Ensign Energy Services Inc. Reports 2018 Third Quarter Results
CALGARY, Nov. 5, 2018 /CNW/ -
OVERVIEW
Revenue for the third quarter of 2018 was $288.7 million, an increase of 17 percent from revenue for the third quarter of 2017 of $247.1 million. Revenue for the nine months ended September 30, 2018 was $810.2 million, an increase of 11 percent from revenue for the nine months ended September 30, 2017 of $730.6 million. Revenue, net of third party, for the third quarter of 2018 was $254.4 million, an increase of 20 percent from Revenue, net of third party, for the third quarter of 2017 of $211.3 million. Revenue, net of third party, for the nine months ended September 30, 2018 was $713.0 million, an increase of 13 percent from Revenue, net of third party, for the nine months ended September 30, 2017 of $631.9 million.
Adjusted EBITDA totaled $68.6 million ($0.44 per common share) in the third quarter of 2018, 30 percent higher than Adjusted EBITDA of $52.6 million ($0.34 per common share) in the third quarter of 2017. For the first nine months of 2018, Adjusted EBITDA totaled $174.0 million ($1.11 per common share), 18 percent higher than Adjusted EBITDA of $147.0 million ($0.95 per common share) in the first nine months of 2017.
Net loss for the third quarter of 2018 was $32.8 million ($0.21 per common share) compared to a net loss of $36.5 million ($0.23 per common share) for the third quarter of 2017. Net loss for the nine months ended September 30, 2018 was $96.2 million ($0.61 per common share), compared to net loss of $84.1 million ($0.54 per common share) for the nine months ended September 30, 2017.
Funds flow from operations increased 52 percent to $60.4 million ($0.38 per common share) in the third quarter of 2018 compared to $39.6 million ($0.25 per common share) in the third quarter of the prior year. Funds flow from operations increased 25 percent to $162.1 million ($1.03 per common share) in the first nine months of 2018 compared to $129.2 million ($0.83 per common share) in the first nine months of the prior year.
Operating days were higher in the United States and internationally in the third quarter of 2018 when compared to the third quarter in 2017 due to increased demand in oilfield services primarily caused by a price recovery of crude oil and natural gas commodity prices. Operating days were lower in Canada in the third quarter of 2018 when compared to the third 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 $1.29 for the first nine months of 2018 (2017 - $1.31) versus the Canadian dollar.
Gross margin increased to $78.4 million (30.8 percent of Revenue, net of third party) for the third quarter of 2018 compared to gross margin of $61.9 million (29.3 percent of Revenue, net of third party) for the third quarter of 2017. Gross margin increased to $206.3 million (28.9 percent of Revenue, net of third party) for the nine months ended September 30, 2018 compared to a gross margin of $177.7 million (28.1 percent of Revenue, net of third party) for the nine months ended September 30, 2017. The increase in gross margin in the third quarter of 2018 compared to the third quarter of 2017 was primarily attributed to slightly higher revenue rates in the current period, during which effective cost controls were maintained.
Working capital at September 30, 2018 was a deficit of $404.8 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 ($471.7 million due in September 2019) and senior unsecured notes (USD $100 million due in February 2019). The Company's bank credit facilities provide unused and available borrowings of $128.3 million at September 30, 2018, up by $117.1 million, compared to $11.2 million at December 31, 2017. This increase in the unused and available borrowings is the result of a renewal and expanded Global Facility, negotiated during the third quarter of 2018.
FINANCIAL AND OPERATING HIGHLIGHTS
(Unaudited, in thousands of Canadian dollars, except per share data and operating information)
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||||
Revenue |
288,700 |
247,121 |
17 |
810,221 |
730,637 |
11 |
||||||
Revenue, net of third party 1 |
254,424 |
211,299 |
20 |
712,962 |
631,877 |
13 |
||||||
Adjusted EBITDA 2 |
68,641 |
52,600 |
30 |
173,999 |
146,964 |
18 |
||||||
Adjusted EBITDA per share 2 |
||||||||||||
Basic |
$ |
0.44 |
$ |
0.34 |
29 |
$ |
1.11 |
$ |
0.95 |
17 |
||
Diluted |
$ |
0.44 |
$ |
0.33 |
33 |
$ |
1.11 |
$ |
0.94 |
18 |
||
Net loss |
(32,791) |
(36,526) |
10 |
(96,170) |
(84,132) |
(14) |
||||||
Net loss per share |
||||||||||||
Basic |
$ |
(0.21) |
$ |
(0.23) |
(9) |
$ |
(0.61) |
$ |
(0.54) |
(13) |
||
Diluted |
$ |
(0.21) |
$ |
(0.23) |
(9) |
$ |
(0.61) |
$ |
(0.54) |
(13) |
||
Cash provided by operating activities |
51,792 |
32,791 |
58 |
91,096 |
97,023 |
(6) |
||||||
Funds flow from operations 3 |
60,390 |
39,616 |
52 |
162,105 |
129,194 |
25 |
||||||
Funds flow from operations per share 3 |
||||||||||||
Basic |
$ |
0.38 |
$ |
0.25 |
52 |
$ |
1.03 |
$ |
0.83 |
24 |
||
Diluted |
$ |
0.38 |
$ |
0.25 |
52 |
$ |
1.03 |
$ |
0.83 |
24 |
||
Total debt, net of cash |
730,520 |
700,011 |
4 |
730,520 |
700,011 |
4 |
||||||
Weighted average shares - basic (000s) |
156,756 |
156,554 |
— |
156,863 |
155,468 |
1 |
||||||
Weighted average shares - diluted (000s) |
156,911 |
156,836 |
— |
157,021 |
155,859 |
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 |
1,530 |
1,744 |
(12) |
4,311 |
5,210 |
(17) |
||||||
United States |
3,330 |
3,035 |
10 |
9,462 |
7,878 |
20 |
||||||
International 6 |
1,689 |
1,475 |
15 |
4,473 |
4,559 |
(2) |
||||||
Well Servicing |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
||||||
Number of rigs |
||||||||||||
Canada |
62 |
65 |
(5) |
62 |
65 |
(5) |
||||||
United States |
45 |
45 |
— |
45 |
45 |
— |
||||||
Operating hours |
||||||||||||
Canada |
14,607 |
16,763 |
(13) |
44,691 |
53,609 |
(17) |
||||||
United States |
30,349 |
24,962 |
22 |
81,477 |
66,637 |
22 |
||||||
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. |
THIRD QUARTER HIGHLIGHTS
- Revenue for the third quarter of 2018 was $288.7 million, a 17 percent increase from the third quarter of 2017 revenue of $247.1 million.
- Revenue by geographic area:
- Canada - $56.2 million, 19 percent of total;
- United States - $158.1 million, 55 percent of total; and
- International - $74.4 million, 26 percent of total.
- Canadian drilling recorded 1,530 operating days in the third quarter of 2018, a 12 percent decrease from 1,744 operating days in the third quarter of 2017. Canadian well servicing recorded 14,607 operating hours in the third quarter of 2018, a 13 percent decrease from 16,763 operating hours in the third quarter of 2017.
- United States drilling recorded 3,330 operating days in the third quarter of 2018, a 10 percent increase from 3,035 operating days in the third quarter of 2017. United States well servicing recorded 30,349 operating hours in the third quarter of 2018, a 22 percent increase from 24,962 operating hours in the third quarter of 2017.
- International drilling recorded 1,689 operating days in the third quarter of 2018, a 15 percent increase from 1,475 operating days recorded in third quarter of 2017.
- Adjusted EBITDA for the third quarter of 2018 was $68.6 million, a 30 percent increase from Adjusted EBITDA of $52.6 million for the third quarter of 2017. Funds flow from operations for the third quarter of 2018 increased 52 percent to $60.4 million from $39.6 million in third 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 $75 million.
- Due to the current outstanding bid to acquire the shares of Trinidad Drilling Ltd. and committed financing related to the bid, the Company decided to extend the previously announced Global Facility of $600.0 million for one year, instead of three years, maturing in late September 2019.
- The Company declared a third quarter cash dividend on common shares of $0.12 per common share, payable on January 4, 2019.
REVENUE AND OILFIELD SERVICES EXPENSE
Three months ended September 30 |
Nine months ended September 30 |
|||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
||
Revenue |
||||||||
Canada |
56,184 |
63,161 |
(11) |
175,469 |
198,533 |
(12) |
||
United States |
158,077 |
122,046 |
30 |
431,668 |
330,308 |
31 |
||
International |
74,439 |
61,914 |
20 |
203,084 |
201,796 |
1 |
||
Total revenue |
288,700 |
247,121 |
17 |
810,221 |
730,637 |
11 |
||
Revenue, net of third party |
254,424 |
211,299 |
20 |
712,962 |
631,877 |
13 |
||
Oilfield services expense |
210,297 |
185,172 |
14 |
603,917 |
552,950 |
9 |
||
Gross margin |
78,403 |
61,949 |
27 |
206,304 |
177,687 |
16 |
||
Gross margin as a percentage of |
30.8 |
29.3 |
28.9 |
28.1 |
||||
Revenue for the three months ended September 30, 2018 totaled $288.7 million, an increase of 17 percent from the third quarter of 2017 of $247.1 million. Revenue for the nine months ended September 30, 2018 totaled $810.2 million, an 11 percent increase from the nine months ended September 30, 2017. As a percentage of Revenue, net of third party, gross margin for the third quarter of 2018 increased to 31 percent (2017 - 29 percent) and increased to 29 percent for the nine months ended September 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 and internationally, which resulted in higher equipment utilization rates; however, revenues have declined in Canada year-over-year as discussed below. 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 nine 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 $56.2 million for the three months ended September 30, 2018 from $63.2 million for the three months ended September 30, 2017. The Company recorded revenue of $175.5 million in Canada for the nine months ended September 30, 2018, a decrease of 12 percent from $198.5 million recorded for the nine months ended September 30, 2017. Canadian revenues accounted for 19 percent of the Company's total revenue in the third quarter of 2018, compared to 26 percent in the third quarter of 2017. During the nine months ended September 30, 2018, Canadian revenues were 22 percent of the Company's revenue, compared with 27 percent in the nine months ended September 30, 2017.
The Company's Canadian operations recorded 1,530 drilling days in the third quarter of 2018, compared to 1,744 drilling days for the third quarter of 2017, a decrease of 12 percent. For the nine months ended September 30, 2018, the Company recorded 4,311 drilling days compared to 5,210 drilling days for the nine months ended September 30, 2017, a decrease of 17 percent. Canadian well servicing hours decreased by 13 percent to 14,607 operating hours in the third quarter of 2018 compared to 16,763 operating hours in the corresponding period of 2017. For the nine months ended September 30, 2018, well servicing hours decreased by 17 percent to 44,691 operating hours compared with 53,609 operating hours for the nine months ended September 30, 2017.
Despite, the moderate 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 commodity pricing differentials caused by limited access for oil and natural gas to markets.
During the nine months ended September 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 $158.1 million in the third quarter of 2018, an increase of 30 percent from the $122.0 million recorded in the corresponding period of the prior year. During the nine months ended September 30, 2018, revenue of $431.7 million was recorded, an increase of 31 percent from the $330.3 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 55 percent of the Company's revenue in the third quarter of 2018 (2017 - 42 percent) and 53 percent of the Company's revenue in the first nine months of 2018 (2017 - 45 percent).
Drilling rig operating days increased by 10 percent to 3,330 drilling days in the third quarter of 2018 from 3,035 drilling days in the third quarter of 2017. Drilling operating days increased by 20 percent from 7,878 operating days in the first nine months of 2017 to 9,462 operating days in first nine months of 2018. Well servicing activity expressed in operating hours, increased by 22 percent in the third quarter of 2018 to 30,349 operating hours from 24,962 operating hours in the third quarter of 2017. For the nine months ended September 30, 2018 well servicing activity increased 22 percent to 81,477 operating hours from 66,637 operating hours in the first nine 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 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 a weakening of the United States dollar, which decreased one percent versus the Canadian dollar when compared to the three months ending September 30, 2017.
During the nine months of 2018, the Company transferred one ADR® drilling rig from Canada to the United States and deployed two new service rigs to meet increasing demand. The company plans on deploying one more new service rig in the United States during the fourth 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 $74.4 million in the third quarter of 2018, a 20 percent increase from the $61.9 million recorded in the corresponding period of the prior year. International revenues for the nine months ended September 30, 2018, increased one percent to $203.1 million from $201.8 million recorded in the nine months ended September 30, 2017. The Company's international operations contributed 26 percent of the total revenue in the third quarter of 2018 (2017 - 25 percent) and 25 percent of the Company's revenue in the first nine months of 2018 (2017 - 28 percent).
International operating days for the three months ended September 30, 2018, totaled 1,689 drilling days compared to 1,475 drilling days in the same period of 2017, an increase of 15 percent. For the nine months ended September 30, 2018, international operating days totaled 4,473 operating days compared to 4,559 drilling days for the nine months ended September 30, 2017, a decrease of two percent.
The international operations are seeing an increase in activity as the impact of an increased oil and natural gas commodity price is elevates customer demand. Similar to the Company's United States operations, international operations were negatively impacted by the weakening United States dollar year-over-year in the first nine months of 2018, versus the Canadian dollar, on translation into Canadian dollars for reporting purposes compared to the same period of 2017.
DEPRECIATION
Three months ended September 30 |
Nine months ended September 30 |
||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|
Depreciation |
102,427 |
79,208 |
29 |
301,471 |
234,075 |
29 |
|
Depreciation expense totaled $102.4 million for the third quarter of 2018 compared with $79.2 million for the third quarter of 2017, an increase of 29 percent. Depreciation expense for the first nine months of 2018 increased by 29 percent to $301.5 million compared with $234.1 million for the first nine months of 2017. In the first quarter of 2018, the Company reviewed the useful life estimates for all rigs and related equipment and determined that using a straight-line method (versus unit of production) would more accurately reflect the future economic benefits related to these assets. These adjustments were applied prospectively and, as such, have caused an increased depreciation expense in 2018.
GENERAL AND ADMINISTRATIVE EXPENSE
Three months ended September 30 |
Nine months ended September 30 |
||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|
General and administrative |
9,762 |
9,349 |
4 |
32,305 |
30,723 |
5 |
|
% of revenue |
3.4 |
3.8 |
4.0 |
4.2 |
|||
General and administrative expense increased four percent to $9.8 million (3.4 percent of revenue) for the third quarter of 2018 compared to $9.3 million (3.8 percent of revenue) for the third quarter of 2017. For the nine months ended September 30, 2018, general and administrative expense totaled $32.3 million (4.0 percent of revenue) compared to $30.7 million (4.2 percent of revenue) for the nine months ended September 30, 2017. The increase in general and administrative expense is due to timing of certain expenses and increased activity in the United States operations. The Company continues to focus on initiatives to manage costs.
INTEREST EXPENSE
Three months ended September 30 |
Nine months ended September 30 |
||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|
Interest expense |
10,871 |
8,665 |
25 |
30,263 |
26,778 |
13 |
|
Interest is incurred on the Company's $600.0 million global revolving credit facility (the "Global Facility"), the United States dollar $200.0 million senior unsecured notes (the "Notes") issued in February 2012 and convertible debentures issued in the first nine months of 2018. The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense.
Interest expense increased by 13 percent for the first nine months ended September 30, 2018 compared to the same period in 2017 as a result of an increase to the overall interest rate and total debt. The increased interest expense was partially offset by positive translation impact on United States dollar versus the Canadian dollar on a year-over-year basis.
FOREIGN EXCHANGE AND OTHER
Three months ended September 30 |
Nine months ended September 30 |
||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|
Foreign exchange and other |
738 |
8,958 |
(92) |
(22,515) |
4,601 |
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 September 30 |
Nine months ended September 30 |
||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|
Current income tax |
(1,294) |
(3,645) |
(64) |
667 |
(991) |
nm |
|
Deferred income tax |
(12,470) |
(5,526) |
nm |
(42,153) |
(32,992) |
28 |
|
Total income tax |
(13,764) |
(9,171) |
50 |
(41,486) |
(33,983) |
22 |
|
Effective income tax rate (%) |
29.6 |
20.1 |
47 |
30.1 |
28.8 |
5 |
|
nm - calculation not meaningful |
The effective income tax rate for the three months ended September 30, 2018 was 29.6 percent compared to 20.1 percent for the three months ended September 30, 2017. The effective income tax rate for the nine months ended September 30, 2018 was 30.1 percent compared with 28.8 percent for the nine months ended September 30, 2017. The effective tax rate in the first nine months of the current year was higher than the effective tax rate in the first nine months of 2017 due to the impact of foreign tax rates.
FUNDS FROM OPERATIONS AND WORKING CAPITAL
($ thousands, except per share amounts) |
Three months ended September 30 |
Nine months ended September 30 |
|||||||
2018 |
2017 |
% change |
2018 |
2017 |
% change |
||||
Funds from operations |
60,390 |
39,616 |
52 |
162,105 |
129,194 |
25 |
|||
Funds from operations per share |
$0.38 |
$0.25 |
52 |
$ |
1.03 |
$ |
0.83 |
24 |
|
Working capital deficit 1 |
(404,849) |
(342,199) |
18 |
(404,849) |
(342,199) |
18 |
|||
1 Comparative figure as of December 31, 2017 |
During the three months ended September 30, 2018, the Company generated Funds flow from operations of $60.4 million ($0.38 per common share) compared to Funds flow from operations of $39.6 million ($0.25 per common share) for the three months ended September 30, 2017, an increase of 52 percent. For the nine months ended September 30, 2018, the Company generated Funds flow from operations of $162.1 million ($1.03 per common share) an increase of 25 percent from $129.2 million ($0.83 per common share) for the nine months ended September 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 September 30, 2018 the Company's working capital was a deficit of $404.8 million, compared to a working capital deficit of $342.2 million at December 31, 2017. The decrease in working capital in the first nine months of 2018, was mainly related to the financial statements reclassification of a portion of long-term debt ($471.7 million of the Global Facility, due late September 2019 and $129.0 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 $600.0 million, of which $128.3 million was undrawn and available at September 30, 2018. The Company has a $50 million accordion to be included in the existing revolving global facilities but not yet exercised.
INVESTING ACTIVITIES
Three months ended September 30 |
Nine months ended September 30 |
||||||||||||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
|||||||||||
Purchase of property and equipment |
(20,332) |
(20,043) |
1 |
(59,787) |
(98,025) |
(39) |
|||||||||||
Proceeds from disposals of property and equipment |
1,180 |
3,117 |
(62) |
3,348 |
5,539 |
(40) |
|||||||||||
Net change in non-cash working capital |
51 |
(6,452) |
nm |
10,365 |
(1,336) |
nm |
|||||||||||
Cash used in investing activities |
(19,101) |
(23,378) |
(18) |
(46,074) |
(93,822) |
(51) |
|||||||||||
nm - calculation not meaningful |
Net purchases of property and equipment for the third quarter of 2018 totaled $19.2 million (2017 - $16.9 million). Net purchases of property and equipment during the first nine months of 2018 totaled $56.4 million (2017 - $92.5 million). The purchase of property and equipment relates predominantly to maintenance capital for certain drilling rigs, and to construction of four service rigs for the United States.
FINANCING ACTIVITIES
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||||
($ thousands) |
2018 |
2017 |
% change |
2018 |
2017 |
% change |
||||||||||||
Net (decrease) increase in bank credit facilities |
(8,200) |
10,462 |
nm |
(16,944) |
35,801 |
nm |
||||||||||||
Purchase of shares held in trust |
(284) |
(277) |
3 |
(797) |
(823) |
(3) |
||||||||||||
Issuance of convertible debenture |
— |
— |
nm |
37,000 |
0 |
nm |
||||||||||||
Dividends |
(18,849) |
(11,179) |
69 |
(56,547) |
(33,728) |
68 |
||||||||||||
Net change in non-cash working capital |
4,326 |
249 |
nm |
4,030 |
(482) |
nm |
||||||||||||
Cash (used in) provided by financing activities |
(23,007) |
(745) |
nm |
(33,258) |
768 |
nm |
||||||||||||
nm - calculation not meaningful |
The Company's available bank credit facilities consist of a $600.0 million Global Facility. The Global Facility is available to the Company and certain of its wholly-owned subsidiaries and may be drawn in Canadian or United States dollars, up to the equivalent value of $600.0 million Canadian dollars. The Global Facility matures in late September 2019. The Company also has available a $50.0 million accordion in addition to the existing revolving credit facilities if exercised.
During the third quarter of 2018, the Company secured, on a firm, committed basis a $1.3 billion 3-year revolving credit facility and up to US$700.0 million bridge loan financing commitment to be utilized to support the financing of the recently announced takeover bid for Trinidad Drilling Ltd.
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 $16.9 million during the nine months ended September 30, 2018, decreasing the outstanding Global Facility balance. As of September 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 Company also 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 fourth quarter cash dividend of $0.12 per common share to be payable on January 4, 2019 to all Common Shareholders of record as of December 20, 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 nine months ended September 30, 2018, the Company decommissioned three service rigs in Canada and 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 two service rigs 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 two new service rigs for the United States.
OUTLOOK
Industry Overview
The industry continues to recover from the depths of the downturn as oil and natural gas service companies continue to show capital discipline and focus on operating costs and efficiencies. This global recovery is expected to continue albeit at a different pace in each geographic region. Overall, supply and demand for crude oil has continued to tighten globally over the year with West Text Intermediate ("WTI") trading in the range of $65 USD and $77 USD during the quarter and Brent crude oil between $70 USD to $87 USD. The expectation for the remainder of 2018 and for 2019 is for the gap between supply and demand to continue to shrink as production and export issues in certain countries such as Venezuela and Libya as well as sanctions on Iranian crude oil reduce supplies. This strength in oil prices is expected to continue to increase demand for oil field services in certain geographic areas.
Canadian Activity
The recent Federal Court of Appeal's decision to block the construction of the Trans Mountain Pipeline dealt another blow to the Canadian oil and gas industry. The differential for light and heavy Canadian oil to USA light and heavy oil has reached new highs and is starting to severely impact Canadian producers and have an impact on the demand for oil field services in Canada.
Although LNG Canada's decision to move forward with the $40 billion project was a positive announcement in the Canadian market, it is not expected to impact the oil field services market until late 2019 or into 2020.
As of November 1, 2018, 30 percent of the Canadian fleet are engaged on contracts with terms of six months or greater.
United States Activity
The rig count in the United States during the third quarter was relatively flat. The expectation for the rig count in the United States is for it to continue to be flat for the remainder of the year with an increase in 2019 as takeaway capacity grows with new pipelines coming online, specifically in the Permian. Day rates have continued to increase albeit at a lower rate than prior quarters and are expected to continue to increase moderately at a slower pace until the rig count increases meaningful manner.
Of our 67 marketed United States rigs, approximately 60 percent of the fleet are engaged on contracts with terms of six months or greater.
International Activity
The Company expects modest growth for remainder of 2018 with robust growth in the international market in 2019. Nine of our drilling rigs are currently running in Latin America as at November 1, 2018 and that level of activity is expected to be maintained throughout the year with the possibility of a slight increase going into 2019. This increase 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 with the expectation that this will be consistent for the remainder of the year. Revenue day rates and activity levels internationally are expected to increase with four drilling rigs being reactivated during 2019 with increased revenue day rates compared to 2018.
Of the 43 marketed international rig fleet, approximately 45 percent are engaged on contracts with terms of six months or greater.
RISK 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. For a more detailed description of the risk factors and uncertainties that face the Company and the industry in which it operates, refer to the "Risks and Uncertainties" section of our current Management's Discussion & Analysis and the section titled "Risk Factors" in our current Annual Information Form.
CONFERENCE CALL
A conference call will be held to discuss the Company's third quarter 2018 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, November 5, 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 November 12, 2018 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 39462435. A live broadcast may be accessed through the Company's web site at www.ensignenergy.com.
Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI.
Ensign Energy Services Inc.
Consolidated Statements of Financial Position
As at |
September 30 2018 |
December 31 2017 |
||||||
(Unaudited - in thousands of Canadian dollars) |
||||||||
Assets |
||||||||
Current Assets |
||||||||
Cash |
$ |
41,499 |
$ |
32,374 |
||||
Accounts receivable |
221,947 |
232,155 |
||||||
Inventories, investments and other |
102,187 |
92,424 |
||||||
Income taxes receivable |
3,556 |
3,546 |
||||||
Total current assets |
369,189 |
360,499 |
||||||
Property and equipment |
2,393,600 |
2,597,966 |
||||||
Total assets |
$ |
2,762,789 |
$ |
2,958,465 |
||||
Liabilities |
||||||||
Current Liabilities |
||||||||
Accounts payable and accruals |
$ |
151,022 |
$ |
190,152 |
||||
Dividends payable |
18,849 |
18,849 |
||||||
Share-based compensation |
3,289 |
3,021 |
||||||
Income taxes payable |
398 |
3,419 |
||||||
Current portion of long-term debt |
600,480 |
487,257 |
||||||
Total current liabilities |
774,038 |
702,698 |
||||||
Long-term debt |
171,539 |
252,676 |
||||||
Share-based compensation |
2,990 |
2,708 |
||||||
Deferred income taxes |
274,898 |
311,007 |
||||||
Total liabilities |
1,223,465 |
1,269,089 |
||||||
Shareholders' Equity |
||||||||
Share capital |
206,578 |
206,042 |
||||||
Contributed surplus |
639 |
1,126 |
||||||
Equity component of convertible debenture |
3,193 |
— |
||||||
Foreign currency translation reserve |
250,089 |
237,885 |
||||||
Retained earnings |
1,078,825 |
1,244,323 |
||||||
Total shareholders' equity |
1,539,324 |
1,689,376 |
||||||
Total liabilities and shareholders' equity |
$ |
2,762,789 |
$ |
2,958,465 |
||||
Ensign Energy Services Inc.
Consolidated Statements of Loss
Three months ended |
Nine months ended |
|||||||||||||||
September 30 2018 |
September 30 2017 |
September 30 2018 |
September 30 2017 |
|||||||||||||
(Unaudited - in thousands of Canadian dollars, except per share data) |
||||||||||||||||
Revenue |
$ |
288,700 |
$ |
247,121 |
$ |
810,221 |
$ |
730,637 |
||||||||
Expenses |
||||||||||||||||
Oilfield services |
210,297 |
185,172 |
603,917 |
552,950 |
||||||||||||
Depreciation |
102,427 |
79,208 |
301,471 |
234,075 |
||||||||||||
General and administrative |
9,762 |
9,349 |
32,305 |
30,723 |
||||||||||||
Share-based compensation |
1,160 |
1,466 |
2,436 |
(375) |
||||||||||||
Foreign exchange and other |
738 |
8,958 |
(22,515) |
4,601 |
||||||||||||
Total expenses |
324,384 |
284,153 |
917,614 |
821,974 |
||||||||||||
Loss before interest and income taxes |
(35,684) |
(37,032) |
(107,393) |
(91,337) |
||||||||||||
Interest expense |
10,871 |
8,665 |
30,263 |
26,778 |
||||||||||||
Loss before income taxes |
(46,555) |
(45,697) |
(137,656) |
(118,115) |
||||||||||||
Income taxes |
||||||||||||||||
Current tax |
(1,294) |
(3,645) |
667 |
(991) |
||||||||||||
Deferred tax |
(12,470) |
(5,526) |
(42,153) |
(32,992) |
||||||||||||
Total income taxes |
(13,764) |
(9,171) |
(41,486) |
(33,983) |
||||||||||||
Net loss |
$ |
(32,791) |
$ |
(36,526) |
$ |
(96,170) |
$ |
(84,132) |
||||||||
Net loss per share |
||||||||||||||||
Basic |
$ |
(0.21) |
$ |
(0.23) |
$ |
(0.61) |
$ |
(0.54) |
||||||||
Diluted |
$ |
(0.21) |
$ |
(0.23) |
$ |
(0.61) |
$ |
(0.54) |
||||||||
Ensign Energy Services Inc.
Consolidated Statements of Cash Flows
Three months ended |
Nine months ended |
|||||||||||||||
September 30 2018 |
September 30 2017 |
September 30 2018 |
September 30 2017 |
|||||||||||||
(Unaudited - in thousands of Canadian dollars) |
||||||||||||||||
Cash provided by (used in) |
||||||||||||||||
Operating activities |
||||||||||||||||
Net loss |
$ |
(32,791) |
$ |
(36,526) |
$ |
(96,170) |
$ |
(84,132) |
||||||||
Items not affecting cash |
||||||||||||||||
Depreciation |
102,427 |
79,208 |
301,471 |
234,075 |
||||||||||||
Share-based compensation, net of cash paid |
1,160 |
1,659 |
2,436 |
(667) |
||||||||||||
Unrealized foreign exchange and other |
1,737 |
750 |
(3,830) |
12,604 |
||||||||||||
Accretion on long-term debt |
327 |
51 |
351 |
306 |
||||||||||||
Deferred income tax |
(12,470) |
(5,526) |
(42,153) |
(32,992) |
||||||||||||
Funds flow from operations |
60,390 |
39,616 |
162,105 |
129,194 |
||||||||||||
Net change in non-cash working capital |
(8,598) |
(6,825) |
(71,009) |
(32,171) |
||||||||||||
Cash provided by operating activities |
51,792 |
32,791 |
91,096 |
97,023 |
||||||||||||
Investing activities |
||||||||||||||||
Purchase of property and equipment |
(20,332) |
(20,043) |
(59,787) |
(98,025) |
||||||||||||
Proceeds from disposals of property and equipment |
1,180 |
3,117 |
3,348 |
5,539 |
||||||||||||
Net change in non-cash working capital |
51 |
(6,452) |
10,365 |
(1,336) |
||||||||||||
Cash used in investing activities |
(19,101) |
(23,378) |
(46,074) |
(93,822) |
||||||||||||
Financing activities |
||||||||||||||||
Net (decrease) increase in bank credit facilities |
(8,200) |
10,462 |
(16,944) |
35,801 |
||||||||||||
Purchase of shares held in trust |
(284) |
(277) |
(797) |
(823) |
||||||||||||
Issuance of convertible debenture |
— |
— |
37,000 |
— |
||||||||||||
Dividends |
(18,849) |
(11,179) |
(56,547) |
(33,728) |
||||||||||||
Net change in non-cash working capital |
4,326 |
249 |
4,030 |
(482) |
||||||||||||
Cash (used in) provided by financing activities |
(23,007) |
(745) |
(33,258) |
768 |
||||||||||||
Net increase in cash and cash equivalents |
9,684 |
8,668 |
11,764 |
3,969 |
||||||||||||
Effects of foreign exchange on cash and cash equivalents |
(1,419) |
(1,328) |
(2,639) |
(2,147) |
||||||||||||
Cash – beginning of period |
33,234 |
24,319 |
32,374 |
29,837 |
||||||||||||
Cash – end of period |
$ |
41,499 |
$ |
31,659 |
$ |
41,499 |
$ |
31,659 |
||||||||
Supplemental information |
||||||||||||||||
Interest paid |
$ |
6,546 |
$ |
7,096 |
$ |
26,209 |
$ |
24,810 |
||||||||
Income taxes recovered |
$ |
(503) |
$ |
(6,418) |
$ |
(3,698) |
$ |
(17,836) |
||||||||
SOURCE Ensign Energy Services Inc.
Michael Gray, Chief Financial Officer, (403) 262-1361
Share this article