Ensign Energy Services Inc. Reports 2009 Third Quarter Results

CALGARY, Nov. 9 /CNW/ -

Overview

Ensign Energy Services Inc. ("Ensign" or the "Company") recorded net income of $16.9 million ($0.11 per share) for the third quarter of 2009, a decline of 77 percent compared with net income of $72.1 million ($0.47 per share) recorded for the third quarter of 2008. Net income for the nine months ended September 30, 2009 totaled $102.8 million ($0.67 per share), a decrease of 45 percent from net income of $186.1 million ($1.22 per share) recorded in the first nine months of 2008. The Company's operating and financial results for the three months and nine months ended September 30, 2009 deteriorated compared to the prior year as the oilfield services industry continues to be oversupplied in the face of reduced levels of demand for services owing to generally weak oil and natural gas supply and demand fundamentals.

Revenue for the third quarter of 2009 was $232.5 million, a 47 percent decrease from the $435.2 million for the third quarter of the prior year. The Company recorded revenue of $858.9 million for the nine months ended September 30, 2009, a 31 percent decrease from revenue of $1,245.1 million for the nine months ended September 30, 2008. Continued weak natural gas fundamentals negatively impacted oilfield service activity levels in Canada and the United States. Additionally, international results were lowered due to the voluntary termination of contracts in Venezuela as the Company worked to resolve issues with its major customer. The 2009 financial results from both the United States and international business segments were also negatively impacted on translation by the strengthening of the Canadian dollar compared to the United States dollar.

Gross margin decreased in the third quarter of 2009 to 28.2 percent compared to 30.8 percent recorded in the third quarter of 2008. The gross margin for the nine months ended September 30, 2009 was 32.2 percent (2008 - 34.0 percent). Gross margin deteriorated in the third quarter as additional rigs were put to work in the spot market in Canada. Spot prices for uncontracted oilfield services equipment continued to weaken in the quarter due to low demand and an oversupply of equipment in Canada and the United States. The six new drilling rigs delivered by the Company into the international market during the first nine months of 2009 and the continuation of previously contracted rigs in the United States market combined to maintain the year-to-date gross margin at a higher level than would otherwise be expected in the current over-supplied environment.

Adjusted net income for the third quarter of 2009 was $16.4 million ($0.11 per share), a decrease of 73 percent from adjusted net income of $61.0 million ($0.40 per share) for the third quarter of 2008. During the nine months ended September 30, 2009, adjusted net income decreased by 43 percent to $109.7 million ($0.72 per share) from $192.9 million ($1.26 per share) recorded for the corresponding period in 2008. Adjusted net income is defined as net income before the tax-effected stock-based compensation expense. Stock-based compensation recovery for the third quarter of 2009 was $0.7 million (2008 - $17.0 million); and for the nine months ended September 30, 2009, stock-based compensation expense was $10.6 million (2008 - $10.5 million).

    
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    FINANCIAL AND OPERATING HIGHLIGHTS
    ($ thousands, except per share data and operating information)
    -------------------------------------------------------------------------
                          Three months ended          Nine months ended
                             September 30               September 30
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                                            %                            %
                         2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Revenue           232,463   435,186     (47)  858,893  1,245,144     (31)
    -------------------------------------------------------------------------
    EBITDA(1)          53,238   121,785     (56)  241,804    383,775     (37)
    EBITDA per
     share(1)
      Basic          $   0.35  $   0.80     (56) $   1.58  $    2.51     (37)
      Diluted        $   0.35  $   0.79     (56) $   1.58  $    2.48     (36)
    -------------------------------------------------------------------------
    Adjusted net
     income(2)         16,444    61,025     (73)  109,677    192,926     (43)
    Adjusted net
     income per
     share(2)
      Basic          $   0.11  $   0.40     (73) $   0.72  $    1.26     (43)
      Diluted        $   0.11  $   0.39     (72) $   0.71  $    1.25     (43)
    -------------------------------------------------------------------------
    Net income         16,900    72,071     (77)  102,798    186,129     (45)
    Net income
     per share
      Basic          $   0.11  $   0.47     (77) $   0.67  $    1.22     (45)
      Diluted        $   0.11  $   0.47     (77) $   0.67  $    1.20     (44)
    -------------------------------------------------------------------------
    Funds from
     operations(3)     55,667    90,450     (38)  199,596    297,217     (33)
    Funds from
     operations per
      share(3)
      Basic          $   0.36  $   0.59     (39) $   1.30  $    1.94     (33)
      Diluted        $   0.36  $   0.58     (38) $   1.30  $    1.92     (32)
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    Weighted average
     shares - basic
     (000s)           153,156   153,122       -   153,145    153,083       -
    Weighted average
     shares - diluted
     (000s)           153,692   154,881      (1)  153,427    154,647      (1)
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    Drilling
      Number of
       marketed rigs
        Canada
          Conventional    157       169      (7)      157        169      (7)
          Oil sands
           coring/coal-
           bed methane     28        28       -        28         28       -
        United States      80        75       7        80         75       7
        International(4)   49        44      11        49         44      11
      Operating days
        Canada          2,994     7,578     (60)    9,394     19,509     (52)
        United States   2,251     5,289     (57)    7,247     15,316     (53)
        International   1,567     2,458     (36)    5,391      7,421     (27)
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    Well Servicing
      Number of marketed
       rigs/units
        Canada            112       118      (5)      112        118      (5)
        United States      18        16      13        18         16      13
      Operating hours
        Canada         24,260    37,907     (36)   76,007    111,356     (32)
        United States   8,275    10,481     (21)   24,654     27,912     (12)
    -------------------------------------------------------------------------

    (1) EBITDA is defined as "income before interest expense, income taxes,
        depreciation and stock-based compensation expense". Management
        believes that in addition to net income, EBITDA and EBITDA per share
        are useful supplemental measures as they provide 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 or how the results are
        impacted by the accounting standards associated with the Company's
        stock-based compensation plan. EBITDA and EBITDA per share as defined
        above are not recognized measures under Canadian generally accepted
        accounting principles and accordingly may not be comparable to
        measures used by other companies.
    (2) Adjusted net income is defined as "net income before stock-based
        compensation expense, tax-effected using an income tax rate of 35%".
        Adjusted net income and adjusted net income per share are useful
        supplemental measures as they provide an indication of the results
        generated by the Company's principal business activities prior to
        consideration of how the results are impacted by the accounting
        standards associated with the Company's stock-based compensation
        plan, net of income taxes. Adjusted net income and adjusted net
        income per share as defined above are not recognized measures under
        Canadian generally accepted accounting principles and accordingly
        may not be comparable to measures used by other companies.
    (3) Funds from operations is defined as "cash provided by operating
        activities before the change in non-cash working capital". Funds from
        operations and funds from operations per share are measures that
        provide shareholders and potential investors with additional
        information regarding the Company's liquidity and its ability to
        generate funds to finance its operations. Management utilizes these
        measures 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 Canadian generally accepted accounting
        principles and accordingly may not be comparable to similar measures
        used by other companies.
    (4) Includes workover rigs.
    

Revenue and Oilfield Services Expense

    
                            Three months ended           Nine months ended
                               September 30                September 30
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                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Revenue
      Canada           80,217    193,939    (59)  313,439    562,767     (44)
      United States    93,964    161,621    (42)  316,285    453,761     (30)
      International    58,282     79,626    (27)  229,169    228,616       -
                     --------------------------------------------------------
                      232,463    435,186    (47)  858,893  1,245,144     (31)
    Oilfield services
     expense          166,884    301,233    (45)  582,674    821,412     (29)
                     --------------------------------------------------------
                       65,579    133,953    (51)  276,219    423,732     (35)
                     --------------------------------------------------------
    Gross margin        28.2%      30.8%            32.2%      34.0%
    -------------------------------------------------------------------------

    Canada
    ------
    

The Company recorded revenue of $80.2 million in Canada in the third quarter of 2009, a 59 percent decrease from $193.9 million recorded in the third quarter of 2008. Canadian revenue was $313.4 million for the nine months ended September 30, 2009, a 44 percent decrease from $562.8 million recorded in the nine months ended September 30, 2008. Canada accounted for 35 percent of the Company's revenue in the third quarter of 2009 (2008 - 45 percent); and for 36 percent of the Company's revenue in the first nine months of 2009 (2008 - 45 percent). Following the second quarter, when spring break-up and wet weather conditions hinder the Company's ability to move heavy equipment and access Canadian drilling locations, the overall results for Canada reflect continued weakness in the third quarter which experienced declines in revenues and gross margins when compared to the same period in the prior year. The oversupply of oilfield service equipment has negatively impacted utilization and margins in the Canadian market. Competitive conditions will not improve until the underlying oil and natural gas commodity fundamentals improve to a level that encourages additional investment in oil and natural gas development.

Drilling days recorded by the Canadian division in the third quarter of 2009 decreased by 60 percent from the comparable period of the prior year. During the nine months ended September 30, 2009, Canadian drilling days decreased 52 percent from the same period of the prior year. Similarly, Canadian well servicing hours decreased by 36 percent in the third quarter of 2009 and by 32 percent in the nine months ended September 30, 2009 with respect to the corresponding periods in the prior year. The Company continues to look for ways to improve profitability in this challenging environment and is positioned to operate effectively at such lower levels of utilization for as long as it takes for the industry to recover.

    
    United States
    -------------
    

The Company's United States operations recorded revenue of $94.0 million in the third quarter of 2009, a 42 percent decrease from the $161.6 million recorded in the corresponding period of the prior year. United States revenue was $316.3 million for the nine months ended September 30, 2009, down 30 percent from revenue of $453.8 million for the first nine months of 2008. The United States accounted for 40 percent of the Company's revenue in the third quarter of 2009 (2008 - 37 percent); and 37 percent of the Company's revenue in the first nine months of 2009 (2008 - 36 percent). The Company's United States results continue to benefit from greater long-term contractual coverage of the United States oilfield services equipment fleet compared to the Canadian fleet. Much of the Company's construction program over the last couple of years has been directed at adding new equipment to the United States market, and these high performing ADR(TM) drilling rigs built for the United States market have been subject to multi-year take-or-pay contracts. Three new ADRs were commissioned into the United States market in the third quarter. At September 30, 2009, a total of two contracted ADRs were still under construction for delivery before the end of the year.

The United States industry land-drilling rig count has recently started to slowly recover from its lows experienced in the first half of 2009. The Company's United States operations have also showed a slight increase in operating days in the third quarter of 2009 compared to the previous quarter. However, a very competitive market has resulted in reduced margins for the rigs going to work in the spot market. The number of drilling days recorded by the United States division in the third quarter of 2009 decreased 57 percent from the same period of the prior year. United States drilling days for the first nine months of 2009 decreased 53 percent from the prior year. United States well servicing hours in the third quarter of 2009 were down 21 percent compared to the prior year and well servicing hours for the nine months ended September 30, 2009 were down 12 percent compared to the nine months ended September 30, 2008. The weakening United States dollar relative to the Canadian dollar further eroded contributions from the United States segment.

    
    International
    -------------
    

The Company's international operations recorded revenue of $58.3 million in the third quarter of 2009, a 27 percent decrease from the $79.6 million recorded in the third quarter of 2008. International revenue totaled $229.2 million for the nine months ended September 30, 2009, which is consistent with revenue of $228.6 million for the first nine months of 2008. The international division contributed 25 percent of the Company's revenue in the third quarter of 2009 (2008 - 18 percent); and 27 percent of the Company's revenue in the first nine months of 2009 (2008 - 19 percent). The Company's international operations struggled in a few key areas during the third quarter as the Company worked through geopolitical issues affecting operations in Africa and Latin America.

Drilling days recorded by the Company's international operations in the quarter ended September 30, 2009 decreased 36 percent from the third quarter of 2008, while drilling days recorded in the nine months ended September 30, 2009 decreased 27 percent from the same period in 2008. The Company's operations in Latin America and Africa have experienced reductions in demand for oilfield services in 2009. The Company believes that these areas should improve before the end of the year and in the 2010 fiscal year. Partially offsetting these regional weaknesses has been the successful deployment of six new ADR(TM) drilling rigs in the first nine months of the year. Building on the Company's established geographic diversification will continue to be a focus for Ensign.

Depreciation

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Depreciation       24,364    33,987     (28)   76,158     89,705     (15)
    -------------------------------------------------------------------------
    

Depreciation expense totalled $24.4 million for the third quarter of 2009 compared with $34.0 million for the third quarter of 2008. Depreciation expense decreased to $76.2 million for the nine months ended September 30, 2009 compared with $89.7 million for the nine months ended September 30, 2008. The change in depreciation reflects decreased consolidated operating activity levels, partially offset by increased depreciation on higher valued equipment added to the Company's drilling rig fleet over the course of 2009. In addition, effective July 1, 2008, the Company began applying a depreciation charge for drilling and well servicing rigs that have not operated within the last 12 months based on the estimated useful life of such equipment, resulting in additional depreciation expense in the nine months ended September 30, 2009.

General and Administrative Expense

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    General and
     administrative    12,504    13,371      (6)   39,821     42,514      (6)
    % of revenue         5.4%      3.1%              4.6%       3.4%
    -------------------------------------------------------------------------
    

General and administrative expense totaled $12.5 million (5.4 percent of revenue) for the third quarter of 2009 compared with $13.4 million (3.1 percent of revenue) for the third quarter of 2008, a decrease of six percent. General and administrative expense totaled $39.8 million (4.6 percent of revenue) for the nine months ended September 30, 2009 compared with $42.5 million (3.4 percent of revenue) for the nine months ended September 30, 2008, a decline of six percent. As a percentage of revenue, 2009 general and administrative expenses are higher due to the reduction in operating activity on a period-over-period basis.

Stock-Based Compensation Expense

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Stock-based
     compensation        (701)  (16,993)    (96)   10,583     10,457       1
    -------------------------------------------------------------------------
    

Stock-based compensation expense arises from the intrinsic value accounting associated with the Company's stock option plan, whereby the liability associated with stock-based compensation is adjusted for the effect of granting and vesting of employee stock options and changes in the underlying price of the Company's common shares. For the quarter-ended September 30, 2009, the majority of the stock-based compensation recovery of $0.7 million is due to a decrease in the Company's common share price during the quarter. For the nine months ended September 30, 2009, stock-based compensation expense consists of $0.8 million for the vesting of additional stock options and $9.8 million associated with an increase in the price of the Company's common shares. The price of the Company's common shares was $16.24 at September 30, 2009 compared with $17.00 at June 30, 2009, and $13.22 at December 31, 2008.

Interest Expense

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Interest              138     1,458     (91)    1,064      5,402     (80)
    -------------------------------------------------------------------------
    

Interest expense is incurred on the Company's operating lines of credit and promissory note payable, and is shown net of interest income earned on the Company's cash balances. The decrease in interest expense for the three and nine months ended September 30, 2009 compared to the prior year is due to the decline in interest rates in the first nine months of 2009 compared to the same period in 2008. Further, the interest expense for the nine months ended September 30, 2008 includes upfront fees related to the new operating lines of credit that were negotiated during the second quarter of 2008. The Company's effective interest rate for the nine months ended September 30, 2009 was approximately 1.1% compared to approximately 5.4% for the corresponding period of the prior year.

Income Taxes

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Current income
     tax               (5,334)   27,364    (119)   32,919     72,885     (55)
    Future income tax  17,871     3,898     358    18,282     19,197      (5)
                     --------------------------------------------------------
                       12,537    31,262     (60)   51,201     92,082     (44)
                     --------------------------------------------------------
    Effective income
     tax rate (%)       42.6%     30.3%             33.2%      33.1%
    -------------------------------------------------------------------------
    

The effective income tax rate for the third quarter of 2009 was 42.6 percent compared with 30.3 percent in the third quarter of 2008. For the nine months ended September 30, 2009, the effective income tax rate was 33.2 percent compared with 33.1 percent for the nine months ended September 30, 2008.

The Company's effective income tax rate on a quarter-over-quarter basis increased due to an increase in the Canadian effective income tax rate arising from partnership timing differences and a greater proportion of taxable income being generated by the Company's United States operations. The slight increase in the effective income tax rate for the nine months ended September 30, 2009 compared with the nine months ended September 30, 2008 is due to an increase in the proportion of taxable income being generated in the United States, which has a higher effective income tax rate.

Financial Position

The following chart outlines significant changes in the consolidated balance sheet from December 31, 2008 to September 30, 2009:

    
    ($ thousands)                Change   Explanation
    -------------------------------------------------------------------------
    Cash and cash equivalents    47,088   See consolidated statement of cash
                                          flows.
    Accounts receivable        (161,064)  Decrease due to a decrease in
                                          operating activity levels in the
                                          third quarter of 2009 compared with
                                          the fourth quarter of 2008.
    Inventory and other          (3,665)  Decrease due to normal course
                                          consumption of operating supplies
                                          and spare parts.
    Property and equipment      (63,340)  Decrease due to increased
                                          depreciation on higher-value
                                          equipment.
    Accounts payable and       (108,373)  Decrease due to a decrease in
    accrued liabilities                   operating activity levels in the
                                          third quarter of 2009 compared with
                                          the fourth quarter of 2008.
    Operating lines of credit   (34,895)  Decrease due to net repayments of
                                          the operating lines of credit.
    Promissory note payable     (20,000)  Decrease due to payment of the
                                          promissory note in June 2009.
    Stock-based compensation      2,208   Increase due to an increase in the
                                          price of the Company's common
                                          shares as at September 30, 2009
                                          compared with December 31, 2008.
    Income taxes payable          2,465   Increase due to the current income
                                          tax provision for the period, net
                                          of tax instalments.
    Dividends payable                 3   Increase due to a slight increase
                                          in the number of outstanding common
                                          shares compared with the fourth
                                          quarter of 2008.
    Future income taxes          12,100   Increase due to the current period
                                          increase in the Canadian effective
                                          income tax rate.
    Shareholders' equity        (34,489)  Decrease due to the net income for
                                          the period being offset by the
                                          impact of foreign exchange rate
                                          fluctuations on net assets of
                                          foreign self-sustaining
                                          subsidiaries and the amount of
                                          dividends declared in the period.
    -------------------------------------------------------------------------
    

Working Capital and Funds from Operations

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Funds from
     operations        55,667    90,450     (38)  199,596    297,217     (33)
    Funds from
     operations per
     share           $   0.36  $   0.59     (38)  $  1.30  $    1.94     (33)
    Working
     capital(1)       128,212    93,001      38   128,212     93,001      38
    -------------------------------------------------------------------------
    (1) Comparative figure as at December 31, 2008.
    

During the three months ended September 30, 2009, the Company generated funds from operations of $55.7 million ($0.36 per common share) compared with funds from operations of $90.4 million ($0.59 per common share) for the three months ended September 30, 2008, a decrease of 38 percent. Funds from operations totaled $199.6 million ($1.30 per common share) in the first nine months of 2009, a decrease of 33 percent compared to $297.2 million of funds from operations ($1.94 per common share) generated in the nine months ended September 30, 2008.

The decrease in funds from operations in both the third quarter of 2009 and the nine months ended September 30, 2009 compared to the same periods in 2008 is due to the continued deterioration of oilfield services market conditions, primarily in the Company's Canadian and United States divisions, resulting in lower activity levels. Additionally, the Company's international operations experienced a reduction in contributions from its South American operations in the third quarter of 2009 as all of the drilling rigs in Venezuela were stacked pending further negotiations with a major customer. The decline in operating activity is slightly offset by contributions from the newly constructed ADRs placed in operation in the United States and international markets under term contracts during the first nine months of 2009. The significant factors that may impact the Company's ability to generate funds from operations in future periods are outlined in the "Risks and Uncertainties" section of the Management's Discussion and Analysis contained in the Company's 2008 Annual Report.

During the third quarter of 2009, the Company increased its working capital to $128.2 million, up $21.2 million from December 31, 2008. As of September 30, 2009, the Company continues to operate with no long-term debt and operates with sufficient liquidity to meet its obligations as they come due.

Investing Activities

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Net purchase of
     property and
     equipment        (44,870) (128,149)    (65) (117,652)  (206,672)    (43)
    Net change in
     non-cash working
     capital           16,306    48,845     (67)   (2,558)    43,589    (106)
                     --------------------------------------------------------
    Cash used in
     investing
     activities       (28,564)  (79,304)    (64) (120,210)  (163,083)    (26)
    -------------------------------------------------------------------------
    

Net purchases of property and equipment during the third quarter of 2009 totaled $44.9 million compared with $128.1 million for the third quarter of 2008. Net purchases of property and equipment for the nine months ended September 30, 2009 totaled $117.7 million compared with $206.7 million for the nine months ended September 30, 2008. The net purchase of property and equipment relates predominantly to expenditures pursuant to the Company's new-build program as all other non-critical capital expenditures were tightly controlled or suspended during 2009. Additional details regarding the new-build program are provided in the "New Builds" section below.

Financing Activities

    
                            Three months ended           Nine months ended
                               September 30                September 30
                     --------------------------------------------------------
                                            %                            %
    ($ thousands)        2009      2008  change      2009       2008  change
    -------------------------------------------------------------------------
    Net increase
     (decrease) in
     operating lines
     of credit          4,368    39,618     (89)  (34,895)    (3,155)  1,006
    Net increase
     (decrease) in
     promissory note
     payable                -    20,000    (100)  (20,000)    20,000    (200)
    Issue of capital
     stock                116       488     (76)      268        899     (70)
    Dividends         (13,019)  (12,632)      3   (39,053)   (37,889)      3
    Net change in
     non-cash working
     capital                1         4     (75)        3         10     (70)
                     --------------------------------------------------------
    Cash used in
     financing
     activities        (8,534)   47,478    (118)  (93,677)   (20,135)    365
    -------------------------------------------------------------------------
    

Net repayments of the operating lines of credit were the result of operating cash flows generated by the Company's Canadian and United States oilfield services divisions in excess of capital expenditure requirements. As of September 30, 2009, the operating lines of credit are primarily being used to fund the new-build program and to support international operations. The $20 million promissory note due July 2011 was paid in full during the second quarter of 2009. Currently, the Company has no long-term debt.

Other financing activities during the third quarter of 2009 include the receipt of $0.1 million on the exercise of employee stock options and the payment of dividends in the amount of $13.0 million ($0.085 per share). For the nine months ended September 30, 2009, cash received on employee stock option exercises totaled $0.3 million (2008 - $0.9 million) and dividends paid totaled $39.1 million (2008 - $37.8 million). During the first nine months of 2009, the Company declared year-to-date dividends totaling $0.255 per common share compared with $0.2475 per common share during the first nine months of 2008. All dividends paid by the Company subsequent to January 1, 2006 qualify as an eligible dividend, as defined by subsection 89(1) of the Canadian Income Tax Act ("ITA").

The Board of Directors of the Company has declared a fourth quarter dividend of $0.0875 per common share, a three percent increase over the previous quarterly dividend rate of $0.085 per common share. The Company has increased its dividend every year since it first started to pay a dividend in 1995. The fourth quarter dividend is payable January 5, 2010 to all Common Shareholders of record as of December 21, 2009. The dividend is pursuant to the quarterly dividend policy adopted by the Company. Pursuant to subsection 89(1) of the ITA, the dividend being paid is designated as an eligible dividend, as defined in subsection 89(1) of the ITA.

New Builds

As of November 9, 2009, 12 ADRs have been completed and two remain under construction. The two remaining rigs under construction are ADR(TM)-1500 models that will be delivered into the United States market in the fourth quarter of 2009. Of the 14 ADRs included in the construction program, two are ADR(TM)-250 models, two are ADR(TM)-300 models, four are ADR(TM)-350 models, four are ADR(TM)-1000 models, and two are ADR(TM)-1500 models. Upon completion of this new-build program, the Company will have a total of 62 ADRs in its fleet. The well servicing rig new-build program consisted of seven well servicing rigs: four for the Canadian market and three for the United States market, all of which have been completed.

The new-build delivery schedule, by geographic area, is as follows:

    
    -------------------------------------------------------------------------
                                       Actual                Forecast
                        -----------------------------------------------------
                        Q4 2008   Q1 2009  Q2 2009  Q3 2009   Q4 2009  Total
                        -----------------------------------------------------
    ADRs
      United States           1         1        1        3         2      8
      International           -         2        4        -         -      6
                        -----------------------------------------------------
      Total                   1         3        5        3         2     14
    -------------------------------------------------------------------------
    Well Servicing Rigs
      Canada                  -         1        2        1         -      4
      United States           1         2        -        -         -      3
                        -----------------------------------------------------
      Total                   1         3        2        1         -      7
    -------------------------------------------------------------------------
    

Outlook

The steady improvement in the price of crude oil since the start of the year and recent improvements in natural gas prices have created some sense of optimism within the industry that has been absent throughout most of 2009. However, it appears that many of the Company's customers share Ensign's skepticism with respect to the current level of commodity prices as there has not yet been a meaningful increase in demand for oilfield services. The North American oilfield services industry remains challenged by too much equipment chasing too little work. Even the international market is stagnant, at best, as various regions cope with specific geopolitical issues that are holding back levels of development of oil and natural gas resources. The Company does not expect demand for oilfield services to improve until global economic conditions improve in a way that meaningfully influences the underlying fundamentals of oil and natural gas supply and demand. There currently appears to be an ample supply of both commodities to meet expected short term demand and until that changes, the Company generally expects future activity levels to bump along at current historically low levels of activity.

The upcoming Canadian 2009/10 winter drilling season will, at best, meet the levels of the 2008/09 winter drilling season. Bookings are currently behind the levels of one year ago and although prices are expected to improve modestly for the winter drilling season, overall pricing will be lower than the rates of last winter. The bright spots for the Canadian market remain the Bakken play in southeast Saskatchewan, the Montney and Horn River shale plays in northeast British Columbia and the ongoing development in the various heavy oil markets of western Canada. Demand for newer, deeper and specialized equipment to service these active areas remains strong and will be reflected in the margins. Activity levels in Alberta continue to struggle against the backdrop of the Province of Alberta's ill-conceived royalty regime. Ensign's other service lines reflect the drilling activity levels. Lower utilization and lower margins are expected to be the norm for the foreseeable future as 2009 ends and 2010 begins.

The land drilling rig count in the United States appears to have reached its bottom. In recent weeks the United States land drilling rig count has slightly improved, but until natural gas prices improve to a level to make the conventional plays economic it is difficult to see a meaningful improvement in overall levels of demand and profitability. The Company is fortunate to have a relatively large portion of its fleet covered by term contracts as a result of the new build program undertaken over the last couple of years. However, a number of these contracts will terminate in the next year and unless industry conditions improve, these rigs will be entering a very competitive market. The advantage they will have is that they are the newest ADR(TM) designs and, as such, there is a preferential demand for this type of equipment that is well suited to many of the newer shale play areas of the United States. Ensign will expand its United States coverage area as customer demand continues to evolve.

International operations are expected to improve through 2010 as currently weak areas begin to turn around. Notably, Venezuela and Libya are expected to show meaningful improvement as pent up demand results in the reactivation of drilling rigs that are currently inactive for mainly geopolitical reasons. The Middle East and Australasia areas are expected to remain active as the Company continues to operate under favorable long-term contracts. Additionally, Ensign continues to leverage off of its established international operations and search for new growth markets for the Company.

It is difficult to be optimistic given all of the uncertainty around the fundamentals influencing the supply and demand for crude oil and natural gas. While there have been some encouraging signs, the Company believes that a meaningful industry recovery is still a ways off. Accordingly, it remains prudent to continue to control costs and preserve cash. Ensign has a very strong balance sheet that will enable it to succeed and grow in this very challenging market. The Company's enviable financial position clearly puts it in control of its destiny. Not many others in the oilfield services industry can make that claim.

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 and economic conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions and the ability of oil and natural gas companies to 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 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, November 9, 2009. The conference call number is 1-800-732-0232. A taped recording will be available until November 16, 2009 by dialing 1-877-289-8525 and entering reservation number 4145514 followed by the number sign. 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.

    
    CONSOLIDATED BALANCE SHEETS

    As at September 30, 2009 and December 31, 2008
    (Unaudited, in thousands of Canadian dollars)

                                                  September 30   December 31
                                                          2009          2008
                                                  ------------- -------------

    Assets

    Current assets
    Cash and cash equivalents                     $    142,993  $     95,905
    Accounts receivable                                199,422       360,486

    Inventory and other                                 57,159        60,824
    Future income taxes                                  1,687         1,040
                                                  ---------------------------

                                                       401,261       518,255

    Property and equipment                           1,647,241     1,710,581
                                                  ---------------------------

                                                  $  2,048,502  $  2,228,836
                                                  ---------------------------
                                                  ---------------------------

    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities      $    127,711  $    236,084
    Operating lines of credit                          134,548       169,443
    Current portion of stock-based compensation          6,156         3,538
    Income taxes payable                                (8,385)      (10,850)
    Dividends payable                                   13,019        13,016
                                                  ---------------------------

                                                       273,049       411,231

    Promissory note payable                                  -        20,000

    Stock-based compensation                               693         1,103

    Future income taxes                                258,098       245,351
                                                  ---------------------------

                                                       531,840       677,685
                                                  ---------------------------

    Shareholders' Equity

    Capital stock (note 3)                             169,903       169,485
    Accumulated other comprehensive loss              (100,235)       (1,583)
    Retained earnings                                1,446,994     1,383,249
                                                  ---------------------------

                                                     1,516,662     1,551,151
                                                  ---------------------------

                                                  $  2,048,502  $  2,228,836
                                                  ---------------------------
                                                  ---------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    For the three and nine months ended September 30, 2009 and 2008
    (Unaudited, in thousands of Canadian dollars - except per share data)

                              Three months ended          Nine months ended
                                 September 30                September 30
                              2009          2008          2009          2008
                      -------------------------------------------------------

    Revenue
    Oilfield services $    232,463  $    435,186  $    858,893  $  1,245,144

    Expenses
    Oilfield services      166,884       301,233       582,674       821,412
    Depreciation            24,364        33,987        76,158        89,705
    General and
     administrative         12,504        13,371        39,821        42,514
    Stock-based
     compensation             (701)      (16,993)       10,583        10,457
    Interest                   138         1,458         1,064         5,402
    Other                     (163)       (1,203)       (5,406)       (2,557)
                      -------------------------------------------------------
                           203,026       331,853       704,894       966,933
                      -------------------------------------------------------

    Income before
     income taxes           29,437       103,333       153,999       278,211

    Income taxes
    Current                 (5,334)       27,364        32,919        72,885
    Future                  17,871         3,898        18,282        19,197
                      -------------------------------------------------------

                            12,537        31,262        51,201        92,082

                      -------------------------------------------------------
    Net income for the
     period                 16,900        72,071       102,798       186,129

    Retained earnings
     - beginning of
     period              1,443,113     1,262,996     1,383,249     1,174,195

    Dividends (note 3)     (13,019)      (12,632)      (39,053)      (37,889)
                      -------------------------------------------------------

    Retained earnings
     - end of period  $  1,446,994  $  1,322,435  $  1,446,994  $  1,322,435
                      -------------------------------------------------------
                      -------------------------------------------------------

    Net income per
     share (note 3)
      Basic           $       0.11  $       0.47  $       0.67  $       1.22
      Diluted         $       0.11  $       0.47  $       0.67  $       1.20
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the three and nine months ended September 30, 2009 and 2008
    (Unaudited, in thousands of Canadian dollars)

                              Three months ended          Nine months ended
                                 September 30                September 30
                              2009          2008          2009          2008
                      -------------------------------------------------------

    Cash provided by
     (used in)

    Operating activities
    Net income for
     the period       $     16,900  $     72,071  $    102,798  $    186,129
    Items not
     affecting cash:
      Depreciation          24,364        33,987        76,158        89,705
      Stock-based
       compensation,
       net of cash
       paid                 (3,468)      (19,506)        2,358         2,186
      Future income taxes   17,871         3,898        18,282        19,197
                      -------------------------------------------------------
    Cash provided by
     operating
     activities before
     the change in
     non-cash working
     capital                55,667        90,450       199,596       297,217
    Net change in
     non-cash working
     capital (note 5)      (40,562)      (67,669)       61,379       (91,254)
                      -------------------------------------------------------

                            15,105        22,781       260,975       205,963
                      -------------------------------------------------------

    Investing activities
    Net purchase of
     property and
     equipment             (44,870)     (128,149)     (117,652)     (206,672)
    Net change in
     non-cash working
     capital (note 5)       16,306        48,845        (2,558)       43,589
                      -------------------------------------------------------

                           (28,564)      (79,304)     (120,210)     (163,083)
                      -------------------------------------------------------

    Financing activities
    Net increase
     (decrease) in
     operating lines of
     credit                  4,368        39,618       (34,895)       (3,155)
    Net increase
     (decrease) in
     promissory note
     payable                     -        20,000       (20,000)       20,000
    Issue of capital stock     116           488           268           899
    Dividends (note 3)     (13,019)      (12,632)      (39,053)      (37,889)
    Net change in
     non-cash working
     capital (note 5)            1             4             3            10
                      -------------------------------------------------------

                            (8,534)       47,478       (93,677)      (20,135)
                      -------------------------------------------------------

    (Decrease) Increase
     in cash and cash
     equivalents during
     the period            (21,993)       (9,045)       47,088        22,745

    Cash and cash
     equivalents -
     beginning of period   164,986        33,730        95,905         1,940
                      -------------------------------------------------------

    Cash and cash
     equivalents - end
     of period        $    142,993  $     24,685  $    142,993  $     24,685
                      -------------------------------------------------------
                      -------------------------------------------------------

    Supplemental
     information
      Interest paid   $        372  $      1,521  $      1,789  $      5,585
      Income taxes
       paid           $      6,831  $     17,794  $     30,454  $     93,027
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
    For the three and nine months ended September 30, 2009 and 2008
    (Unaudited, in thousands of Canadian dollars)

                             Three months ended           Nine months ended
                                 September 30                September 30
                              2009          2008          2009          2008
                      -------------------------------------------------------

    Net income for
     the period       $     16,900  $     72,071  $    102,798  $    186,129
    Other comprehensive
     income (loss)
      Foreign currency
       translation
       adjustment          (61,719)      (11,800)      (98,652)       29,292
                      -------------------------------------------------------
    Comprehensive (loss)
     income for
     the period       $    (44,819) $     60,271  $      4,146  $    215,421
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
    For the three and nine months ended September 30, 2009 and 2008
    (Unaudited, in thousands of Canadian dollars)

                             Three months ended           Nine months ended
                                 September 30                September 30
                              2009          2008          2009          2008
                      -------------------------------------------------------

    Accumulated other
     comprehensive loss
     - beginning of
     period           $    (38,516) $    (56,496) $     (1,583) $    (97,588)
      Foreign currency
       translation
       adjustment          (61,719)      (11,800)      (98,652)       29,292
                      -------------------------------------------------------
    Accumulated other
     comprehensive loss
     - end of period  $   (100,235) $    (68,296) $   (100,235) $    (68,296)
                      -------------------------------------------------------
                      -------------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    For the three and nine months ended September 30, 2009 and 2008
    (Unaudited, in thousands of Canadian dollars, except share and per share
    data)

    The interim consolidated financial statements have been prepared in
    accordance with Canadian generally accepted accounting principles
    ("Canadian GAAP"), and include the accounts of Ensign Energy Services
    Inc. and its subsidiaries and partnerships (the "Company"), substantially
    all of which are wholly-owned. The interim consolidated financial
    statements have been prepared following the same accounting policies and
    methods of computation as the consolidated financial statements for the
    year ended December 31, 2008. The disclosures provided below are
    incremental to those included with the annual consolidated financial
    statements. These interim consolidated financial statements should be
    read in conjunction with the consolidated financial statements and the
    notes thereto in the Company's annual report for the year ended
    December 31, 2008.

    1. Recent accounting pronouncements

       The Canadian Institute of Chartered Accountants ("CICA") Accounting
       Standards Board ("AcSB") confirmed in February 2008 that International
       Financial Reporting Standards ("IFRS") will replace Canadian GAAP in
       2011 for profit-oriented Canadian publicly accountable enterprises.
       As the Company will be required to report its results in accordance
       with IFRS starting in 2011, the Company is assessing the potential
       impacts of this changeover and developing its plan accordingly. When
       finalized, it will include project structure and governance,
       resourcing and training, and an analysis of key differences between
       IFRS and Canadian GAAP.

       As of January 1, 2011, the Company will be required to adopt the
       following CICA Handbook sections:

       (a) CICA Handbook Section 1582 "Business Combinations" will replace
           the existing business combinations standard. The new standard
           requires assets and liabilities acquired in a business combination
           and contingent consideration to be measured at fair value as at
           the date of the acquisition. Acquisition costs that are currently
           capitalized as part of the purchase price will be recognized in
           the consolidated statement of income. The adoption of this
           standard will impact the accounting treatment of future business
           combinations.

       (b) CICA Handbook Section 1601 "Consolidated Financial Statements"
           and Section 1602 "Non-controlling Interests" will replace the
           former consolidated financial statements standard. These standards
           establish the requirements for the preparation of consolidated
           financial statements and the accounting for a non-controlling
           interest (previously referred to as minority interest) in a
           subsidiary. The new standard requires non-controlling interest to
           be presented as a separate component of equity and requires net
           income and other comprehensive income to be attributed to both the
           parent and non-controlling interest. The adoption of this standard
           is not expected to have a material impact on the Company's
           consolidated financial statements.

    2. Seasonality of operations

       The Company's Canadian oilfield services operations are seasonal in
       nature and are impacted by weather conditions that may hinder the
       Company's ability to access locations or move heavy equipment. The
       lowest activity levels are experienced during the second quarter of
       the year when road weight restrictions are in place and access to
       wellsites in Canada is reduced.

    3. Capital Stock

       Authorized
       Unlimited common shares
       Unlimited preferred shares, issuable in series

       Outstanding


                                                 Number of
                                             Common Shares            Amount
       ----------------------------------------------------------------------
       Balance at January 1, 2009              153,135,006       $   169,485
       Issued under employee stock option plan      25,500               418
       ----------------------------------------------------------------------
       Balance at September 30, 2009           153,160,506       $   169,903
       ----------------------------------------------------------------------

       Options

       A summary of the status of the Company's stock option plan as of
       September 30, 2009, and the changes during the nine-month period then
       ended, is presented below:


                                                 Number of  Weighted Average
                                                   Options    Exercise Price
       ----------------------------------------------------------------------
       Outstanding at January 1, 2009           10,445,962       $     18.09
       Granted                                      11,000             11.33
       Exercised for shares                        (25,500)           (10.50)
       Exercised for cash                       (1,361,572)           (10.69)
       Forfeited                                  (117,600)           (21.45)
       ----------------------------------------------------------------------
       Outstanding at September 30, 2009         8,952,290       $     19.19
       ----------------------------------------------------------------------
       Exercisable at September 30, 2009         4,417,790       $     17.83
       ----------------------------------------------------------------------



                               Options Outstanding       Options Exercisable
       ----------------------------------------------------------------------
                                     Average  Weighted               Weighted
                                     Vesting   Average                Average
                          Options  Remaining  Exercise      Options  Exercise
       Exercise Price  Outstanding (in years)    Price  Exercisable     Price
       ----------------------------------------------------------------------
       $9.45 to $11.33     723,590      0.06   $ 10.52      712,590   $ 10.51
       $13.50 to $18.85  1,792,100      0.86     14.17    1,174,600     13.89
       $19.88 to $23.33  6,436,600      1.90     21.56    2,530,600     21.72
       ----------------------------------------------------------------------
                         8,952,290      1.54   $ 19.19    4,417,790   $ 17.83
       ----------------------------------------------------------------------

       Common share dividends

       During the nine months ended September 30, 2009, the Company declared
       dividends of $39,053 (2008 - $37,889), being $0.2550 per common share
       (2008 - $0.2475 per common share).

       Net income per share

       Net income per share is calculated by dividing net income by the
       weighted average number of common shares outstanding during the
       period. Diluted net income per share is calculated using the treasury
       stock method, which assumes that all outstanding stock options are
       exercised, if dilutive, and the assumed proceeds are used to purchase
       the Company's common shares at the average market price during the
       period.

       The weighted average number of common shares outstanding for the nine
       months ended September 30, 2009 and 2008 are as follows:


                                                          2009          2008
                                                   ------------  ------------
       Weighted average number of common
        shares outstanding - basic                 153,145,021   153,083,329
       Weighted average number of common
        shares outstanding - diluted               153,426,523   154,646,906
                                                   ------------  ------------

       Stock options of 6,735,100 (2008 - 4,390,000) were excluded from the
       calculation of diluted weighted average number of common shares
       outstanding, as the options' exercise price was greater than the
       average market price of the common shares for the period.

    4. Segmented information

       The Company operates in three geographic areas within one industry
       segment. Oilfield services are provided in Canada, the United States
       and internationally. The amounts related to each geographic area are
       as follows:


       Three months ended September 30, 2009
       ----------------------------------------------------------------------
                            Canada  United States  International       Total
       ----------------------------------------------------------------------
       Revenue             $80,217        $93,964        $58,282    $232,463
       Property and
        equipment, net     $806,058      $500,551       $340,632  $1,647,241
       Capital
         expenditures, net   $6,563       $28,081        $10,226     $44,870
       Depreciation         $11,801        $7,563         $5,000     $24,364
       ----------------------------------------------------------------------

       Three months ended September 30, 2008
       ----------------------------------------------------------------------
                            Canada  United States  International       Total
       ----------------------------------------------------------------------
       Revenue            $193,939       $161,621        $79,626    $435,186
       Property and
        equipment, net    $765,665       $453,479       $356,763  $1,575,907
       Capital
        expenditures, net   $3,980        $56,526        $67,643    $128,149
       Depreciation        $18,348         $8,109         $7,530     $33,987
       ----------------------------------------------------------------------

       Nine months ended September 30, 2009
       ----------------------------------------------------------------------
                            Canada  United States  International       Total
       ----------------------------------------------------------------------
       Revenue            $313,439       $316,285       $229,169    $858,893
       Property and
        equipment, net    $806,058       $500,551       $340,632  $1,647,241
       Capital
        expenditures, net   $7,774        $74,110        $35,768    $117,652
       Depreciation        $35,637        $24,170        $16,351     $76,158
       ----------------------------------------------------------------------

       Nine months ended September 30, 2008
       ----------------------------------------------------------------------
                            Canada  United States  International       Total
       ----------------------------------------------------------------------
       Revenue            $562,767       $453,761       $228,616  $1,245,144
       Property and
        equipment, net    $765,665       $453,479       $356,763  $1,575,907
       Capital
        expenditures, net   $9,489        $85,706       $111,477    $206,672
       Depreciation        $46,176        $22,035        $21,494     $89,705
       ----------------------------------------------------------------------

    5. Supplemental disclosure of cash flow information

       The net change in non-cash working capital for the three and nine
       months ended September 30, 2009 and 2008 is determined as follows:


                                    Three months ended     Nine months ended
                                         September 30          September 30
                                  -------------------------------------------
                                       2009       2008       2009       2008
                                  -------------------------------------------
       Net change in non-cash
        working capital
         Accounts receivable        $(8,440)  $(63,440)  $161,064   $(45,216)
         Inventory and other          2,827      1,576      3,665       (649)
         Accounts payable and
          accrued liabilities        (6,478)    33,469   (108,373)    18,342
         Income taxes payable       (12,165)     9,571      2,465    (20,142)
         Dividends payable                1          4          3         10
                                  -------------------------------------------
                                   $(24,255)  $(18,820)  $ 58,824   $(47,655)
                                  -------------------------------------------
       Relating to
         Operating activities      $(40,562)  $(67,669)  $61,379    $(91,254)
         Investing activities        16,306     48,845    (2,558)     43,589
         Financing activities             1          4         3          10
                                  -------------------------------------------
                                   $(24,255)  $(18,820)  $58,824    $(47,655)
                                  -------------------------------------------

    6. Prior period amounts

       Certain prior period amounts have been reclassified to conform to the
       current period's presentation.
    

%SEDAR: 00001999E

SOURCE Ensign Energy Services Inc.

For further information: For further information: Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361


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