Ensign Energy Services Inc. Reports 2016 Second Quarter Results
CALGARY, Aug. 9, 2016 /CNW/ -
OVERVIEW
Revenue for the second quarter of 2016 was $175.9 million, a decrease of 47 percent from revenue for the second quarter of 2015 of $333.8 million. Revenue for the six months ended June 30, 2016 was $434.4 million, a decrease of 45 percent from revenue for the six months ended June 30, 2015 of $783.1 million. Revenue, net of third party, for the second quarter of 2016 was $156.4 million, a decrease of 47 percent from Revenue net of third party, for the second quarter of 2015 of $294.2 million. Revenue, net of third party, for the six months ended June 30, 2016 was $383.3 million, a decrease of 45 percent from Revenue, net of third party, for the six months ended June 30, 2015 of $692.9 million. Adjusted EBITDA totaled $31.5 million ($0.21 per common share) in the second quarter of 2016, 55 percent lower than Adjusted EBITDA of $69.5 million ($0.46 per common share) in the second quarter of 2015. For the first six months of 2016 Adjusted EBITDA totaled $91.1 million ($0.60 per common share), 50 percent lower than Adjusted EBITDA of $181.9 million ($1.19 per common share) in the first six months of 2015.
Net loss for the second quarter of 2016 was $40.0 million ($0.26 per common share) compared to a net loss of $1.0 million ($0.01 per common share) for the second quarter of 2015. Net loss for the six months ended June 30, 2016 was $54.9 million ($0.36 per common share), compared to net income of $14.4 million ($0.09 per common share) for the six months ended June 30, 2015. Adjusted net loss for the second quarter of 2016 was $35.0 million ($0.23 per common share) compared to Adjusted net income of $1.3 million for the second quarter of 2015 ($0.01 per common share). For the six months ended June 30, 2016 Adjusted net loss was $60.1 million ($0.39 per common share), compared to Adjusted net income of $29.0 million ($0.19 per common share) for the six months ended June 30, 2015.
Funds from operations decreased 48 percent to $36.3 million ($0.24 per common share) in the second quarter of 2016 compared to $69.4 million ($0.46 per common share) in the second quarter of the prior year. Funds from operations decreased 49 percent to $91.5 million ($0.60 per common share) in the first six months of 2016 as compared to $179.2 million ($1.18 per common share) in the first six months of the prior year.
Operating days across the Company's fleet were lower in the second quarter of 2016 when compared to the second quarter of 2015 due to weaker demand for oilfield services caused by continued low oil and natural gas commodity prices. A strengthening year-over-year of the United States dollar against the Canadian dollar positively impacted United States and international financial results on translation to Canadian dollars. The average United States exchange rate was 1.33 for the first six months of 2016 (first six months of 2015 - 1.24) versus the Canadian dollar, an increase of seven percent, compared to the first six months of 2015.
Gross margin decreased to $45.4 million (29.0 percent of Revenue, net of third party) for the second quarter of 2016 compared to gross margin of $88.8 million (30.2 percent of Revenue, net of third party) for the second quarter of 2015. Gross margin decreased to $121.6 million (31.7 percent of Revenue, net of third party) for the six months ended June 30, 2016 compared to a gross margin of $222.7 million (32.1 percent of Revenue, net of third party) for the six months ended June 30, 2015. The decrease in gross margin in the second quarter of 2016 compared to the second quarter of 2015 was primarily attributed to weaker activity levels and lower revenue rates across the oilfield service equipment fleet.
Working capital at June 30, 2016 was a deficit of $10.9 million, compared to a surplus of $144.2 million at December 31, 2015, largely due to a portion of long-term debt (USD $100.0 million of senior unsecured notes bearing interest at 3.43 percent, due February 22, 2017) maturing within the next 12 months. The Company's bank credit facilities provide unused and available borrowings of $278.9 million at June 30, 2016, up by $58.8 million, compared to $220.1 million at December 31, 2015.
FINANCIAL AND OPERATING HIGHLIGHTS
(Unaudited, in thousands of Canadian dollars, except per share data and operating information)
|
Three months ended June 30 |
Six months ended June 30 | |||||||||||||||
|
2016 |
2015 |
% change |
2016 |
2015 |
% change | |||||||||||
|
Revenue |
175,924 |
333,800 |
(47) |
434,388 |
783,089 |
(45) | ||||||||||
|
Revenue, net of third party 1 |
156,423 |
294,241 |
(47) |
383,285 |
692,856 |
(45) | ||||||||||
|
Adjusted EBITDA 2 |
31,485 |
69,534 |
(55) |
91,052 |
181,867 |
(50) | ||||||||||
|
Adjusted EBITDA per share 2 |
||||||||||||||||
|
Basic |
$ |
0.21 |
$ |
0.46 |
(54) |
$ |
0.60 |
$ |
1.19 |
(50) | ||||||
|
Diluted |
$ |
0.21 |
$ |
0.46 |
(54) |
$ |
0.60 |
$ |
1.19 |
(50) | ||||||
|
Adjusted net (loss) income 3 |
(35,016) |
1,316 |
nm |
(60,082) |
29,029 |
nm | ||||||||||
|
Adjusted net (loss) income per share 3 |
||||||||||||||||
|
Basic |
$ |
(0.23) |
$ |
0.01 |
nm |
$ |
(0.39) |
$ |
0.19 |
nm | ||||||
|
Diluted |
$ |
(0.23) |
$ |
0.01 |
nm |
$ |
(0.39) |
$ |
0.19 |
nm | ||||||
|
Net (loss) income |
(39,979) |
(1,036) |
nm |
(54,890) |
14,391 |
nm | ||||||||||
|
Net (loss) income per share |
||||||||||||||||
|
Basic |
$ |
(0.26) |
$ |
(0.01) |
nm |
$ |
(0.36) |
$ |
0.09 |
nm | ||||||
|
Diluted |
$ |
(0.26) |
$ |
(0.01) |
nm |
$ |
(0.36) |
$ |
0.09 |
nm | ||||||
|
Funds from operations 4 |
36,328 |
69,389 |
(48) |
91,508 |
179,150 |
(49) | ||||||||||
|
Funds from operations per share 4 |
||||||||||||||||
|
Basic |
$ |
0.24 |
$ |
0.46 |
(48) |
$ |
0.60 |
$ |
1.18 |
(49) | ||||||
|
Diluted |
$ |
0.24 |
$ |
0.46 |
(48) |
$ |
0.60 |
$ |
1.17 |
(49) | ||||||
|
Total debt, net of cash |
664,560 |
716,659 |
(7) |
664,560 |
716,659 |
(7) | ||||||||||
|
Weighted average shares - basic (000s) |
152,310 |
152,295 |
— |
152,349 |
152,409 |
— | ||||||||||
|
Weighted average shares - diluted (000s) |
152,492 |
152,295 |
— |
152,497 |
152,668 |
— | ||||||||||
|
Drilling |
2016 |
2015 |
% change |
2016 |
2015 |
% change | ||||||||||
|
Number of rigs |
||||||||||||||||
|
Canada 5 |
83 |
90 |
(8) |
83 |
90 |
(8) | ||||||||||
|
United States |
90 |
98 |
(8) |
90 |
98 |
(8) | ||||||||||
|
International 6 |
50 |
54 |
(7) |
50 |
54 |
(7) | ||||||||||
|
Operating days |
||||||||||||||||
|
Canada 5 |
674 |
902 |
(25) |
2,243 |
3,390 |
(34) | ||||||||||
|
United States |
1,609 |
2,987 |
(46) |
3,499 |
6,710 |
(48) | ||||||||||
|
International 6 |
1,544 |
2,206 |
(30) |
3,334 |
4,746 |
(30) | ||||||||||
|
Well Servicing |
2016 |
2015 |
% change |
2016 |
2015 |
% change | ||||||||||
|
Number of rigs |
||||||||||||||||
|
Canada |
71 |
72 |
(1) |
71 |
72 |
(1) | ||||||||||
|
United States |
44 |
46 |
(4) |
44 |
46 |
(4) | ||||||||||
|
Operating hours |
||||||||||||||||
|
Canada |
13,779 |
14,330 |
(4) |
27,454 |
33,076 |
(17) | ||||||||||
|
United States |
15,229 |
17,452 |
(13) |
29,584 |
37,206 |
(20) | ||||||||||
|
nm - calculation not meaningful. | |
|
1. |
Revenue, net of third party is defined as "gross revenue less third party reimbursable items". |
|
2. |
Adjusted EBITDA is defined as "(loss) income 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) income, 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. |
Adjusted net (loss) income is defined as "Net (loss) income before asset decommissioning and write-downs, share-based compensation and foreign exchange and other, tax-effected using the expected income tax rate for each item or an estimate of 35 percent". Management believes that, in addition to Net (loss) income, Adjusted net (loss) income is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how the results are impacted by non-cash charges for equipment write-downs, how the results are impacted by foreign exchange and how the results are impacted by the accounting standards associated with the Company's share-based compensation plans, net of income taxes. Adjusted net (loss) income and Adjusted net (loss) income per share are not recognized measures under International Financial Reporting Standards and thus may not be comparable to measures used by other companies. |
|
4. |
Funds from operations are defined as "cash provided by operating activities before the change in non-cash working capital". Management believes that, in addition to Net (loss) income, funds from operations constitute a measure that provides additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes this measure to assess the Company's ability to finance operating activities and capital expenditures. Funds from operations and Funds from operations per share are not measures that have any standardized meaning prescribed by International Financial Reporting Standards and thus may not be comparable to similar measures used by other companies. |
|
5. |
Excludes coring rigs. 2015 restated to exclude coring rigs. |
|
6. |
Includes workover rigs. |
SECOND QUARTER HIGHLIGHTS
- Revenue for the second quarter of 2016 was $175.9 million, a 47 percent decrease from the second quarter of 2015 revenue of $333.8 million.
- Revenue by geographic area:
- Canada - $34.1 million, 19 percent;
- United States - $73.0 million, 42 percent; and
- International - $68.8 million, 39 percent.
- The process of turning over our fleet towards high specification, high quality ADR® drilling rigs is delivering higher market share in all areas of our business.
- The additional ADR® - 1500 completed in the first half of the year was commissioned on a long-term contract.
- Canadian drilling recorded 674 operating days in the second quarter of 2016, a 25 percent decrease from 902 operating days in the second quarter of 2015. Canadian well servicing recorded 13,779 operating hours in the second quarter of 2016, a four percent decrease from 14,330 operating hours in the second quarter of 2015.
- United States drilling recorded 1,609 operating days in the second quarter of 2016, a 46 percent decrease from 2,987 operating days in the second quarter of 2015. United States well servicing recorded 15,229 operating hours in the second quarter of 2016, a 13 percent decrease from 17,452 operating hours in the second quarter of 2015.
- International drilling recorded 1,544 operating days in the second quarter of 2016, a 30 percent decrease from 2,206 operating days recorded in second quarter of 2015.
- Adjusted EBITDA for the second quarter of 2016 was $31.5 million, a 55 percent decrease from Adjusted EBITDA of $69.5 million for the second quarter of 2015. Funds from operations for the second quarter of 2016 decreased 48 percent to $36.3 million from $69.4 million in second quarter of the prior year.
- Total debt, net of cash, decreased by $23.8 million (three percent) in the second quarter of 2016 from $688.4 million at March 31, 2016 to $664.6 million at June 30, 2016.
- Net capital expenditures for the calendar year 2016 are now targeted between $40 to $45 million compared to the original estimate of $60 million.
- The Company has had no termination payments in the current quarter or year-to-date, as our customers have chosen to keep our contracted rigs working, a positive sign reflecting our service quality and the high performance standards of our ADR® rigs.
- The Company declared a third quarter cash dividend on common shares of $0.12 per common share, payable on October 5, 2016.
REVENUE AND OILFIELD SERVICES EXPENSE
|
Three months ended June 30 |
Six months ended June 30 | ||||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |||
|
Revenue |
|||||||||
|
Canada |
34,123 |
45,607 |
(25) |
109,684 |
163,597 |
(33) | |||
|
United States |
73,049 |
146,910 |
(50) |
173,179 |
333,310 |
(48) | |||
|
International |
68,752 |
141,283 |
(51) |
151,525 |
286,182 |
(47) | |||
|
Total revenue |
175,924 |
333,800 |
(47) |
434,388 |
783,089 |
(45) | |||
|
Revenue, net of third party |
156,423 |
294,241 |
(47) |
383,285 |
692,856 |
(45) | |||
|
Oilfield services expense |
130,561 |
244,975 |
(47) |
312,828 |
560,417 |
(44) | |||
|
Gross margin |
45,363 |
88,825 |
(49) |
121,560 |
222,672 |
(45) | |||
|
Gross margin as a percentage of |
29.0 |
30.2 |
31.7 |
32.1 |
|||||
Revenue for the three months ended June 30, 2016 totaled $175.9 million, a decrease of 47 percent from the second quarter of 2015 of $333.8 million. Revenue for the six months ended June 30, 2016 totaled $434.4 million, a 45 percent decrease from the six months ended June 30, 2015. As a percentage of Revenue, net of third party, gross margin for the second quarter of 2016 decreased to 29.0 percent (2015 - 30.2 percent) and decreased to 31.7 percent for the six months ended June 30, 2016 (2015 - 32.1 percent).
The continuing lower levels of oil and natural gas commodity prices reduced demand for oilfield services, which resulted in lower equipment utilization rates and revenue rates in 2016 compared to 2015. Financial results from the Company's United States and international operations were positively impacted upon translation, as the stronger United States dollar relative to the Canadian dollar in the first six months of 2016 compared to the same period in 2015 served to reduce the impact of some of the revenue rate declines experienced during the quarter.
CANADIAN OILFIELD SERVICES
Revenue decreased 25 percent to $34.1 million for the three months ended June 30, 2016 from $45.6 million for the three months ended June 30, 2015. The Company recorded revenue of $109.7 million in Canada for the six months ended June 30, 2016, a decrease of 33 percent from $163.6 million recorded for the six months ended June 30, 2015. Canadian revenues accounted for 19 percent of the Company's total revenue in the second quarter of 2016, compared to 14 percent in the second quarter of 2015. During the six months ended June 30, 2016, Canadian revenues were 25 percent of the Company's revenue, compared with 21 percent in the six months ended June 30, 2015.
The Company's Canadian operations recorded 674 drilling days in the second quarter of 2016, compared to 902 drilling days for the second quarter of 2015, a decrease of 25 percent. For the six months ended June 30, 2016, the Company recorded 2,243 drilling days compared to 3,390 drilling days for the six months ended June 30, 2015, a decrease of 34 percent. Canadian well servicing hours decreased by four percent to 13,779 operating hours in the second quarter of 2016 compared to 14,330 operating hours in the corresponding period of 2015. For the six months ended June 30, 2016, well servicing hours decreased by 17 percent to 27,454 operating hours compared with 33,076 operating hours for the six months ended June 30, 2015.
Demand for the Company's Canadian oilfield services was lower compared to prior quarters due to continued lower oil and natural gas commodity prices. Consistent with prior years, Canadian operations were also negatively impacted in the second quarter of 2016 by the seasonal operating environment where spring break-up weather conditions hindered the mobility of the Company's equipment.
During the six months ended June 30, 2016, the Company disposed of one well servicing rig.
UNITED STATES OILFIELD SERVICES
The Company's United States operations recorded revenue of $73.0 million in the second quarter of 2016, a 50 percent decrease from the $146.9 million recorded in the corresponding period of the prior year. During the six months ended June 30, 2016, revenue of $173.2 million was recorded, a decrease of 48 percent from the $333.3 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 42 percent of the Company's revenue in the second quarter of 2016 (2015 - 44 percent) and 40 percent of the Company's revenue in the first six months of 2016 (2015 - 43 percent).
Drilling rig operating days decreased by 46 percent to 1,609 drilling days in the second quarter of 2016 from 2,987 drilling days in the second quarter of 2015. Drilling operating days decreased by 48 percent from 6,710 operating days in the first six months of 2015 to 3,499 operating days in first six months of 2016. Well servicing activity expressed in operating hours decreased by 13 percent in the second quarter of 2016 to 15,229 operating hours from 17,452 operating hours in the second quarter of 2015. For the six months ended June 30, 2016 well servicing activity decreased 20 percent to 29,584 operating hours from 37,206 operating hours in the first six months of 2015.
Overall operating and financial results for the Company's United States operations were negatively impacted by the decline in demand for oilfield services due to lower oil and natural gas commodity prices. Activity levels and revenue rates in the United States continued to decline in the first half of 2016. The reduced activity and associated pricing declines were partially offset by a strengthening of the United States dollar, which increased seven percent versus the Canadian dollar when compared to the first half of 2015. During the first six months ending June 30, 2016, the Company added one new build ADR® drilling rig to the United States fleet.
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of $68.8 million in the second quarter of 2016, a 51 percent decrease from the $141.3 million recorded in the corresponding period of the prior year. Similarly, international revenues for the six months ended June 30, 2016, decreased 47 percent to $151.5 million from $286.2 million recorded in the six months ended June 30, 2015. The Company's international operations contributed 39 percent of the total revenue in the second quarter of 2016 (2015 - 42 percent) and 35 percent of the Company's revenue in the first six months of 2016 (2015 - 36 percent).
International operating days for the three months ended June 30, 2016, totaled 1,544 drilling days compared to 2,206 drilling days in 2015, a decrease of 30 percent. For the six months ended June 30, 2016, international operating days totaled 3,334 operating days compared to 4,746 drilling days for the six months ended June 30, 2015, a decrease of 30 percent.
Similar to the Company's United States operations, international operations were positively impacted by the strengthening United States dollar year-over-year in the first half of 2016, versus the Canadian dollar, on translation into Canadian dollars for reporting purposes compared to the first half of 2015.
DEPRECIATION
|
Three months ended June 30 |
Six months ended June 30 | ||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |
|
Depreciation |
81,383 |
61,384 |
33 |
175,861 |
125,211 |
40 | |
Depreciation expense totaled $81.4 million for the second quarter of 2016 compared with $61.4 million for the second quarter of 2015, an increase of 33 percent. Depreciation expense for the first six months of 2016 increased by 40 percent to $175.9 million compared with $125.2 million for the first six months of 2015. Depreciation expense was higher in the six months ended June 30, 2016 when compared to the six months ended June 30, 2015, due to additional depreciation charges relating to idle equipment, the impact of higher dollar value equipment being utilized and the negative translational impact of a stronger United States dollar compared to the Canadian dollar on non-Canadian domiciled fixed assets. The increase was partially offset by the overall decrease in operating activity during the first half of 2016, when compared with the first half of 2015.
GENERAL AND ADMINISTRATIVE EXPENSE
|
Three months ended June 30 |
Six months ended June 30 | ||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |
|
General and administrative |
13,878 |
19,291 |
(28) |
30,508 |
40,805 |
(25) | |
|
% of revenue |
7.9 |
5.8 |
7.0 |
5.2 |
|||
General and administrative expense decreased 28 percent to $13.9 million (7.9 percent of revenue) for the second quarter of 2016 compared to $19.3 million (5.8 percent of revenue) for the second quarter of 2015. For the six months ended June 30, 2016, general and administrative expense totaled $30.5 million (7.0 percent of revenue) compared to $40.8 million (5.2 percent of revenue) for the second quarter of 2015. The decrease in general and administrative expense arose from the Company's initiatives to reduce costs in reaction to lower oil and natural gas commodity prices. The decrease was partially offset by the negative translational impact on non-Canadian operations of the strengthening United States dollar versus the Canadian dollar for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. We expect normalized general and administrative expenses to run in a $12.5 to 13.5 million range per quarter on a go-forward basis, subject to variability due to foreign exchange rates.
SHARE-BASED COMPENSATION
|
Three months ended June 30 |
Six months ended June 30 | ||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |
|
Share-based compensation |
1,631 |
4,684 |
(65) |
1,206 |
5,476 |
(78) | |
Share-based compensation expense arises from the Black-Scholes valuation accounting associated with the Company's share-based compensation plans, whereby the liability associated with share-based compensation is adjusted for the effect of granting and vesting of employee stock options and changes in the underlying market price of the Company's common shares.
For the three months ended June 30, 2016 share-based compensation was an expense of $1.6 million compared with an expense of $4.7 million recorded in the three months ended June 30, 2015. For the six months ended June 30, 2016 share-based compensation was an expense of $1.2 million compared with an expense of $5.5 million for the six months ended June 30, 2015. The share-based compensation expense for the first half of 2016 was a result of changes in the fair value of the share-based compensation liability, offset by amortization of stock 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 $7.25 at June 30, 2016 ($12.24 at June 30, 2015), compared with $5.98 at March 31, 2016 ($9.93 at March 31, 2015) and $7.38 at December 31, 2015 ($10.20 at December 31, 2014).
INTEREST EXPENSE
|
Three months ended June 30 |
Six months ended June 30 | ||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |
|
Interest expense |
6,268 |
5,484 |
14 |
12,596 |
11,561 |
9 | |
|
Interest income |
(19) |
(95) |
(80) |
(359) |
(193) |
86 | |
|
6,249 |
5,389 |
16 |
12,237 |
11,368 |
8 | ||
Interest is incurred on the Company's $10.0 million Canadian-based revolving credit facility (the "Canadian Facility"), the $600.0 million global revolving credit facility (the "Global Facility") and the United States dollar $300.0 million senior unsecured notes (the "Notes") issued in February 2012. The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense. During the second quarter of 2016, the Company extended the Global Facility maturity date to October 3, 2017.
Interest expense increased by nine percent for the first half of 2016 compared to the same period in 2015 despite overall net debt repayments of $40.0 million on the bank credit facilities in the six months ended June 30, 2016. The increased interest expense was due to the negative translational impact on United States dollar-denominated debt of a strengthening United States dollar versus the Canadian dollar on a year-over-year basis.
FOREIGN EXCHANGE AND OTHER
|
Three months ended June 30 |
Six months ended June 30 | ||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |
|
Foreign exchange and other |
6,004 |
(1,065) |
nm |
(9,194) |
17,045 |
nm | |
|
nm - calculation not meaningful | |||||||
Included in this amount is the impact of foreign currency fluctuations in the Company's subsidiaries that have functional currencies other than the Canadian dollar. During the three months ended June 30, 2016, the Australian dollar weakened by approximately three percent against the United States dollar causing a foreign currency loss on translation of the Company's United States dollar denominated debt into Australian dollars. During the six months ended June 30, 2016, the Australian dollar strengthened against the United States dollar by approximately four percent, compared with the Australian dollar weakening by six percent against the United States dollar during the six months ended June 30, 2015.
INCOME TAXES
|
Three months ended June 30 |
Six months ended June 30 | ||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |
|
Current income tax |
(9,325) |
(1,690) |
nm |
(9,611) |
(4,419) |
nm | |
|
Deferred income tax |
(14,478) |
1,868 |
nm |
(24,557) |
12,795 |
nm | |
|
Total income tax |
(23,803) |
178 |
nm |
(34,168) |
8,376 |
nm | |
|
Effective income tax rate (%) |
37.3 |
(20.7) |
38.4 |
36.8 |
|||
|
nm - calculation not meaningful | |||||||
The effective income tax rate for the three months ended June 30, 2016 was 37.3 percent compared to negative 20.7 percent for the three months ended June 30, 2015. The effective tax rate for the second quarter of 2015 is not considered to be meaningful, due to the small amounts used in the calculation. The effective income tax rate for the six months ended June 30, 2016 was 38.4 percent compared with 36.8 percent for the six months ended June 30, 2015. The effective tax rate in the first half of the current year was higher than the effective tax rate in the first half of 2015 due to tax rate increases in Alberta and Oman, further increased by the impact of foreign exchange gains for which effective tax rates vary from statutory rates.
FINANCIAL POSITION
Significant changes in the consolidated statement of financial position from December 31, 2015 to June 30, 2016 are outlined below:
|
($ thousands) |
Change |
Explanation | ||
|
Cash and cash equivalents |
6,910 |
See consolidated statements of cash flows. | ||
|
Accounts receivable |
(71,969) |
Decrease is due to an increase in collections, a decline in activity in the first six months of 2016 compared to the fourth quarter of 2015, and the decrease in the quarter-end foreign exchange rate on translation of accounts receivable in the Company's foreign subsidiaries. | ||
|
Inventories and other |
(9,842) |
Decrease is due to the impact of a decrease in the quarter-end foreign exchange rate on the translation of the inventory and prepaid balances in the Company's foreign subsidiaries as well as amortization of prepaid expenses during the quarter. | ||
|
Income taxes receivable |
11,113 |
Increase is due to the current year income tax recovery, net of refunds and payments made during the quarter. | ||
|
Property and equipment |
(270,853) |
Decrease is primarily due to the impact of a decrease in the quarter-end translation rate to 1.30, compared to the December 31, 2015 translation rate of 1.38, as well as current period depreciation. | ||
|
Accounts payable and accruals |
(39,431) |
Decrease is due to a reduction in operating activity in the first six months of 2016, a reduction in the size of the Company's new build and major retrofit program, and from the decrease in the quarter-end foreign exchange rate on translation of accounts payable and accrued liabilities in the Company's foreign subsidiaries. | ||
|
Share-based compensation |
1,575 |
Increase was 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 |
(82,253) |
Decrease is due to net repayments of $40.0 million during the first half of 2016 and to the weakening of the United States dollar from December 31, 2015 to June 30, 2016. | ||
|
Deferred income taxes |
(30,725) |
Decrease arises from the deferred tax recovery for the first half of 2016 and the effect of the quarter-end foreign exchange rate on translation of the deferred tax liability of the Company's foreign subsidiaries. | ||
|
Shareholders' equity |
(183,807) |
Decrease is due to the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries, the net loss incurred and the amount of dividends declared in the first six months of 2016. | ||
FUNDS FROM OPERATIONS AND WORKING CAPITAL
|
Three months ended June 30 |
Six months ended June 30 | ||||||||||
|
($ thousands, except per share amounts) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |||||
|
Funds from operations |
36,328 |
69,389 |
(48) |
91,508 |
179,150 |
(49) | |||||
|
Funds from operations per share |
$ |
0.24 |
$ |
0.46 |
(48) |
$ |
0.60 |
$ |
1.18 |
(49) | |
|
Working capital 1 |
(10,890) |
144,239 |
nm |
(10,890) |
144,239 |
nm | |||||
|
nm - calculation not meaningful | |||||||||||
|
1 Comparative figure as of December 31, 2015 | |||||||||||
During the three months ended June 30, 2016, the Company generated Funds from operations of $36.3 million ($0.24 per common share) compared to Funds from operations of $69.4 million ($0.46 per common share) for the three months ended June 30, 2015, a decrease of 48 percent. For the six months ended June 30, 2016, the Company generated Funds from operations of $91.5 million ($0.60 per common share) a decrease of 49 percent from $179.2 million ($1.18 per common share) for the six months ended June 30, 2015. The decrease in Funds from operations in 2016 compared to 2015 is due to the decline in demand for both North American and international oilfield services, attributed to lower global energy prices.
At June 30, 2016 the Company's working capital was a deficit of $10.9 million, compared to a working capital surplus of $144.2 million at December 31, 2015. The decrease in working capital in the first six months of 2016, was mainly related to a reduction in operating levels by the Company in 2016 and the financial statement reclassification of the portion of long-term debt (USD $100.0 million of senior unsecured notes bearing interest at 3.43 percent, due February 22, 2017) maturing within the next 12 months to current liabilities. The Company expects funds generated by operations, combined with current and future credit facilities, to fully support current operating and capital requirements. Existing revolving credit facilities provide for total borrowings of $610.0 million, of which $278.9 million was undrawn and available at June 30, 2016.
INVESTING ACTIVITIES
|
Three months ended June 30 |
Six months ended June 30 | ||||||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |||||
|
Purchase of property and equipment |
(13,402) |
(48,550) |
(72) |
(31,276) |
(129,061) |
(76) | |||||
|
Proceeds from disposals of property and equipment |
3,836 |
1,434 |
nm |
7,031 |
3,260 |
nm | |||||
|
Net change in non-cash working capital |
447 |
(586) |
nm |
(18,503) |
(41,437) |
(55) | |||||
|
Cash used in investing activities |
(9,119) |
(47,702) |
(81) |
(42,748) |
(167,238) |
(74) | |||||
|
nm - calculation not meaningful |
|||||||||||
Net purchases of property and equipment for the second quarter of 2016 totaled $9.6 million (2015 - $47.1 million). Net purchases of property and equipment during the first six months of 2016 totaled $24.2 million (2015 - $125.8 million). The purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's new build and major retrofit program, and for maintenance capital costs incurred in the current quarter and first half of this year.
FINANCING ACTIVITIES
|
Three months ended June 30 |
Six months ended June 30 | ||||||
|
($ thousands) |
2016 |
2015 |
% change |
2016 |
2015 |
% change | |
|
Net decrease in bank credit facilities |
(7,233) |
(42,640) |
(83) |
(39,963) |
(72,635) |
(45) | |
|
Purchase of shares held in trust |
(1,265) |
(5,635) |
(78) |
(1,548) |
(6,189) |
(75) | |
|
Dividends |
(18,367) |
(18,367) |
— |
(36,734) |
(36,734) |
— | |
|
Net change in non-cash working capital |
(3,868) |
(3,669) |
5 |
(83) |
(29) |
nm | |
|
Cash used in financing activities |
(30,733) |
(70,311) |
(56) |
(78,328) |
(115,587) |
(32) | |
|
nm - calculation not meaningful |
|||||||
The Company's available bank credit facilities consist of a $600.0 million Global Facility and a $10.0 million Canadian Facility. The Global Facility is available to the Company and certain of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $600.0 million Canadian dollars. The Global Facility matures in early October 2017. The amount available under the Canadian Facility is $10.0 million or the equivalent in United States dollars.
In addition, the Company has a $20.0 million uncommitted facility, solely for issuing letters of credit, primarily used for bidding on contracts in the normal course of business.
The Company has made repayments of $40.0 million during the six months ended June 30, 2016, reducing the outstanding balance. As of June 30, 2016, the credit facilities are primarily being used to fund capital expenditures and to support international operations.
The Board of Directors of the Company has declared a third quarter dividend of $0.12 per common share to be payable on October 5, 2016 to all Common Shareholders of record as of September 20, 2016. The dividend is pursuant to the quarterly dividend policy adopted by the Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act ("ITA"), the dividend being paid is designated as an eligible dividend, as defined in subsection 89(1) of the ITA.
NEW BUILDS AND MAJOR RETROFITS
During the six months ended June 30, 2016, the Company added another new build ADR® drilling rig to its expansive tier one fleet worldwide, which has been contracted on a long-term contract. The Company continues to selectively add new ADR® drilling rigs to meet the increasing technical demands of its customers.
OUTLOOK
A little over two years ago, crude oil prices began a steep prolonged decline. Some stabilization and improvement in pricing was not experienced until recent months. On June 30, 2014 West Texas Intermediate was approximately US$105/barrel compared to June 30, 2016 at approximately US$47/barrel, representing a 55 percent decline in two years.
The first half of 2016 has been very volatile, with new lows of approximately $26/barrel seen in February and support appearing in the mid-$40/barrel range in the second quarter. This volatility is expected to continue as the tepid growth in the global economy may be further impacted by events such as implementation of the "Brexit" vote, increased terrorist attacks throughout the world, and the upcoming U.S. Presidential election.
An emerging view of the crude oil and natural gas market by energy analysts suggests that energy commodity demand growth will not be as important as supply adjustment in the rebalancing. Supply and inventory adjustments are starting to buoy prices and capital investments.
Although global demand may be of secondary importance, demand for oil and gas is still expected to increase in the coming years. According to the U.S. Energy Information Administration, the United States is expected to see consumption of motor gasoline increase by 1.5 percent in 2016, which would constitute the highest annual gasoline consumption on record, beating the previous record set in 2007 by 0.1 percent. When these increases are paired with a decrease in production outside of OPEC countries, predicted by the International Energy Agency at 900,000 barrels per day, we believe prices should stabilize.
Oilfield services activities in Canada continue to be subdued, with the month of June having only an average of 65 operating rigs compared to an average of 123 in June of 2015. The warmer than average winter in Western Canada and low energy commodity prices created a drilling season that was brief and muted. The lower Canadian dollar versus the U.S. dollar has improved economics somewhat for Canadian crude oil producers, and natural gas pricing has recently shown an uptick. While capital continues to be tight for a number of exploration and production companies, equity markets continue to be open for the best performers with large positions in major resource plays.
Similar to the first quarter of 2016, the Company's Canadian fleet continues to track with industry levels. Due to the Company's shift to a deeper capability rig mix in Canada, we expect to participate favourably in increased activity if market conditions allow. However, Canadian activity could be constrained regardless of commodity price increases if pipelines and tidewater takeaway capacity are not built. The recent decision by the Canadian Federal Court of Appeal to overturn the Northern Gateway pipeline highlights the risks to the future prospects for the Canadian market.
United States crude production is down one million barrels per day from just over one year ago. However, liquids storage levels are at record-high levels and are showing limited prospects for meaningful reductions before late 2017. Similarly, natural gas storage levels are also near record highs and are projected to build through the coming injection season. Management sees mixed prospects for the next several quarters, with positive signs being the 10 percent increase in U.S. operating rigs over the past two months since the count bottomed in May, and increased levels of customer inquiries. These positives are negatively offset by ongoing competitive pressures on day rates as the U.S. rig market moves in toward a spot rate market due to the excess capacity of equipment. The Company's investment over the years into a deeper US drilling rig fleet will allow it to compete more effectively in a market recovery.
Second quarter activity levels in the Company's international operations were down approximately 30 percent from those of one year earlier, similar to the general decreases estimated by Baker Hughes for the markets in which the Company currently operates. Given recent improvements in energy commodity pricing and current activity levels representing multi-year lows, the Company expects future overall improvements in its existing international markets, particularly with respect to some larger international customers. However, the pace of change will likely be gradual, consistent with the longer-term nature of development activities in these regions. The Company generally expects market share and activity levels in its international operations for the second half of 2016 to be solid as a result of the highly efficient ADR® type drilling rig fleet, which represents 75% of Ensign's worldwide fleet.
Priorities for the Company are unchanged from those of the past six quarters. Our continued emphases will focus on cost reductions, minimization of capital outlays, service quality optimization, close monitoring of customer credit conditions, and business process improvements. Balance sheet preservation continues to be a principal focus, together with ongoing evaluation of alternative strategies to respond to the eventual recovery in activity levels as energy markets rebalance. The Company's strategy to reinvest over $3 billion to build one of the most modern, high quality ADR® drilling rig fleets in the business continues to deliver market share and help drive well costs down, as evidenced by our customers' recent trend toward keeping our contracted fleet active in their drilling programs. At the same time, our peers with similar contract coverage are disclosing relatively large payout receipts from early terminations of contracts.
ACKNOWLEDGEMENT
Tim Lemke will be retiring as Ensign's Vice President Finance and Chief Financial Officer ("CFO") in the fourth quarter of 2016. Tim joined Ensign as Vice President Finance in early 2010 and has been a strong support to the Company during his time with us. The Company and the Board of Directors would like to thank Tim for his service. Pursuant to our established succession plan, Mike Gray will be replacing Tim as the Company's CFO. Mike joined Ensign in early 2015 as Corporate Controller after several years with another public drilling company and has the background and skills necessary to ensure a seamless transition.
RISKS AND UNCERTAINTIES
This document contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, political, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the Company's defense of lawsuits and the ability of oil and gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions which could impact on the use of the services supplied by the Company.
CONFERENCE CALL
A conference call will be held to discuss the Company's second quarter 2016 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Tuesday, August 9, 2016. The conference call number is 1-647-427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until August 16, 2016 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 50623150. A live broadcast may be accessed through the Company's web site at www.ensignenergy.com.
Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI.
Ensign Energy Services Inc.
Consolidated Statements of Financial Position
|
As at |
June 30 2016 |
December 31 2015 | |||||
|
(Unaudited - in thousands of Canadian dollars) |
|||||||
|
Assets |
|||||||
|
Current assets |
|||||||
|
Cash and cash equivalents |
$ |
47,296 |
$ |
40,386 | |||
|
Accounts receivable |
143,452 |
215,421 | |||||
|
Inventories and other |
61,964 |
71,806 | |||||
|
Income taxes receivable |
16,060 |
4,947 | |||||
|
Total current assets |
268,772 |
332,560 | |||||
|
Property and equipment |
2,994,727 |
3,265,580 | |||||
|
Total assets |
$ |
3,263,499 |
$ |
3,598,140 | |||
|
Liabilities |
|||||||
|
Current liabilities |
|||||||
|
Accounts payable and accruals |
$ |
128,450 |
$ |
167,881 | |||
|
Dividends payable |
18,367 |
18,367 | |||||
|
Share-based compensation |
2,926 |
2,073 | |||||
|
Current portion of long-term debt |
129,919 |
— | |||||
|
Total current liabilities |
279,662 |
188,321 | |||||
|
Long-term debt |
581,937 |
794,109 | |||||
|
Share-based compensation |
1,657 |
935 | |||||
|
Deferred income taxes |
497,454 |
528,179 | |||||
|
Total liabilities |
1,360,710 |
1,511,544 | |||||
|
Shareholders' equity |
|||||||
|
Share capital |
169,335 |
169,171 | |||||
|
Contributed surplus |
3,262 |
2,538 | |||||
|
Foreign currency translation reserve |
239,159 |
332,230 | |||||
|
Retained earnings |
1,491,033 |
1,582,657 | |||||
|
Total shareholders' equity |
1,902,789 |
2,086,596 | |||||
|
Total liabilities and shareholders' equity |
$ |
3,263,499 |
$ |
3,598,140 | |||
Ensign Energy Services Inc.
Consolidated Statements of (Loss) Income
|
Three months ended |
Six months ended | |||||||||||
|
June 30 2016 |
June 30 2015 |
June 30 |
June 30 2015 | |||||||||
|
(Unaudited - in thousands of Canadian dollars, except per share data) |
||||||||||||
|
Revenue |
$ |
175,924 |
$ |
333,800 |
$ |
434,388 |
$ |
783,089 | ||||
|
Expenses |
||||||||||||
|
Oilfield services |
130,561 |
244,975 |
312,828 |
560,417 | ||||||||
|
Depreciation |
81,383 |
61,384 |
175,861 |
125,211 | ||||||||
|
General and administrative |
13,878 |
19,291 |
30,508 |
40,805 | ||||||||
|
Share-based compensation |
1,631 |
4,684 |
1,206 |
5,476 | ||||||||
|
Foreign exchange and other |
6,004 |
(1,065) |
(9,194) |
17,045 | ||||||||
|
Total expenses |
233,457 |
329,269 |
511,209 |
748,954 | ||||||||
|
(Loss) income before interest and |
(57,533) |
4,531 |
(76,821) |
34,135 | ||||||||
|
Interest income |
(19) |
(95) |
(359) |
(193) | ||||||||
|
Interest expense |
6,268 |
5,484 |
12,596 |
11,561 | ||||||||
|
(Loss) income before income taxes |
(63,782) |
(858) |
(89,058) |
22,767 | ||||||||
|
Income taxes |
||||||||||||
|
Current tax |
(9,325) |
(1,690) |
(9,611) |
(4,419) | ||||||||
|
Deferred tax |
(14,478) |
1,868 |
(24,557) |
12,795 | ||||||||
|
Total income taxes |
(23,803) |
178 |
(34,168) |
8,376 | ||||||||
|
Net (loss) income |
$ |
(39,979) |
$ |
(1,036) |
$ |
(54,890) |
$ |
14,391 | ||||
|
Net (loss) income per share |
||||||||||||
|
Basic |
$ |
(0.26) |
$ |
(0.01) |
$ |
(0.36) |
$ |
0.09 | ||||
|
Diluted |
$ |
(0.26) |
$ |
(0.01) |
$ |
(0.36) |
$ |
0.09 | ||||
Ensign Energy Services Inc.
Consolidated Statements of Cash Flows
|
Three months ended |
Six months ended | ||||||||||||
|
June 30 |
June 30 |
June 30 |
June 30 | ||||||||||
|
(Unaudited - in thousands of Canadian dollars) |
|||||||||||||
|
Cash provided by (used in) |
|||||||||||||
|
Operating activities |
|||||||||||||
|
Net (loss) income |
$ |
(39,979) |
$ |
(1,036) |
$ |
(54,890) |
$ |
14,391 | |||||
|
Items not affecting cash |
|||||||||||||
|
Depreciation |
81,383 |
61,384 |
175,861 |
125,211 | |||||||||
|
Share-based compensation, net of cash paid |
4,981 |
6,872 |
5,762 |
8,816 | |||||||||
|
Unrealized foreign exchange and other |
4,318 |
203 |
(10,880) |
17,740 | |||||||||
|
Accretion on long-term debt |
103 |
98 |
212 |
197 | |||||||||
|
Deferred income tax |
(14,478) |
1,868 |
(24,557) |
12,795 | |||||||||
|
Funds provided by operations |
36,328 |
69,389 |
91,508 |
179,150 | |||||||||
|
Net change in non-cash working capital |
30,526 |
50,075 |
40,425 |
97,495 | |||||||||
|
Cash provided by operating activities |
66,854 |
119,464 |
131,933 |
276,645 | |||||||||
|
Investing activities |
|||||||||||||
|
Purchase of property and equipment |
(13,402) |
(48,550) |
(31,276) |
(129,061) | |||||||||
|
Proceeds from disposals of property and equipment |
3,836 |
1,434 |
7,031 |
3,260 | |||||||||
|
Net change in non-cash working capital |
447 |
(586) |
(18,503) |
(41,437) | |||||||||
|
Cash (used in) provided by investing activities |
(9,119) |
(47,702) |
(42,748) |
(167,238) | |||||||||
|
Financing activities |
|||||||||||||
|
Net decrease in bank credit facilities |
(7,233) |
(42,640) |
(39,963) |
(72,635) | |||||||||
|
Purchase of shares held in trust |
(1,265) |
(5,635) |
(1,548) |
(6,189) | |||||||||
|
Dividends |
(18,367) |
(18,367) |
(36,734) |
(36,734) | |||||||||
|
Net change in non-cash working capital |
(3,868) |
(3,669) |
(83) |
(29) | |||||||||
|
Cash used in financing activities |
(30,733) |
(70,311) |
(78,328) |
(115,587) | |||||||||
|
Net increase (decrease) in cash and cash equivalents |
27,002 |
1,451 |
10,857 |
(6,180) | |||||||||
|
Effects of foreign exchange on cash and cash equivalents |
(8,159) |
(3,573) |
(3,947) |
3,430 | |||||||||
|
Cash and cash equivalents – beginning of period |
28,453 |
53,369 |
40,386 |
53,997 | |||||||||
|
Cash and cash equivalents – end of period |
$ |
47,296 |
$ |
51,247 |
$ |
47,296 |
$ |
51,247 | |||||
|
Supplemental information |
|||||||||||||
|
Interest paid |
$ |
10,136 |
$ |
9,143 |
$ |
12,677 |
$ |
11,356 | |||||
|
Income taxes paid (recovered) |
$ |
(421) |
$ |
(9,131) |
$ |
1,502 |
$ |
(6,212) | |||||
SOURCE Ensign Energy Services Inc.
Image with caption: "Ensign Energy Services Inc. (CNW Group/Ensign Energy Services Inc.)". Image available at: http://photos.newswire.ca/images/download/20160809_C1372_PHOTO_EN_749600.jpg
Timothy Lemke, Vice President Finance and Chief Financial Officer, (403) 262-1361.
Share this article