)

26.6

23.6



28.4

26.7


 

Revenue for the three months ended June 30, 2015 totaled $333.8 million, a decrease of 35 percent from the second quarter of 2014 of $511.6 million. Revenue for the six months ended June 30, 2015 was $783.1 million, 31 percent lower than revenue for the six months ended June 30, 2014 of $1,135.8 million. As a percentage of revenue, gross margin for the second quarter of 2015 increased to 26.6 percent (2014 - 23.6 percent) and increased to 28.4 percent for the six months ended June 30, 2015 (2014 - 26.7 percent).

The decline in the oil and natural gas commodity prices that commenced in the second half of 2014 has continued to reduce the demand for oilfield services and has caused the Company to achieve lower equipment utilization rates and revenue rates compared to the first half of 2014. The United States dollar strengthened by 13 percent relative to the Canadian dollar in the first six months of 2015 compared to the first six months of 2014, which served to reduce the impact of some of the revenue rate declines experienced during the period.

CANADIAN OILFIELD SERVICES

Revenue decreased 59 percent to $45.6 million for the three months ended June 30, 2015, from $110.7 million for the three months ended June 30, 2014. For the six months ended June 30, 2015, revenue decreased 51 percent to $163.6 million compared to $337.2 million for the same period in 2014. Canadian revenues accounted for 14 percent of the Company's total revenue in the second quarter of 2015, compared to 22 percent in the second quarter of 2014, and during the six months ended June 30, 2015, Canadian revenues were 21 percent of total revenue (2014 - 30 percent).

The Company's Canadian operations recorded 902 drilling days in the second quarter of 2015, compared to 2,235 drilling days for the second quarter of 2014, a decrease of 60 percent. For the six months ended June 30, 2015, the Company recorded 3,661 drilling days compared to 7,027 drilling days for the six months ended June 30, 2014, a decrease of 48 percent. Canadian well servicing hours decreased by 50 percent to 14,330 operating hours in the second quarter of 2015 compared to 28,703 operating hours in the corresponding period of 2014. For the six months ended June 30, 2015, well servicing hours decreased by 48 percent to 33,076 operating hours compared with 63,383 operating hours for the six months ended June 30, 2014.

Demand for the Company's Canadian oilfield services was lower compared to prior quarters due to lower oil and natural gas commodity prices. The industry has shifted towards deeper, longer reach drilling and the Company continues to transition its Canadian drilling fleet to deeper drilling rigs. Demand levels for oil and gas services were lower for the first six months of 2015 compared to the comparable prior year period, reducing Canadian operating and financial results. Consistent with prior years, Canadian operations were also negatively impacted in the second quarter of 2015 by the seasonal operating environment where spring break-up weather conditions hindered the mobility of the Company's equipment.

During the six months ended June 30, 2015, two new build ADR® drilling rigs and one new ASR™ well servicing rig were completed and delivered to the Canadian fleet.

UNITED STATES OILFIELD SERVICES

The Company's United States operations recorded revenue of $146.9 million in the second quarter of 2015, a 40 percent decrease from the $246.2 million recorded in the corresponding period of the prior year. During the six months ended June 30, 2015, revenue of $333.3 million was recorded, a decrease of 33 percent from the $494.5 million recorded for the six months ended June 30, 2014. The Company's United States operations accounted for 44 percent of the Company's revenue in the second quarter of 2015 (2014 - 48 percent) and 43 percent of total revenue in the six months ended June 30, 2015 (2014 - 44 percent).

Drilling rig operating days decreased by 50 percent to 2,987 drilling days in the second quarter of 2015 from 5,990 drilling days in the second quarter of 2014. For the six months ended June 30, 2015, drilling days decreased 42 percent to 6,710 drilling days from 11,663 drilling days in the six months ended June 30, 2014. Well servicing activity decreased by 43 percent in the second quarter of 2015 to 17,452 operating hours from 30,599 operating hours in the second quarter of 2014. For the six months ended June 30, 2015, well servicing activity decreased 37 percent to 37,206 operating hours from 59,460 operating hours in the first six months of 2014.

Activity levels and revenue rates in the United States oilfield service operations started to decline in the fourth quarter of 2014. The decline continued into the first half of 2015 resulting in lower activity levels compared to the first half of the prior year. The activity and pricing declines were partially offset by a strengthening of the United States dollar, which increased 13 percent versus the Canadian dollar when compared to the first six months of 2014. The new builds and the upgrades that the Company made to its United States fleet throughout the previous years have allowed the Company to maintain revenue rates in some operating jurisdictions. The Company added three new ADR® drilling rigs and two new well servicing rigs to the United States equipment fleet, offset by one well service rig being removed from the marketed fleet in the first half of 2015.

INTERNATIONAL OILFIELD SERVICES

The Company's international operations recorded revenue of $141.3 million in the second quarter of 2015, a nine percent decrease from the $154.7 million recorded in the corresponding period of the prior year. Similarly, international revenues for the six months ended June 30, 2015, decreased by six percent to $286.2 million from $304.1 million recorded for the six months ended June 30, 2014. International operations contributed 42 percent of the Company's revenue in the second quarter of 2015 (2014 - 30 percent) and 36 percent of the Company's revenue in the first six months of 2015 (2014 - 26 percent).

International operating days for the three months ended June 30, 2015 totaled 2,206 drilling days compared to 2,828 drilling days in 2014, a decrease of 22 percent. For the six months ended June 30, 2015, international operating days totaled 4,746 drilling days compared to 5,980 drilling days for the six months ended June 30, 2014, a decrease of 21 percent.

Similar to the Company's United States operations, international operations were positively impacted by the strengthening United States dollar versus the Canadian dollar on translation into Canadian dollars for reporting purposes in the first six months of 2015 compared to the same period of the prior year. During the six month period ended June 30, 2015, the Company decommissioned two rigs from the international fleet.

DEPRECIATION

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015

2014

% change


2015

2014

% change

Depreciation

61,384

69,219

(11)


125,211

142,528

(12)









 

Depreciation expense totaled $61.4 million for the second quarter of 2015 compared with $69.2 million for the second quarter of 2014, a decrease of 11 percent. Depreciation expense for the first six months of 2015 was $125.2 million, a decrease of 12 percent from $142.5 million recorded for the first six months of 2014. Depreciation expense in the first six months when compared to the first six months of 2014 was lower due to the decrease in operating activity, which was partially offset by the impact of the reduction in the residual value of certain equipment from 15%-25% to 10% during the first six months of 2015, the impact of higher dollar value equipment being utilized in the six month period ended June 30, 2015, and the negative translational impact of a stronger United States dollar compared to the Canadian dollar on United States and international depreciation in the first half of the current year.

GENERAL AND ADMINISTRATIVE EXPENSE

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015

2014

% change


2015

2014

% change

General and administrative

19,291

23,702

(19)


40,805

45,807

(11)

% of revenue

5.8

4.6



5.2

4.0










 

General and administrative expense decreased 19 percent to $19.3 million (5.8 percent of revenue) for the second quarter of 2015 compared to $23.7 million (4.6 percent of revenue) for the second quarter of 2014. For the six months ended June 30, 2015, general and administrative expense totaled $40.8 million (5.2 percent of revenue) compared to $45.8 million (4.0 percent of revenue) recorded for the six months ended June 30, 2014, a decrease of 11 percent. The decrease in general and administrative expense resulted from the Company's initiatives to reduce fixed costs in reaction to lower oil and natural gas commodity prices. The decrease in the first six months of 2015, when compared with the corresponding period of 2014, was partially offset by one-time restructuring costs incurred during the first quarter and the negative translational impact of a strengthening United States dollar versus the Canadian dollar on United States and international general and administrative expenses in the current year.

SHARE-BASED COMPENSATION

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015


2014


% change


2015


2014


% change

Share-based compensation

4,684


615


662


5,476


(298)


(1,938)



















 

Share-based compensation arises from the Black-Scholes valuation accounting associated with the Company's share-based compensation plans, whereby the liability associated with share-based compensation is adjusted for the effect of granting and vesting of employee stock options and changes in the underlying market price of the Company's common shares.

For the three months ended June 30, 2015, share-based compensation was an expense of $4.7 million compared with an expense of $0.6 million recorded in the second quarter of 2014. For the six months ended June 30, 2015, share-based compensation was an expense of $5.5 million compared with a recovery of $0.3 million for the six months ended June 30, 2014. The increase in the share-based compensation expense in the first six months of 2015 was a result of the amortization of stock options and the change in the fair value of the share-based compensation liability primarily due to an increase in the price of the Company's common shares during the period. The closing price of the Company's common shares was $12.24 at June 30, 2015 ($16.57 at June 30, 2014), compared with $9.93 at March 31, 2015 ($16.34 at March 31, 2014) and $10.20 at December 31, 2014 ($16.73 at December 31, 2013).

INTEREST EXPENSE

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015

2014

% change


2015

2014

% change

Interest expense

5,484

5,462


11,561

10,888

6

Interest income

(95)

(123)

(23)


(193)

(459)

(58)


5,389

5,339

1


11,368

10,429

9

 

Interest is incurred on the Company's $10.0 million Canadian-based revolving credit facility (the "Canadian Facility"), the $600.0 million global revolving credit facility (the "Global Facility") and the United States dollar $300.0 million senior unsecured notes (the "Notes") issued in February 2012. The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense.

Interest expense in the first six months of 2015 increased over interest expense in the same period of 2014 due to negative translational impact of a strengthening United States dollar versus the Canadian dollar on United States and international interest expense.

FOREIGN EXCHANGE AND OTHER

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015


2014


% change


2015


2014


% change

Foreign exchange and other

(1,065)


(1,984)


(46)


17,045


(10,999)


(255)



















Included in this amount is the impact of foreign currency fluctuations in the Company's subsidiaries that have functional currencies other than Canadian dollars. During the three months ended June 30, 2015, the Australian dollar strengthened by approximately one percent against the United States dollar causing a foreign currency gain on translation of the Company's United States dollar denominated debt into Australian dollars. During the six months ended June 30, 2015, the Australian dollar weakened against the United States dollar by approximately six percent, compared with the Australian dollar strengthening against the United States dollar by five percent during the six months ended June 30, 2014. In general, the United States dollar strengthened when compared to other world currencies in the first six months of 2015 compared to the same period of 2014.

INCOME TAXES

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015


2014


% change


2015


2014


% change

Current income tax

(1,690)


2,213


(176)


(4,419)


21,689


(120)

Deferred income tax

1,868


6,493


(71)


12,795


18,204


(30)

Total income tax

178


8,706


(98)


8,376


39,893


(79)

Effective income tax rate (%)

(20.7)


36.4




36.8


34.5





















 

The effective income tax rate for the three months ended June 30, 2015 was negative 20.7 percent compared to 36.4 percent for the three months ended June 30, 2014. The effective tax rate for the current quarter is not considered meaningful, due to the small amounts used in the calculation. The effective income tax rate for the six months ended June 30, 2015 was 36.8 percent compared with 34.5 percent for the six months ended June 30, 2014. The increase in the effective tax rate in the first six months of 2015, in comparison to the corresponding period in 2014, is due to a higher proportion of taxable income earned in jurisdictions outside Canada as well as the $7.1 million impact of the corporate income tax rate increase enacted in Alberta, as applied to tax liabilities estimated for future years (deferred taxes). The current income tax recovery of $1.7 million in the three months ended June 30, 2015, is primarily due to a loss for income tax purposes in the Company's Canadian operations as operating activity has decreased significantly from the second quarter of the prior year.

FINANCIAL POSITION

The following chart outlines significant changes in the consolidated statement of financial position from December 31, 2014 to June 30, 2015:

 

($ thousands)

Change

Explanation

Cash and cash equivalents

(2,750)

See consolidated statements of cash flows.




Accounts receivable

(185,999)

Decrease is due to an increase in collections and a decline in

activity in the second quarter of 2015 compared to the fourth

quarter of 2014.




Inventories and other

4,551

Increase is due to the impact of an increase in the quarter-end

foreign exchange rate on the consolidation of the inventory and

prepaid balances of the Company's foreign subsidiaries as well

as additional prepaid expenses, offset by normal course usage of

consumables and amortization of prepaid expenses during the

quarter.




Property and equipment

124,024

Increase is due to additions from the new build and major retrofit

construction program and the impact of an increase in the

quarter-end foreign exchange rate on the consolidation of the

property and equipment of the Company's foreign subsidiaries,

offset by depreciation.




Accounts payable and accruals

(133,884)

Decrease is due to the reduction in operating activity in the

current quarter as well as the reduction in the size of the

Company's new build and major retrofit construction program.




Share-based compensation

5,838

Increase is due to the amortization of stock options and an

increase in the price of the Company's common shares as at

June 30, 2015, compared with December 31, 2014.




Long-term debt

(18,421)

Decrease is due to repayments offset by foreign exchange

fluctuations on the United States dollar-denominated long-term

debt.




Deferred income taxes

4,964

Increase is primarily due to accelerated tax depreciation of

assets added during the quarter and utilization of non-capital

losses as well as the corporate income tax rate increase enacted

in Alberta, effective July 1, 2015.




Shareholders' equity

79,536

Increase is due to net income for the six month period ended

June 30, 2015 and the impact of foreign exchange rate

fluctuations on net assets of foreign subsidiaries, offset by the

amount of dividends declared in the first half of 2015.




FUNDS FROM OPERATIONS AND WORKING CAPITAL

 

($ thousands, except per share amounts)

Three months ended June 30


Six months ended June 30

2015


2014


% change


2015


2014


% change

Funds from operations


69,389



90,431


(23)



179,150



227,442


(21)

Funds from operations per share

$

0.46


$

0.59


(22)


$

1.18


$

1.49


(21)

Working capital 1


133,449



189,698


(30)



133,449



189,698


(30)

















1 Comparative figure as of December 31, 2014.

During the three months ended June 30, 2015, the Company generated funds from operations of $69.4 million ($0.46 per common share) compared to funds from operations of $90.4 million ($0.59 per common share) for the three months ended June 30, 2014, a decrease of 23 percent. For the six months ended June 30, 2015, the Company generated funds from operations of $179.1 million ($1.18 per common share), which was 21 percent lower than funds from operations of $227.4 million ($1.49 per common share) generated in the first six months of 2014. This decrease was due to reduced operating and financial results for the Company in the first half of 2015 compared to the first half of the prior year.

At June 30, 2015, the Company's working capital totaled $133.4 million, compared to $189.7 million at December 31, 2014. The decrease in working capital in the six month period of 2015 was mainly related to reduced financial results in the first half of 2015 and the amount spent on the new build and major retrofit program. The Company expects funds generated by operations, combined with current and future credit facilities, to fully support current operating and capital requirements. Existing revolving credit facilities provide for total borrowings of $610.0 million, of which $205.9 million was available at June 30, 2015.

INVESTING ACTIVITIES

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015

2014

% change


2015

2014

% change

Purchase of property and equipment

(47,116)

(136,916)

(66)


(125,801)

(257,669)

(51)

Net change in non-cash working capital

(586)

(7,625)

(92)


(41,437)

(2,134)

1,842

Cash used in investing activities

(47,702)

(144,541)

(67)


(167,238)

(259,803)

(36)

 

Purchases of property and equipment during the second quarter of 2015 totaled $47.1 million (2014 - $136.9 million). Purchases of property and equipment during the first six months of 2015 totaled $125.8 million (2014 - $257.7 million). The purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's new build and major retrofit program.

FINANCING ACTIVITIES

 


Three months ended June 30


Six months ended June 30

($ thousands)

2015

2014

% change


2015

2014

% change

Net (decrease) increase in bank credit facilities

(42,640)

42,765

(200)


(72,635)

60,807

(219)

Purchase of shares held in trust

(5,635)

(4,259)

32


(6,189)

(4,748)

30

Dividends

(18,367)

(18,018)

2


(36,734)

(36,037)

2

Net change in non-cash working capital

(3,669)

(3,359)

9


(29)

(135)

(79)

Cash provided by (used in) financing activities

(70,311)

17,129

(510)


(115,587)

19,887

(681)

 

The Company's available bank credit facilities are composed of a $600.0 million Global Facility and a $10.0 million Canadian Facility. The Global Facility is available to the Company and certain of its wholly-owned subsidiaries and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $600.0 million Canadian dollars. The Global Facility has a three-year term that expires in June, 2017. The amount available under the Canadian Facility is $10.0 million or the equivalent in United States dollars.

In addition, the Company has a $20.0 million uncommitted facility, solely for issuing letters of credit, primarily used for bidding on contracts in the normal course of business.

The Company has made repayments of $42.6 million during the first six months of 2015, reducing the outstanding balance. As of June 30, 2015, the credit facilities are primarily being used to fund capital expenditures and to support international operations.

The Board of Directors of the Company has declared a third quarter dividend of $0.1200 per common share to be payable October 2, 2015 to all Common Shareholders of record as of September 18, 2015. The dividend is pursuant to the quarterly dividend policy adopted by the Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act ("ITA"), the dividend being paid is designated as an "eligible dividend", as defined in subsection 89(1) of the ITA.

NEW BUILDS AND MAJOR RETROFITS

During the three months ended June 30, 2015, the Company commissioned one new ADR® drilling rig and completed two major retrofits for the United States fleet.

In addition, the Company decommissioned two rigs from the international fleet and removed one well servicing rig from the United States marketed fleet.

The Company continues to build new ADR® drilling rigs and upgrade existing rigs to meet the increasing technical demands of its customers. The decline in oil and natural gas commodity prices during the latter half of 2014 resulted in the Company proactively and aggressively reducing the rig build program in late 2014. However, in response to customer demand in the current quarter, the Company reinstated the completion of one new build ADR® drilling rig that had been among the drilling rigs for which construction had been paused in late 2014. The Company's new build program currently consists of plans to complete three new build ADR® drilling rigs and one major retrofit by the end of the year.

OUTLOOK

The global economy appears to be settling into a rate of growth for 2015 similar to that of 2014, as first quarter softness in the United States economy has abated and increased United States growth generally offsets decelerating growth in non-OECD countries. Some noteworthy uncertainties for the balance of the year include actions by the United States Federal Reserve on interest rates, the resolution of debt negotiations with Greece, settlement of the pending Iran nuclear agreement, and relatively soft growth in China, Japan and the Eurozone. Demand for energy, particularly crude oil, has shown a positive growth trend, especially as attractive fuel pricing has spurred increased road travel in the United States and increased affordability in some non-OECD countries. Crude oil over-supply appears to be softening as shale drilling in the United States has tapered off. Although risks of supply disruptions in the Middle East and North Africa have increased in the last several months, global rig fleet oversupply continues to place downward pressure on oilfield services sector pricing.

Canadian oilfield services activity hit a two-decade low during the second quarter of 2015. In mid-June, the 2015 forecast of drilling operating days by the Canadian Association of Oilwell Drilling Contractors ("CAODC") was reduced by 13 percent from the forecast made less than five months earlier. Similarly, the CAODC revised its estimate for 2015 wells drilled from 6,612 to 5,531, down 51 percent from the number of wells drilled in 2014. Prospects for second half of the year remain uncertain and highly restrained. In addition to lower price levels for oil and gas, the pending Royalty Review by the new provincial government contributes to Alberta activity level uncertainties. Compared to industry levels, the Company's Canadian fleet fared somewhat better, due to deployment of deeper equipment. We continue to expect to maintain our activity and utilization levels relative to the industry.

Over the past few months, the weekly decline in the number of active land-based drilling rigs in the United States appears to have bottomed after the very large reduction of operating rigs year-over-year. As of July 31, 2015, 836 land-based rigs were operating, down 54 percent from the 1,801 rigs operating one year earlier, but down only four percent in the last three months, when 868 rigs were operating. Due to West Texas Intermediate crude oil prices averaging $53 per barrel in first quarter of 2015, rising to an average of $58 in the second quarter, certain additional shale resource plays again become economic and, until very recently, the industry became more optimistic about the second half of 2015. The recent sharp drop in crude oil prices, which management believes may largely be in response to negative developments in the Chinese equity markets and the pending Iran nuclear agreement, has negatively shifted sentiments in the industry. While utilization of the Company's United States equipment fleet has continued to compare favorably with industry utilization in the second quarter, demand and pricing pressures persist on the basis of the over-supply in oilfield services equipment.

Similar to the overall industry, activity levels in the Company's international operations have remained relatively stable when compared to those in North America. Consistent with the first quarter, activity levels in the Company's international operations year-over-year were down 22 percent in the second quarter. This trend is expected to hold in the second half of 2015. The extent of operating challenges has continued to increase as the year unfolds, primarily due to geopolitics and industry price pressures. However, longer term contracts and additions of new or refurbished equipment with relatively favorable day rate pricing are expected to be positive offsetting factors over the coming quarters.

As the current industry downturn continues, the Company continues to focus on managing business risk, with close attention to customer credit capacity, internal cost management and balance sheet preservation. Despite some optimism that industry activity levels may be bottoming, the extended period of reduced activity places continued pressure on operators' financial resilience. The Company remains guarded in its expectations regarding the next several quarters and continues to proactively examine its cost structure in order to make further improvements to efficiencies.

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, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the Company's defense of lawsuits and the ability of oil and gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions which could impact on the use of the services supplied by the Company and the Company's business and financial performance.

CONFERENCE CALL

A conference call will be held to discuss the Company's second quarter 2015 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Tuesday, August 4, 2015. The conference call number is (647) 427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until August 11, 2015 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 35057317. A live broadcast may be accessed through the Company's web site at www.ensignenergy.com.

Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI.


Ensign Energy Services Inc.
Consolidated Statements of Financial Position


As at


June 30
 2015


December 31
 2014

(Unaudited, in thousands of Canadian dollars)





Assets





Current assets





Cash and cash equivalents


$

51,247


$

53,997

Accounts receivable


277,819


463,818

Inventories and other


69,413


64,862

Income taxes receivable


14,048


15,841



412,527


598,518

Property and equipment


3,248,951


3,124,927



$

3,661,478


$

3,723,445

Liabilities





Current liabilities





Accounts payable and accruals


$

254,674


$

388,558

Dividends payable


18,367


18,367

Share-based compensation


6,037


1,895



279,078


408,820

Long-term debt


767,906


786,327

Share-based compensation


2,373


677

Deferred income taxes


487,348


482,384



1,536,705


1,678,208

Shareholders' equity





Share capital


165,079


169,215

Contributed surplus


2,905


1,967

Foreign currency translation reserve


218,957


113,880

Retained earnings


1,737,832


1,760,175



2,124,773


2,045,237



$

3,661,478


$

3,723,445

 

Ensign Energy Services Inc.
Consolidated Statements of Income


Three months ended


Six Months Ended


June 30
 2015


June 30
 2014


June 30
 2015


June 30
 2014

(Unaudited, in thousands of Canadian dollars, except

per share data)








Revenue

$

333,800


$

511,581


$

783,089


$

1,135,775

Expenses








Oilfield services

244,975


390,742


560,417


832,762

Depreciation

61,384


69,219


125,211


142,528

General and administrative

19,291


23,702


40,805


45,807

Share-based compensation

4,684


615


5,476


(298)

Foreign exchange and other

(1,065)


(1,984)


17,045


(10,999)


329,269


482,294


748,954


1,009,800

Income before interest and income taxes

4,531


29,287


34,135

125,975

Interest income

95


123


193


459

Interest expense

(5,484)


(5,462)


(11,561)


(10,888)

Income (loss) before income taxes

(858)


23,948


22,767


115,546

Income taxes








Current tax

(1,690)


2,213


(4,419)


21,689

Deferred tax

1,868


6,493


12,795


18,204


178


8,706


8,376


39,893

Net income (loss)

$

(1,036)


$

15,242


$

14,391


$

75,653

Net income (loss) per share








Basic

$

(0.01)


$

0.10


$

0.09


$

0.50

Diluted

$

(0.01)


$

0.10


$

0.09


$

0.49

Ensign Energy Services Inc.
Consolidated Statements of Cash Flows



Three months ended


Six months ended



June 30
 2015


June 30
 2014


June 30
 2015


June 30
 2014

(Unaudited, in thousands of Canadian dollars)









Cash provided by (used in)







Operating activities









Net income (loss)


$

(1,036)


$

15,242


$

14,391


$

75,653

Items not affecting cash









Depreciation


61,384


69,219


125,211


142,528

Share-based compensation, net of cash paid


6,872


789


8,816


607

Unrealized foreign exchange and other


203


(1,399)


17,740


(9,725)

Accretion on long-term debt


98


87


197


175

Deferred income tax


1,868


6,493


12,795


18,204



69,389


90,431


179,150


227,442

Net change in non-cash working capital


50,075


98,971


97,495


40,104



119,464


189,402


276,645


267,546

Investing activities









Purchase of property and equipment


(47,116)


(136,916)


(125,801)


(257,669)

Net change in non-cash working capital


(586)


(7,625)


(41,437)


(2,134)



(47,702)


(144,541)


(167,238)


(259,803)

Financing activities









Net increase in operating lines of credit


(42,640)


42,765


(72,635)


60,807

Purchase of shares held in trust


(5,635)


(4,259)


(6,189)


(4,748)

Dividends


(18,367)


(18,018)


(36,734)


(36,037)

Net change in non-cash working capital


(3,669)


(3,359)


(29)


(135)



(70,311)


17,129


(115,587)


19,887

Net increase (decrease) in cash and cash equivalents


1,451


61,990


(6,180)


27,630

Effects of foreign exchange on cash and cash equivalents


(3,573)


(3,773)


3,430


(7,778)

Cash and cash equivalents – beginning of period


53,369


40,493


53,997


78,858

Cash and cash equivalents – end of period


$

51,247


$

98,710


$

51,247


$

98,710

Supplemental information







Interest paid


$

9,143


$

8,716


$

11,356


$

9,615

Income taxes paid


$

(9,131)


$

8,936


$

(6,212)


$

16,867



































SOURCE Ensign Energy Services Inc.

For further information: Timothy Lemke, Vice President Finance and Chief Financial Officer, (403) 262-1361.

RELATED LINKS
http://www.ensignenergy.com

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