Ensign Energy Services Inc. Reports 2018 Second Quarter Results
CALGARY, Aug. 7, 2018 /CNW/ -
OVERVIEW
Revenue for the second quarter of 2018 was $263.1 million, an increase of 13 percent from revenue for the second quarter of 2017 of $232.2 million. Revenue for the six months ended June 30, 2018 was $521.5 million, an increase of eight percent from revenue for the six months ended June 30, 2017 of $483.5 million. Revenue, net of third party, for the second quarter of 2018 was $231.9 million, an increase of 10 percent from Revenue, net of third party, for the second quarter of 2017 of $211.7 million. Revenue, net of third party, for the six months ended June 30, 2018 was $458.5 million, an increase of nine percent from Revenue, net of third party, for the six months ended June 30, 2017 of $420.6 million.
Adjusted EBITDA totaled $53.1 million ($0.34 per common share) in the second quarter of 2018, 20 percent higher than Adjusted EBITDA of $44.3 million ($0.29 per common share) in the second quarter of 2017. For the first six months of 2018, Adjusted EBITDA totaled $105.4 million ($0.67 per common share), 12 percent higher than Adjusted EBITDA of $94.4 million ($0.61 per common share) in the first six months of 2017.
Net loss for the second quarter of 2018 was $36.7 million ($0.23 per common share) compared to a net loss of $33.8 million ($0.22 per common share) for the second quarter of 2017. Net loss for the six months ended June 30, 2018 was $63.4 million ($0.40 per common share), compared to net loss of $47.6 million ($0.31 per common share) for the six months ended June 30, 2017.
Funds flow from operations increased seven percent to $47.8 million ($0.31 per common share) in the second quarter of 2018 compared to $44.8 million ($0.29 per common share) in the second quarter of the prior year. Funds flow from operations increased 14 percent to $101.7 million ($0.65 per common share) in the first six months of 2018 compared to $89.6 million ($0.58 per common share) in the first six months of the prior year.
Operating days were higher in the United States in the second quarter on 2018 when compared to the second quarter on 2017 due to increased demand in oilfield services caused by a price recovery of crude oil and natural gas commodity prices. Operating days were lower in Canada and internationally in the second quarter of 2018 when compared to the second quarter of 2017 mainly due to geopolitical factors and the lack of access for oil and natural gas to markets. A year-over-year weakening of the United States dollar against the Canadian dollar negatively impacted United States and international financial results on translation to Canadian dollars. The average United States exchange rate was $1.28 for the first six months of 2018 (2017 - $1.33) versus the Canadian dollar.
Gross margin increased to $64.8 million (27.9 percent of Revenue, net of third party) for the second quarter of 2018 compared to gross margin of $55.1 million (26.0 percent of Revenue, net of third party) for the second quarter of 2017. Gross margin increased to $127.9 million (27.9 percent of Revenue, net of third party) for the six months ended June 30, 2018 compared to a gross margin of $115.7 million (27.5 percent of Revenue, net of third party) for the six months ended June 30, 2017. The increase in gross margin in the second quarter of 2018 compared to the second quarter of 2017 was primarily attributed to slightly higher revenue rates in the current period.
Working capital at June 30, 2018 was a deficit of $424.7 million, compared to a deficit of $342.2 million at December 31, 2017. The decrease in working capital year-over-year was largely due to the Company's Global Facility ($477.9 million due in October 2018) and senior unsecured notes (USD $100 million due in February 2019). The Company's bank credit facilities provide unused and available borrowings of $22.1 million at June 30, 2018, up by $10.9 million, compared to $11.2 million at December 31, 2017.
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 |
||||||||||||||||
| 2018 |
2017 |
% change |
2018 |
2017 |
% change |
||||||||||||
| Revenue |
263,061 |
232,232 |
13 |
521,521 |
483,516 |
8 |
|||||||||||
| Revenue, net of third party 1 |
231,871 |
211,687 |
10 |
458,538 |
420,578 |
9 |
|||||||||||
| Adjusted EBITDA 2 |
53,064 |
44,276 |
20 |
105,358 |
94,364 |
12 |
|||||||||||
| Adjusted EBITDA per share 2 |
|||||||||||||||||
| Basic |
$ |
0.34 |
$ |
0.29 |
17 |
$ |
0.67 |
$ |
0.61 |
10 |
|||||||
| Diluted |
$ |
0.34 |
$ |
0.29 |
17 |
$ |
0.67 |
$ |
0.61 |
10 |
|||||||
| Net loss |
(36,697) |
(33,814) |
(9) |
(63,379) |
(47,606) |
(33) |
|||||||||||
| Net loss per share |
|||||||||||||||||
| Basic |
$ |
(0.23) |
$ |
(0.22) |
5 |
$ |
(0.40) |
$ |
(0.31) |
(29) |
|||||||
| Diluted |
$ |
(0.23) |
$ |
(0.22) |
5 |
$ |
(0.40) |
$ |
(0.31) |
(29) |
|||||||
| Cash provided by operating activities |
19,306 |
44,687 |
(57) |
39,304 |
64,232 |
(39) |
|||||||||||
| Funds flow from operations 3 |
47,808 |
44,769 |
7 |
101,715 |
89,578 |
14 |
|||||||||||
| Funds flow from operations per share 3 |
|||||||||||||||||
| Basic |
$ |
0.31 |
$ |
0.29 |
7 |
$ |
0.65 |
$ |
0.58 |
12 |
|||||||
| Diluted |
$ |
0.31 |
$ |
0.29 |
7 |
$ |
0.65 |
$ |
0.58 |
12 |
|||||||
| Total debt, net of cash |
748,609 |
714,357 |
5 |
748,609 |
714,357 |
5 |
|||||||||||
| Weighted average shares - basic (000s) |
156,733 |
156,987 |
— |
156,868 |
154,915 |
1 |
|||||||||||
| Weighted average shares - diluted (000s) |
156,889 |
157,220 |
— |
157,032 |
155,172 |
1 |
|||||||||||
| Drilling |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||||||||
| Number of rigs 4 |
|||||||||||||||||
| Canada 5 |
56 |
58 |
(3) |
56 |
58 |
(3) |
|||||||||||
| United States |
67 |
69 |
(3) |
67 |
69 |
(3) |
|||||||||||
| International 6 |
43 |
44 |
(2) |
43 |
44 |
(2) |
|||||||||||
| Operating days 7 |
|||||||||||||||||
| Canada 5 |
830 |
1,141 |
(27) |
2,781 |
3,466 |
(20) |
|||||||||||
| United States |
3,228 |
2,590 |
25 |
6,133 |
4,843 |
27 |
|||||||||||
| International 6 |
1,425 |
1,506 |
(5) |
2,783 |
3,084 |
(10) |
|||||||||||
| Well Servicing |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||||||||
| Number of rigs |
|||||||||||||||||
| Canada |
62 |
65 |
(5) |
62 |
65 |
(5) |
|||||||||||
| United States |
44 |
45 |
(2) |
44 |
45 |
(2) |
|||||||||||
| Operating hours |
|||||||||||||||||
| Canada |
13,359 |
15,291 |
(13) |
30,084 |
36,846 |
(18) |
|||||||||||
| United States |
28,722 |
21,594 |
33 |
51,128 |
41,675 |
23 |
|||||||||||
| 1. |
Revenue, net of third party is defined as "gross revenue less third party reimbursable items". |
| 2. |
Adjusted EBITDA is defined as "losses before interest, income taxes, depreciation, share-based compensation and foreign exchange and other". Management believes that, in addition to Net loss, Adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how these activities are financed, how the results are taxed in various jurisdictions, how the results are impacted by foreign exchange or how the results are impacted by the accounting standards associated with the Company's share-based compensation plans. Adjusted EBITDA and Adjusted EBITDA per share are not recognized measures under International Financial Reporting Standards and thus may not be comparable to measures used by other companies. |
| 3. |
Funds flow from operations are defined as "cash provided by operating activities before the change in non-cash working capital". Management believes that, in addition to Net loss, funds flow from operations constitute a measure that provides additional information regarding the Company's liquidity and its ability to generate funds to finance its operations. Management utilizes this measure to assess the Company's ability to finance operating activities and capital expenditures. Funds from operations and Funds from operations per share are not measures that have any standardized meaning prescribed by International Financial Reporting Standards and thus may not be comparable to similar measures used by other companies. |
| 4. |
Total rigs: Canada - 69, United States - 85, International - 46 (2017: Canada - 70, United States - 84, International - 46) |
| 5. |
Excludes coring rigs. |
| 6. |
Includes workover rigs. |
| 7. |
Defined as contract drilling days, between spud to rig release. |
SECOND QUARTER HIGHLIGHTS
- Revenue for the second quarter of 2018 was $263.1 million, a 13 percent increase from the second quarter of 2017 revenue of $232.2 million.
- Revenue by geographic area:
- Canada - $45.5 million, 17 percent of total;
- United States - $148.1 million, 56 percent of total; and
- International - $69.5 million, 27 percent of total.
- Canadian drilling recorded 830 operating days in the second quarter of 2018, a 27 percent decrease from 1,141 operating days in the second quarter of 2017. Canadian well servicing recorded 13,359 operating hours in the second quarter of 2018, a 13 percent decrease from 15,291 operating hours in the second quarter of 2017.
- United States drilling recorded 3,228 operating days in the second quarter of 2018, a 25 percent increase from 2,590 operating days in the second quarter of 2017. United States well servicing recorded 28,722 operating hours in the second quarter of 2018, a 33 percent increase from 21,594 operating hours in the second quarter of 2017.
- International drilling recorded 1,425 operating days in the second quarter of 2018, a five percent decrease from 1,506 operating days recorded in second quarter of 2017.
- Adjusted EBITDA for the second quarter of 2018 was $53.1 million, a 20 percent increase from Adjusted EBITDA of $44.3 million for the second quarter of 2017. Funds flow from operations for the second quarter of 2018 increased seven percent to $47.8 million from $44.8 million in second quarter of the prior year.
- Net capital expenditures for the calendar year 2018 that will be funded by the Company remains at $64 million. Net capital expenditures for the calendar year 2018 including customer funded capital will total $69 million.
- Subsequent to the quarter, the Company received approval to increase the Global Facility to $600.0 million with a 3 year term.
- The Company declared a third quarter cash dividend on common shares of $0.12 per common share, payable on October 4, 2018.
REVENUE AND OILFIELD SERVICES EXPENSE
| Three months ended June 30 |
Six months ended June 30 |
|||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
||
| Revenue |
||||||||
| Canada |
45,473 |
51,122 |
(11) |
119,285 |
135,372 |
(12) |
||
| United States |
148,088 |
110,252 |
34 |
273,591 |
208,262 |
31 |
||
| International |
69,500 |
70,858 |
(2) |
128,645 |
139,882 |
(8) |
||
| Total revenue |
263,061 |
232,232 |
13 |
521,521 |
483,516 |
8 |
||
| Revenue, net of third party |
231,871 |
211,687 |
10 |
458,538 |
420,578 |
9 |
||
| Oilfield services expense |
198,255 |
177,133 |
12 |
393,620 |
367,778 |
7 |
||
| Gross margin |
64,806 |
55,099 |
18 |
127,901 |
115,738 |
11 |
||
| Gross margin as a percentage of Revenue, net of third party |
27.9 |
26.0 |
27.9 |
27.5 |
||||
Revenue for the three months ended June 30, 2018 totaled $263.1 million, an increase of 13 percent from the second quarter of 2017 of $232.2 million. Revenue for the six months ended June 30, 2018 totaled $521.5 million, an eight percent increase from the six months ended June 30, 2017. As a percentage of Revenue, net of third party, gross margin for the second quarter of 2018 increased to 28 percent (2017 - 26 percent) and remained consistent at 28 percent for the six months ended June 30, 2017 (2017 - 28 percent).
The moderate price increases in oil and natural gas commodity prices have increased demand for oilfield services in the United States, which resulted in higher equipment utilization rates; however revenues have declined both in Canada and internationally year-over-year. The financial results from the Company's United States and international operations were negatively impacted on translation, as the United States dollar weakened relative to the Canadian dollar in the first six months of 2018 as opposed to a strengthening in the same period of 2017. This served to offset the impact of some of the revenue rate increases experienced during the past several months.
CANADIAN OILFIELD SERVICES
Revenue decreased 11 percent to $45.5 million for the three months ended June 30, 2018 from $51.1 million for the three months ended June 30, 2017. The Company recorded revenue of $119.3 million in Canada for the six months ended June 30, 2018, a decrease of 12 percent from $135.4 million recorded for the six months ended June 30, 2017. Canadian revenues accounted for 17 percent of the Company's total revenue in the second quarter of 2018, compared to 22 percent in the second quarter of 2017. During the six months ended June 30, 2018, Canadian revenues were 23 percent of the Company's revenue, compared with 28 percent in the six months ended June 30, 2017.
The Company's Canadian operations recorded 830 drilling days in the second quarter of 2018, compared to 1,141 drilling days for the second quarter of 2017, a decrease of 27 percent. For the six months ended June 30, 2018, the Company recorded 2,781 drilling days compared to 3,466 drilling days for the six months ended June 30, 2017, a decrease of 20 percent. Canadian well servicing hours decreased by 13 percent to 13,359 operating hours in the second quarter of 2018 compared to 15,291 operating hours in the corresponding period of 2017. For the six months ended June 30, 2018, well servicing hours decreased by 18 percent to 30,084 operating hours compared with 36,846 operating hours for the six months ended June 30, 2017.
Despite, the increase in oil and natural gas commodity prices, demand for the Company's Canadian oilfield services was lower compared to the prior quarters mainly due to geopolitical factors and limited access for oil and natural gas to markets.
During the six months ended June 30, 2018, the Company transferred one ADR® drilling rig from Canada to the United States and decommissioned three service rigs in Canada.
UNITED STATES OILFIELD SERVICES
The Company's United States operations recorded revenue of $148.1 million in the second quarter of 2018, an increase of 34 percent increase from the $110.3 million recorded in the corresponding period of the prior year. During the six months ended June 30, 2018, revenue of $273.6 million was recorded, an increase of 31 percent from the $208.3 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 56 percent of the Company's revenue in the second quarter of 2018 (2017 - 42 percent) and 52 percent of the Company's revenue in the first six months of 2018 (2017 - 43 percent).
Drilling rig operating days increased by 25 percent to 3,228 drilling days in the second quarter of 2018 from 2,590 drilling days in the second quarter of 2017. Drilling operating days increased by 27 percent from 4,843 operating days in the first six months of 2017 to 6,133 operating days in first six months of 2018. Well servicing activity expressed in operating hours, increased by 33 percent in the second quarter of 2018 to 28,722 operating hours from 21,594 operating hours in the second quarter of 2017. For the six months ended June 30, 2018 well servicing activity increased 23 percent to 51,128 operating hours from 41,675 operating hours in the first six months of 2017.
Overall operating results for the Company's United States operations were positively impacted by a significant increase in demand for oilfield services due to renewed optimism regarding oil and natural gas commodity prices. Revenue rates in the United States have modestly rebounded with operating activity. The improved results were partially offset by one-time reactivation expenses for the quarter and a weakening United States dollar, which decreased four percent versus the Canadian dollar when compared to the three months ending June 30, 2017.
During the second quarter of 2018, the Company transferred one ADR® drilling rig from Canada to the United States and deployed one new service rig to meet increasing demand. The company plans on deploying two more new service rigs in the United States during the third quarter followed by a fourth service rig in 2019. Furthermore, the Company decommissioned one drilling rig and two service rigs.
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of $69.5 million in the second quarter of 2018, a two percent decrease from the $70.9 million recorded in the corresponding period of the prior year. International revenues for the six months ended June 30, 2018, decreased eight percent to $128.6 million from $139.9 million recorded in the six months ended June 30, 2017. The Company's international operations contributed 26 percent of the total revenue in the second quarter of 2018 (2017 - 31 percent) and 25 percent of the Company's revenue in the first six months of 2018 (2017 - 29 percent).
International operating days for the three months ended June 30, 2018, totaled 1,425 drilling days compared to 1,506 drilling days in the same period of 2017, a decrease of five percent. For the six months ended June 30, 2018, international operating days totaled 2,783 operating days compared to 3,084 drilling days for the six months ended June 30, 2017, a decrease of ten percent.
The international operations saw a decrease in activity as certain rigs that were on long-term contracts rolled off and were not renewed in 2017. Similar to the Company's United States operations, international operations were negatively impacted by the weakening United States dollar year-over-year in the first six months of 2018, versus the Canadian dollar, on translation into Canadian dollars for reporting purposes compared to the same period of 2017.
DEPRECIATION
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||
| Depreciation |
100,469 |
75,508 |
33 |
199,044 |
154,867 |
29 |
|||||
Depreciation expense totaled $100.5 million for the second quarter of 2018 compared with $75.5 million for the second quarter of 2017, an increase of 33 percent. Depreciation expense for the first six months of 2018 increased by 29 percent to $199.0 million compared with $154.9 million for the first six months of 2017. In the first quarter of 2018, the Company reviewed the useful life estimates for all rigs and related equipment and determined that using a straight-line method (versus unit of production) would more accurately reflect the future economic benefits related to these assets. These adjustments were applied prospectively and, as such, have caused an increased depreciation expense in 2018.
GENERAL AND ADMINISTRATIVE EXPENSE
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||
| General and administrative |
11,742 |
10,823 |
8 |
22,543 |
21,374 |
5 |
|||||
| % of revenue |
4.5 |
4.7 |
4.3 |
4.4 |
|||||||
General and administrative expense increased eight percent to $11.7 million (4.5 percent of revenue) for the second quarter of 2018 compared to $10.8 million (4.7 percent of revenue) for the second quarter of 2017. For the six months ended June 30, 2018, general and administrative expense totaled $22.5 million (4.3 percent of revenue) compared to $21.4 million (4.4 percent of revenue) for the six months ended June 30, 2017. The increase in general and administrative expense due to timing of certain expenses and increased activity in the United States operations. The Company continues to focus on initiatives to manage costs as activity begins to recover.
INTEREST EXPENSE
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||
| Interest expense |
9,200 |
8,860 |
4 |
19,395 |
18,188 |
7 |
|||||
| Interest income |
(2) |
(38) |
(95) |
(3) |
(75) |
(96) |
|||||
| 9,198 |
8,822 |
4 |
19,392 |
18,113 |
7 |
||||||
Interest is incurred on the Company's $500.0 million global revolving credit facility (the "Global Facility"), the United States dollar $200.0 million senior unsecured notes (the "Notes") issued in February 2012 and convertible debentures issued in the first six months of 2018. The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense.
Interest expense increased by seven percent for the first six months ended June 30, 2018 compared to the same period in 2017 as a result of an increase to the overall interest rate and total debt. The increased interest expense was partially offset by positive translation impact on United States dollar versus the Canadian dollar on a year-over-year basis.
FOREIGN EXCHANGE AND OTHER
| Three months ended June 30 |
Six months ended June 30 |
||||||||||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||||||
| Foreign exchange and other |
(8,801) |
11,163 |
nm |
(23,253) |
(4,357) |
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.
INCOME TAXES
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||
| Current income tax |
617 |
523 |
18 |
1,961 |
2,654 |
(26) |
|||||
| Deferred income tax |
(13,162) |
(17,120) |
(23) |
(29,683) |
(27,466) |
8 |
|||||
| Total income tax |
(12,545) |
(16,597) |
(24) |
(27,722) |
(24,812) |
12 |
|||||
| Effective income tax rate (%) |
25.5 |
32.9 |
(22) |
30.4 |
34.3 |
(11) |
|||||
The effective income tax rate for the three months ended June 30, 2018 was 25.5 percent compared to 32.9 percent for the three months ended June 30, 2017. The effective income tax rate for the six months ended June 30, 2018 was 30.4 percent compared with 34.3 percent for the six months ended June 30, 2017. The effective tax rate in the first six months of the current year was lower than the effective tax rate in the first six months of 2017 due to the impact of reductions in foreign tax rates.
FUNDS FROM OPERATIONS AND WORKING CAPITAL
| Three months ended June 30 |
Six months ended June 30 |
|||||||||
| ($ thousands, except per share amounts) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
||||
| Funds from operations |
47,808 |
44,769 |
7 |
101,715 |
89,578 |
14 |
||||
| Funds from operations per share |
$0.31 |
$0.29 |
7 |
$ |
0.65 |
$ |
0.58 |
12 |
||
| Working capital deficit 1 |
(424,700) |
(342,199) |
24 |
(424,700) |
(342,199) |
24 |
||||
| nm - calculation not meaningful |
||||||||||
| 1Comparative figure as of December 31, 2017 |
||||||||||
During the three months ended June 30, 2018, the Company generated Funds flow from operations of $47.8 million ($0.31 per common share) compared to Funds flow from operations of $44.8 million ($0.29 per common share) for the three months ended June 30, 2017, an increase of seven percent. For the six months ended June 30, 2018, the Company generated Funds flow from operations of $101.7 million ($0.65 per common share) an increase of 14 percent from $89.6 million ($0.58 per common share) for the six months ended June 30, 2017. The increase in Funds flow from operations in 2018 compared to 2017 is due to increase in revenue rates and increased activities compared to prior period, which was partially offset by the weakening United States dollar.
At June 30, 2018 the Company's working capital was a deficit of $424.7 million, compared to a working capital deficit of $342.2 million at December 31, 2017. The decrease in working capital in the first six months of 2018, was mainly related to the financial statements reclassification of a portion of long-term debt ($477.9 million of the Global Bank Facility, due October 3, 2018 and $131.4 million of Senior unsecured notes, due February 22, 2019) maturing with the next 12 months to current liabilities. The Company currently expects funds generated by operations, combined with current and future credit facilities, to fully support current operating and capital requirements. Existing revolving credit facilities provide for total borrowings of $500.0 million, of which $22.1 million was undrawn and available at June 30, 2018. The Company has a $50 million accordion to be included in the existing revolving global facilities but not yet exercised.
INVESTING ACTIVITIES
| Three months ended June 30 |
Six months ended June 30 |
||||||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||
| Purchase of property and equipment |
(22,979) |
(46,911) |
(51) |
(39,455) |
(77,982) |
(49) |
|||||
| Proceeds from disposals of property and equipment |
1,138 |
820 |
39 |
2,168 |
2,422 |
(10) |
|||||
| Net change in non-cash working capital |
9,516 |
4,981 |
91 |
10,314 |
5,116 |
nm |
|||||
| Cash used in investing activities |
(12,325) |
(41,110) |
(70) |
(26,973) |
(70,444) |
(62) |
|||||
| nm - calculation not meaningful |
|||||||||||
Net purchases of property and equipment for the second quarter of 2018 totaled $21.8 million (2017 - $46.1 million). Net purchases of property and equipment during the first six months of 2018 totaled $37.3 million (2017 - $75.6 million). The purchase of property and equipment relates predominantly to maintenance capital for certain drilling rigs, and to construction of four service rigs for the United States.
FINANCING ACTIVITIES
| Three months ended June 30 |
Six months ended June 30 |
||||||||||||
| ($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||||
| Net (decrease) increase in bank credit facilities |
(5,736) |
1,809 |
nm |
(8,744) |
25,339 |
nm |
|||||||
| Purchase of shares held in trust |
(223) |
(254) |
(12) |
(513) |
(546) |
(6) |
|||||||
| Issuance of convertible debenture |
11,050 |
— |
nm |
37,000 |
0 |
nm |
|||||||
| Dividends |
(18,849) |
(11,164) |
69 |
(37,698) |
(22,549) |
67 |
|||||||
| Net change in non-cash working capital |
(3,035) |
(3,888) |
(22) |
(296) |
(731) |
(60) |
|||||||
| Cash used in financing activities |
(16,793) |
(13,497) |
24 |
(10,251) |
1,513 |
nm |
|||||||
| nm - calculation not meaningful |
|||||||||||||
The Company's available bank credit facilities consist of a $500.0 million Global Facility. The Global Facility is available to the Company and certain of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $500.0 million Canadian dollars. The Global Facility matures in early October 2018. The Company also has available a $50.0 million accordion that would be included in the existing revolving credit facilities if exercised.
Subsequent to the quarter, the Company received approval to increase the Global Facility to $600.0 million with a 3 year term. The terms of the Global Facility other than those stated remained the same, including the availability of the $50.0 million accordion noted above.
In addition, the Company has a $20.0 million uncommitted facility, solely for issuing letters of credit, primarily used for bidding on contracts in the normal course of business.
The Company has made net debt repayments of $8.7 million during the six months ended June 30, 2018, decreasing the outstanding Global Facility balance. As of June 30, 2018, the credit facilities are primarily being used to fund capital expenditures. On April 12, 2018 the Company announced the closing of the second and final tranche of its non-brokered private placement of unsecured, subordinated convertible debentures (the "Debentures") for gross proceeds of $11.05 million. Together with the principal amount of $25.95 million issued on March 29, 2018, the Corporation has now issued an aggregate principal amount of $37.0 million of Debentures. The Debentures bear interest from the date of closing at 7.0% per annum, payable semi-annually in arrears, on April 1 and October 1 each year. The debentures will mature on January 31, 2022. $19.0 million of the debenture proceeds were used to pay off a $19.0 million loan that was incurred during the first quarter of 2018.
The Debentures are convertible at the option of the holder into common shares of the Corporation ("Common Shares") at any time prior to the close of business on the Maturity Date upon at least 61 days prior notice, at a conversion price of $7.00 per Common Share, subject to customary anti-dilution adjustments (the "Conversion Price"). Holders converting their Debentures will receive accrued and unpaid interest thereon (if any), up to, but excluding, the date of conversion
If, on and after April 1, 2021, the closing price of the Common Shares on the Toronto Stock Exchange exceeds 125% of the Conversion Price for at least 30 consecutive trading days, the Debentures may be redeemed by the Corporation for cash, in whole or in part from time to time, on not more than 90 days and not less than 60 days prior notice, at a redemption price equal to the outstanding principal amount of the Debentures plus accrued and unpaid interest thereon (if any), up to, but excluding, the date of redemption.
The Board of Directors of the Company has declared a third quarter cash dividend of $0.12 per common share to be payable on October 4, 2018 to all Common Shareholders of record as of September 22, 2018. 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, 2018, the Company decommissioned three service rigs in Canada, transferred one ADR® drilling rig from Canada to the United States. The Company decommissioned one drilling rig and two service rigs in the United States, and added one service rig in the United States. The Company continues to selectively add new ADR® drilling rigs to meet the increasing technical demands of its customers and is currently in the process of construction of three new service rigs for the United States.
OUTLOOK
Industry Overview
The supply and demand fundamentals of crude oil has continued to balance out over the year, helping WTI to trade in a tighter and higher range than in previous periods. This tightness has been aided by countries like Venezuela and Libya having export issues, as well as new sanctions on Iranian oil set to begin in November of 2018. The increase in oil prices will help to continue the strengthening of our customer's balances sheets and cash flow, which should continue to contribute to increased demand for oilfield services into the future.
Canadian Activity
During 2017 and continuing through 2018, Canadian operators have been moving oilfield service equipment to the United States due to concerns with pricing and utilization in Canada and has started to create a shortage of certain types of drilling rigs in the Canadian market. This shortage is now allowing drilling rig operators to increase both the day rates and term of contracts for their equipment as customers are looking to secure drilling rigs for the upcoming winter drilling season. The purchase of the Kinder Morgan Trans Mountain pipeline by the Canadian Government has created some certainty that the pipeline will be completed. Support for LNG Canada should also create more future demand for drilling rigs adding to the scarcity of certain high spec drilling rigs.
As of August 2, 2018, 29 drilling and coring rigs are currently under contract with 14 under contract that have a remaining term longer than six months (25 percent of the marketed fleet).
United States Activity
Bottlenecks and takeaway capacity are generating some concerns for the Permian basin. Rig counts have been flat, and until some of these constraints are dealt with, the rig count is expected to remain flat. However, resource basins in California and Colorado are still seeing increases in demand. The overall consensus is that the United States will remain flat to a modest increase in drilling rigs for the remainder of 2018 with growth expected to continue into the 2019. The growth in rig count should allow for additional pricing increases, as recent capital expenditure programs for oilfield service companies have thus far limited the construction of new drilling rigs which constrains the supply of high spec equipment.
Of our 67 marketed United States rigs, 44 drilling rigs are currently under contracts with 19 under contract that have a remaining term longer than six months (28 percent of the marketed fleet).
International Activity
The Company's expectation of modest growth in the remainder of 2018 for its International segment has not changed since the previous quarter. Nine of our drilling rigs are currently running in Latin America as at August 2, 2018 and that level of activity is expected to be maintained throughout the year with the possibility of a slight increase. This is largely dependent on the political situation in Venezuela, which continues to cause an unstable environment. We have a total of three rigs running in the Middle East and eight in Australia.
In the international segment we have 19 drilling rigs under contract with nine, or 21 percent of the marketed fleet under contract that has a remaining term longer than six months.
RISKS AND UNCERTAINTIES
This document contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, political, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the Company's defense of lawsuits and the ability of oil and gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions which could impact on the use of the services supplied by the Company.
CONFERENCE CALL
A conference call will be held to discuss the Company's second quarter 2018 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Tuesday, August 7, 2018. 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 14, 2018 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 39424679. 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 |
December 31 |
||||
| (Unaudited - in thousands of Canadian dollars) |
||||||
| Assets |
||||||
| Current Assets |
||||||
| Cash |
$ |
33,234 |
$ |
32,374 |
||
| Accounts receivable |
214,271 |
232,155 |
||||
| Inventories and other |
100,111 |
92,424 |
||||
| Income taxes receivable |
2,541 |
3,546 |
||||
| Total current assets |
350,157 |
360,499 |
||||
| Property and equipment |
2,504,323 |
2,597,966 |
||||
| Total assets |
$ |
2,854,480 |
$ |
2,958,465 |
||
| Liabilities |
||||||
| Current Liabilities |
||||||
| Accounts payable and accruals |
$ |
142,883 |
$ |
190,152 |
||
| Dividends payable |
18,849 |
18,849 |
||||
| Share-based compensation |
2,606 |
3,021 |
||||
| Income taxes payable |
1,180 |
3,419 |
||||
| Current portion of long-term debt |
609,339 |
487,257 |
||||
| Total current liabilities |
774,857 |
702,698 |
||||
| Long-term debt |
172,504 |
252,676 |
||||
| Share-based compensation |
3,019 |
2,708 |
||||
| Deferred income taxes |
290,246 |
311,007 |
||||
| Total liabilities |
1,240,626 |
1,269,089 |
||||
| Shareholders' Equity |
||||||
| Share capital |
206,517 |
206,042 |
||||
| Contributed surplus |
709 |
1,126 |
||||
| Equity component of convertible debenture |
3,193 |
— |
||||
| Foreign currency translation reserve |
272,970 |
237,885 |
||||
| Retained earnings |
1,130,465 |
1,244,323 |
||||
| Total shareholders' equity |
1,613,854 |
1,689,376 |
||||
| Total liabilities and shareholders' equity |
$ |
2,854,480 |
$ |
2,958,465 |
||
Ensign Energy Services Inc.
Consolidated Statements of Loss
| Three months ended |
Six months ended |
||||||||||
| June 30 |
June 30 |
June 30 |
June 30 |
||||||||
| (Unaudited - in thousands of Canadian dollars, except per share data) |
|||||||||||
| Revenue |
$ |
263,061 |
$ |
232,232 |
$ |
521,521 |
$ |
483,516 |
|||
| Expenses |
|||||||||||
| Oilfield services |
198,255 |
177,133 |
393,620 |
367,778 |
|||||||
| Depreciation |
100,469 |
75,508 |
199,044 |
154,867 |
|||||||
| General and administrative |
11,742 |
10,823 |
22,543 |
21,374 |
|||||||
| Share-based compensation |
1,440 |
(806) |
1,276 |
(1,841 |
|||||||
| Foreign exchange and other |
(8,801) |
11,163 |
(23,253) |
(4,357) |
|||||||
| Total expenses |
303,105 |
273,821 |
593,230 |
537,821 |
|||||||
| Loss before interest and income taxes |
(40,044) |
(41,589) |
(71,709) |
(54,305) |
|||||||
| Interest income |
(2) |
(38) |
(3) |
(75) |
|||||||
| Interest expense |
9,200 |
8,860 |
19,395 |
18,188 |
|||||||
| Loss before income taxes |
(49,242) |
(50,411 |
(91,101) |
(72,418) |
|||||||
| Income taxes |
|||||||||||
| Current tax |
617 |
523 |
1,961 |
2,654 |
|||||||
| Deferred tax |
(13,162) |
(17,120) |
(29,683) |
(27,466) |
|||||||
| Total income taxes |
(12,545) |
(16,597) |
(27,722) |
(24,812) |
|||||||
| Net loss |
$ |
(36,697) |
$ |
(33,814) |
$ |
(63,379) |
$ |
(47,606) |
|||
| Net loss per share |
|||||||||||
| Basic |
$ |
(0.23) |
$ |
(0.22) |
$ |
(0.40) |
$ |
(0.31) |
|||
| Diluted |
$ |
(0.23) |
$ |
(0.22) |
$ |
(0.40) |
$ |
(0.31) |
|||
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 |
$ |
(36,697) |
$ |
(33,814) |
$ |
(63,379) |
$ |
(47,606) |
||
| Items not affecting cash |
||||||||||
| Depreciation |
100,469 |
75,508 |
199,044 |
154,867 |
||||||
| Share-based compensation, net of cash paid |
1,440 |
(1,101) |
1,276 |
(2,326) |
||||||
| Unrealized foreign exchange and other |
(4,230) |
21,236 |
(5,567) |
11,854 |
||||||
| Accretion on long-term debt |
(12) |
60 |
24 |
255 |
||||||
| Deferred income tax |
(13,162) |
(17,120) |
(29,683) |
(27,466) |
||||||
| Funds flow from operations |
47,808 |
44,769 |
101,715 |
89,578 |
||||||
| Net change in non-cash working capital |
(28,502) |
(82) |
(62,411) |
(25,346 |
||||||
| Cash provided by operating activities |
19,306 |
44,687 |
39,304 |
64,232 |
||||||
| Investing activities |
||||||||||
| Purchase of property and equipment |
(22,979) |
(46,911) |
(39,455) |
(77,982) |
||||||
| Proceeds from disposals of property and equipment |
1,138 |
820 |
2,168 |
2,422 |
||||||
| Net change in non-cash working capital |
9,516 |
4,981 |
10,314 |
5,116 |
||||||
| Cash used in investing activities |
(12,325) |
(41,110) |
(26,973) |
(70,444) |
||||||
| Financing activities |
||||||||||
| Net (decrease) increase in bank credit facilities |
(5,736) |
1,809 |
(8,744) |
25,339 |
||||||
| Purchase of shares held in trust |
(223) |
(254) |
(513) |
(546) |
||||||
| Issuance of convertible debenture |
11,050 |
— |
37,000 |
— |
||||||
| Dividends |
(18,849) |
(11,164) |
(37,698) |
(22,549) |
||||||
| Net change in non-cash working capital |
(3,035 |
(3,888) |
(296) |
(731) |
||||||
| Cash (used in) provided by financing activities |
(16,793) |
(13,497) |
(10,251) |
1,513 |
||||||
| Net (decrease) increase in cash and cash equivalents |
(9,812) |
(9,920 |
2,080 |
(4,699) |
||||||
| Effects of foreign exchange on cash and cash equivalents |
(90) |
(447) |
(1,220) |
(819) |
||||||
| Cash – beginning of period |
43,136 |
34,686 |
32,374 |
29,837 |
||||||
| Cash – end of period |
$ |
33,234 |
$ |
24,319 |
$ |
33,234 |
$ |
24,319 |
||
| Supplemental information |
||||||||||
| Interest paid |
$ |
12,234 |
$ |
10,804 |
$ |
19,663 |
$ |
17,714 |
||
| Income taxes recovered |
$ |
(1,798) |
$ |
(12,563) |
$ |
(3,195) |
$ |
(11,418) |
||
SOURCE Ensign Energy Services Inc.
Michael Gray, Chief Financial Officer, (403) 262-1361.
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