Ensign Energy Services Inc. Reports 2016 Third Quarter Results
CALGARY, Nov. 8, 2016 /CNW/ -
OVERVIEW
Revenue for the third quarter of 2016 was $191.3 million, a decrease of 41 percent from revenue for the third quarter of 2015 of $324.0 million. Revenue for the nine months ended September 30, 2016 was $625.7 million, a decrease of 43 percent from revenue for the nine months ended September 30, 2015 of $1,107.1 million. Revenue, net of third party, for the third quarter of 2016 was $168.1 million, a decrease of 42 percent from Revenue, net of third party, for the third quarter of 2015 of $289.3 million. Revenue, net of third party, for the nine months ended September 30, 2016 was $551.4 million, a decrease of 44 percent from Revenue, net of third party, for the nine months ended September 30, 2015 of $982.2 million.
Adjusted EBITDA totaled $42.5 million ($0.28 per common share) in the third quarter of 2016, 39 percent lower than Adjusted EBITDA of $69.2 million ($0.45 per common share) in the third quarter of 2015. For the first nine months of 2016, Adjusted EBITDA totaled $133.5 million ($0.88 per common share), 47 percent lower than Adjusted EBITDA of $253.7 million ($1.66 per common share) in the first nine months of 2015.
Net loss for the third quarter of 2016 was $33.7 million ($0.22 per common share) compared to a net loss of $77.3 million ($0.51 per common share) for the third quarter of 2015. Net loss for the nine months ended September 30, 2016 was $88.6 million ($0.58 per common share), compared to net loss of $62.9 million ($0.41 per common share) for the nine months ended September 30, 2015. Adjusted net loss for the third quarter of 2016 was $36.5 million ($0.24 per common share) compared to Adjusted net loss of $31.5 million for the third quarter of 2015 ($0.22 per common share). For the nine months ended September 30, 2016, Adjusted net loss was $96.6 million ($0.63 per common share), compared to Adjusted net loss of $0.8 million ($0.01 per common share) for the nine months ended September 30, 2015.
Funds from operations decreased 56 percent to $30.3 million ($0.20 per common share) in the third quarter of 2016 compared to $68.2 million ($0.45 per common share) in the third quarter of the prior year. Funds from operations decreased 51 percent to $121.8 million ($0.80 per common share) in the first nine months of 2016 compared to $247.4 million ($1.62 per common share) in the first nine months of the prior year.
Operating days across the Company's fleet were lower in the third quarter of 2016 when compared to the third quarter of 2015 due to weaker demand for oilfield services caused by continued relatively low crude oil and natural gas commodity prices. A strengthening year-over-year of the United States dollar against the Canadian dollar positively impacted United States and international financial results on translation to Canadian dollars. The average United States exchange rate was 1.32 for the first nine months of 2016 (first nine months of 2015 - 1.26) versus the Canadian dollar, an increase of five percent, compared to the first nine months of 2015.
Gross margin decreased to $52.4 million (31.2 percent of Revenue, net of third party) for the third quarter of 2016 compared to gross margin of $84.5 million (29.2 percent of Revenue, net of third party) for the third quarter of 2015. Gross margin decreased to $173.9 million (31.5 percent of Revenue, net of third party) for the nine months ended September 30, 2016 compared to a gross margin of $307.1 million (31.3 percent of Revenue, net of third party) for the nine months ended September 30, 2015. The decrease in gross margin in the third quarter of 2016 compared to the third quarter of 2015 was primarily attributed to weaker activity levels and lower revenue rates across the oilfield service equipment fleet.
Working capital at September 30, 2016 was a deficit of $39.5 million, compared to a surplus of $144.2 million at December 31, 2015, 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 $293.2 million at September 30, 2016, up by $73.1 million, compared to $220.1 million at December 31, 2015.
FINANCIAL AND OPERATING HIGHLIGHTS
(Unaudited, in thousands of Canadian dollars, except per share data and operating information)
| Three months ended September 30 |
Nine months ended September 30 |
||||||||||||||
| 2016 |
2015 |
% change |
2016 |
2015 |
% change |
||||||||||
| Revenue |
191,313 |
324,002 |
(41) |
625,701 |
1,107,091 |
(43) |
|||||||||
| Revenue, net of third party 1 |
168,098 |
289,327 |
(42) |
551,383 |
982,183 |
(44) |
|||||||||
| Adjusted EBITDA 2 3 |
42,456 |
69,209 |
(39) |
133,508 |
253,693 |
(47) |
|||||||||
| Adjusted EBITDA per share 2 3 |
|||||||||||||||
| Basic |
$ |
0.28 |
$ |
0.45 |
(38) |
$ |
0.88 |
$ |
1.66 |
(47) |
|||||
| Diluted |
$ |
0.28 |
$ |
0.45 |
(38) |
$ |
0.88 |
$ |
1.66 |
(47) |
|||||
| Adjusted net loss 3 4 |
(36,529) |
(31,510) |
(16) |
(96,611) |
(778) |
nm |
|||||||||
| Adjusted net loss per share 3 4 |
|||||||||||||||
| Basic |
$ |
(0.24) |
$ |
(0.22) |
(9) |
$ |
(0.63) |
$ |
(0.01) |
nm |
|||||
| Diluted |
$ |
(0.24) |
$ |
(0.22) |
(9) |
$ |
(0.63) |
$ |
(0.01) |
nm |
|||||
| Net loss |
(33,727) |
(77,265) |
56 |
(88,617) |
(62,874) |
(41) |
|||||||||
| Net loss per share |
|||||||||||||||
| Basic |
$ |
(0.22) |
$ |
(0.51) |
57 |
$ |
(0.58) |
$ |
(0.41) |
(41) |
|||||
| Diluted |
$ |
(0.22) |
$ |
(0.51) |
57 |
$ |
(0.58) |
$ |
(0.41) |
(41) |
|||||
| Funds from operations 5 |
30,281 |
68,218 |
(56) |
121,789 |
247,368 |
(51) |
|||||||||
| Funds from operations per share 5 |
|||||||||||||||
| Basic |
$ |
0.20 |
$ |
0.45 |
(56) |
$ |
0.80 |
$ |
1.62 |
(51) |
|||||
| Diluted |
$ |
0.20 |
$ |
0.45 |
(56) |
$ |
0.80 |
$ |
1.62 |
(51) |
|||||
| Total debt, net of cash |
669,618 |
716,659 |
(7) |
669,618 |
716,659 |
(7) |
|||||||||
| Weighted average shares - basic (000s) |
152,311 |
152,291 |
— |
152,336 |
152,484 |
— |
|||||||||
| Weighted average shares - diluted (000s) |
152,523 |
152,291 |
— |
152,493 |
152,484 |
— |
|||||||||
| Drilling |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|||||||||
| Number of rigs |
|||||||||||||||
| Canada 6 |
83 |
90 |
(8) |
83 |
90 |
(8) |
|||||||||
| United States |
90 |
98 |
(8) |
90 |
98 |
(8) |
|||||||||
| International 7 |
50 |
54 |
(7) |
50 |
54 |
(7) |
|||||||||
| Operating days |
|||||||||||||||
| Canada 6 |
1,073 |
1,731 |
(38) |
3,316 |
5,121 |
(35) |
|||||||||
| United States |
1,586 |
2,768 |
(43) |
5,085 |
9,478 |
(46) |
|||||||||
| International 7 |
1,521 |
1,893 |
(20) |
4,855 |
6,639 |
(27) |
|||||||||
| Well Servicing |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|||||||||
| Number of rigs |
|||||||||||||||
| Canada |
71 |
72 |
(1) |
71 |
72 |
(1) |
|||||||||
| United States |
44 |
46 |
(4) |
44 |
46 |
(4) |
|||||||||
| Operating hours |
|||||||||||||||
| Canada |
15,214 |
14,496 |
5 |
42,668 |
47,572 |
(10) |
|||||||||
| United States |
17,651 |
21,188 |
(17) |
47,235 |
58,394 |
(19) |
|||||||||
| 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 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 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. 2015 restated to exclude coring rigs. |
| 7. |
Includes workover rigs. |
THIRD QUARTER HIGHLIGHTS
- Revenue for the third quarter of 2016 was $191.3 million, a 41 percent decrease from the third quarter of 2015 revenue of $324.0 million.
- Revenue by geographic area:
- Canada - $52.0 million, 27 percent;
- United States - $72.9 million, 38 percent; and
- International - $66.4 million, 35 percent.
- The process of turning over our fleet towards high specification, high quality ADR® drilling rigs is delivering higher market share in all areas of our business.
- Canadian drilling recorded 1,073 operating days in the third quarter of 2016, a 38 percent decrease from 1,731 operating days in the third quarter of 2015. Canadian well servicing recorded 15,214 operating hours in the third quarter of 2016, a five percent increase from 14,496 operating hours in the third quarter of 2015.
- United States drilling recorded 1,586 operating days in the third quarter of 2016, a 43 percent decrease from 2,768 operating days in the third quarter of 2015. United States well servicing recorded 17,651 operating hours in the third quarter of 2016, a 17 percent decrease from 21,188 operating hours in the third quarter of 2015.
- International drilling recorded 1,521 operating days in the third quarter of 2016, a 20 percent decrease from 1,893 operating days recorded in third quarter of 2015.
- Adjusted EBITDA for the third quarter of 2016 was $42.5 million, a 39 percent decrease from Adjusted EBITDA of $69.2 million for the third quarter of 2015. Funds from operations for the third quarter of 2016 decreased 56 percent to $30.3 million from $68.2 million in third quarter of the prior year.
- Net capital expenditures for the calendar year 2016 are currently targeted between $40 to $45 million compared to the original estimate of $60 million.
REVENUE AND OILFIELD SERVICES EXPENSE
| Three months ended September 30 |
Nine months ended September 30 |
|||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
||
| Revenue |
||||||||
| Canada |
51,983 |
81,597 |
(36) |
161,667 |
245,194 |
(34) |
||
| United States |
72,890 |
143,889 |
(49) |
246,069 |
477,199 |
(48) |
||
| International |
66,440 |
98,516 |
(33) |
217,965 |
384,698 |
(43) |
||
| Total revenue |
191,313 |
324,002 |
(41) |
625,701 |
1,107,091 |
(43) |
||
| Revenue, net of third party |
168,098 |
289,327 |
(42) |
551,383 |
982,183 |
(44) |
||
| Oilfield services expense |
138,931 |
239,532 |
(42) |
451,759 |
799,949 |
(44) |
||
| Gross margin |
52,382 |
84,470 |
(38) |
173,942 |
307,142 |
(43) |
||
| Gross margin as a percentage of |
31.2 |
29.2 |
31.5 |
31.3 |
||||
Revenue for the three months ended September 30, 2016 totaled $191.3 million, a decrease of 41 percent from the third quarter of 2015 of $324.0 million. Revenue for the nine months ended September 30, 2016 totaled $625.7 million, a 43 percent decrease from the nine months ended September 30, 2015. As a percentage of Revenue, net of third party, gross margin for the third quarter of 2016 increased to 31.2 percent (2015 - 29.2 percent) and increased to 31.5 percent for the nine months ended September 30, 2016 (2015 - 31.3 percent).
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 the first nine months of 2016 compared to the same period in 2015 served to reduce the impact of some of the revenue rate declines experienced during the year.
CANADIAN OILFIELD SERVICES
Revenue decreased 36 percent to $52.0 million for the three months ended September 30, 2016 from $81.6 million for the three months ended September 30, 2015. The Company recorded revenue of $161.7 million in Canada for the nine months ended September 30, 2016, a decrease of 34 percent from $245.2 million recorded for the nine months ended September 30, 2015. Canadian revenues accounted for 27 percent of the Company's total revenue in the third quarter of 2016, compared to 25 percent in the third quarter of 2015. During the nine months ended September 30, 2016, Canadian revenues were 26 percent of the Company's revenue, compared with 22 percent in the nine months ended September 30, 2015. The Company, for the three months ended September 30, 2016 received, $6.1 million in shortfall revenue compared to $2.6 million in the corresponding period of 2015. For the nine months ended September 30, 2016, the Company received $12.1 million in shortfall revenue compared to $4.6 million in the corresponding period of 2015.
The Company's Canadian operations recorded 1,073 drilling days in the third quarter of 2016, compared to 1,731 drilling days for the third quarter of 2015, a decrease of 38 percent. For the nine months ended September 30, 2016, the Company recorded 3,316 drilling days compared to 5,121 drilling days for the nine months ended September 30, 2015, a decrease of 35 percent. Canadian well servicing hours increased by five percent to 15,214 operating hours in the third quarter of 2016 compared to 14,496 operating hours in the corresponding period of 2015. For the nine months ended September 30, 2016, well servicing hours decreased by 10 percent to 42,668 operating hours compared with 47,572 operating hours for the nine months ended September 30, 2015.
Demand for the Company's Canadian oilfield services was lower compared to prior quarters due to continued lower oil and natural gas commodity prices. During the nine months ended September 30, 2016, the Company disposed of one well servicing rig.
UNITED STATES OILFIELD SERVICES
The Company's United States operations recorded revenue of $72.9 million in the third quarter of 2016, a 49 percent decrease from the $143.9 million recorded in the corresponding period of the prior year. During the nine months ended September 30, 2016, revenue of $246.1 million was recorded, a decrease of 48 percent from the $477.2 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 38 percent of the Company's revenue in the third quarter of 2016 (2015 - 45 percent) and 39 percent of the Company's revenue in the first nine months of 2016 (2015 - 43 percent).
Drilling rig operating days decreased by 43 percent to 1,586 drilling days in the third quarter of 2016 from 2,768 drilling days in the third quarter of 2015. Drilling operating days decreased by 46 percent from 9,478 operating days in the first nine months of 2015 to 5,085 operating days in first nine months of 2016. Well servicing activity expressed in operating hours decreased by 17 percent in the third quarter of 2016 to 17,651 operating hours from 21,188 operating hours in the third quarter of 2015. For the nine months ended September 30, 2016 well servicing activity decreased 19 percent to 47,235 operating hours from 58,394 operating hours in the first nine months of 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 in the nine months ending September 30, 2016. The reduced activity and associated pricing declines were partially offset by a strengthening of the United States dollar, which increased five percent versus the Canadian dollar when compared to the nine months ending September 30, 2015. During the first nine months ending September 30, 2016, the Company added one new build ADR® drilling rig to the United States fleet.
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of $66.4 million in the third quarter of 2016, a 33 percent decrease from the $98.5 million recorded in the corresponding period of the prior year. Similarly, international revenues for the nine months ended September 30, 2016, decreased 43 percent to $218.0 million from $384.7 million recorded in the nine months ended September 30, 2015. The Company's international operations contributed 35 percent of the total revenue in the third quarter of 2016 (2015 - 30 percent) and 35 percent of the Company's revenue in the first nine months of 2016 (2015 - 35 percent).
International operating days for the three months ended September 30, 2016, totaled 1,521 drilling days compared to 1,893 drilling days in the same period of 2015, a decrease of 20 percent. For the nine months ended September 30, 2016, international operating days totaled 4,855 operating days compared to 6,639 drilling days for the nine months ended September 30, 2015, a decrease of 27 percent.
Similar to the Company's United States operations, international operations were positively impacted by the strengthening United States dollar year-over-year in the first nine months of 2016, versus the Canadian dollar, on translation into Canadian dollars for reporting purposes compared to the first nine months of 2015.
DEPRECIATION
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| Depreciation |
83,982 |
89,546 |
(6) |
259,843 |
214,757 |
21 |
|
Depreciation expense totaled $84.0 million for the third quarter of 2016 compared with $89.5 million for the third quarter of 2015, a decrease of six percent. Depreciation expense for the first nine months of 2016 increased by 21 percent to $259.8 million compared with $214.8 million for the first nine months of 2015. Depreciation expense was higher in the nine months ended September 30, 2016 when compared to the nine months ended September 30, 2015, due to additional depreciation charges relating to idle equipment, the impact of higher dollar value equipment being utilized and the negative translational impact of a stronger United States dollar compared to the Canadian dollar on non-Canadian domiciled fixed assets. The increase was partially offset by the overall decrease in operating activity during the first nine months of 2016, when compared with the first nine months of 2015.
GENERAL AND ADMINISTRATIVE EXPENSE
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| General and administrative 1 |
9,926 |
15,261 |
(35) |
40,434 |
53,449 |
(24) |
|
| % of revenue |
5.2 |
4.7 |
6.5 |
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 presentation. |
General and administrative expense decreased 35 percent to $9.9 million (5.2 percent of revenue) for the third quarter of 2016 compared to $15.3 million (4.7 percent of revenue) for the third quarter of 2015. For the nine months ended September 30, 2016, general and administrative expense totaled $40.4 million (6.5 percent of revenue) compared to $53.4 million (4.8 percent of revenue) for the nine months ended September 30, 2015. The decrease in general and administrative expense arose from the Company's initiatives to reduce costs in reaction to lower oil and natural gas commodity prices.
During the third quarter of 2016, the Company reclassified share-based compensation that was classified in the general and administrative expense of $1.7 million and $2.3 million for the corresponding period of 2015 to the share-based compensation expense. This reclassification for the nine months ended September 30, 2016 was $3.4 million and $4.9 million for the nine months ended September 30, 2015. The decrease was partially offset by the negative translational impact on non-Canadian operations of the strengthening United States dollar versus the Canadian dollar for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015. We expect normalized general and administrative expenses to run in a $9.5 to $10.5 million range per quarter on a go-forward basis, excluding share-based compensation and subject to variability due to foreign exchange rates.
SHARE-BASED COMPENSATION
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| Share-based compensation 1 |
3,860 |
(3,265) |
nm |
5,066 |
4,828 |
5 |
|
| 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 September 30, 2016 share-based compensation was an expense of $3.9 million compared with a recovery of $3.3 million recorded in the three months ended September 30, 2015. For the nine months ended September 30, 2016 share-based compensation was an expense of $5.1 million compared with an expense of $4.8 million for the nine months ended September 30, 2015. The share-based compensation expense for the nine months ended September 30, 2016 was a result of changes in the fair value of the share-based compensation liability and it impacted by the amortization of share options.
During the third quarter of 2016, the Company reclassified share-based compensation that was classified in the general and administrative expense of $1.7 million and $2.3 million for the corresponding period of 2015 to the share-based compensation expense. This reclassification for the nine months ended September 30, 2016 was $3.4 million and $4.9 million for the nine months ended September 30, 2015. 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 $7.50 at September 30, 2016 ($8.21 at September 30, 2015), compared with $7.25 at June 30, 2016 ($12.24 at June 30, 2015) and $7.38 at December 31, 2015 ($10.20 at December 31, 2014).
INTEREST EXPENSE
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| Interest expense |
8,089 |
7,279 |
11 |
20,685 |
18,840 |
10 |
|
| Interest income |
(4) |
(82) |
(95) |
(363) |
(275) |
32 |
|
| 8,085 |
7,197 |
12 |
20,322 |
18,565 |
9 |
||
Interest is incurred on the Company's $10.0 million Canadian-based revolving credit facility (the "Canadian Facility"), the $600.0 million global revolving credit facility (the "Global Facility") and the United States dollar $300.0 million senior unsecured notes (the "Notes") issued in February 2012. The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense. During the nine month ending September 30, 2016, the Company extended the Global Facility maturity date to October 3, 2017.
Interest expense increased by 10 percent for the first nine months of 2016 compared to the same period in 2015 despite overall net debt repayments of $57.6 million on the bank credit facilities in the nine months ended September 30, 2016. The increased interest expense was due to the negative translational impact on United States dollar-denominated debt of a strengthening United States dollar versus the Canadian dollar on a year-over-year basis.
FOREIGN EXCHANGE AND OTHER
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| Foreign exchange and other |
(8,171) |
30,199 |
nm |
(17,365) |
47,244 |
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 three months ended September 30, 2016, the Australian dollar strengthened by approximately three percent against the United States dollar causing a foreign currency gain on translation of the Company's United States dollar denominated debt into Australian dollars. During the nine months ended September 30, 2016, the Australian dollar strengthened against the United States dollar by approximately five percent, compared with the Australian dollar weakening by 15 percent against the United States dollar during the nine months ended September 30, 2015.
INCOME TAXES
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| Current income tax |
241 |
(5,365) |
nm |
(9,370) |
(9,784) |
(4) |
|
| Deferred income tax |
(11,814) |
(119) |
nm |
(36,371) |
12,676 |
nm |
|
| Total income tax |
(11,573) |
(5,484) |
nm |
(45,741) |
2,892 |
nm |
|
| Effective income tax rate (%) |
25.5 |
6.6 |
34.0 |
(4.8) |
|||
| nm - calculation not meaningful |
|||||||
The effective income tax rate for the three months ended September 30, 2016 was 25.5 percent compared to 6.6 percent for the three months ended September 30, 2015. The effective income tax rate for the nine months ended September 30, 2016 was 34.0 percent compared with a negative 4.8 percent for the nine months ended September 30, 2015. The effective tax rate in the first nine months of the current year was higher than the effective tax rate in the first nine months of 2015 due to tax rate increases in Alberta and Oman, 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 September 30, 2016 are outlined below:
| ($ thousands) |
Change |
Explanation |
|
| Cash and cash equivalents |
(9,628) |
See consolidated statements of cash flows. |
|
| Accounts receivable |
(45,655) |
Decrease is due to an increase in collections, a decline in activity in the first nine months of 2016 compared to the fourth quarter of 2015, and the decrease in the quarter-end foreign exchange rate on translation of accounts receivable in the Company's foreign subsidiaries. |
|
| Inventories and other |
(11,645) |
Decrease is due to the impact of a decrease in the quarter-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 during the quarter. |
|
| Income taxes receivable |
648 |
Increase is due to the current year income tax recovery, net of refunds and payments made during the quarter. |
|
| Property and equipment |
(304,679) |
Decrease is primarily due to the impact of a decrease in the quarter-end translation rate to 1.31, compared to the December 31, 2015 translation rate of 1.38, as well as current period depreciation. |
|
| Accounts payable and accruals |
(15,580) |
Decrease is due to a reduction in operating activity in the first nine months of 2016, a reduction in the size of the Company's new build and major retrofit program, and from the decrease in the quarter-end foreign exchange rate on translation of accounts payable and accrued liabilities in the Company's foreign subsidiaries. |
|
| Dividends payable |
404 |
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 |
2,021 |
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 |
(93,733) |
Decrease is due to net repayments of $57.6 million during the first nine months of 2016 and to the weakening of the United States dollar from December 31, 2015 to September 30, 2016. |
|
| Deferred income taxes |
(41,222) |
Decrease arises from the deferred tax recovery for the first nine months of 2016 and the effect of the quarter-end foreign exchange rate on translation of the deferred tax liability of the Company's foreign subsidiaries. |
|
| Shareholders' equity |
(222,849) |
Decrease is due to the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries, the net loss incurred and the amount of dividends declared in the first nine months of 2016. |
|
FUNDS FROM OPERATIONS AND WORKING CAPITAL
| Three months ended September 30 |
Nine months ended September 30 |
||||||||
| ($ thousands, except per share amounts) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|||
| Funds from operations |
30,281 |
68,218 |
(56) |
121,789 |
247,368 |
(51) |
|||
| Funds from operations per share |
$0.20 |
$0.45 |
(56) |
$ |
0.80 |
$ |
1.62 |
(51) |
|
| Working capital 1 |
(39,473) |
144,239 |
nm |
(39,473) |
144,239 |
nm |
|||
| nm - calculation not meaningful |
|||||||||
| 1 Comparative figure as of December 31, 2015 |
|||||||||
During the three months ended September 30, 2016, the Company generated Funds from operations of $30.3 million ($0.20 per common share) compared to Funds from operations of $68.2 million ($0.45 per common share) for the three months ended September 30, 2015, a decrease of 56 percent. For the nine months ended September 30, 2016, the Company generated Funds from operations of $121.8 million ($0.80 per common share) a decrease of 51 percent from $247.4 million ($1.62 per common share) for the nine months ended September 30, 2015. The decrease in Funds from 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.
At September 30, 2016 the Company's working capital was a deficit of $39.5 million, compared to a working capital surplus of $144.2 million at December 31, 2015. The decrease in working capital in the first nine months of 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 $610.0 million, of which $293.2 million was undrawn and available at September 30, 2016.
INVESTING ACTIVITIES
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| Purchase of property and equipment |
(8,942) |
(26,061) |
(66) |
(40,218) |
(155,122) |
(74) |
|
| Proceeds from disposals of property and equipment |
1,273 |
1,006 |
27 |
8,304 |
4,266 |
95 |
|
| Net change in non-cash working capital |
(1,806) |
(14,187) |
(87) |
(20,309) |
(55,624) |
(63) |
|
| Cash used in investing activities |
(9,475) |
(39,242) |
(76) |
(52,223) |
(206,480) |
(75) |
|
| nm - calculation not meaningful |
|||||||
Net purchases of property and equipment for the third quarter of 2016 totaled $7.7 million (2015 - $25.1 million). Net purchases of property and equipment during the first nine months of 2016 totaled $31.9 million (2015 - $150.9 million). The purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's new build and major retrofit program, and for maintenance capital costs incurred in the current quarter and first nine months of this year.
FINANCING ACTIVITIES
| Three months ended September 30 |
Nine months ended September 30 |
||||||
| ($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change |
|
| Net decrease in bank credit facilities |
(17,677) |
(21,267) |
(17) |
(57,640) |
(93,902) |
(39) |
|
| Purchase of shares held in trust |
(30) |
(279) |
(89) |
(1,578) |
(6,468) |
(76) |
|
| Dividends |
(18,368) |
(18,368) |
— |
(55,102) |
(55,102) |
— |
|
| Net change in non-cash working |
3,523 |
5,016 |
(30) |
3,440 |
4,987 |
(31) |
|
| Cash used in financing activities |
(32,552) |
(34,898) |
(7) |
(110,880) |
(150,485) |
(26) |
|
The Company's available bank credit facilities consist of a $600.0 million Global Facility and a $10.0 million Canadian Facility. The Global Facility is available to the Company and certain of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $600.0 million Canadian dollars. The Global Facility matures in early October 2017. The amount available under the Canadian Facility is $10.0 million or the equivalent in United States dollars.
In addition, the Company has a $20.0 million uncommitted facility, solely for issuing letters of credit, primarily used for bidding on contracts in the normal course of business.
The Company has made net debt repayments of $57.6 million during the nine months ended September 30, 2016, reducing the outstanding long-term debt balance. As of September 30, 2016, the credit facilities are primarily being used to fund capital expenditures and to support international operations.
During the third quarter of 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 third quarter dividend, subsequent to September 30, 2016, 42 percent of shareholders elected to reinvest their dividends in common shares of the Company.
NEW BUILDS AND MAJOR RETROFITS
During the nine months ended September 30, 2016, the Company added one new build ADR® drilling rig to its expansive tier one-fleet worldwide, which 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
Energy commodity prices continue to be volatile and relatively suppressed due to supply-demand fundamentals and fluctuating inventory levels. The gradual recovery in the global economy, paired with some reduction of world oil production and potential coordinated future production restraints are, starting to provide some apparent support for crude oil prices. Natural gas demand prospects are also starting to improve, with expanding global exports, other than for Canada due to pipeline constraints, and waning inventory surpluses arising from power generation switching to natural gas as well as normalizing weather factors. Despite short-term uncertainty from the pending United States election, Brexit, banking sector concerns in Europe, and geopolitical tensions in the Middle East, a positive outlook for energy commodities seems to be a reasonable expectation.
Surplus supply and inventory overhang are the primary causes for the current relatively low energy commodity price environment. It remains to be seen when full rebalancing effects and other factors will push energy commodity prices upward. The recent OPEC agreement in Algiers, together with statements coming from Russia on reducing output levels are having a positive impact on crude oil prices.
On the shale side, particularly as it is developing in the United States, development is extremely sensitive to minor price differences. Economics recently have improved considerably to make crude oil reserve development economical in the price range of USD $50 per barrel in some areas.
The Company's Canadian operations have performed relatively well in 2016, largely because it operates drilling rigs with specifications suitable for deeper and higher pressure resource plays. Activity levels have tracked consistently with the industry; in early September 2016, the Canadian Association of Oilwell Drilling Contractors updated its forecast to indicate 2016 operating days will finish 38 percent lower than those of 2015, even though the decrease for the first nine months of 2016 was been nearly 45 percent from the first nine months of 2015. The Company expects 2017 industry activity levels to increase somewhat from those in 2016, but downward pricing pressure for some rig types will likely persist, due to highly competitive conditions.
In the United States, industry prospects are positive for higher activity levels. However rig rates are challenging as existing term contracts with higher day rates continue to drop off and drilling rigs begin to move into the spot rate market. The Company's United States operations are affected by these trends, however, in certain situations, where longstanding customer relationships have developed around a performance focus, pricing is less of an issue, as the Company's high value performance and service proposition are principal considerations.
Industry activity levels outside of North America continue to decline at a slow rate, reflecting uneven market conditions among geographic areas. The Company's international operations have been relatively stable, as they are supported by long term contracts in certain markets.
Similar to the last seven quarters in which the industry downturn took hold, the Company continues to maintain its focus on prudent business management, making investments only where clearly recoverable from operations, and taking every opportunity to increase efficiency and lower costs. Balance sheet preservation and close attention to cash management are ongoing. The recent implementation of a dividend reinvestment program is in furtherance of the Company's determination to balance internal cash needs while continuing to provide returns to its loyal shareholder base.
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 third quarter 2016 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Tuesday, November 8, 2016. 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 November 15, 2016 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 50604765. 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 |
September 30 |
December 31 |
||||||||
| (Unaudited - in thousands of Canadian dollars) |
||||||||||
| Assets |
||||||||||
| Current Assets |
||||||||||
| Cash and cash equivalents |
$ |
30,758 |
$ |
40,386 |
||||||
| Accounts receivable |
169,766 |
215,421 |
||||||||
| Inventories and other |
60,161 |
71,806 |
||||||||
| Income taxes receivable |
5,595 |
4,947 |
||||||||
| Total current assets |
266,280 |
332,560 |
||||||||
| Property and equipment |
2,960,901 |
3,265,580 |
||||||||
| Total assets |
$ |
3,227,181 |
$ |
3,598,140 |
||||||
| Liabilities |
||||||||||
| Current Liabilities |
||||||||||
| Accounts payable and accruals |
$ |
152,301 |
$ |
167,881 |
||||||
| Dividends payable |
18,771 |
18,367 |
||||||||
| Share-based compensation |
3,590 |
2,073 |
||||||||
| Current portion of long-term debt |
131,091 |
— |
||||||||
| Total current liabilities |
305,753 |
188,321 |
||||||||
| Long-term debt |
569,285 |
794,109 |
||||||||
| Share-based compensation |
1,439 |
935 |
||||||||
| Deferred income taxes |
486,957 |
528,179 |
||||||||
| Total liabilities |
1,363,434 |
1,511,544 |
||||||||
| Shareholders' Equity |
||||||||||
| Share capital |
172,970 |
169,171 |
||||||||
| Contributed surplus |
584 |
2,538 |
||||||||
| Foreign currency translation reserve |
251,658 |
332,230 |
||||||||
| Retained earnings |
1,438,535 |
1,582,657 |
||||||||
| Total shareholders' equity |
1,863,747 |
2,086,596 |
||||||||
| Total liabilities and shareholders' equity |
$ |
3,227,181 |
$ |
3,598,140 |
||||||
Ensign Energy Services Inc.
Consolidated Statements of Loss
| Three months ended |
Nine months ended |
|||||||||||
| September 30 |
September 30 |
September 30 |
September 30 |
|||||||||
| (Unaudited - in thousands of Canadian dollars, except |
||||||||||||
| Revenue |
$ |
191,313 |
$ |
324,002 |
$ |
625,701 |
$ |
1,107,091 |
||||
| Expenses |
||||||||||||
| Oilfield services |
138,931 |
239,532 |
451,759 |
799,949 |
||||||||
| Depreciation |
83,982 |
89,546 |
259,843 |
214,757 |
||||||||
| General and administrative 1 |
9,926 |
15,261 |
40,434 |
53,449 |
||||||||
| Asset decommissioning and write-downs |
— |
28,281 |
— |
28,281 |
||||||||
| Share-based compensation 1 |
3,860 |
(3,265) |
5,066 |
4,828 |
||||||||
| Foreign exchange and other |
(8,171) |
30,199 |
(17,365) |
47,244 |
||||||||
| Total expenses |
228,528 |
399,554 |
739,737 |
1,148,508 |
||||||||
| Loss before interest and income taxes |
(37,215) |
(75,552) |
(114,036) |
(41,417) |
||||||||
| Interest income |
(4) |
(82) |
(363) |
(275) |
||||||||
| Interest expense |
8,089 |
7,279 |
20,685 |
18,840 |
||||||||
| Loss before income taxes |
(45,300) |
(82,749) |
(134,358) |
(59,982) |
||||||||
| Income taxes |
||||||||||||
| Current tax |
241 |
(5,365) |
(9,370) |
(9,784) |
||||||||
| Deferred tax |
(11,814) |
(119) |
(36,371) |
12,676 |
||||||||
| Total income taxes |
(11,573) |
(5,484) |
(45,741) |
2,892 |
||||||||
| Net loss |
$ |
(33,727) |
$ |
(77,265) |
$ |
(88,617) |
$ |
(62,874) |
||||
| Net loss |
||||||||||||
| Basic |
$ |
(0.22) |
$ |
(0.51) |
$ |
(0.58) |
$ |
(0.41) |
||||
| Diluted |
$ |
(0.22) |
$ |
(0.51) |
$ |
(0.58) |
$ |
(0.41) |
||||
| 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. |
Ensign Energy Services Inc.
Consolidated Statements of Cash Flows
| Three months ended |
Nine months ended |
|||||||||
| September 30 |
September 30 |
September 30 |
September 30 |
|||||||
| (Unaudited - in thousands of Canadian dollars) |
||||||||||
| Cash provided by (used in) |
||||||||||
| Operating activities |
||||||||||
| Net loss |
$ |
(33,727) |
$ |
(77,265) |
$ |
(88,617) |
$ |
(62,874) |
||
| Items not affecting cash |
||||||||||
| Depreciation |
83,982 |
89,546 |
259,843 |
214,757 |
||||||
| Asset decommissioning and write-downs |
— |
28,281 |
— |
28,281 |
||||||
| Share-based compensation, net of cash paid |
(2,346) |
(3,020) |
3,416 |
5,796 |
||||||
| Unrealized foreign exchange and other |
(5,918) |
30,691 |
(16,798) |
48,431 |
||||||
| Accretion on long-term debt |
104 |
104 |
316 |
301 |
||||||
| Deferred income tax |
(11,814) |
(119) |
(36,371) |
12,676 |
||||||
| Funds provided by operations |
30,281 |
68,218 |
121,789 |
247,368 |
||||||
| Net change in non-cash working capital |
(4,966) |
(6,151) |
35,459 |
91,344 |
||||||
| Cash provided by operating activities |
25,315 |
62,067 |
157,248 |
338,712 |
||||||
| Investing activities |
||||||||||
| Purchase of property and equipment |
(8,942) |
(26,061) |
(40,218) |
(155,122) |
||||||
| Proceeds from disposals of property and equipment |
1,273 |
1,006 |
8,304 |
4,266 |
||||||
| Net change in non-cash working capital |
(1,806) |
(14,187) |
(20,309) |
(55,624) |
||||||
| Cash used in investing activities |
(9,475) |
(39,242) |
(52,223) |
(206,480) |
||||||
| Financing activities |
||||||||||
| Net decrease in bank credit facilities |
(17,677) |
(21,267) |
(57,640) |
(93,902) |
||||||
| Purchase of shares held in trust |
(30) |
(279) |
(1,578) |
(6,468) |
||||||
| Dividends |
(18,368) |
(18,368) |
(55,102) |
(55,102) |
||||||
| Net change in non-cash working capital |
3,523 |
5,016 |
3,440 |
4,987 |
||||||
| Cash used in financing activities |
(32,552) |
(34,898) |
(110,880) |
(150,485) |
||||||
| Net decrease in cash and cash equivalents |
(16,712) |
(12,073) |
(5,855) |
(18,253) |
||||||
| Effects of foreign exchange on cash and cash equivalents |
174 |
4,722 |
(3,773) |
8,152 |
||||||
| Cash and cash equivalents – beginning of period |
47,296 |
51,247 |
40,386 |
53,997 |
||||||
| Cash and cash equivalents – end of period |
$ |
30,758 |
$ |
43,896 |
$ |
30,758 |
$ |
43,896 |
||
| Supplemental information |
||||||||||
| Interest paid |
$ |
4,162 |
$ |
3,470 |
$ |
16,839 |
$ |
14,826 |
||
| Income taxes recovered |
$ |
(10,224) |
$ |
(2,244) |
$ |
(8,722) |
$ |
(8,456) |
||
SOURCE Ensign Energy Services Inc.
Michael Gray, Chief Financial Officer, (403) 262-1361.
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