Ensign Energy Services Inc. Reports 2017 Second Quarter Results
CALGARY, Aug. 8, 2017 /CNW/ -
OVERVIEW
Revenue for the second quarter of 2017 was $232.2 million, an increase of 32 percent from revenue for the second quarter of 2016 of $175.9 million. Revenue for the six months ended June 30, 2017 was $483.5 million, an increase of 11 percent from revenue for the six months ended June 30, 2016 of $434.4 million. Revenue, net of third party, for the second quarter of 2017 was $211.7 million, an increase of 35 percent from Revenue, net of third party, for the second quarter of 2016 of $156.4 million. Revenue, net of third party, for the six months ended June 30, 2017 was $420.6 million, an increase of 10 percent from Revenue, net of third party, for the six months ended June 30, 2016 of $383.3 million.
Adjusted EBITDA totaled $44.3 million ($0.29 per common share) in the second quarter of 2017, 37 percent higher than Adjusted EBITDA of $32.2 million ($0.21 per common share) in the second quarter of 2016. For the first six months of 2017, Adjusted EBITDA totaled $94.4 million ($0.61 per common share), two percent higher than Adjusted EBITDA of $92.8 million ($0.61 per common share) in the first six months of 2016.
Net loss for the second quarter of 2017 was $33.8 million ($0.22 per common share) compared to a net loss of $40.0 million ($0.26 per common share) for the second quarter of 2016. Net loss for the six months ended June 30, 2017 was $47.6 million ($0.31 per common share), compared to net loss of $54.9 million ($0.36 per common share) for the six months ended June 30, 2016. Adjusted net loss for the second quarter of 2017 was $27.1 million ($0.17 per common share) compared to Adjusted net loss of $34.5 million for the second quarter of 2016 ($0.22 per common share). For the six months ended June 30, 2017, Adjusted net loss was $51.6 million ($0.33 per common share), compared to Adjusted net loss of $59.0 million ($0.39 per common share) for the six months ended June 30, 2016.
Funds flow from operations increased 23 percent to $44.8 million ($0.29 per common share) in the second quarter of 2017 compared to $36.3 million ($0.24 per common share) in the second quarter of the prior year. Funds flow from operations decreased two percent to $89.6 million ($0.58 per common share) in the first six months of 2017 compared to $91.5 million ($0.60 per common share) in the first six months of the prior year.
Operating days across the Company's fleet were higher in the second quarter of 2017 when compared to the second quarter of 2016 due primarily to increased demand for oilfield services caused by a modest price recovery of crude oil and natural gas commodity prices. A stabilized United States dollar against the Canadian dollar did not impact United States and international financial results on translation to Canadian dollars. The average United States exchange rate was consistent year over year.
Gross margin increased to $55.1 million (26.0 percent of Revenue, net of third party) for the second quarter of 2017 compared to gross margin of $45.4 million (29.0 percent of Revenue, net of third party) for the second quarter of 2016. Gross margin decreased to $115.7 million (27.5 percent of Revenue, net of third party) for the six months ended June 30, 2017 compared to a gross margin of $121.6 million (31.7 percent of Revenue, net of third party) for the six months ended June 30, 2016. The decrease in gross margin in the second quarter of 2017 compared to the second quarter of 2016 was primarily attributed to lower revenue rates in 2017 and short fall revenue earned in 2016 versus no short fall revenue earned in the same period in 2017.
Working capital at June 30, 2017 was a surplus of $122.0 million, compared to a deficit of $11.2 million at December 31, 2016, largely due to the repayment of a portion of long-term debt (USD $100.0 million of senior unsecured notes bearing interest at 3.43 percent, paid February 22, 2017). The Company's bank credit facilities provide unused and available borrowings of $20.3 million at June 30, 2017, down by $164.1 million, compared to $184.4 million at December 31, 2016, due to the senior unsecured notes repayment in February 2017.
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 |
|||||||||||
| 2017 |
2016 |
% change |
2017 |
2016 |
% change |
|||||||
| Revenue |
232,232 |
175,924 |
32 |
483,516 |
434,388 |
11 |
||||||
| Revenue, net of third party 1 |
211,687 |
156,423 |
35 |
420,578 |
383,285 |
10 |
||||||
| Adjusted EBITDA 2 3 |
44,276 |
32,230 |
37 |
94,364 |
92,755 |
2 |
||||||
| Adjusted EBITDA per share 2 3 |
||||||||||||
| Basic |
$ |
0.29 |
$ |
0.21 |
38 |
$ |
0.61 |
$ |
0.61 |
— |
||
| Diluted |
$ |
0.29 |
$ |
0.21 |
38 |
$ |
0.61 |
$ |
0.61 |
— |
||
| Adjusted net loss 3 4 |
(27,082) |
(34,532) |
22 |
(51,635) |
(58,975) |
12 |
||||||
| Adjusted net loss per share 3 4 |
||||||||||||
| Basic |
$ |
(0.17) |
$ |
(0.22) |
23 |
$ |
(0.33) |
$ |
(0.39) |
15 |
||
| Diluted |
$ |
(0.17) |
$ |
(0.22) |
23 |
$ |
(0.33) |
$ |
(0.39) |
15 |
||
| Net loss |
(33,814) |
(39,979) |
15 |
(47,606) |
(54,890) |
13 |
||||||
| Net loss per share |
||||||||||||
| Basic |
$ |
(0.22) |
$ |
(0.26) |
15 |
$ |
(0.31) |
$ |
(0.36) |
14 |
||
| Diluted |
$ |
(0.22) |
$ |
(0.26) |
15 |
$ |
(0.31) |
$ |
(0.36) |
14 |
||
| Cash provided by operating activities |
44,687 |
66,854 |
33 |
64,232 |
131,933 |
(51) |
||||||
| Funds flow from operations 5 |
44,769 |
36,328 |
23 |
89,578 |
91,508 |
|||||||
| Funds flow from operations per share 5 |
(2) |
|||||||||||
| Basic |
$ |
0.29 |
$ |
0.24 |
21 |
$ |
0.58 |
$ |
0.60 |
(3) |
||
| Diluted |
$ |
0.29 |
$ |
0.24 |
21 |
$ |
0.58 |
$ |
0.60 |
(3) |
||
| Total debt, net of cash |
714,357 |
664,560 |
7 |
714,357 |
664,560 |
7 |
||||||
| Weighted average shares - basic (000s) |
156,987 |
152,310 |
3 |
154,915 |
152,349 |
2 |
||||||
| Weighted average shares - diluted (000s) |
157,220 |
152,492 |
3 |
155,172 |
152,497 |
2 |
||||||
| Drilling |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||||||
| Number of rigs |
||||||||||||
| Canada 6 |
70 |
83 |
(16) |
70 |
83 |
(16) |
||||||
| United States |
84 |
90 |
(7) |
84 |
90 |
(7) |
||||||
| International 7 |
46 |
50 |
(8) |
46 |
50 |
(8) |
||||||
| Operating days |
||||||||||||
| Canada 6 |
1,141 |
674 |
69 |
3,466 |
2,243 |
55 |
||||||
| United States |
2,590 |
1,609 |
61 |
4,843 |
3,499 |
38 |
||||||
| International 7 |
1,506 |
1,544 |
(2) |
3,084 |
3,334 |
(7) |
||||||
| Well Servicing |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||||||
| Number of rigs |
||||||||||||
| Canada |
65 |
71 |
(8) |
65 |
71 |
(8) |
||||||
| United States |
45 |
44 |
2 |
45 |
44 |
2 |
||||||
| Operating hours |
||||||||||||
| Canada |
15,291 |
13,779 |
11 |
36,846 |
27,454 |
34 |
||||||
| United States |
21,594 |
15,229 |
42 |
41,675 |
29,584 |
41 |
||||||
| 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 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. |
| 6. |
Excludes coring rigs. |
| 7. |
Includes workover rigs. |
SECOND QUARTER HIGHLIGHTS
- Revenue for the second quarter of 2017 was $232.2 million, a 32 percent increase from the second quarter of 2016 revenue of $175.9 million.
- Revenue by geographic area:
- Canada - $51.1 million, 22 percent;
- United States - $110.3 million, 47 percent; and
- International - $70.9 million, 31 percent.
- The process of turning over our fleet to high specification, high quality ADR® drilling rigs is delivering higher market share in all areas of our business.
- Canadian drilling recorded 1,141 operating days in the second quarter of 2017, a 69 percent increase from 674 operating days in the second quarter of 2016. Canadian well servicing recorded 15,291 operating hours in the second quarter of 2017, an 11 percent increase from 13,779 operating hours in the second quarter of 2016.
- United States drilling recorded 2,590 operating days in the second quarter of 2017, a 61 percent increase from 1,609 operating days in the second quarter of 2016. United States well servicing recorded 21,594 operating hours in the second quarter of 2017, a 42 percent increase from 15,229 operating hours in the second quarter of 2016.
- International drilling recorded 1,506 operating days in the second quarter of 2017, a two percent decrease from 1,544 operating days recorded in second quarter of 2016.
- Adjusted EBITDA for the second quarter of 2017 was $44.3 million, a 37 percent increase from Adjusted EBITDA of $32.2 million for the second quarter of 2016. Funds flow from operations for the second quarter of 2017 increased 23 percent to $44.8 million from $36.3 million in second quarter of the prior year.
- Net capital expenditures for the calendar year 2017 are currently targeted between $90 to $95 million compared to the original estimate of $61 million. The increase in capital expenditures primarily relates to the construction of one new ADR® 1500 for the United States and one new ADR® 1000 for Canada both of which are targeted to go to work in Q3 2017, the purchase of a new heavy Permian type service rig and continued enhancements to the super-spec fleet.
- The Company declared a third quarter cash dividend on common shares of $0.12 per common share, payable on October 5, 2017 with a record date of September 21, 2017. The Company has also cancelled the dividend reinvestment plan effective immediately due to improving business conditions and cash flow.
REVENUE AND OILFIELD SERVICES EXPENSE
| Three months ended June 30 |
Six months ended June 30 |
|||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||
| Revenue |
||||||||
| Canada |
51,122 |
34,123 |
50 |
135,372 |
109,684 |
23 |
||
| United States |
110,252 |
73,049 |
51 |
208,262 |
173,179 |
20 |
||
| International |
70,858 |
68,752 |
3 |
139,882 |
151,525 |
(8) |
||
| Total revenue |
232,232 |
175,924 |
32 |
483,516 |
434,388 |
11 |
||
| Revenue, net of third party |
211,687 |
156,423 |
35 |
420,578 |
383,285 |
10 |
||
| Oilfield services expense |
177,133 |
130,561 |
36 |
367,778 |
312,828 |
18 |
||
| Gross margin |
55,099 |
45,363 |
21 |
115,738 |
121,560 |
(5) |
||
| Gross margin as a percentage of |
26.0 |
29.0 |
27.5 |
31.7 |
||||
Revenue for the three months ended June 30, 2017 totaled $232.2 million, an increase of 32 percent from the second quarter of 2016 of $175.9 million. Revenue for the six months ended June 30, 2017 totaled $483.5 million, an 11 percent increase from the six months ended June 30, 2016. As a percentage of Revenue, net of third party, gross margin for the second quarter of 2017 decreased to 26.0 percent (2016 - 29.0 percent) and decreased to 27.5 percent for the six months ended June 30, 2017 (2016 - 31.7 percent).
The cautious optimism regarding oil and natural gas commodity prices have increased demand for oilfield services, which resulted in higher equipment utilization rates; however, revenue rates declined throughout the prior years and have yet to increase with demand.
CANADIAN OILFIELD SERVICES
Revenue increased 50 percent to $51.1 million for the three months ended June 30, 2017 from $34.1 million for the three months ended June 30, 2016. The Company recorded revenue of $135.4 million in Canada for the six months ended June 30, 2017, an increase of 23 percent from $109.7 million recorded for the six months ended June 30, 2016. Canadian revenues accounted for 22 percent of the Company's total revenue in the second quarter of 2017, compared to 19 percent in the second quarter of 2016. During the six months ended June 30, 2017, Canadian revenues were 28 percent of the Company's revenue, compared with 25 percent in the six months ended June 30, 2016.
The Company's Canadian operations recorded 1,141 drilling days in the second quarter of 2017, compared to 674 drilling days for the second quarter of 2016, an increase of 69 percent. For the six months ended June 30, 2017, the Company recorded 3,466 drilling days compared to 2,243 drilling days for the six months ended June 30, 2016, an increase of 55 percent. Canadian well servicing hours increased by 11 percent to 15,291 operating hours in the second quarter of 2017 compared to 13,779 operating hours in the corresponding period of 2016. For the six months ended June 30, 2017, well servicing hours increased by 34 percent to 36,846 operating hours compared with 27,454 operating hours for the six months ended June 30, 2016.
Demand for the Company's Canadian oilfield services was higher compared to the prior quarters due primarily to the modest increase in oil and natural gas commodity prices. The increase in demand was offset by lower revenue rates and nominal short fall revenue earned, compared to the first half of 2016.
During the six months ended June 30, 2017, the Company added one new build ADR® drilling rig to the Canadian fleet.
UNITED STATES OILFIELD SERVICES
The Company's United States operations recorded revenue of $110.3 million in the second quarter of 2017, a 51 percent increase from the $73.0 million recorded in the corresponding period of the prior year. During the six months ended June 30, 2017, revenue of $208.3 million was recorded, an increase of 20 percent from the $173.2 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 47 percent of the Company's revenue in the second quarter of 2017 (2016 - 42 percent) and 43 percent of the Company's revenue in the first six months of 2017 (2016 - 40 percent).
Drilling rig operating days increased by 61 percent to 2,590 drilling days in the second quarter of 2017 from 1,609 drilling days in the second quarter of 2016. Drilling operating days increased by 38 percent from 3,499 operating days in the first six months of 2016 to 4,843 operating days in first six months of 2017. Well servicing activity expressed in operating hours increased by 42 percent in the second quarter of 2017 to 21,594 operating hours from 15,229 operating hours in the second quarter of 2016. For the six months ended June 30, 2017 well servicing activity increased 41 percent to 41,675 operating hours from 29,584 operating hours in the first six months of 2016.
Overall operating and financial results for the Company's United States operations were positively impacted by a modest increase in demand for oilfield services due to renewed optimism regarding oil and natural gas commodity prices. During the six months ended June 30, 2017, the Company added one service rig to the United States fleet.
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of $70.9 million in the second quarter of 2017, a three percent increase from the $68.8 million recorded in the corresponding period of the prior year. International revenues for the six months ended June 30, 2017, decreased eight percent to $139.9 million from $151.5 million recorded in the six months ended June 30, 2016. The Company's international operations contributed 31 percent of the total revenue in the second quarter of 2017 (2016 - 39 percent) and 29 percent of the Company's revenue in the first six months of 2017 (2016 - 35 percent).
International operating days for the three months ended June 30, 2017, totaled 1,506 drilling days compared to 1,544 drilling days in the same period of 2016, a decrease of two percent. For the six months ended June 30, 2017, international operating days totaled 3,084 operating days compared to 3,334 drilling days for the six months ended June 30, 2016, a decrease of seven percent.
The international operations saw a decrease in activity as certain rigs on long-term contracts rolled off by completing their term and were not renewed.
DEPRECIATION
| Three months ended June 30 |
Six months ended June 30 |
||||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
|||||||||||
| Depreciation |
75,508 |
81,383 |
(7) |
154,867 |
175,861 |
(12) |
|||||||||||
Depreciation expense totaled $75.5 million for the second quarter of 2017 compared with $81.4 million for the second quarter of 2016, a decrease of seven percent. Depreciation expense for the first six months of 2017 decreased by 12 percent to $154.9 million compared with $175.9 million for the first six months of 2016. Depreciation expense was lower in six months ended June 30, 2017 when compared to the six months ended June 30, 2016, due to certain operating assets now being fully depreciated in which case no further depreciation expense is required on such assets.
GENERAL AND ADMINISTRATIVE EXPENSE
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||||||||||
| General and administrative 1 |
10,823 |
13,133 |
(18) |
21,374 |
28,805 |
(26) |
||||||||||
| % of revenue |
4.7 |
7.5 |
4.4 |
6.6 |
||||||||||||
| 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 presentation. |
General and administrative expense decreased 18 percent to $10.8 million (4.7 percent of revenue) for the second quarter of 2017 compared to $13.1 million (7.5 percent of revenue) for the second quarter of 2016. For the six months ended June 30, 2017, general and administrative expense totaled $21.4 million (4.4 percent of revenue) compared to $28.8 million (6.6 percent of revenue) for the six months ended June 30, 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.
We expect normalized general and administrative expenses to run in a $9.5 to $10.5 million range per quarter on a go-forward basis, excluding share-based compensation and subject to variability due to foreign exchange rates.
SHARE-BASED COMPENSATION
| Three months ended June 30 |
Six months ended June 30 |
||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
|||||||||
| Share-based compensation 1 |
(806) |
2,376 |
nm |
(1,841) |
2,909 |
nm |
|||||||||
| nm - calculation not meaningful |
| 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 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 three months ended June 30, 2017 share-based compensation was a recovery of $0.8 million compared with an expense of $2.4 million recorded in the three months ended June 30, 2016. For the six months ended June 30, 2017 share-based compensation was a recovery of $1.8 million compared with an expense of $2.9 million for the six months ended June 30, 2016. The share-based compensation expense for the six months ended June 30, 2017 was a result of changes in the fair value of the share-based compensation liability and it impacted by the amortization of share options.
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 $6.93 at June 30, 2017 ($7.25 at June 30, 2016), compared with $7.97 at March 31, 2017 ($5.98 at March 31, 2016) and $9.38 at December 31, 2016 ($7.38 at December 31, 2015).
INTEREST EXPENSE
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||||||||||
| Interest expense |
8,860 |
6,268 |
41 |
18,188 |
12,596 |
44 |
||||||||||
| Interest income |
(38) |
(19) |
nm |
(75) |
(359) |
(79) |
||||||||||
| 8,822 |
6,249 |
41 |
18,113 |
12,237 |
48 |
|||||||||||
| nm - calculation not meaningful |
Interest is incurred on the Company's $500.0 million global revolving credit facility (the "Global Facility") and the United States dollar $200.0 million ($300.0 million at December 31, 2016) 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 increased by 44 percent in the first half of 2017 compared to the same period in 2016 as a result of borrowings of an additional $25.3 million on the bank credit facilities in the first half of 2017 and due to an increase in the interest rate.
FOREIGN EXCHANGE AND OTHER
| Three months ended June 30 |
Six months ended June 30 |
||||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
|||||||||||
| Foreign exchange and other |
11,163 |
6,004 |
86 |
(4,357) |
(9,194) |
(53) |
|||||||||||
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 three months ended June 30, 2017, the Australian dollar strengthened by approximately six percent against the United States dollar causing a foreign currency loss on translation of the Company's United States dollar denominated assets into Australian dollars. During the six months ended June 30, 2017, the Australian dollar strengthened against the United States dollar by approximately four percent (2016 - four percent).
INCOME TAXES
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||||||||||
| Current income tax |
523 |
(9,325) |
nm |
2,654 |
(9,611) |
nm |
||||||||||
| Deferred income tax |
(17,120) |
(14,478) |
18 |
(27,466) |
(24,557) |
12 |
||||||||||
| Total income tax |
(16,597) |
(23,803) |
(30) |
(24,812) |
(34,168) |
(27) |
||||||||||
| Effective income tax rate (%) |
32.9 |
37.3 |
34.3 |
38.4 |
||||||||||||
| nm - calculation not meaningful |
The effective income tax rate for the three months ended June 30, 2017 was 32.9 percent compared to 37.3 percent for the three months ended June 30, 2016. The effective income tax rate for the six months ended June 30, 2017 was 34.3 percent compared with 38.4 percent for the six months ended June 30, 2016. The effective tax rate in the first six months of the current year was lower than the effective tax rate in the first six months of 2016 due to the impact of earnings in foreign jurisdictions.
FINANCIAL POSITION
Significant changes in the consolidated statement of financial position from December 31, 2016 to June 30, 2017 are outlined below:
| ($ thousands) |
Change |
Explanation |
||
| Cash and cash equivalents |
(5,518) |
See consolidated statements of cash flows. |
||
| Accounts receivable |
9,045 |
Increase is due to an increase in activity in the first six months of 2017 compared to the fourth quarter of 2016, offset by the decrease in the quarter-end foreign exchange rate on translation of accounts receivable in the Company's foreign subsidiaries. |
||
| Inventories and other |
(3,989) |
Decrease is due to fully amortized prepaid expenses, consumption of inventory and to the impact of a decrease during in the quarter-end foreign exchange rate on the translation of the inventory and prepaid balances in the Company's foreign subsidiaries. |
||
| Income taxes receivable |
(9,731) |
Decrease is due to refunds received during the quarter offset by the current year income recovery. |
||
| Property and equipment |
(124,781) |
Decrease is primarily due to the impact of a decrease in the quarter-end translation rate to 1.30, compared to the December 31, 2016 translation rate of 1.34, as well as current period depreciation. The decrease is offset by $78M purchases of property and equipment. |
||
| Accounts payable and accruals |
(6,619) |
Decrease is due to the quarter-end foreign exchange rate on translation of accounts payable and accrued liabilities in the Company's foreign subsidiaries. The decrease was partially offset by the increase in operating activity and purchase of property and equipment. |
||
| Dividends payable |
221 |
Increase in dividends payable is due to the discount offered to eligible shareholders electing to receive shares instead of cash for the declared second quarter dividend. |
||
| Share-based compensation |
(3,511) |
Decrease 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 |
21,217 |
Increase is due to additional borrowings $25.3 million during the first six months of 2017 and to the weakening of the United States dollar from December 31, 2016 to June 30, 2017. |
||
| Deferred income taxes |
(39,610) |
Decrease arises from the deferred tax recovery for the first six months of 2017 and the effect of the quarter-end foreign exchange rate on translation of the deferred tax liability of the Company's foreign subsidiaries. |
||
| Shareholders' equity |
(106,672) |
Decrease is due the net loss incurred and the amount of dividends declared in the first six months of 2017 and the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries. |
||
FUNDS FROM OPERATIONS AND WORKING CAPITAL
| ($ thousands, except per share amounts) |
Three months ended June 30 |
Six months ended June 30 |
||||||||||||||||
| 2017 |
2016 |
% change |
2017 |
2016 |
% change |
|||||||||||||
| Funds from operations |
44,769 |
36,328 |
23 |
89,578 |
91,508 |
(2) |
||||||||||||
| Funds from operations per share |
$0.29 |
$0.24 |
21 |
$ |
0.58 |
$ |
0.60 |
(3) |
||||||||||
| Working capital 1 |
122,020 |
(11,153) |
nm |
122,020 |
(11,153) |
nm |
||||||||||||
| nm - calculation not meaningful |
| 1 Comparative figure as of December 31, 2016 |
During the three months ended June 30, 2017, the Company generated Funds flow from operations of $44.8 million ($0.29 per common share) compared to Funds flow from operations of $36.3 million ($0.24 per common share) for the three months ended June 30, 2016, an increase of 23 percent. For the six months ended June 30, 2017, the Company generated Funds flow from operations of $89.6 million ($0.58 per common share) a decrease of two percent from $91.5 million ($0.60 per common share) for the six months ended June 30, 2016. The decrease in Funds flow from operations in 2017 compared to 2016 is due to a reduction of seven percent of non-cash items impacting funds flow from operations.
At June 30, 2017 the Company's working capital was a surplus of $122.0 million, compared to a working capital deficit of $11.2 million at December 31, 2016. The increase in working capital in the first six months of 2017, was mainly related to the repayment a USD $100.0 million of senior unsecured notes. 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 $20.3 million was undrawn and available at June 30, 2017. In addition, the Company finalized a $50 million accordion to be included in the existing revolving credit facilities but not yet exercised.
INVESTING ACTIVITIES
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||||||||||
| Purchase of property and equipment |
(46,911) |
(13,402) |
nm |
(77,982) |
(31,276) |
nm |
||||||||||
| Proceeds from disposals of property and equipment |
820 |
3,836 |
(79) |
2,422 |
7,031 |
(66) |
||||||||||
| Net change in non-cash working capital |
4,981 |
447 |
nm |
5,116 |
(18,503) |
nm |
||||||||||
| Cash used in investing activities |
(41,110) |
(9,119) |
nm |
(70,444) |
(42,748) |
65 |
||||||||||
| nm - calculation not meaningful |
Net purchases of property and equipment for the second quarter of 2017 totaled $46.1 million (2016 - $9.6 million). Net purchases of property and equipment during the first six months of 2017 totaled $75.6 million (2016 - $24.2 million). The purchase of property and equipment relates predominantly to the construction of two new ADR® drilling rigs, one service rig and upgrades to certain drilling rigs to a higher specification, as well as for maintenance capital costs incurred in the current quarter and first six months of this year.
FINANCING ACTIVITIES
| Three months ended June 30 |
Six months ended June 30 |
|||||||||||||||
| ($ thousands) |
2017 |
2016 |
% change |
2017 |
2016 |
% change |
||||||||||
| Net decrease in bank credit facilities |
1,809 |
(7,233) |
nm |
25,339 |
(39,963) |
nm |
||||||||||
| Purchase of shares held in trust |
(254) |
(1,265) |
(80) |
(546) |
(1,548) |
(65) |
||||||||||
| Dividends |
(11,164) |
(18,367) |
(39) |
(22,549) |
(36,734) |
(39) |
||||||||||
| Net change in non-cash working capital |
(3,888) |
(3,868) |
1 |
(731) |
(83) |
nm |
||||||||||
| Cash used in financing activities |
(13,497) |
(30,733) |
(56) |
1,513 |
(78,328) |
nm |
||||||||||
The Company's available bank credit facilities consist 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 finalized a $50 million accordion to be included in the existing revolving credit facilities but not yet exercised. Subsequent to the quarter, the Company has initiated a process to secure the bank credit facilities and the senior notes with the Company's assets. This will allow for additional flexibility into the future when negotiating the bank credit facility.
The Company has received net debt proceeds of $25.3 million during the six months ended June 30, 2017, increasing the outstanding long-term debt balance. As of June 30, 2017, the credit facilities are primarily being used to fund capital expenditures.
In the settlement of the third quarter dividend, subsequent to June 30, 2017, 39 percent of shareholders elected to reinvest their dividends in common shares of the Company.
NEW BUILDS AND MAJOR RETROFITS
During the six months ended June 30, 2017, the Company added one new build ADR® drilling rig to its expansive tier one fleet worldwide, which have been contracted on a long-term contract and one service rig in the United States. The Company continues to selectively add new ADR® drilling rigs to meet the increasing technical demands of its customers.
The Company is currently in the process of completing one additional new ADR® 1500 for the United States and one new ADR® 1000 for Canada. These rigs are expected to be finished in the third quarter of 2017 and were part of the rig build program that the Company halted in 2014 to preserve the balance sheet in a declining market.
OUTLOOK
Recent production and inventory increases globally have continued to put pressure on crude oil prices delaying any expected rebalancing. Commodity analysts have now started to reduce the forecasted price of WTI for the remainder of the year to the low $50's and the 2018 forecasts have decreased to an average in the mid $50's. If the recent decline in oil prices lasts for a longer period, it could lead to oil and natural gas producers reducing their capital programs and demand for oilfield services. This potential decrease in oilfield services could start to impact production allowing for prices to react again.
The oilfield services industry is expected to be volatile and companies will need to be agile to respond to the changing environment quickly. Over the last two years the Company has made significant changes such as focusing on reducing fixed costs and streamlining processes to adapt to market volatility and to be able to respond appropriately to the changing marketplace.
Canada
In Canada, the Baker Hughes rig count on July 21, 2017 has increased to 15 rigs from the week before to 206 drilling rigs. This is up 104 rigs from the previous year. The rig count in Canada is expected to grow as spring breakup ends. The Montney continues to be the driver for activity in Canada accounting for about 40% of the active rigs in Q2, 2017. The Montney is also the Company's most active operating area in Canada and utilization for our high-spec triple drilling rigs continues to lead the industry average. Activity post spring breakup continues to increase with a total of 25 rigs running as of July 21, 2017. Of our Canadian rigs, 37 drilling and coring rigs are currently under contract with 27% under contract longer than six months.
United States
In the USA the Baker Hughes rig count on July 21, 2017 decreased by two drilling rigs from the week before to a total of 950 which is up 488 drilling rigs from the previous year. The rig count in the USA appears to be flattening out with expectations that it could remain flat or potentially decline for the remainder of the year if oil prices do not increase. As at July 21, 2017, nine Company rigs are currently running in the Rockies, nine in California and 18 in the Permian Basin with one rig running in the North East. Of our United States rigs, 38 drilling rigs are currently under contract with 13 under contract longer than six months. We are still experiencing pricing pressure in the California and the Rockies region but are seeing some pricing increases in the Permian Basin for the high-spec walking drilling rigs.
International
Activity internationally is expected to remain flat for the remainder of the year when compared to the first half of 2017. There are a total of eight Company drilling rigs currently running in Latin America as at July 21, 2017 and that is expected to be maintained throughout the year, but could vary depending on the political situation in Venezuela. We have a total of 11 rigs running in the Middle East and Australia. The Middle East and Australia are expected to see flat activity for the remainder of the year. In the international segment we have 20 drilling rigs under contract with 9, or 20 percent of the marketed fleet under contract longer than six months.
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 second quarter 2017 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Tuesday, August 8, 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 August 15, 2017 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 63511469. 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 |
December 31 |
||||||
| (Unaudited - in thousands of Canadian dollars) |
||||||||
| Assets |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ |
24,319 |
$ |
29,837 |
||||
| Accounts receivable |
214,392 |
205,347 |
||||||
| Inventories and other |
44,861 |
48,850 |
||||||
| Income taxes receivable |
7,477 |
17,208 |
||||||
| Total current assets |
291,049 |
301,242 |
||||||
| Property and equipment |
2,788,372 |
2,913,153 |
||||||
| Total assets |
$ |
3,079,421 |
$ |
3,214,395 |
||||
| Liabilities |
||||||||
| Current Liabilities |
||||||||
| Accounts payable and accruals |
$ |
146,766 |
$ |
153,385 |
||||
| Dividends payable |
19,098 |
18,877 |
||||||
| Share-based compensation |
3,165 |
5,943 |
||||||
| Current portion of long-term debt |
0 |
134,190 |
||||||
| Total current liabilities |
169,029 |
312,395 |
||||||
| Long-term debt |
738,676 |
583,269 |
||||||
| Share-based compensation |
1,806 |
2,539 |
||||||
| Deferred income taxes |
444,093 |
483,703 |
||||||
| Total liabilities |
1,353,604 |
1,381,906 |
||||||
| Shareholders' Equity |
||||||||
| Share capital |
196,783 |
180,666 |
||||||
| Contributed surplus |
1,525 |
1,524 |
||||||
| Foreign currency translation reserve |
255,450 |
292,547 |
||||||
| Retained earnings |
1,272,059 |
1,357,752 |
||||||
| Total shareholders' equity |
1,725,817 |
1,832,489 |
||||||
| Total liabilities and shareholders' equity |
$ |
3,079,421 |
$ |
3,214,395 |
||||
Ensign Energy Services Inc.
Consolidated Statements of Loss
| Three months ended |
Six months ended |
|||||||||||||||
| June 30 |
June 30 |
June 30 |
June 30 |
|||||||||||||
| (Unaudited - in thousands of Canadian dollars, except |
||||||||||||||||
| Revenue |
$ |
232,232 |
$ |
175,924 |
$ |
483,516 |
$ |
434,388 |
||||||||
| Expenses |
||||||||||||||||
| Oilfield services |
177,133 |
130,561 |
367,778 |
312,828 |
||||||||||||
| Depreciation |
75,508 |
81,383 |
154,867 |
175,861 |
||||||||||||
| General and administrative 1 |
10,823 |
13,133 |
21,374 |
28,805 |
||||||||||||
| Share-based compensation 1 |
(806) |
2,376 |
(1,841) |
2,909 |
||||||||||||
| Foreign exchange and other |
11,163 |
6,004 |
(4,357) |
(9,194) |
||||||||||||
| Total expenses |
273,821 |
233,457 |
537,821 |
511,209 |
||||||||||||
| Loss before interest and income taxes |
(41,589) |
(57,533) |
(54,305) |
(76,821) |
||||||||||||
| Interest income |
(38) |
(19) |
(75) |
(359) |
||||||||||||
| Interest expense |
8,860 |
6,268 |
18,188 |
12,596 |
||||||||||||
| Loss before income taxes |
(50,411) |
(63,782) |
(72,418) |
(89,058) |
||||||||||||
| Income taxes |
||||||||||||||||
| Current tax |
523 |
(9,325) |
2,654 |
(9,611) |
||||||||||||
| Deferred tax |
(17,120) |
(14,478) |
(27,466) |
(24,557) |
||||||||||||
| Total income taxes |
(16,597) |
(23,803) |
(24,812) |
(34,168) |
||||||||||||
| Net loss |
$ |
(33,814) |
$ |
(39,979) |
$ |
(47,606) |
$ |
(54,890) |
||||||||
| Net loss per share |
||||||||||||||||
| Basic |
$ |
(0.22) |
$ |
(0.26) |
$ |
(0.31) |
$ |
(0.36) |
||||||||
| Diluted |
$ |
(0.22) |
$ |
(0.26) |
$ |
(0.31) |
$ |
(0.36) |
||||||||
| 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 period's presentation. |
Ensign Energy Services Inc.
Consolidated Statements of Cash Flows
| Three months ended |
Six months ended |
|||||||||||||||
| June 30 |
June 30 |
June 30 |
June 30 |
|||||||||||||
| (Unaudited - in thousands of Canadian dollars) |
||||||||||||||||
| Cash provided by (used in) |
||||||||||||||||
| Operating activities |
||||||||||||||||
| Net loss |
$ |
(33,814) |
$ |
(39,979) |
$ |
(47,606) |
$ |
(54,890) |
||||||||
| Items not affecting cash |
||||||||||||||||
| Depreciation |
75,508 |
81,383 |
154,867 |
175,861 |
||||||||||||
| Share-based compensation, net of cash paid |
(1,101) |
4,981 |
(2,326) |
5,762 |
||||||||||||
| Unrealized foreign exchange and other |
21,236 |
4,318 |
11,854 |
(10,880) |
||||||||||||
| Accretion on long-term debt |
60 |
103 |
255 |
212 |
||||||||||||
| Deferred income tax |
(17,120) |
(14,478) |
(27,466) |
(24,557) |
||||||||||||
| Funds flow from operations |
44,769 |
36,328 |
89,578 |
91,508 |
||||||||||||
| Net change in non-cash working capital |
(82) |
30,526 |
(25,346) |
40,425 |
||||||||||||
| Cash provided by operating activities |
44,687 |
66,854 |
64,232 |
131,933 |
||||||||||||
| Investing activities |
||||||||||||||||
| Purchase of property and equipment |
(46,911) |
(13,402) |
(77,982) |
(31,276) |
||||||||||||
| Proceeds from disposals of property and equipment |
820 |
3,836 |
2,422 |
7,031 |
||||||||||||
| Net change in non-cash working capital |
4,981 |
447 |
5,116 |
(18,503) |
||||||||||||
| Cash used in investing activities |
(41,110) |
(9,119) |
(70,444) |
(42,748) |
||||||||||||
| Financing activities |
||||||||||||||||
| Net increase (decrease) in bank credit facilities |
1,809 |
(7,233) |
25,339 |
(39,963) |
||||||||||||
| Purchase of shares held in trust |
(254) |
(1,265) |
(546) |
(1,548) |
||||||||||||
| Dividends |
(11,164) |
(18,367) |
(22,549) |
(36,734) |
||||||||||||
| Net change in non-cash working capital |
(3,888) |
(3,868) |
(731) |
(83) |
||||||||||||
| Cash used in financing activities |
(13,497) |
(30,733) |
1,513 |
(78,328) |
||||||||||||
| Net increase (decrease) in cash and cash equivalents |
(9,920) |
27,002 |
(4,699) |
10,857 |
||||||||||||
| Effects of foreign exchange on cash and cash equivalents |
(447) |
(8,159) |
(819) |
(3,947) |
||||||||||||
| Cash and cash equivalents – beginning of period |
34,686 |
28,453 |
29,837 |
40,386 |
||||||||||||
| Cash and cash equivalents – end of period |
$ |
24,319 |
$ |
47,296 |
$ |
24,319 |
$ |
47,296 |
||||||||
| Supplemental information |
||||||||||||||||
| Interest paid |
$ |
10,804 |
$ |
10,136 |
$ |
17,714 |
$ |
12,677 |
||||||||
| Income taxes recovered |
$ |
(12,563) |
$ |
(421) |
$ |
(11,418) |
$ |
1,502 |
||||||||
SOURCE Ensign Energy Services Inc.
Michael Gray, Chief Financial Officer, (403) 262-1361
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