Ensign Energy Services Inc. Reports 2017 Third Quarter Results

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Nov 06, 2017, 05:00 ET

CALGARY, Nov. 6, 2017 /CNW/ -

OVERVIEW

Revenue for the third quarter of 2017 was $247.1 million, an increase of 29 percent from revenue for the third quarter of 2016 of $191.3 million. Revenue for the nine months ended September 30, 2017 was $730.6 million, an increase of 17 percent from revenue for the nine months ended September 30, 2016 of $625.7 million. Revenue, net of third party, for the third quarter of 2017 was $211.3 million, an increase of 26 percent from Revenue, net of third party, for the third quarter of 2016 of $168.1 million. Revenue, net of third party, for the nine months ended September 30, 2017 was $631.9 million, an increase of 15 percent from Revenue, net of third party, for the nine months ended September 30, 2016 of $551.4 million.

Adjusted EBITDA totaled $52.6 million ($0.34 per common share) in the third quarter of 2017, 24 percent higher than Adjusted EBITDA of $42.5 million ($0.28 per common share) in the third quarter of 2016. For the first nine months of 2017, Adjusted EBITDA totaled $147.0 million ($0.95 per common share), 10 percent higher than Adjusted EBITDA of $133.5 million ($0.88 per common share) in the first nine months of 2016.

Net loss for the third quarter of 2017 was $36.5 million ($0.23 per common share) compared to a net loss of $33.7 million ($0.22 per common share) for the third quarter of 2016. Net loss for the nine months ended September 30, 2017 was $84.1 million ($0.54 per common share), compared to net loss of $88.6 million ($0.58 per common share) for the nine months ended September 30, 2016.

Funds flow from operations increased 31 percent to $39.6 million ($0.25 per common share) in the third quarter of 2017 compared to $30.3 million ($0.20 per common share) in the third quarter of the prior year. Funds flow from operations increased six percent to $129.2 million ($0.83 per common share) in the first nine months of 2017 compared to $121.8 million ($0.80 per common share) in the first nine months of the prior year.

Operating days across the Company's fleet were higher in the third quarter of 2017 when compared to the third 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 relatively consistent United States dollar translation against the Canadian dollar in 2017 did not impact United States and international financial results on translation to Canadian dollars. The average United States exchange rate was $1.31 for the first nine months of 2017(2016 - $1.32) versus the Canadian dollar.

Gross margin increased to $61.9 million (29.3 percent of Revenue, net of third party) for the third quarter of 2017 compared to gross margin of $52.4 million (31.2 percent of Revenue, net of third party) for the third quarter of 2016. Gross margin increased to $177.7 million (28.1 percent of Revenue, net of third party) for the nine months ended September 30, 2017 compared to a gross margin of $173.9 million (31.5 percent of Revenue, net of third party) for the nine months ended September 30, 2016. The increase in gross margin in the third quarter of 2017 compared to the third quarter of 2016 was primarily attributed to slightly higher revenue rates in 2017 and rig mix. The increase in gross margin was partially offset with no short fall revenue earned in 2017 versus the same period in 2016.

Working capital at September 30, 2017 was a surplus of $136.3 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 $16.5 million at September 30, 2017, down by $167.9 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 September 30					Nine months ended September 30
			2017		2016		% change	2017		2016		% change
Revenue			247,121		191,313		29	730,637		625,701		17
Revenue, net of third party ¹			211,299		168,098		26	631,877		551,383		15
Adjusted EBITDA ²			52,600		42,456		24	146,964		133,508		10
Adjusted EBITDA per share ²
	Basic		$	0.34	$	0.28	21	$	0.95	$	0.88	8
	Diluted		$	0.33	$	0.28	18	$	0.94	$	0.88	7
Net loss			(36,526)		(33,727)		(8)	(84,132)		(88,617)		5
Net loss per share
	Basic		$	(0.23)	$	(0.22)	(5)	$	(0.54)	$	(0.58)	7
	Diluted		$	(0.23)	$	(0.22)	(5)	$	(0.54)	$	(0.58)	7
Cash provided by operating activities			32,791		25,315		30	97,023		131,933		(38)
Funds flow from operations ³			39,616		30,281		31	129,194		121,789		6
Funds flow from operations per share ³
	Basic		$	0.25	$	0.20	25	$	0.83	$	0.80	4
	Diluted		$	0.25	$	0.20	25	$	0.83	$	0.80	4
Total debt, net of cash			700,011		669,618		5	700,011		669,618		5
Weighted average shares - basic (000s)			156,554		152,311		3	155,468		152,336		2
Weighted average shares - diluted (000s)			156,836		152,523		3	155,859		152,493		2
Drilling			2017		2016		% change	2017		2016		% change
	Number of rigs
		Canada ⁴	70		83		(16)	70		83		(16)
		United States	84		90		(7)	84		90		(7)
		International ⁵	46		50		(8)	46		50		(8)
	Operating days
		Canada ⁴	1,744		1,073		63	5,210		3,316		57
		United States	3,035		1,586		91	7,878		5,085		55
		International ⁵	1,475		1,521		(3)	4,559		4,855		(6)
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	16,763		15,214		10	53,609		42,668		26
		United States	24,962		17,651		41	66,637		47,235		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.	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.
4.	Excludes coring rigs.
5.	Includes workover rigs.

THIRD QUARTER HIGHLIGHTS

Revenue for the third quarter of 2017 was $247.1 million, a 29 percent increase from the third quarter of 2016 revenue of $191.3 million.
Quarterly revenue by geographic area:

Canada - $63.2 million, 26 percent;
United States - $122.0 million, 49 percent; and
International - $61.9 million, 25 percent.

The process of turning over our fleet to high specification, high quality ADR^®drilling rigs is contributing to higher market share in all areas of our business.
Canadian drilling recorded 1,744 operating days in the third quarter of 2017, a 63 percent increase from 1,073 operating days in the third quarter of 2016. Canadian well servicing recorded 16,763 operating hours in the third quarter of 2017, a 10 percent increase from 15,214 operating hours in the third quarter of 2016.
United States drilling recorded 3,035 operating days in the third quarter of 2017, a 91 percent increase from 1,586 operating days in the third quarter of 2016. United States well servicing recorded 24,962 operating hours in the third quarter of 2017, a 41 percent increase from 17,651 operating hours in the third quarter of 2016.
International drilling recorded 1,475 operating days in the third quarter of 2017, a three percent decrease from 1,521 operating days recorded in third quarter of 2016.
Adjusted EBITDA for the third quarter of 2017 was $52.6 million, a 24 percent increase from Adjusted EBITDA of $42.5 million for the third quarter of 2016. Funds flow from operations for the third quarter of 2017 increased 31 percent to $39.6 million from $30.3 million in third quarter of the prior year.
Net capital expenditures for the calendar year 2017 are currently targeted between $100 to $105 million compared to the revised estimate of $90 to $95 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 Q4 2017, the purchase of a new heavy Permian type service rig and continued enhancements to the super-spec rig fleet.
The Company declared a fourth quarter cash dividend on common shares of $0.12 per common share, payable on January 4, 2018 with a record date of December 20, 2017.

REVENUE AND OILFIELD SERVICES EXPENSE

		Three months ended September 30			Nine months ended September 30
($ thousands)		2017	2016	% change	2017	2016	% change
Revenue
	Canada	63,161	51,983	22	198,533	161,667	23
	United States	122,046	72,890	67	330,308	246,069	34
	International	61,914	66,440	(7)	201,796	217,965	(7)
Total revenue		247,121	191,313	29	730,637	625,701	17

Revenue, net of third party		211,299	168,098	26	631,877	551,383	15

Oilfield services expense		185,172	138,931	33	552,950	451,759	22
Gross margin		61,949	52,382	18	177,687	173,942	2
Gross margin as a percentage of Revenue, net of third party		29.3	31.2		28.1	31.5

Revenue for the three months ended September 30, 2017 totaled $247.1 million, an increase of 29 percent from the third quarter of 2016 of $191.3 million. Revenue for the nine months ended September 30, 2017 totaled $730.6 million, a 17 percent increase from the nine months ended September 30, 2016. As a percentage of Revenue, net of third party, gross margin for the third quarter of 2017 decreased to 29.3 percent (2016 - 31.2 percent) and decreased to 28.1 percent for the nine months ended September 30, 2017 (2016 - 31.5 percent).

The cautious optimism regarding oil and natural gas commodity prices has increased demand for oilfield services, which resulted in higher equipment utilization rates; however, revenue rates declined during the prior years and have yet to increase with demand.

CANADIAN OILFIELD SERVICES

Revenue increased 22 percent to $63.2 million for the three months ended September 30, 2017 from $52.0 million for the three months ended September 30, 2016. The Company recorded revenue of $198.5 million in Canada for the nine months ended September 30, 2017, an increase of 23 percent from $161.7 million recorded for the nine months ended September 30, 2016. Canadian revenues accounted for 26 percent of the Company's total revenue in the third quarter of 2017, compared to 27 percent in the third quarter of 2016. During the nine months ended September 30, 2017, Canadian revenues were 27 percent of the Company's revenue, compared with 26 percent in the nine months ended September 30, 2016. For three months ended September 30, 2017 the Company received nil in shortfall revenue compared to $6.1 million in the corresponding period of 2016. For the nine months ended September 30, 2017 the Company received $1.3 million in shortfall revenue compared to $12.1 million in the corresponding period of 2016.

The Company's Canadian operations recorded 1,744 drilling days in the third quarter of 2017, compared to 1,073 drilling days for the third quarter of 2016, an increase of 63 percent. For the nine months ended September 30, 2017, the Company recorded 5,210 drilling days compared to 3,316 drilling days for the nine months ended September 30, 2016, an increase of 57 percent. Canadian well servicing hours increased by 10 percent to 16,763 operating hours in the third quarter of 2017 compared to 15,214 operating hours in the corresponding period of 2016. For the nine months ended September 30, 2017, well servicing hours increased by 26 percent to 53,609 operating hours compared with 42,668 operating hours for the nine months ended September 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 nine months ended September 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 $122.0 million in the third quarter of 2017, a 67 percent increase from the $72.9 million recorded in the corresponding period of the prior year. During the nine months ended September 30, 2017, revenue of $330.3 million was recorded, an increase of 34 percent from the $246.1 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 49 percent of the Company's revenue in the third quarter of 2017 (2016 - 42 percent) and 45 percent of the Company's revenue in the first nine months of 2017 (2016 - 39 percent).

Drilling rig operating days increased by 91 percent to 3,035 drilling days in the third quarter of 2017 from 1,586 drilling days in the third quarter of 2016. Drilling operating days increased by 55 percent from 5,085 operating days in the first nine months of 2016 to 7,878 operating days in first nine months of 2017. Well servicing activity expressed in operating hours increased by 41 percent in the third quarter of 2017 to 24,962 operating hours from 17,651 operating hours in the third quarter of 2016. For the nine months ended September 30, 2017 well servicing activity increased 41 percent to 66,637 operating hours from 47,235 operating hours in the first nine 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 nine months ended September 30, 2017, the Company added one service rig to the United States fleet.

INTERNATIONAL OILFIELD SERVICES

The Company's international operations recorded revenue of $61.9 million in the third quarter of 2017, a seven percent decrease from the $66.4 million recorded in the corresponding period of the prior year. International revenues for the nine months ended September 30, 2017, decreased seven percent to $201.8 million from $218.0 million recorded in the six months ended September 30, 2016. The Company's international operations contributed 25 percent of the total revenue in the third quarter of 2017 (2016 - 35 percent) and 28 percent of the Company's revenue in the first nine months of 2017 (2016 - 35 percent).

International operating days for the three months ended September 30, 2017, totaled 1,475 drilling days compared to 1,521 drilling days in the same period of 2016, a decrease of three percent. For the nine months ended September 30, 2017, international operating days totaled 4,559 operating days compared to 4,855 drilling days for the nine months ended September 30, 2016, a decrease of six 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 September 30

Nine months ended September 30

($ thousands)

2017

2016

% change

2017

2016

% change

Depreciation

79,208

83,982

(6)

234,075

259,843

(10)

Depreciation expense totaled $79.2 million for the third quarter of 2017 compared with $84.0 million for the third quarter of 2016, a decrease of six percent. Depreciation expense for the first nine months of 2017 decreased by 10 percent to $234.1 million compared with $259.8 million for the first nine months of 2016. Depreciation expense was lower in nine months ended September 30, 2017 when compared to the nine months ended September 30, 2016, due to certain operating assets having become fully depreciated in which case no further depreciation expense is required on such assets.

GENERAL AND ADMINISTRATIVE EXPENSE

Three months ended September 30

Nine months ended September 30

($ thousands)

2017

2016

% change

2017

2016

% change

General and administrative

9,349

9,926

(6)

30,723

40,434

(24)

% of revenue

3.8

5.2

4.2

6.5

General and administrative expense decreased 6 percent to $9.3 million (3.8 percent of revenue) for the third quarter of 2017 compared to $9.9 million (5.2 percent of revenue) for the third quarter of 2016. For the nine months ended September 30, 2017, general and administrative expense totaled $30.7 million (4.2 percent of revenue) compared to $40.4 million (6.5 percent of revenue) for the nine months ended September 30, 2016. The decrease in general and administrative expense resulted from the Company's initiatives to reduce staffing and other costs in reaction to lower oil and natural gas commodity prices.

SHARE-BASED COMPENSATION

Three months ended September 30

Nine months ended September 30

($ thousands)

2017

2016

% change

2017

2016

% change

Share-based compensation

1,466

3,860

(62)

(375)

5,066

nm - calculation not meaningful

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, 2017 share-based compensation was an expense of $1.5 million compared with an expense of $3.9 million recorded in the three months ended September 30, 2016. For the nine months ended September 30, 2017 share-based compensation was a recovery of $0.4 million compared with an expense of $5.1 million for the nine months ended September 30, 2016. The share-based compensation expense for the nine months ended September 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 $7.05 at September 30, 2017 ($7.50 at September 30, 2016), compared with $6.93 at June 30, 2017 ($7.25 at June 30, 2016) and $9.38 at December 31, 2016 ($7.38 at December 31, 2015).

During the third quarter of 2017 the Company granted Performance Share Units (PSUs) to certain officers and employees of the Company to participate in the growth and development of the Company and to promote further alignment of interests between employees and the shareholders. PSUs are subject to the Company's pre-established performance metrics with a three year performance period. Each PSU granted permits the holder to receive a cash payment equal to the fair market value of a share as of the maturity date, adjusted for a performance multiplier.

The per unit weighted average fair value of the performance share units granted during 2017 was $8.00 estimated on the grant date using a Monte Carlo simulation with a two percent cap based on certain financial performance metrics. Included in net earnings for the three and nine months ended September 30, 2017 is an expense of $0.5 million (2016 - $nil).

INTEREST EXPENSE

	Three months ended September 30			Nine months ended September 30
($ thousands)	2017	2016	% change	2017	2016	% change
Interest expense	8,798	8,089	9	26,986	20,685	30
Interest income	(133)	(4)	nm	(208)	(363)	(43)
	8,665	8,085	7	26,778	20,322	32

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 30 percent for the first nine months ended September 30, 2017 compared to the same period in 2016 as a result of borrowings of an additional $35.8 million on the bank credit facilities in the first nine months of 2017 and due to an increase in the interest rate.

FOREIGN EXCHANGE AND OTHER

Three months ended September 30

Nine months ended September 30

($ thousands)

2017

2016

% change

2017

2016

% change

Foreign exchange and other

8,958

(8,171)

4,601

(17,365)

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, 2017, the Australian dollar strengthened by approximately two 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 nine months ended September 30, 2017, the Australian dollar strengthened against the United States dollar by approximately eight percent (2016 - five percent).

INCOME TAXES

	Three months ended September 30			Nine months ended September 30
($ thousands)	2017	2016	% change	2017	2016	% change
Current income tax	(3,645)	241	nm	(991)	(9,370)	(89)
Deferred income tax	(5,526)	(11,814)	(53)	(32,992)	(36,371)	(9)
Total income tax	(9,171)	(11,573)	(21)	(33,983)	(45,741)	(26)
Effective income tax rate (%)	20.1	25.5		28.8	34.0

nm - calculation not meaningful

The effective income tax rate for the three months ended September 30, 2017 was 20.1 percent compared to 25.5 percent for the three months ended September 30, 2016. The effective income tax rate for the nine months ended September 30, 2017 was 28.8 percent compared with 34.0 percent for the nine months ended September 30, 2016. The effective tax rate in the first nine months of the current year was lower than the effective tax rate in the first nine months of 2016 due to the impact of lower earnings in foreign jurisdictions.

FINANCIAL POSITION

Significant changes in the consolidated statement of financial position from December 31, 2016 to September 30, 2017 are outlined below:

($ thousands)	Change	Explanation
Cash and cash equivalents	1,822	See consolidated statements of cash flows.

Accounts receivable	24,108	Increase is due to an increase in activity in the first nine 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	2,543	Increase is due to the timing of prepaid expenses and increased operating activity.

Income taxes receivable	(21,912)	Decrease is due to refunds received during the quarter offset by the current year income recovery.

Property and equipment	(255,309)	Decrease is primarily due to the impact of a decrease in the quarter-end translation rate to 1.25 USD, compared to the December 31, 2016 translation rate of 1.34 USD, as well as current period depreciation. The decrease is offset by $98.0 million in purchases of property and equipment.

Accounts payable and accruals	(4,432)	Decrease is due to the wind-down of the 2017 capital program, and decrease in 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 increased operating activity of the third quarter.

Dividends payable	(28)	Decrease in dividends payable is due to the cancellation of the dividend reinvestment program, whereby eligible shareholders electing to receive shares instead of cash had received a discount.

Share-based compensation	(2,614)	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	14,211	Increase is due to additional borrowings of $35.8 million during the nine months ending September 30, 2017. The increase was partially offset by the weakening of the United States dollar from December 31, 2016 to September 30, 2017.

Deferred income taxes	(54,898)	Decrease arises from the deferred tax recovery for the first nine 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	(200,987)	Decrease is due the net loss incurred, the amount of declared dividends in the over the first three quarters 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 September 30			Nine months ended September 30
($ thousands, except per share amounts)	2017	2016	% change	2017		2016		% change
Funds from operations	39,616	30,281	31	129,194		121,789		6
Funds from operations per share	$0.25	$0.20	25	$	0.83	$	0.80	4
Working capital ¹	136,280	(39,743)	nm	136,280		(39,743)		nm

nm - calculation not meaningful

¹ Comparative figure as of December 31, 2016

During the three months ended September 30, 2017, the Company generated Funds flow from operations of $39.6 million ($0.25 per common share) compared to Funds flow from operations of $30.3 million ($0.20 per common share) for the three months ended September 30, 2016, an increase of 31 percent. For the nine months ended September 30, 2017, the Company generated Funds flow from operations of $129.2 million ($0.83 per common share) an increase of six percent from $121.8 million ($0.80 per common share) for the nine months ended September 30, 2016. The increase in Funds flow from operations in 2017 compared to 2016 is due to higher net income.

At September 30, 2017 the Company's working capital was a surplus of $136.3 million, compared to a working capital deficit of $11.2 million at December 31, 2016. The increase in working capital in the first nine months of 2017, was mainly related to the repayment a USD $100.0 million of senior unsecured notes. The Company currently 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 $16.5 million was undrawn and available at September 30, 2017. In addition, the Company has a $50 million accordion to be included in the existing revolving global facilities but not yet exercised.

INVESTING ACTIVITIES

Three months ended September 30

Nine months ended September 30

($ thousands)

2017

2016

% change

2017

2016

% change

Purchase of property and equipment

(20,043)

(8,942)

(98,025)

(40,218)

Proceeds from disposals of property and equipment

3,117

1,273

5,539

8,304

(33)

Net change in non-cash working capital

(6,452)

(1,806)

(1,336)

(20,309)

(93)

Cash used in investing activities

(23,378)

(9,475)

(93,822)

(52,223)

nm - calculation not meaningful

Net purchases of property and equipment for the third quarter of 2017 totaled $16.9 million (2016 - $7.7 million). Net purchases of property and equipment during the first nine months of 2017 totaled $92.5 million (2016 - $31.9 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 nine months of this year.

FINANCING ACTIVITIES

Three months ended September 30

Nine months ended September 30

($ thousands)

2017

2016

% change

2017

2016

% change

Net decrease in bank credit facilities

10,462

(17,677)

35,801

(57,640)

Purchase of shares held in trust

(277)

(30)

(823)

(1,578)

(48)

Dividends

(11,179)

(18,368)

(39)

(33,728)

(55,102)

(39)

Net change in non-cash working capital

249

3,523

(93)

(482)

3,440

Cash used in financing activities

(745)

(32,552)

(98)

768

(110,880)

nm - calculation not meaningful

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 has a $50 million accordion to be included in the existing revolving global facilities but not yet exercised. Subsequent to the quarter, the Company is expecting to finalize a waiver that allows the Company to keep the Global Facility unsecured.

The Company has received net debt proceeds of $35.8 million during the nine months ended September 30, 2017, increasing the outstanding long-term debt balance. As of September 30, 2017, the credit facilities are primarily being used to fund capital expenditures.

NEW BUILDS AND MAJOR RETROFITS

During the nine months ended September 30, 2017, the Company added one new build ADR^®drilling rig to its expansive tier one fleet worldwide, which rig has 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.

Subsequent to September 30, 2017, the Company deployed on new ADR^®1000 in Canada and is currently in the process of completing one additional new ADR^® 1500 for the United States, which is expected to begin work in the fourth quarter of 2017. The new rigs were partially assembled from equipment that was part of the rig build program that the Company halted in 2014 to preserve the balance sheet in a declining market.

OUTLOOK

As a result of global oil production gains, flat to decreasing drilling rig counts in the United States, increased drilled but uncompleted wells ("DUCS") and geo-political tension WTI crude oil prices continue to range between $45 -$55. The expectation for 2018 is that these levels will continue into the near future and recent oil price estimates by commodity analysts have continued to trim their 2018 forecasts for WTI to an average of mid to low $50's. Lower for longer continues to be the motto for many companies including Ensign, and managements believes the structural changes made during the downturn will better position Ensign to capitalize on future opportunities. 2018 pricing and capital spend by the Company's customers is unclear at this point and will likely be similar to 2017 spend, unless commodity pricing changes.

Canada

In Canada, the Baker Hughes rig count on October 20, 2017 decreased by 10 rigs from the week before to 202 drilling rigs. This is up 59 rigs from the previous year. The rig count in Canada has been steady with an average of 190 rigs running according to the CAODC during the third quarter. Q4, 2017 industry activity is expected increase marginally over Q3, 2017. The Montney continues to be the driver for activity in Canada and is also the Company's most active Canadian area. Utilization for the Company's tier 1 drilling rigs continue to exceed the industry average. Of the Company's Canadian rigs, 30 drilling and coring rigs are currently under contract with 47% of those under contract longer than six months.

United States

In the United States, the Baker Hughes rig count on October 20, 2017 decreased by 15 drilling rigs from the week before to a total of 913 but is up 360 drilling rigs from the previous year. The recent rig count in the United States has continued to remain flat with a slight decline and this is expected to continue for the remainder of the year. As the rig count has remained flat this has caused pricing to flatten out. As at October 20, 2017, nine Company drilling rigs are currently running in the Rockies, 11 in California, 18 in the Permian Basin and one rig running in the North eastern United States. Of the Company's United States drilling rigs, 25 rigs are currently under contract with 28% of those under contract longer than six months.

International

Activity internationally continues to remain flat and will remain for the rest of the year when compared to 2017. There are a total of eight Company drilling rigs currently running in Latin America as at October 20, 2017 and that is expected to be maintained throughout the remainder of the year, but could vary depending on the political situation in Venezuela. The Company has a total of 10 Company drilling 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, 15 drilling rigs are under contract with 60% percent of those 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 third quarter 2017 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, November 6, 2017. The conference call number is 1-647-427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until November 13, 2017 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 63542942. 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 2017		December 31 2016
(Unaudited - in thousands of Canadian dollars)
Assets
Current Assets
	Cash and cash equivalents	$	31,659	$	29,837
	Accounts receivable	229,455		205,347
	Inventories and other	51,393		48,850
	Income taxes receivable	—		17,208
Total current assets		312,507		301,242
Property and equipment		2,657,844		2,913,153
Total assets		$	2,970,351	$	3,214,395

Liabilities
Current Liabilities
	Accounts payable and accruals	$	148,953	$	153,385
	Dividends payable	18,849		18,877
	Share-based compensation	3,721		5,943
	Income taxes payable	4,704		—
	Current portion of long-term debt	—		134,190
Total current liabilities		176,227		312,395
Long-term debt		731,670		583,269
Share-based compensation		2,147		2,539
Deferred income taxes		428,805		483,703
Total liabilities		1,338,849		1,381,906

Shareholders' Equity
	Share capital	206,322		180,666
	Contributed surplus	105		1,524
	Foreign currency translation reserve	208,391		292,547
	Retained earnings	1,216,684		1,357,752
Total shareholders' equity		1,631,502		1,832,489
Total liabilities and shareholders' equity		$	2,970,351	$	3,214,395

Ensign Energy Services Inc.
Consolidated Statements of Loss

		Three months ended				Nine months ended
		September 30 2017		September 30 2016		September 30 2017		September 30 2016
(Unaudited - in thousands of Canadian dollars, except per share data)
Revenue		$	247,121	$	191,313	$	730,637	$	625,701
Expenses
	Oilfield services	185,172		138,931		552,950		451,759
	Depreciation	79,208		83,982		234,075		259,843
	General and administrative	9,349		9,926		30,723		40,434
	Share-based compensation	1,466		3,860		(375)		5,066
	Foreign exchange and other	8,958		(8,171)		4,601		(17,365)
Total expenses		284,153		228,528		821,974		739,737
Loss before interest and income taxes		(37,032)		(37,215)		(91,337)		(114,036)
Interest income		(133)		(4)		(208)		(363)
Interest expense		8,798		8,089		26,986		20,685
Loss before income taxes		(45,697)		(45,300)		(118,115)		(134,358)
Income taxes
	Current tax	(3,645)		241		(991)		(9,370)
	Deferred tax	(5,526)		(11,814)		(32,992)		(36,371)
Total income taxes		(9,171)		(11,573)		(33,983)		(45,741)
Net loss		$	(36,526)	$	(33,727)	$	(84,132)	$	(88,617)
Net loss per share
	Basic	$	(0.23)	$	(0.22)	$	(0.54)	$	(0.58)
	Diluted	$	(0.23)	$	(0.22)	$	(0.54)	$	(0.58)

Ensign Energy Services Inc.
Consolidated Statements of Cash Flows

		Three months ended				Nine months ended
		September 30 2017		September 30 2016		September 30 2017		September 30 2016
(Unaudited - in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net loss		$	(36,526)	$	(33,727)	$	(84,132)	$	(88,617)
Items not affecting cash
	Depreciation	79,208		83,982		234,075		259,843
	Share-based compensation, net of cash paid	1,659		(2,346)		(667)		3,416
	Unrealized foreign exchange and other	750		(5,918)		12,604		(16,798)
	Accretion on long-term debt	51		104		306		316
	Deferred income tax	(5,526)		(11,814)		(32,992)		(36,371)
Funds flow from operations		39,616		30,281		129,194		121,789
Net change in non-cash working capital		(6,825)		(4,966)		(32,171)		35,459
Cash provided by operating activities		32,791		25,315		97,023		157,248
Investing activities
Purchase of property and equipment		(20,043)		(8,942)		(98,025)		(40,218)
Proceeds from disposals of property and equipment		3,117		1,273		5,539		8,304
Net change in non-cash working capital		(6,452)		(1,806)		(1,336)		(20,309)
Cash used in investing activities		(23,378)		(9,475)		(93,822)		(52,223)
Financing activities
Net increase (decrease) in bank credit facilities		10,462		(17,677)		35,801		(57,640)
Purchase of shares held in trust		(277)		(30)		(823)		(1,578)
Dividends		(11,179)		(18,368)		(33,728)		(55,102)
Net change in non-cash working capital		249		3,523		(482)		3,440
Cash (used in) provided by financing activities		(745)		(32,552)		768		(110,880)
Net increase (decrease) in cash and cash equivalents		8,668		(16,712)		3,969		(5,855)
Effects of foreign exchange on cash and cash equivalents		(1,328)		174		(2,147)		(3,773)
Cash and cash equivalents – beginning of period		24,319		47,296		29,837		40,386
Cash and cash equivalents – end of period		$	31,659	$	30,758	$	31,659	$	30,758
Supplemental information
	Interest paid	$	7,096	$	4,162	$	24,810	$	16,839
	Income taxes recovered	$	(6,418)	$	(10,224)	$	(17,836)	$	(8,722)

SOURCE Ensign Energy Services Inc.

Michael Gray, Chief Financial Officer, (403) 262-1361

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