CALGARY, Aug. 28 /CNW/ - Enseco Energy Services Corp. ("Enseco")
announces its consolidated financial results for the three months ended
June 30, 2007.
Enseco's results for the three months ended June 30, 2007 reflect
significantly lower levels of activity in the oil and gas service industry in
Western Canada than in the same period in the prior year and some of the
lowest industry activity and industry equipment utilization levels in a
decade. This resulted in a marked decline in the demand for Enseco's services.
Although the usual second quarter weakness was exacerbated by record
precipitation in many areas that Enseco operates in, weak demand for natural
gas related oilfield services was the predominant factor negatively impacting
utilization and pricing in the Western Canadian Sedimentary Basin ("WCSB").
Customer's concerns over historically high natural gas storage levels and
related natural gas price weakness reduced exploration and development
programs and demand for Enseco's services.
As a result of the weaker natural gas price outlook, the number of wells
drilled in the WCSB during the quarter decreased by 40% to 1,759 wells as
compared to 2,930 wells in the prior year quarter. Natural gas directed
drilling activity dropped significantly, decreasing 66% relative to the
comparative prior year quarter, while oil drilling activity dropped only 1%.
As a relative indicator, drilling rig utilization dropped to 17% for the three
months ended June 30, 2007 as compared to 36% for the three months ended
June 30, 2006.
($000's except per share data)
Months Ended Months Ended
June 30, June 30,
Revenue $ 2,888 $ 3,702
Operating loss(1) (6,595) (1,365)
EBITDA(1) (4,771) (327)
Cashflow(1) (4,611) (311)
Net loss (26,288) (1,174)
Per Share Data
EBITDA(1) $ (0.20) $ (0.07)
Cashflow(1) $ (0.19) $ (0.03)
Net loss $ (1.08) $ (0.13)
June 30 March 31
(unaudited) (audited) % change
------------ ------------ ------------
Total assets $ 52,587 $ 83,332 (37)%
(excluding current portion) 7,660 6,272 22 %
Working capital(2) (4,119) (665) (519)%
Shareholders' equity 25,388 50,917 (50)%
(1) Operating loss is loss before impairment loss on intangible assets,
impairment loss on goodwill, gain (loss) on sale of equipment,
accretion of convertible debentures and income taxes. EBITDA means
earnings before interest, taxes, depreciation and amortization and is
equal to earnings before income taxes plus interest on long-term debt
plus other interest expense plus depreciation plus amortization plus
accretion of convertible debentures plus impairment loss on
intangible assets, plus impairment loss on goodwill. Cashflow means
cash flows provided by operations before changes in non-cash working
capital items. Operating loss, EBITDA and cashflow are not recognized
measures under Canadian generally accepted accounting principles
("GAAP"). Management believes that in addition to net earnings,
operating loss, EBITDA and cashflow are useful supplemental measures
as they provide an indication of the results generated by Enseco's
primary business activities prior to consideration of how those
activities are financed, amortized or how the results are taxed in
various jurisdictions as well as the cash generated by Enseco's
primary business activities. Readers should be cautioned, however,
that operating loss, EBITDA and cashflow should not be construed as
an alternative to net earnings determined in accordance with GAAP as
an indicator of Enseco's performance. Enseco's method of calculating
operating loss, EBITDA and cashflow may differ from other
organizations and, accordingly, these figures may not be comparable
to those disclosed by other organizations.
(2) Working capital equals current assets minus current liabilities.
As explained above the decrease in the revenues for the three months
ended June 30, 2007 as compared to June 30, 2006 were due to decreased
customer demand for Enseco's services primarily due to the uncertainty over
the economics of natural gas drilling and production in the WCSB.
The revenue for the Production Testing division decreased 67% to
$0.8 million for the three months ended June 30, 2007 as compared to
$2.4 million for the three months ended June 30, 2006 due to decreased
customer demand which resulted in decreased utilization and pricing. Average
utilization for the three months ended June 30, 2007 was 10% as compared to
32% for the three months ended June 30, 2006. During the three months ended
June 30, 2007 the Production Testing division operated a weighted average of
37 testing units. This compared to a weighted average of 32 units operated
during the three months ended June 30, 2006. The average day rate achieved by
the testing division decreased by 12% for the three months ended June 30, 2007
as compared to June 30, 2006.
The revenue reported from Enseco's Swabbing services division decreased
by 21% to $1.0 million for the three months ended June 30, 2007 as compared to
$1.3 million for the three months ended June 30, 2006. Revenue decreased for
the three months ended June 30, 2007 as compared to the three months ended
June 30, 2006 due to decreased customer demand which resulted in decreased
utilization and pricing. For the three months ended June 30, 2007 average
utilization of the swabbing units was 17%, as compared to 38% for the three
months ended June 30, 2006. This division operated an average of 20 units
during the three months ended June 30, 2007 as compared to an average of
11 units during the three months ended June 30, 2006. The average day rate
achieved by the Swabbing division decreased by 3% for the three months ended
June 30, 2007 as compared to June 30, 2006.
The revenue reported from Enseco's Wireline division was $1.0 million as
compared to nil for the three months ended June 30, 2006. Enseco's Wireline
division commenced operations in February 2007 with the acquisition of Expro
and the delivery of an additional cased hole wireline truck. For the three
months ended June 30, 2007 average utilization of the wireline units was 12%.
This division operated an average of 12 units during the three months ended
June 30, 2007.
Enseco's Directional Drilling division reported revenue of $0.1 million
for the three months and year ended June 30, 2007, as compared to nil for the
three months ended June 30, 2006. This division commenced operations in
January of 2007. Average utilization of the directional drilling kits was 3%
for the three months ended June 30, 2006. This division operated an average of
4 directional kits during the three months ended June 30, 2007.
Operating loss increased 383% for the three months ended June 30, 2007 to
$6.6 million as compared to $1.4 million for the three months ended June 30,
2006. The increased operating loss for the three months ended June 30, 2007 as
compared to the three months ended June 30, 2006 is due to decreased revenue
and the increase size of the operations of Enseco.
Net losses for Enseco for the three months ended June 30, 2007 were
$26.3 million as compared to $1.2 million for the three months ended June 30,
2006. Included in the net loss for the three months ended June 30, 2007 are
losses of $7.1 million for impairment on intangible assets and $12.4 million
for impairment on goodwill. Impairment tests were performed on intangible
assets and goodwill at June 30, 2007. The results of the tests showed that the
carrying amount of the intangible assets and goodwill exceeded their fair
value. The conditions which precipitated the impairment of intangible assets
and goodwill were the near term commodity price weakness of natural gas
negatively impacting expectations of industry activity levels, upward cost
pressures experienced by the industry adversely impacting operating margins
and future expectations of activity levels in the oil and gas service
industry. The culmination of these conditions has decreased the enterprise
value of the Company, which is reflected in the value of the Company at
June 30, 2007. In addition to the impairment on intangible assets and goodwill
as mentioned above, Enseco did not record an income tax recovery due to a
valuation allowance being recognized during the quarter which offset any
potential future income tax recovery.
As at June 30, 2007 Enseco was not in compliance with all debt covenants.
Subsequent to June 30, 2007 Enseco's bank provided the Company with
forbearance relating to the Company's covenant violations at June 30, 2007.
The Company has renegotiated its debt facility with its bank. The changes to
the Company's banking facility include an increase of $4.0 million to its
evergreen facility and a decrease of $2.0 million to its operating line
bringing the Company's total credit facility to $20.0 million. In conjunction
with the increase to its credit facility Enseco plans to raise between
$4 million and $7 million of equity through a common share private placement
and currently has expressions of interest totaling approximately $2.4 million.
The second half of 2007 is expected to remain challenging. While
utilizations have increased following "break-up" they still remain low by
historical standards. The recent build up of natural gas storage levels, the
resulting decline in natural gas prices and the high industry equipment
capacity are expected to keep utilization levels at seasonally adjusted low
levels with continued price competition.
The outlook for activity in the WCSB for the remainder of 2007 is very
uncertain at this time and will be predicated, in large part, on North
American winter natural gas consumption and corresponding exit storage levels
which in turn will impact on short and medium term natural gas prices.
While these conditions cast a negative outlook extending into 2008,
Enseco remains positive about the long-term underlying fundamentals for North
American natural gas and oil and gas service opportunities in the WCSB basin.
Enseco expects that factors such as lower initial well production, increasing
decline rates of natural gas wells in the WCSB, lower services company pricing
and increasing natural gas consumption in North America will support increased
natural gas prices in the future and with the increased natural gas prices
increased oil and gas service work in the WCSB.
Currently Enseco is aggressively undertaking to further integrate and
rationalize its operations. This includes reducing its fixed costs through
staffing and cost reductions, consolidating operations and aligning its
operations to lower activity levels until such time as industry activity
Enseco is an emerging supplier of energy related services operating
throughout the Western Canadian Sedimentary Basin with operational centres in
Red Deer, Whitecourt, Edmonton, Beaverlodge, Grande Prairie, and Fort St.
John, as well as corporate and sales offices located in Calgary. Enseco is led
by an experienced management team currently offering well swabbing, production
testing, cased hole logging, perforating and propellant stimulation services
and directional drilling services with a focus on continued value creation
through accretive acquisitions and organic growth.
This press release contains forward-looking statements subject to various
risk factors and uncertainties, which may cause the actual results,
performances or achievements of Enseco to be materially different from any
future results, performances or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to,
fluctuations in the market for oil and gas and related products and services,
political and economic conditions, the demand for services provided by Enseco,
industry competition and Enseco's ability to attract and retain both customers
and key personnel.
The TSX Venture Exchange has neither approved nor disapproved the
contents of this press release.
For further information:
For further information: Enseco Energy Services Corp., David A. Hawkins,
President and CEO or Aly Khan Musani, Senior Vice President and CFO, (403)