Ensign Energy Services Inc. Reports 2016 Results

CALGARY, March 6, 2017 /CNW/ -

OVERVIEW

Revenue for the year ended December 31, 2016 was $859.7 million, a decrease of 38 percent from 2015 of $1,391.0 million. Revenue, net of third party, for the year ended December 31, 2016 was $755.9 million, a decrease of 39 percent from Revenue, net of third party, for the year ended December 31, 2015 of $1,234.8 million. Adjusted EBITDA for 2016, totaled $185.2 million ($1.21 per common share), 44 percent lower than Adjusted EBITDA of $329.0 million ($2.16 per common share) for the year ended December 31, 2015.

Net loss for the year ended December 31, 2016 was $150.5 million ($0.99 per common share), compared to net loss of $104.0 million ($0.68 per common share) for the year ended December 31, 2015. For the year ended December 31, 2016, Adjusted net loss was $144.5 million ($0.95 per common share), compared to Adjusted net loss of $30.3 million ($0.20 per common share) for the year ended December 31, 2015.

During the fourth quarter of 2016, the Company generated revenue of $234.0 million, a decrease of 18 percent from revenue of $283.9 million recorded in the fourth quarter of 2015.  Adjusted EBITDA was $51.7 million ($0.33 per common share) for the fourth quarter of 2016, a decrease of 31 percent from Adjusted EBITDA of $75.3 million ($0.49 per common share) recorded in the fourth quarter of 2015. The Company recorded a net loss of $61.9 million ($0.41 per common share) for the fourth quarter of 2016 compared to a net loss of $41.2 million ($0.26 per common share) for the fourth quarter of 2015.

Adjusted net loss for the fourth quarter of 2016 totaled $47.9 million ($0.32 per common share), compared with Adjusted net income of $29.5 million ($0.19 per common share) recorded in the fourth quarter of 2015.  Funds flow from operations were $48.9 million ($0.32 per common share) for the fourth quarter of 2016, a zero percent change from $48.9 million ($0.31 per common share) recorded in the fourth quarter of 2015.

The Company's decreased operating and financial results for the 2016 fiscal year resulted from the slow recovery of oil and natural gas prices. Continued low energy commodity prices adversely impact the current and future cash flows of the Company's customers and, as a result, the expected levels of future demand for oilfield services, particularly in North America.

Financial results from the Company's United States and international operations improved on translation to Canadian dollars due to the strengthening of the United States dollar relative to the Canadian dollar. For the year ended December 31, 2016, a four percent increase in the Canadian/United States dollar exchange rate positively impacted revenues and margins generated outside Canada.

The current uncertain market conditions resulting from the continued lower oil and natural gas commodity prices prompted the Company to take a closer look at its equipment fleet. As a result of a detailed review, the Company reduced its marketed equipment fleet in the fourth quarter of 2016 by decommissioning 20 drilling and workover rigs, as well as six servicing rigs. In accordance with its longstanding practice, the Company will retain useful components from the decommissioned rigs for use in its current and future operations. The majority of the non-cash charge associated with the asset decommissioning and write-downs in 2015 relates to the write-down of certain drilling rigs to their recoverable value.

In 2016 the Company added one new Automated Drill Rig ("ADR®") to its drilling rig fleet in the United States market, which has been contracted to a long-term contract.

The Company declared total dividends of $0.48 per common share in 2016.

The Company exited 2016 with a working capital deficit of $11.2 million, compared to a working capital balance of $144.2 million as at December 31, 2015. The decrease in working capital year-over-year was largely due to a portion of long-term debt (USD $100.0 million of senior unsecured notes bearing interest at 3.43 percent, due February 22, 2017) maturing within the next 12 months. The Company's bank credit facilities provide unused and available borrowings of $184.4 million at December 31, 2016, compared to $220.1 million at December 31, 2015, down by $25.6 million because of a reduction in the available credit under the recently renewal global facility arrangement. 

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


Three months ended December 31

Twelve months ended December 31


2016

2015

% change

2016

2015

% change

Revenue

234,001

283,887

(18)

859,702

1,390,978

(38)

Revenue, net of third party 1

204,474

252,592

(19)

755,857

1,234,775

(39)

Adjusted EBITDA 2, 3

51,665

75,317

(31)

185,173

329,010

(44)

Adjusted EBITDA per share 2, 3








Basic

$

0.33

$

0.49

(33)

$

1.21

$

2.16

(44)


Diluted

$

0.33

$

0.49

(33)

$

1.21

$

2.16

(44)

Adjusted net loss 3, 4

(47,865)

(29,485)

(62)

(144,477)

(30,264)

nm

Adjusted net loss per share 3, 4








Basic

$

(0.32)

$

(0.19)

(68)

$

(0.95)

$

(0.20)

nm


Diluted

$

(0.31)

$

(0.19)

(63)

$

(0.94)

$

(0.20)

nm

Net loss

(61,905)

(41,175)

(50)

(150,522)

(104,049)

(45)

Net loss per share








Basic

$

(0.41)

$

(0.26)

(58)

$

(0.99)

$

(0.68)

(46)


Diluted

$

(0.40)

$

(0.26)

(54)

$

(0.98)

$

(0.68)

(44)

Cash provided by operating activities

8,088

73,532

(89)




Funds flow from operations 5

48,862

48,905

170,651

296,273

(42)

Funds flow from operations per share 5








Basic

$

0.32

$

0.31

3

$

1.12

$

1.94

(42)


Diluted

$

0.31

$

0.31

$

1.11

$

1.94

(43)

Total debt, net of cash

687,622

753,723

(9)

687,622

753,723

(9)

Weighted average shares - basic (000s)

153,579

152,436

1

152,760

152,477

Weighted average shares - diluted (000s)

154,093

152,436

1

153,184

152,477

Drilling

2016

2015

% change

2016

2015

% change


Number of rigs









Canada 6

69

83

(17)

69

83

(17)



United States

84

89

(6)

84

89

(6)



International 7

46

50

(8)

46

50

(8)


Operating days









Canada 6

1,271

1,607

(21)

4,587

6,728

(32)



United States

2,067

2,417

(14)

7,152

11,895

(40)



International 7

1,690

1,914

(12)

6,545

8,553

(23)

Well Servicing

2016

2015

% change

2016

2015

% change


Number of rigs









Canada

65

72

(10)

65

72

(10)



United States

44

44

0

44

44

0


Operating hours









Canada

18,967

15,854

20

61,635

63,426

(3)



United States

18,976

20,192

(6)

66,211

78,586

(16)

nm - calculation not meaningful.

1.

Revenue, net of third party is defined as "gross revenue less third party reimbursable items".

2.

Adjusted EBITDA is defined as "(loss) earning 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 loss, 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.

3.

Share-based compensation included within the general and administrative expense in prior periods were reclassified to the share-based compensation expense to conform to this presentation.

4.

Adjusted net loss is defined as "Net loss 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". Management believes that, in addition to Net loss, Adjusted net loss 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 loss and Adjusted net loss per share are not recognized measures under International Financial Reporting Standards and thus may not be comparable to measures used by other companies.

5.

Funds flow from operations are defined as "cash provided by operating activities before the change in non-cash working capital". Management believes that, in addition to Net loss, Funds flow from operations constitute a measure that provides additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes this measure to assess the Company's ability to finance operating activities and capital expenditures. Funds flow from operations and Funds flow 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.

6.

Excludes coring rigs. 2015 restated to exclude coring rigs.

7.

Includes workover rigs.


 

2016 HIGHLIGHTS

  • Revenue for 2016 was $859.7 million, a 38 percent decrease from 2015 revenue of $1,391.0 million.
  • Revenue amounts and percentage of total by geographic area:
    • Canada - $222.8 million, 26 percent;
    • United States - $338.0 million, 39 percent; and
    • International - $298.9 million, 35 percent.
  • Canadian drilling recorded 4,587 operating days in the 2016, a 32 percent decrease from 6,728 operating days in 2015. Canadian well servicing recorded 61,635 operating hours in 2016, a three percent decrease from 63,426 operating hours in 2015.
  • United States drilling recorded 7,152 operating days in 2016, a 40 percent decrease from 11,895 operating days in 2015. United States well servicing recorded 66,211 operating hours in 2016, a 16 percent decrease from 78,586 operating hours in 2015.
  • International drilling recorded 6,545 operating days in 2016, a 23 percent decrease from 8,553 operating days recorded in 2015.
  • Adjusted EBITDA for 2016 was $185.2 million, a 44 percent decrease from Adjusted EBITDA of $329.0 million for 2015. Funds flow from operations for 2016 decreased 42 percent to $170.7 million from $296.3 million in the year prior.
  • One new ADR® drilling rig was added to the Company's United States equipment fleet.
  • The Company decommissioned a total of 20 drilling and workover rigs as well as six well servicing rigs during the year.
  • Net debt repayments for the year totaled $49.0 million.
  • The Company declared a first quarter cash dividend on common shares of $0.12 per common share payable April 4, 2017. The Company declared total dividends of $0.4800 per common share in 2016.

REVENUE AND OILFIELD SERVICES EXPENSE


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Revenue









Canada

61,137

61,803

(1)


222,804

306,997

(27)


United States

91,881

132,102

(30)


337,950

609,301

(45)


International

80,983

89,982

(10)


298,948

474,680

(37)

Total revenue

234,001

283,887

(18)


859,702

1,390,978

(38)









Revenue, net of third party

204,474

252,592

(19)


755,857

1,234,775

(39)









Oilfield services expense

170,267

195,076

(13)


622,026

995,025

(37)

Gross margin

63,734

88,811

(28)


237,676

395,953

(40)

Gross margin as a percentage of Revenue, net of third party

31.2

35.2



31.4

32.1


 

Revenue for the year ended December 31, 2016 totaled $859.7 million, a 38 percent decrease from the year ended December 31, 2015 of $1,391.0 million. The decline in revenue was a direct result of the slow recovery of oil and natural gas commodity prices which began to decline in the second half of 2014. Reduced demand for oilfield services resulted in lower equipment utilization rates and revenue rates during the year. The Company recorded revenue of $234.0 million for the three months ended December 31, 2016, an 18 percent decrease from the $283.9 million recorded in the three months ended December 31, 2015.

Revenue, net of third party, for the year ended December 31, 2016 totaled $755.9 million, a decrease of 39 percent from the previous year of $1,234.8 million. As a percentage of Revenue, net of third party, gross margin for the year ended December 31, 2016 was 31.4 percent (2015 - 32.1 percent). As a result of weaker commodity prices, the Company has reduced its revenue rate and operating cost structure and made changes to reduce the cost of its administrative and supervisory structure. Revenue, net of third party, for the three months ended December 31, 2016 decreased 19 percent to $204.5 million from $252.6 million in the fourth quarter of 2015.

The continuing relatively lower levels of oil and natural gas commodity prices reduced demand for oilfield services, which resulted in lower equipment utilization rates and revenue rates in 2016 compared to 2015. Financial results from the Company's United States and international operations were positively impacted on translation, as the stronger United States dollar relative to the Canadian dollar in 2016 compared to the prior year served to reduce the impact of some of the revenue rate declines experienced during the year.

CANADIAN OILFIELD SERVICES


Three months ended December 31


Twelve months ended December 31


2016

2015

change %


2016

2015

% change

Drilling rigs1









Opening balance

83

90



83

88




Additions

1



5




Transfers, net

(2)

1



(2)




Decommissions/Disposals

(12)

(9)



(12)

(10)



Ending balance

69

83

(17)


69

83

(17)

Drilling operating days2

1,271

1,607

(21)


4,587

6,728

(32)

Drilling rig utilization (%)1

17.1

19.9

(14)


15.2

20.7

(27)

Well servicing rigs









Opening balance

72

72



72

71




Additions



1




Decommissions/Disposals

(7)



(7)



Ending balance

65

72

(10)


65

72

(10)

Well servicing operating hours

18,967

15,854

20


61,635

63,426

(3)

Well servicing utilization (%)

29.0

23.9

21


23.8

24.2

(2)

1 Excludes coring rig fleet

2 2015 Restated to excluded coring rigs.

 

The Company recorded revenue of $222.8 million in Canada for the year ended December 31, 2016, a decrease of 27 percent from $307.0 million recorded for the year ended December 31, 2015. Revenue generated in Canada decreased one percent to $61.1 million for the three months ended December 31, 2016, from $61.8 million for the three months ended December 31, 2015. During the year ended December 31, 2016, Canadian revenues were 26 percent of the Company's revenue, compared with 22 percent in the year ended December 31, 2015, and in the fourth quarter of 2016, Canadian revenues accounted for 26 percent of the total revenue (2015 – 22 percent). During 2016 the Company received $17.1 million in shortfall revenue and termination revenue in Canada compared to $4.6 million in the corresponding period of 2015.

For the year ended December 31, 2016, the Company recorded 4,587 drilling days in Canada, compared to 6,728 drilling days for the year ended December 31, 2015, a decrease of 32 percent. During the fourth quarter of 2016 the Company recorded 1,271 operating days in Canada, a decrease of 21 percent from 1,607 operating days recorded during the fourth quarter of the prior year. Well servicing hours decreased by three percent to 61,635 operating hours compared with 63,426 operating hours for the year ended December 31, 2015. Well servicing hours in the fourth quarter of 2016 were up 20 percent to 18,967 compared to the fourth quarter of the prior year of 15,854.

Demand for the Company's Canadian oilfield services was lower compared to prior quarters due to continued lower oil and natural gas commodity prices. The weakened commodity pricing negatively affected the demand for oilfield services. Utilization and revenue rates for the Company's Canadian oilfield services decreased as the Company's customers actively reduced planned levels of capital expenditures in reaction to the steep decline in crude oil prices.  During the year ended December 31, 2016, the Company transferred two drilling rigs to its United States fleet, disposed of one well servicing rig and decommissioned 12 and six drilling and servicing rigs respectively. 

UNITED STATES OILFIELD SERVICES

 


Three months ended December 31

Twelve months ended December 31


2016

2015

% change

2016

2015

% change

Drilling rigs








Opening balance

90

98


89

95




Additions


1

3




Transfers, net1

(1)


(1)




Decommissions/Disposals

(6)

(8)


(6)

(8)



Ending balance

84

89

(6)

84

89

(6)

Drilling operating days

2,067

2,417

(14)

7,152

11,895

(40)

Drilling rig utilization (%)

25.0

27.7

(10)

21.8

33.7

(35)

Well servicing rigs








Opening balance

44

46


44

45




Additions


2




Decommissions/Disposals

(2)


(3)



Ending balance

44

44

44

44

Well servicing operating hours

18,976

20,192

(6)

66,211

78,586

(16)

Well servicing utilization (%)

46.9

46.7

41.2

46.1

(11)

1 Includes two rigs transferred in from the Canada fleet and two rigs transferred out to the international fleet

During the year ended December 31, 2016, revenue of $338.0 million was recorded in the United States, a decrease of 45 percent from the $609.3 million recorded in the prior year. Revenues recorded in the United States were $91.9 million in the fourth quarter of 2016, a 30 percent decrease from the $132.1 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 39 percent of the Company's revenue in the fiscal year of 2016 (2015 - 44 percent) and was the largest contributor to the Company's consolidated revenues in 2016, consistent with the prior year. During the fourth quarter of 2016 United States operations accounted for 39 percent of the Company's revenue (2015 - 46 percent), also the largest contributor to the Company's consolidated revenues and consistent with the prior year.

In the United States drilling operating days decreased by 40 percent from 11,895 operating days in 2015 to 7,152 operating days in 2016. For the year ended December 31, 2016 well servicing activity decreased 16 percent to 66,211 operating hours from 78,586 operating hours in 2015. During the fourth quarter drilling operating days decreased by 14 percent from 2,417 operating days in 2015 to 2,067 operating days in 2016. For the fourth quarter ended December 31, 2016 well servicing activity decreased six percent to 18,976 operating hours from 20,192 operating hours in 2015.

Overall operating and financial results for the Company's United States operations were negatively impacted by the decline in demand for oilfield services due to relatively lower oil and natural gas commodity prices. Activity levels and revenue rates in the United States continued to decline. The reduced activity and associated pricing declines were partially offset by a strengthening of the United States dollar, which increased four percent versus the Canadian dollar when compared 2015. 

During 2016, the Company added one ADR® drilling rig, transferred in two drilling rigs from the Canadian fleet, transferred out two drilling rigs to the international fleet and decommissioned six inactive drilling rigs.

INTERNATIONAL OILFIELD SERVICES


Three months ended December 31

Twelve months ended December 31


2016

2015

%change

2016

2015

% change

Drilling and workover rigs








Opening balance

50

54


50

56




Transfers

2


2




Decommissions/Disposals

(6)

(4)


(6)

(6)



Ending balance

46

50

(8)

46

50

(8)

Drilling operating days

1,690

1,914

(12)

6,545

8,553

(23)

Drilling rig utilization (%)

37.5

39.5

(5)

36.0

43.1

(16)

 

The Company's international revenues for the year ended December 31, 2016, decreased 37 percent to $298.9 million from $474.7 million recorded in the year ended December 31, 2015. International revenue totaled $81.0 million in the fourth quarter of 2016, a 10 percent decrease from $90.0 million recorded in the corresponding period of the prior year. The Company's international operations contributed 35 percent of the Company's revenue in 2016 (2015 - 34 percent).  The Company's international operations contributed 35 percent of the Company's fourth quarter revenue in 2016 (2015 - 32 percent).

International operating days totaled 6,545 compared to 8,553 drilling days for the year ended December 31, 2016, a decrease of 23 percent, compared to the year prior. International operating days for the three months ended December 31, 2016 decreased 12 percent to 1,690 compared to 1,914 operating days in the fourth quarter of 2015.

Similar to the Company's United States operations, international operations were positively impacted by the strengthening United States dollar year-over-year in 2016, versus the Canadian dollar, on translation into Canadian dollars for reporting purposes compared to 2015. The slow recovery of relatively depressed oil and natural gas commodity prices have affected all geographical areas including the Company's international operations. The lower crude oil prices are particularly challenging for Venezuela due to the heavy economic reliance on energy revenues in that country.

DEPRECIATION


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Depreciation

90,104

120,756

(25)


349,947

335,513

4

 

Depreciation expense for the year increased by four percent to $349.9 million compared with $335.5 million for the year ended 2015. Depreciation expense totaled $90.1 million for the fourth quarter of 2016 compared with $120.8 million for the fourth quarter of 2015, a decrease of 25 percent. Depreciation expense was four percent higher in the year ended December 31, 2016 when compared to the year ended December 31, 2015, due to additional depreciation charges relating to idle equipment, the impact of higher dollar value equipment being utilized and the negative translational impact of a stronger United States dollar compared to the Canadian dollar on non-Canadian domiciled fixed assets. The increase was partially offset by the overall decrease in operating activity during year, when compared with 2015.

GENERAL AND ADMINISTRATIVE EXPENSE


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

General and administrative 1

12,069

13,494

(11)


52,503

66,943

(22)

% of revenue

5.2

4.8



6.1

4.8


1 Share-based compensation included within the general and administrative expense in prior periods were reclassified
to the share-based compensation expense to conform to this year's presentation.

 

For the year ended December 31, 2016, general and administrative expense totaled $52.5 million (6.1 percent of revenue) compared to $66.9 million (4.8 percent of revenue) for the year ended December 31, 2015, a decrease of 22 percent. General and administrative expense decreased 11 percent to $12.1 million (5 percent of revenue) for the fourth quarter of 2016. The decrease in general and administrative expense resulted from the Company's initiatives to reduce costs in reaction to lower oil and natural gas commodity prices.

During 2016, the Company reclassified share-based compensation that was included in the general and administrative expense of $7.9 million for the corresponding period of 2015 to share-based compensation expense. 

The decrease in general and administrative expense was partially offset by one-time restructuring costs incurred during the year, as well as the negative translational impact of the strengthening United States dollar versus the Canadian dollar for the year ended December 31, 2016 compared to the year ended December 31, 2015.

ASSET DECOMMISSIONING AND WRITE-DOWNS


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Asset decommissioning and write-downs

nm


28,281

nm

nm - calculation not meaningful

 

As a result of a detailed review of its equipment fleet in light of the persistent downturn in market conditions, the Company assessed future prospects for its property and equipment. The assessment resulted in the decommissioning of 20 drilling rigs and six servicing rigs that were fully depreciated. In 2015, the Company incurred a non-cash charge of $28.3 million to asset decommissioning and write-down expense relating to specific assets in its international operations. In accordance with its longstanding practice, the Company retains useful components from the decommissioned rigs for use in its current and future operations.

SHARE-BASED COMPENSATION


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Share-based compensation 1

5,221

3,124

67


10,287

7,952

29

1 Share-based compensation included within the general and administrative expense in prior periods
were reclassified to the share-based compensation expense to conform to this year's presentation.

 

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

For the year ended December 31, 2016, share-based compensation was an expense of $10.3 million compared with an expense of $8.0 million for the year ended December 31, 2015. For the three months ended December 31, 2016, share based compensation was an expense of $5.2 million compared with an expense of $3.1 million recorded for the fourth quarter of 2015. The share-based compensation expense for the year ended December 31, 2016 was a result of changes in the fair value of the share-based compensation liability and was impacted by the amortization of share options. 

During the year, the Company reclassified share-based compensation that was included in the general and administrative expense of $7.9 million for the corresponding period of 2015 to the share-based compensation expense. The fair value of share-based compensation is impacted by both the input assumptions used to estimate the fair value and the price of the Company's common shares during the period. The closing price of the Company's common shares was $9.38 at December 31, 2016, compared with $7.38 at December 31, 2015.

INTEREST EXPENSE


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Interest expense

10,153

6,493

56


30,838

25,333

22

Interest income

(4)

(145)

(97)


(367)

(420)

(13)


10,149

6,348

60


30,471

24,913

22

 

Interest is incurred on the Company's $500.0 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.

During the year, the Company extended the Global Facility maturity date to October 3, 2018. Due to payment delays in Venezuela for work performed, the Company recognized a discount on its receivable in the amount of $2.6 million within interest expense. The receivable is discounted at eight percent and assumes a three year even collection period. 

Interest expense increased by 22 percent for the year ended December 31, 2016 compared to the same period in 2015 despite overall net debt repayments of $49.0 million on the bank credit facilities in fiscal 2016. For the three months ended December 31, 2016, interest expense increased 56 percent to $10.2 million compared to the comparative period in 2015. The increased interest expense was due to the negative translational impact on United States dollar-denominated debt of a strengthening United States dollar versus the Canadian dollar on a year-over-year basis and due to the discount applied on Venezuela receivables. 

FOREIGN EXCHANGE AND OTHER


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Foreign exchange and other

16,378

14,861

10


(987)

62,105

nm

nm - calculation not meaningful

 

Included in this amount is the impact of foreign currency fluctuations in the Company's subsidiaries that have functional currencies other than the Canadian dollar. During the year ended December 31, 2016, the Australian dollar weakened against the United States dollar by approximately one percent, compared with the Australian dollar weakening by 11 percent against the United States dollar during the year ended December 31, 2015.

INCOME TAXES


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Current income tax

(12,140)

9,937

nm


(21,510)

153

nm

Deferred income tax

3,858

(38,534)

nm


(32,513)

(25,858)

26

Total income tax

(8,282)

(28,597)

(71)


(54,023)

(25,705)

nm

Effective income tax rate (%)

11.8

41.0



26.4

19.8


nm - calculation not meaningful

 

The effective income tax rate for the three months ended December 31, 2016 was 11.8 percent compared to 41.0 percent for the three months ended December 31, 2015. The effective income tax rate for the year ended December 31, 2016 was 26.4 percent compared with 19.8 percent for the year ended December 31, 2015. The effective tax rate was higher than the effective tax rate of 2015 due to tax rate increases in Alberta, further increased by the impact of foreign exchange gains for which effective tax rates vary from statutory rates.

FINANCIAL POSITION

Significant changes in the consolidated statement of financial position from December 31, 2015 to December 31, 2016 are outlined below:

($ thousands)

Change

Explanation

Cash and cash equivalents

(10,549)

See consolidated statements of cash flows.




Accounts receivable

(10,074)

Decrease is due to an increase in collections, a decline in activity in fourth quarter 2016 compared to the fourth quarter of 2015, recognition of a discount for work performed in Venezuela and the decrease in the year-end foreign exchange rate on translation of accounts receivable in the Company's foreign subsidiaries.




Inventories and other

(22,956)

Decrease is due to the consumption of available inventory, the impact of a decrease in the year-end foreign exchange rate on the translation of the inventory and prepaid balances in the Company's foreign subsidiaries as well as amortization of prepaid expenses.




Income taxes receivable

12,261

Increase is due to the current year income tax recovery, net of refunds and payments made during the quarter.




Property and equipment

(352,427)

Decrease is primarily due to the impact of a decrease in the year-end translation rate to 1.34, compared to the December 31, 2015 translation rate of 1.38, as well as current period depreciation. The decrease is offset by $43.4 million of additions during the year.




Accounts payable and accruals

(14,496)

Decrease is due to a reduction in operating activity in the fourth of 2016, a reduction in the size of the Company's new build and major retrofit program, and from the decrease in the year-end foreign exchange rate on translation of accounts payable and accrued liabilities in the Company's foreign subsidiaries.




Dividends payable

510

Increase in dividends payable is due to the discount offered to eligible shareholders electing to receive shares instead of cash for the declared third quarter dividend.




Share-based compensation

5,474

Increase is mainly a result of changes in the fair value of the share-based compensation. The fair value of share-based compensation expense is impacted by both the input assumptions used to estimate the fair value, and the price of the Company's common shares during the period.




Long-term debt, including current portion

(76,650)

Decrease is due to net repayments of $49.0 million during 2016 and to the weakening of the United States dollar from December 31, 2015 to December 31, 2016.




Deferred income taxes

(44,476)

Decrease arises from the deferred tax recovery of 2016 and the effect of the year-end foreign exchange rate on translation of the deferred tax liability of the Company's foreign subsidiaries.




Shareholders' equity

(254,107)

Decrease is due to the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries, the net loss incurred and the amount of dividends declared during the year.

 

FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL

($ thousands, except per share amounts)

Three months ended December 31


Twelve months ended December 31

2016

2015

% change


2016

2015

% change

Funds flow from operations

48,862

48,905


170,651

296,273

(42)

Funds flow from operations per share

$0.32

$0.31

3


$

1.12

$

1.94

(42)

Working capital

(11,153)

144,239

nm


(11,153)

144,239

nm

nm - calculation not meaningful

 

For the year ended December 31, 2016, the Company generated Funds flow from operations of $170.7 million ($1.12 per common share) a decrease of 42 percent from $296.3 million ($1.94 per common share) for the year ended December 31, 2015. The Company generated Funds flow from operations of $48.9 million ($0.32 per common share) in the three months ended December 31, 2016, consistent with the three months ended December 31, 2015, of $48.9 million ($0.31 per common share). The decrease in Funds flow operations in 2016 compared to 2015 is due to the decline in demand for both North American and international oilfield services, attributed to lower global energy prices.

As at December 31, 2016 the Company's working capital was a deficit of $11.2 million, compared to a working capital surplus of $144.2 million at December 31, 2015. The decrease in working capital in the fiscal year ending 2016 was mainly related to a reduction in operating levels by the Company in 2016 and the financial statement reclassification of the portion of long-term debt (USD $100.0 million of senior unsecured notes bearing interest at 3.43 percent, due February 22, 2017) maturing within the next 12 months to current liabilities. 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 $500.0 million, of which $184.4 million was undrawn and available at December 31, 2016.

INVESTING ACTIVITIES


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Purchase of property and equipment

(3,176)

(13,159)

(76)


(43,394)

(168,281)

(74)

Proceeds from disposals of property and equipment

5,970

4,982

20


14,274

9,248

54

Net change in non-cash working capital

(3,318)

(5,413)

(39)


(23,627)

(61,037)

(61)

Cash used in investing activities

(524)

(13,590)

(96)


(52,747)

(220,070)

(76)

nm - calculation not meaningful

 

Net purchases of property and equipment during the fiscal year ending 2016 totaled $29.1 million (2015 - $159.0 million) and negative $2.8 million (2015 - $8.2 million), due to proceeds from disposals of property and equipment exceeding purchases for the three months ended December 31, 2016. The purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's new build and major retrofit program, and for maintenance capital costs incurred during the year. The Company completed one new ADR® drilling rig for the United States fleet that commenced work in the first quarter of 2016, under a long term contract.

FINANCING ACTIVITIES


Three months ended December 31


Twelve months ended December 31

($ thousands)

2016

2015

% change


2016

2015

% change

Net decrease in bank credit facilities

8,645

(27,556)

nm


(48,995)

(121,458)

(60)

Purchase of shares held in trust

(457)

(313)

46


(2,035)

(6,781)

(70)

Dividends

(11,338)

(18,367)

(38)


(66,440)

(73,469)

(10)

Net change in non-cash working capital

(5,327)

(4,730)

13


(1,887)

257

nm

Cash used in financing activities

(8,477)

(50,966)

(83)


(119,357)

(201,451)

(41)

 

The Company renewed its available bank credit facilities during the year, which now consists of a $500.0 million Global 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 $500.0 million Canadian dollars. The Global Facility matures in early October 2018.

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 net debt repayments of $49.0 million during the year ended December 31, 2016, reducing the outstanding long-term debt balance. As of December 31, 2016, the credit facilities are primarily being used to fund capital expenditures and to support international operations.

During the year ended December 31, 2016, the Board of Directors of the Company approved and adopted a Dividend Reinvestment Plan (the "DRIP"). The DRIP provides eligible holders of common shares with an option to elect to reinvest their dividends in common shares of the Company at a discount of up to five percent of the average market price on each dividend payment date. In the settlement of the fourth quarter dividend, subsequent to December 31, 2016, 39 percent of shareholders elected to reinvest their dividends in common shares of the Company. 

NEW BUILDS AND MAJOR RETROFITS

During the year ended December 31, 2016, the Company added one new build ADR® drilling rig to its expansive tier-one fleet worldwide, the addition has been contracted on a long-term contract. The Company continues to selectively add new ADR® drilling rigs to meet the increasing technical demands of its customers.

OUTLOOK

Industry Overview

2016 was a year of extreme volatility which finished with some positive news and optimism. In November 2016, the market was surprised by OPEC and Non-OPEC members agreeing on collective production cuts. Although the market was skeptical on whether participating countries would follow through, the February 2017 production data show about a 90 percent compliance. These production cuts appear to have given oil prices some near term stability. Also in November, the United States elected a new President. It is too early into the new Administration to fully understand the impact of the election, if any, on the oil and natural gas industry. While the initial signs appear to be positive, more clarity on energy, domestic, foreign and tax policies is needed.

Overall, 2017 is expected to be a year with some positive relief for the oil field services sector as utilization and rig counts are expected to continue to rise. In addition, spot market pricing for the deeper high-specification drilling rigs in certain operating areas are starting to experience an increase due to the supply and demand for those rigs beginning to balance. We expect this trend to continue throughout the rest of 2017 and into 2018. 

In 2017 we expect our customers will continue to look to further reduce or at least maintain the operating costs and efficiencies they have been experiencing. We will continue to support this objective with our deeper high-specification drilling rigs. We believe the drilling rig market going forward will continue to get smaller, with fewer rigs than historically required drilling more wells more efficiently. Over the last couple of years the Company has prepared itself for what is now expected to be a slow recovery and continues to be proactive in this volatile environment. 

The Company will continue to look at its rig and equipment fleet and will invest in improvements where returns are justified. We believe the existing equipment fleet that resulted from the Company's new build and major retrofit programs and decommissionings during prior years have positioned it to respond to customers' demands for premium oilfield services equipment and services around the world. 

Canadian Activity

Canadian drilling days in the fourth quarter of 2016 were down 21 percent from the fourth quarter of 2015. Activity in 2017 is expected to increase as CAODC rig count reported 279 drilling rigs operating in January 2017, representing a utilization rate of 43 percent. This is an increase from the prior year of 192 drilling rigs or 26 percent utilization for the same period. The February 10, 2017 Baker Hughes Rig count was at 352 rigs in Canada which represents 130 more rigs than the same period in 2016. Rig rate pressures from operators is still ongoing but the rig rates for deep capability rigs deployed in the Company's Canadian fleet have offset revenue day rate reductions seen in the spot markets. Future expectations are for the Company's Canadian operations to track with industry levels.

United States Activity

United States land drilling rig activity has commenced to increase from the lows experienced in 2016. The February 10, 2017 Baker Hughes rig count showed 740 active natural gas and oil rigs compared to a year ago with 541 active rigs. Although the Company's United States operations saw a decrease in operating days of 14 percent, when comparing fourth quarter 2016 to fourth quarter 2015, our United States operations have maintained and in some areas grew market share throughout 2016. Similar to Canada and around the world, pressure on revenue day rates and contract retention persist. However we are beginning to see revenue day rate increases in the deeper high-specification drilling rig markets and this is expected to continue into 2017 and 2018.

International Activity

Operating days in the Company's international operations for the fourth quarter of 2016 were down 12 percent when compared to the fourth quarter of 2015. The Company's operations outside of North America have declined less than those in Canada and the United States due in part to the longer term nature of the contracts. The Company does have some rigs that have come or are coming off contract, but they are expected to return to work with new or existing customers. Revenue day rates have also experienced some pressure over 2016 and this is expected to continue into 2017 until activity starts to increase again in some markets.

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.

CONFERENCE CALL

A conference call will be held to discuss the Company's fourth quarter 2016 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, March 6, 2017. The conference call number is 1-647-427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until March 13, 2017 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 63477263. A live broadcast may be accessed through the Company's web site at www.ensignenergy.com.

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

Ensign Energy Services Inc.
Consolidated Statements of Financial Position

As at

December 31
 2016


December 31
 2015

(Unaudited - in thousands of Canadian dollars)




Assets




Current Assets





Cash and cash equivalents

$

29,837


$

40,386


Accounts receivable

205,347


215,421


Inventories and other

48,850


71,806


Income taxes receivable

17,208


4,947

Total current assets

301,242


332,560

Property and equipment

2,913,153


3,265,580

Total assets

$

3,214,395


$

3,598,140





Liabilities




Current Liabilities





Accounts payable and accruals

$

153,385


$

167,881


Dividends payable

18,877


18,367


Share-based compensation

5,943


2,073


Current portion of long-term debt

134,190


Total current liabilities

312,395


188,321

Long-term debt

583,269


794,109

Share-based compensation

2,539


935

Deferred income taxes

483,703


528,179

Total liabilities

1,381,906


1,511,544





Shareholders' Equity





Share capital

180,666


169,171


Contributed surplus

1,524


2,538


Foreign currency translation reserve

292,547


332,230


Retained earnings

1,357,752


1,582,657

Total shareholders' equity

1,832,489


2,086,596

Total liabilities and shareholders' equity

$

3,214,395


$

3,598,140

 

Ensign Energy Services Inc.
Consolidated Statements of Loss


Three months ended


Twelve months ended


December 31
 2016

December 31
 2015


December 31
 2016

December 31
 2015

(Unaudited - in thousands of Canadian dollars, except per share data)






Revenue

$

234,001

$

283,887


$

859,702

$

1,390,978

Expenses







Oilfield services

170,267

195,076


622,026

995,025


Depreciation

90,104

120,756


349,947

335,513


General and administrative 1

12,069

13,494


52,503

66,943


Asset decommissioning and write-downs


28,281


Share-based compensation 1

5,221

3,124


10,287

7,952


Foreign exchange and other

16,378

14,861


(987)

62,105

Total expenses

294,039

347,311


1,033,776

1,495,819

Loss before interest and income taxes

(60,038)

(63,424)


(174,074)

(104,841)

Interest income

(4)

(145)


(367)

(420)

Interest expense

10,153

6,493


30,838

25,333

Loss before income taxes

(70,187)

(69,772)


(204,545)

(129,754)

Income taxes







Current tax

(12,140)

9,937


(21,510)

153


Deferred tax

3,858

(38,534)


(32,513)

(25,858)

Total income taxes

(8,282)

(28,597)


(54,023)

(25,705)

Net loss

$

(61,905)

$

(41,175)


$

(150,522)

$

(104,049)

Net loss







Basic

$

(0.40)

$

(0.26)


$

(0.99)

$

(0.68)


Diluted

$

(0.40)

$

(0.26)


$

(0.98)

$

(0.68)

1 Share-based compensation included within the general and administrative expense in prior periods were reclassified in the amount of $7,915 to
the share-based compensation expense to conform to this presentation.

 

Ensign Energy Services Inc.
Consolidated Statements of Cash Flows


Three months ended


Twelve months ended


December 31
 2016

December 31
 2015


December 31
 2016

December 31
 2015

(Unaudited - in thousands of Canadian dollars)






Cash provided by (used in)






Operating activities






Net loss

$

(61,905)

$

(41,175)


$

(150,522)

$

(104,049)

Items not affecting cash







Depreciation

90,104

120,756


349,947

335,513


Asset decommissioning and write-downs


28,281


Share-based compensation, net of cash paid

6,871

1,441


10,287

7,237


Unrealized foreign exchange and other

9,934

6,311


(6,864)

54,742


Accretion on long-term debt

106


316

407


Deferred income tax

3,858

(38,534)


(32,513)

(25,858)

Funds flow from operations

48,862

48,905


170,651

296,273

Net change in non-cash working capital

(40,774)

24,627


(5,315)

115,971

Cash provided by operating activities

8,088

73,532


165,336

412,244

Investing activities






Purchase of property and equipment

(3,176)

(13,159)


(43,394)

(168,281)

Proceeds from disposals of property and equipment

5,970

4,982


14,274

9,248

Net change in non-cash working capital

(3,318)

(5,413)


(23,627)

(61,037)

Cash used in investing activities

(524)

(13,590)


(52,747)

(220,070)

Financing activities






Net increase (decrease) in bank credit facilities

8,645

(27,556)


(48,995)

(121,458)

Purchase of shares held in trust

(457)

(313)


(2,035)

(6,781)

Dividends

(11,338)

(18,367)


(66,440)

(73,469)

Net change in non-cash working capital

(5,327)

(4,730)


(1,887)

257

Cash used in financing activities

(8,477)

(50,966)


(119,357)

(201,451)

Net decrease in cash and cash equivalents

(913)

8,976


(6,768)

(9,277)

Effects of foreign exchange on cash and cash equivalents

(8)

(12,486)


(3,781)

(4,334)

Cash and cash equivalents – beginning of period

30,758

43,896


40,386

53,997

Cash and cash equivalents – end of period

$

29,837

$

40,386


$

29,837

$

40,386

Supplemental information







Interest paid

$

14,012

$

10,210


$

30,851

$

25,036


Income taxes recovered

$

(527)

$

(2,285)


$

(9,249)

$

(10,741)

 

SOURCE Ensign Energy Services Inc.

For further information: Michael Gray, Chief Financial Officer, (403) 262-1361

RELATED LINKS
http://www.ensignenergy.com

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