Ensign Energy Services Reports Second Quarter Earnings



    CALGARY, Aug. 7 /CNW/ -

    Overview

    Ensign Energy Services Inc. (the "Company") reports net income of
$25.1 million ($0.16 per common share) for the second quarter of 2007 compared
with $46.6 million ($0.31 per common share) for the second quarter of 2006, a
decrease of 46 percent. For the six months ended June 30, 2007, net income
totaled $127.5 million ($0.84 per common share), a decrease of 27 percent from
net income of $174.5 million ($1.15 per common share) recorded in the first
six months of 2006. A large portion of the year-over-year decrease in net
income is due to one-time income tax adjustments, including an $11.5 million
reduction in future income taxes in the second quarter of 2006 associated with
income tax rate reductions in Canada, a charge of $4.0 million in the second
quarter of 2007 related to Omani tax assessments, net of the impact of further
rate reductions in Canada of $2.2 million recorded in the second quarter of
2007. Operating earnings (expressed as EBITDA as defined below) for the second
quarter of 2007 totaled $70.7 million ($0.46 per common share) compared with
$81.8 million ($0.54 per common share) recorded in the second quarter of 2006,
a decline of 14 percent. EBITDA for the six months ended June 30, 2007 was
$256.1 million, a decrease of 18 percent from EBITDA of $311.7 million for the
first six months of the prior year.
    The financial results for the second quarter of 2007 reflect weaker
quarter-over-quarter results from the Company's Canadian oilfield services
division, partially offset by growth in the United States operations and
steady results from the international segment. Although impacted by seasonal
spring break-up conditions in Canada and wet weather in certain operating
areas, weak demand for natural gas related oilfield services was the
predominant factor negatively impacting utilization and pricing in Canada in
the second quarter of 2007. Partially offsetting weakness in the Canadian
market, the United States oilfield services division reported growth in both
revenue and operating margins in the second quarter of 2007 compared with the
second quarter of 2006, reflecting positive contributions from an expanded
drilling rig fleet.

    
    -------------------------------------------------------------------------
    FINANCIAL AND OPERATING HIGHLIGHTS
    ($ thousands, except per share data and operating information)
    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                      June 30                  June 30
    -------------------------------------------------------------------------
                                                    %                       %
                                 2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Revenue                   296,539  357,545   (17) 806,024  925,544   (13)
    -------------------------------------------------------------------------
    EBITDA(1)                  70,686   81,757   (14) 256,105  311,676   (18)
    EBITDA per share(1)
      Basic                     $0.46    $0.54   (15)   $1.68    $2.05   (18)
      Diluted                   $0.45    $0.52   (13)   $1.65    $1.98   (17)
    -------------------------------------------------------------------------
    Adjusted net income(2)     26,010   53,470   (51) 132,070  182,918   (28)
    Adjusted net income
     per share(2)
      Basic                     $0.17    $0.35   (51)   $0.87    $1.21   (28)
      Diluted                   $0.17    $0.34   (50)   $0.85    $1.16   (27)
    -------------------------------------------------------------------------
    Net income                 25,135   46,646   (46) 127,456  174,496   (27)
    Net income per share
      Basic                     $0.16    $0.31   (48)   $0.84    $1.15   (27)
      Diluted                   $0.16    $0.30   (47)   $0.82    $1.11   (26)
    -------------------------------------------------------------------------
    Funds from operations(3)   39,879   55,836   (29) 157,486  210,941   (25)
    Funds from operations
     per share(3)
      Basic                     $0.26    $0.37   (30)   $1.03    $1.39   (26)
      Diluted                   $0.26    $0.35   (26)   $1.01    $1.34   (25)
    -------------------------------------------------------------------------
    Weighted average shares -
     basic (000s)             152,494  151,721     1  152,425  151,669     -
    Weighted average shares -
     diluted (000s)           155,796  157,593    (1) 155,557  157,258    (1)
    -------------------------------------------------------------------------
    Drilling
      Number of marketed rigs
        Canada
          Conventional            162      161     1      162      161     1
          Oil sands coring/
           coal-bed methane        31       21    48       31       21    48

        United States              71       64    11       71       64    11
        International(4)           49       47     4       49       47     4
      Operating days
        Canada                  3,173    5,150   (38)  12,348   17,035   (28)
        United States           4,674    4,559     3    9,153    8,979     2
        International           2,294    2,193     5    4,655    4,560     2
    -------------------------------------------------------------------------
    Well Servicing
      Number of marketed
       rigs/units
        Canada                    113      116    (3)     113      116    (3)
        United States              12        8    50       12        8    50
      Operating hours
        Canada                 30,994   41,218   (25)  90,225  109,564   (18)
        United States           6,423    5,274    22   12,386   10,709    16
    -------------------------------------------------------------------------
    (1) EBITDA is defined as "income before interest expense, income taxes,
        depreciation and stock-based compensation expense". Management
        believes that in addition to net income, EBITDA and EBITDA per share
        are useful supplemental measures as they provide an indication of the
        results generated by the Company's principal business activities
        prior to consideration of how these activities are financed, how the
        results are taxed in various jurisdictions or how the results are
        impacted by the accounting standards associated with the Company's
        stock-based compensation plans. EBITDA and EBITDA per share as
        defined above are not recognized measures under Canadian generally
        accepted accounting principles and accordingly may not be comparable
        to measures used by other companies.
    (2) Adjusted net income is defined as "net income before stock-based
        compensation expense, tax-effected using an income tax rate of 35%".
        Adjusted net income and adjusted net income per share are useful
        supplemental measures as they provide an indication of the results
        generated by the Company's principal business activities prior to
        consideration of how the results are impacted by the accounting
        standards associated with the Company's stock-based compensation
        plans, net of income taxes. Adjusted net income and adjusted net
        income per share as defined above are not recognized measures under
        Canadian generally accepted accounting principles and accordingly may
        not be comparable to measures used by other companies.
    (3) Funds from operations is defined as "cash provided by operating
        activities before the change in non-cash working capital". Funds from
        operations and funds from operations per share are measures that
        provide shareholders and potential investors with additional
        information regarding the Company's liquidity and its ability to
        generate funds to finance its operations. Management utilizes these
        measures to assess the Company's ability to finance operating
        activities and capital expenditures. Funds from operations and funds
        from operations per share are not measures that have any standardized
        meaning prescribed by Canadian generally accepted accounting
        principles and accordingly may not be comparable to similar measures
        used by other companies.
    (4) Includes workover rigs.


    Revenue and Oilfield Services Expense

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Revenue
      Canada                  110,544  179,381   (38) 423,158  571,937   (26)
      United States           130,884  122,058     7  267,631  244,575     9
      International            55,111   56,106    (2) 115,235  109,032     6
                          ---------------------------------------------------
                              296,539  357,545   (17) 806,024  925,544   (13)
    Oilfield services
     expense                  213,057  263,550   (19) 522,881  588,553   (11)
                          ---------------------------------------------------
                               83,482   93,995   (11) 283,143  336,991   (16)
                          ---------------------------------------------------
    Gross margin                28.2%    26.3%          35.1%    36.4%
    -------------------------------------------------------------------------
    

    Revenue generated by the Canadian oilfield services division declined
38 percent in the second quarter of 2007 and 26 percent in the six months
ended June 30, 2007 compared with the corresponding periods of 2006. In
addition to seasonal fluctuations caused by spring break-up, the Company's
Canadian oilfield services division experienced declines in equipment
utilization levels in the second quarter of 2007 stemming from soft demand and
significant uncertainty surrounding natural gas commodity prices. Concerns
over natural gas commodity prices have prevailed throughout the first
six months of 2007 and have negatively impacted capital spending by the
Company's customers, particularly in the shallow natural gas and coal bed
methane markets. The Company's diverse product offerings and strong presence
in key oil regions in Western Canada have somewhat mitigated the declining
demand for natural gas drilling services. However, equipment utilization
levels in Canada will continue to be impacted in the near future as the
industry as a whole grapples with an over-supply of equipment that has
resulted from significant additions of equipment to this market in recent
years.
    The ongoing expansion of the Company's United States drilling rig fleet
had a positive impact on the Company's year-to-date financial results in 2007.
Revenue generated by the United States oilfield services divisions in the
second quarter of 2007 and in the six months ended June 30, 2007 increased
seven percent and nine percent, respectively, over the corresponding periods
of 2006. In addition to the three new Automated Drill Rigs ("ADRs") that
commenced operations in the first quarter of 2007, a further five ADRs were
completed and placed into service under term contracts in the second quarter
of 2007. The Company's proprietary ADR technology has been well-received by
customers in the Rocky Mountain and California regions, and the delivery of
five additional ADRs throughout the remainder of 2007 will further bolster the
Company's United States drilling rig fleet and diversify its service offerings
to customers in that market. The Company's strategic focus on the United
States oilfield services market has successfully diversified the Company's
operations in North America and has served to reduce its exposure to the
seasonal operating environment in Canada. For the first time in the Company's
history, quarterly revenues generated by the United States oilfield services
division have exceeded those generated in Canada.
    The Company's international oilfield services division continues to
deliver stable financial results. During the three months ended June 30, 2007,
revenue for the international oilfield services division totaled $55.1 million
compared with $56.1 million for the three months ended June 30, 2006, a
decline of two percent. For the six months ended June 30, 2007, the
international oilfield services division recorded a six percent growth in
revenue compared with the six months ended June 30, 2006. The Company
continues to experience demand for additional equipment in several
international markets and is expanding its drilling rig fleet in several key
oil markets. As a result, the Company was in the process of relocating two
drilling rigs from Canada to Australia during the second quarter of 2007, and
is also modernizing its equipment fleet based in the Middle East and Africa
with the refurbishment of two drilling rigs and the upgrade and reactivation
of one previously idle drilling rig.
    For the three months ended June 30, 2007, oilfield services expense
declined 19 percent compared with the three months ended June 30, 2006. The
decline in oilfield services expense on a quarter-over-quarter basis is the
result of declining operating activity levels in Canada but is also a
reflection of cost control measures implemented by the Company well in advance
of the market downturn in Canada. Gross margin as a percentage of revenue was
28.2 percent for the second quarter of 2007 compared with 26.3 percent for the
second quarter of 2006. The improvement in gross margin is partially the
result of careful management of discretionary spending by the Company during a
period of declining demand. Gross margin in the second quarter of any given
fiscal year will lag that recorded on a year-to-date basis as it is during
this period that the majority of the annual scheduled maintenance activities
are completed by the Canadian oilfield services division.

    
    Depreciation

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Depreciation               19,603   16,918    16   42,910   40,008     7
    -------------------------------------------------------------------------
    

    Depreciation expense totaled $19.6 million for the second quarter of 2007
compared with $16.9 million for the second quarter of 2006. Although operating
activity levels in the three months ended June 30, 2007 declined compared with
the same period of 2006, depreciation expense increased due to a higher
capital asset base associated with the Company's rig building program.
Similarly, depreciation expense increased to $42.9 million for the six months
ended June 30, 2007 compared with $40.0 million for the six-month period ended
June 30, 2006, despite a decline in operating activity over this same period.
Depreciation expense on a per day basis has increased as the Company has
introduced newly constructed and higher valued assets to its equipment fleet.

    
    General and Administrative Expense

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    General and
     administrative            12,796   12,238     5   27,038   25,315     7
    % of revenue                 4.3%     3.4%           3.4%     2.7%
    -------------------------------------------------------------------------
    

    As a percentage of revenue, general and administrative expense for the
second quarter of 2007 was 4.3 percent compared with 3.4 percent for the
second quarter of 2006. On a year-to-date basis, general and administrative
expense expressed as a percentage of revenue was 3.4 percent in 2007 compared
with 2.7 percent in 2006. As a percentage of revenue, general and
administrative expense is typically higher during the second quarter compared
with other periods of the year, as revenue levels decline during this period
as a result of spring break-up conditions in Canada. On a gross dollar basis,
general and administrative expense has increased due to the Company's expanded
operations in the United States.

    
    Stock-Based Compensation Expense

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Stock-based compensation    1,346   10,498   (87)   7,098   12,957   (45)
    -------------------------------------------------------------------------
    

    Stock-based compensation expense arises from the intrinsic value
accounting of the Company's stock option plan, whereby the liability
associated with stock-based compensation is adjusted on a quarterly basis for
the effect of vesting of stock options and changes in the underlying price of
the Company's common shares. Stock-based compensation expense for the second
quarter of 2007 is comprised of $1.7 million for additional vesting of stock
options (net of forfeitures), net of a $0.4 million decrease associated with a
decline in the price of the Company's common shares. For the six-month period
ended June 30, 2007, stock-based compensation expense is comprised of
$3.6 million for additional granting and vesting of stock options,
$5.4 million related to the increase in the price of the Company's common
shares, net of a recovery of $1.9 million due to forfeitures during the
period. The price of the Company's common shares was $19.00 at June 30, 2007
compared with $19.35 at March 31, 2007 and $18.39 at December 31, 2006.

    
    Interest Expense

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Interest                    1,962    1,010    94    2,905    2,737     6
    -------------------------------------------------------------------------
    

    Interest expense is incurred on the Company's operating lines of credit.
The increase in interest expense on a period-over-period basis is due to an
increase in the average balance outstanding of the Company's operating lines
of credit based in the United States and Australia, which are being used to
finance capital expenditure activities and expanded operations. These
increases were partially offset by a decline in the utilized balance on the
Canadian-based credit facility.

    
    Income Taxes

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Current income tax         25,073   13,729    83   81,832   71,565    14
    Future income tax          (2,433)  (7,044)  (65)  (6,096)   9,913  (161)
                          ---------------------------------------------------
                               22,640    6,685   239   75,736   81,478    (7)
                          ---------------------------------------------------
    Effective income
     tax rate (%)               47.4%    12.5%          37.3%    31.8%
    -------------------------------------------------------------------------
    

    The effective income tax rate for the second quarter of 2007 was
47.4 percent compared with 12.5 percent in the second quarter of 2006. For the
six months ended June 30, 2007, the effective income tax rate was 37.3 percent
compared with 31.8 percent for the six months ended June 30, 2006. The
significant reduction in the Company's effective income tax rate in the three
months and six months ended June 30, 2006 is due to the recognition of
substantively enacted income tax rate reductions in Canada in the second
quarter of 2006. During the second quarter of 2006, a one-time reduction in
the Company's opening future income tax liability of $11.5 million was
recognized.
    Current income tax expense for the three and six months ended June 30,
2007 includes $4.0 million related to Omani tax assessments. As previously
disclosed, the Company's Oman operating entity was appealing income tax
assessments received for the 1994, 1995 and 1996 financial years. The Company
was appealing these assessments on the basis that they were without merit
under Omani law; however, the Company's appeal was dismissed by the Omani
courts during the three months ended June 30, 2007. Excluding the impact of
the Omani tax assessments, the effective income tax rate would have been
39.0 percent for the second quarter of 2007 and 35.3 percent for the
six months ended June 30, 2007.
    The future income tax recovery in 2007 is due to partnership timing
differences and an income tax rate reduction in Canada. Taxable income
generated in Canadian partnerships was a significant component of the future
income tax liability as at December 31, 2006. This balance has declined as of
June 30, 2007 due to the decline in income generated by Canadian partnerships.
Also, a further income tax rate reduction in Canada of 0.5 percent was enacted
in the second quarter of 2007. The application of this rate reduction on
opening future income tax balances resulted in a one-time reduction in the
Company's opening net future income tax liability of $2.2 million.

    Financial Position

    The following chart outlines significant changes in the consolidated
balance sheets from December 31, 2006 to June 30, 2007:

    
    ($ thousands)              Change      Explanation
    -------------------------------------------------------------------------
    Cash and                   (4,639)     See consolidated statement of cash
     cash equivalents                      flows.
    Accounts receivable      (122,330)     Decrease due to the reduction in
                                           operating activity in the
                                           second quarter of 2007 as a result
                                           of spring break-up and reduced
                                           demand in Canada.
    Inventory and other         6,700      Increase due to additions to drill
                                           pipe inventory.
    Property and equipment     79,147      Increase due to ongoing capital
                                           expenditures and equipment under
                                           construction, offset by
                                           depreciation for the period.
    Accounts payable and      (66,002)     Decrease due to the reduction in
     accrued liabilities                   operating activity in the second
                                           quarter of 2007 as a result of
                                           spring break-up and reduced demand
                                           in Canada.
    Operating lines of credit  (5,868)     Decrease due to net repayments in
                                           Canada during the period, net of
                                           increases in the United States and
                                           Australian-based operating lines
                                           of credit.
    Stock-based compensation   (9,697)     Decrease due to stock option
                                           exercises and forfeitures, net of
                                           the increase associated with
                                           additional vesting and share price
                                           increases.
    Income taxes payable      (22,091)     Decrease due to income tax
                                           instalments, net of the current
                                           income tax provision for the
                                           period.
    Dividends payable              46      Increase due to a slight increase
                                           in the number of outstanding
                                           common shares compared with the
                                           fourth quarter of 2006.
    Future income taxes        (7,518)     Decrease due to the future income
                                           tax recovery in the period as well
                                           as an income tax rate reduction in
                                           Canada.
    Shareholders' equity       70,008      Increase due to the aggregate
                                           impact of net income for the
                                           period, increase in capital stock
                                           due to exercises of employee stock
                                           options, impact of foreign
                                           exchange rate fluctuations on net
                                           assets of foreign self-sustaining
                                           subsidiaries, less dividends
                                           declared in the period.
    -------------------------------------------------------------------------


    Working Capital and Funds from Operations

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Funds from operations      39,879   55,836   (29) 157,486  210,941   (25)
    Funds from operations
     per share                  $0.26    $0.37   (30)   $1.03    $1.39   (26)
    Working capital(1)         37,829   63,162   (40)  37,829   63,162   (40)
    -------------------------------------------------------------------------
    (1) Comparative figures as of December 31, 2006.
    

    During the three months ended June 20, 2007, the Company generated funds
from operations of $39.9 million ($0.26 per common share) compared with funds
from operations of $55.8 million ($0.37 per common share) for the three months
ended June 30, 2006, a decline of 29 percent. Funds from operations totaled
$157.5 million ($1.03 per common share) in the first six months of 2007, a
decline of 25 percent from funds from operations of $210.9 million ($1.39 per
common share) generated in the six months ended June 30, 2006. The decline
from the record levels of funds from operations generated in 2006 is
predominantly due to a reduction in operating activity and compressed margins
in the Company's Canadian oilfield services division on a period-over-period
basis. Compared to the corresponding periods of 2006, reduced oilfield
services activity in Canada in both the three months and six months ended
June 30, 2007 was partially offset by steady activity levels generated by the
Company's United States oilfield services division.
    At June 30, 2007, the Company had a positive working capital position of
$37.8 million compared with positive working capital of $63.2 million at
December 31, 2006. As of June 30, 2007, the Company continues to operate with
no long-term debt. The Company's strong balance sheet enables the Company to
face the challenges associated with operating in a cyclical industry and to
pursue potential growth opportunities as they may arise.

    
    Investing Activities

                               Three months ended        Six months ended
                                     June 30                  June 30
                        -----------------------------------------------------
                                                 %                          %
    ($ thousands)           2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Net purchase of
     property and
     equipment           (67,509)  (74,535)    (9) (161,117) (165,105)    (2)
    Net change in
     non-cash
     working capital     (22,138)    6,491   (441)  (26,401)   (1,046) 2,424
                        -----------------------------------------------------
    Cash used in
     investing
     activities          (89,647)  (68,044)    32  (187,518) (166,151)    13
    -------------------------------------------------------------------------
    

    Construction activity was ongoing during the first half of 2007,
particularly within the Company's United States oilfield services division.
During the second quarter of 2007, the construction of five new ADRs was
completed. A total of eight new ADRs were placed into service in the United
States in the first six months of 2007. The five remaining ADRs from the
Company's previously announced 13 ADR(TM) rig-building program are under
construction and will be completed and placed into service at a rate of
approximately one per month from August to December 2007.
    Capital expenditure activity in Canada in the second quarter of 2007
included the addition of a newly constructed triple drilling rig to its fleet
of equipment based in southeastern Saskatchewan. Two slant well servicing rigs
are under construction for delivery in August 2007. Other major expenditures
in Canada in 2007 include the addition of nine oil sands coring rigs in the
first quarter of 2007. Within the international arena, the Company is
currently refurbishing two drilling rigs for operations in the Middle East and
reactivating one previously idle drilling rig for operations in north Africa.
One of the three drilling rigs being refurbished for international operations
is expected to be operational in the third quarter of 2007, with the remaining
two drilling rigs expected to be complete by the end of the fourth quarter of
2007.
    Other equipment movements during the second quarter of 2007 include the
transfer of two drilling rigs from the Canadian fleet of equipment to
Australia. One well servicing rig was also transferred from Canada to the
Rocky Mountain region of the United States during the second quarter of 2007.
These movements demonstrate the Company's ability to leverage its established
operational bases around the globe and to relocate under utilized equipment to
areas of higher demand.

    
    Financing Activities

                                 Three months ended       Six months ended
                                      June 30                  June 30
                          ---------------------------------------------------
                                                    %                       %
    ($ thousands)                2007     2006 change    2007     2006 change
    -------------------------------------------------------------------------
    Net decrease in
     operating lines
     of credit                (45,112) (80,226)  (44)  (5,868) (81,946)  (93)
    Issue of capital stock        840      711    18    1,666    2,511   (34)
    Dividends                 (12,201) (11,381)    7  (24,389) (18,964)   29
    Net change in non-cash
     working capital               13    3,798  (100)      46    3,815   (99)
                          ---------------------------------------------------
    Cash (used in) provided
     by financing activities  (56,460) (87,098)  (35) (28,545) (94,584)  (70)
    -------------------------------------------------------------------------
    

    The Company decreased the utilized balance of its operating lines of
credit during both the three months and six months ended June 30, 2007. Net
repayments made by the Company's Canadian oilfield services divisions were
offset by increases in the United States and Australian-based operating lines
of credit. During the first quarter of 2007, the Company amended the terms of
its United States-based operating line of credit and increased the amount
available to US$50.0 million. The increased credit facility is being used to
finance the Company's new build projects and support its expanded operations
in the United States.
    Other financing activities during the second quarter of 2007 include the
receipt of $0.8 million on the exercise of employee stock options and the
payment of dividends in the amount of $12.2 million. Dividends were declared
at a quarterly dividend rate of $0.08 per common share for the three months
ended June 30, 2007, an increase of seven percent over the second quarter of
2006. For the six months ended June 30, 2007, cash received on employee stock
option exercises totaled $1.7 million and dividends totaled $24.4 million.
During the first six months of 2007, the Company declared year-to-date
dividends totaling $0.16 per common share compared with $0.125 during the
first six months of 2006. All dividends paid by the Company subsequent to
January 1, 2006 qualify as an eligible dividend, as defined by subsection
89(1) of the Canadian Income Tax Act.

    Outlook

    To keep things in perspective, it should be noted that Ensign's financial
results for the three months and six months ended June 30, 2007 were the
second best ever recorded by the Company for such fiscal periods. While the
results were down significantly from the record financial results of one year
ago, they do reflect the strength of its operations and employees and the
continued growth of the Company and, in particular, show the importance of the
geographic diversification that has been quietly occurring over the past
several years. Ensign's growth in the United States market has been very
timely and the investments in the international market will prove themselves
out over time as exploration and production companies further expand their
search for supplies of crude oil and natural gas.
    The Company is currently operating about 50 percent of its Canadian
drilling rig fleet as demand for oilfield services has improved following the
spring "break up" quarter in Canada. Unfortunately, pricing has reduced
significantly due to the over-supply of equipment in the Canadian market.
Consequently, Ensign's Canadian margins have eroded as the Company endeavors
to maintain its market share in a difficult environment. This weakness is
expected to continue in the Canadian market given the current sentiment
associated with the exploration and development of natural gas as reflected in
current prices for the commodity.
    Ensign's United States operations continue to grow led by the newest
generation of the ADR(TM) drilling rigs being constructed and delivered
pursuant to term contracts during the 2007 fiscal year. As expected, the
Company's operations in the Rocky Mountain region have started to show some
signs of weakness as a result of the weakening fundamentals for natural gas in
North America. However, the impact is far less than that experienced in
Canada, owing to the more favorable economics associated with the
non-conventional natural gas development plays that appear to be driving the
demand for oilfield services in the Rocky Mountain region of the United
States. The California operation is primarily oil focused and, as such, is
experiencing stable levels of demand along with isolated opportunities for
growth, supported by the current market price for crude oil.
    The international operations continue to show modest levels of
improvement. The Company is currently refurbishing two deep capacity drilling
rigs for the Middle East market, another deep capacity drilling rig for north
Africa and is in the process of redeploying two ADR(TM) drilling rigs from
Canada to Australia under term contracts. These new projects will not likely
have a meaningful impact on Ensign's international operations until the 2008
fiscal year due to the timing of the required drilling rig construction and
mobilization to their new locations. Additionally, the Company continues to
look for ways to improve the financial contributions from existing operations.
    Ensign has geographically diversified its operations over the years;
however, Canada remains an important market segment for the Company. While
crude oil related activity has remained relatively strong owing to the current
level of crude oil commodity prices, the overall level of oilfield activity in
Canada is very dependent on the demand for oilfield services associated with
the exploration and production of natural gas. Current natural gas supply and
demand fundamentals are not very compelling as inventory storage levels in
North America are likely to reach record storage levels before the upcoming
heating season. This "excess" inventory is reflected in the current prices for
natural gas, making natural gas exploration and development less economic for
the Company's customers. The Company does not expect a recovery in Canada
until there is an improvement in natural gas supply and demand fundamentals.
In time the market will correct this supply imbalance. In the interim, Ensign
is financially strong and is not only prepared to weather the storm, but is
well situated to take advantage of opportunities that inevitably occur during
such parts of the commodity cycle.

    Risks and Uncertainties

    This document contains forward-looking statements based upon current
expectations that involve a number of business risks and uncertainties. The
factors that could cause results to differ materially include, but are not
limited to, political and economic conditions, crude oil and natural gas
prices, foreign currency fluctuations, weather conditions and the ability of
oil and natural gas companies to raise capital or other unforeseen conditions
which could have an impact on the demand for services supplied by the Company.

    
                           (*)       (*)       (*)
    

    A conference call will be held to discuss the Company's first quarter
results at 2:00 p.m. MDT (4:00 p.m. EDT) on Tuesday, August 7, 2007. The
conference call number is 1-800-588-4942. A taped recording will be available
until August 14, 2007 by dialing 1-877-289-8525 and entering reservation
number 21242934 followed by the number sign. A live broadcast may be accessed
through the Company's web site at www.ensignenergy.com.

    Ensign Energy Services Inc. is an international oilfield services
contractor and is listed on the Toronto Stock Exchange under the trading
symbol ESI.



    
    CONSOLIDATED BALANCE SHEETS
    As at June 30, 2007 and December 31, 2006
    (in thousands of dollars)

                                                  June 30       December 31
                                                    2007            2006
                                                    ----            ----
                                                (Unaudited)
    Assets

    Current assets
    Cash and cash equivalents                 $        9,931  $       14,570
    Accounts receivable                              242,745         365,075
    Inventory and other                               83,928          77,228
    Future income taxes                               10,537          11,010
                                               ------------------------------

                                                     347,141         467,883

    Property and equipment                         1,373,413       1,294,266
                                               ------------------------------

                                              $    1,720,554  $    1,762,149
                                               ------------------------------
                                               ------------------------------
    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities  $      175,974  $      241,976
    Operating lines of credit                         64,121          69,989
    Current portion of stock-based compensation       32,324          33,818
    Income taxes payable                              24,692          46,783
    Dividends payable                                 12,201          12,155
                                               ------------------------------

                                                     309,312         404,721

    Stock-based compensation                           9,796          17,999

    Future income taxes                              223,833         231,824
                                               ------------------------------

                                                     542,941         654,544
                                               ------------------------------

    Shareholders' Equity

    Capital stock (note 2)                           159,416         154,838
    Accumulated other comprehensive income
     (note 1)                                        (58,514)        (20,163)
    Retained earnings                              1,076,711         972,930
                                               ------------------------------

    Contingencies and commitments (note 5)
                                                   1,177,613       1,107,605
                                               ------------------------------

                                              $    1,720,554  $    1,762,149
                                               ------------------------------
                                               ------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    (Unaudited - in thousands of dollars, except per share data)

                                 Three months ended       Six months ended
                                       June 30                 June 30
                                  2007        2006        2007        2006
                                  ----        ----        ----        ----

    Revenue
    Oilfield services         $  296,539  $  357,545  $  806,024  $  925,544

    Expenses
    Oilfield services            213,057     263,550     522,881     588,553
    Depreciation                  19,603      16,918      42,910      40,008
    General and
     administrative               12,796      12,238      27,038      25,315
    Stock-based compensation       1,346      10,498       7,098      12,957
    Interest                       1,962       1,010       2,905       2,737
                            -------------------------------------------------

                                 248,764     304,214     602,832     669,570
                            -------------------------------------------------

    Income before income
     taxes                        47,775      53,331     203,192     255,974

    Income taxes
    Current                       25,073      13,729      81,832      71,565
    Future                        (2,433)     (7,044)     (6,096)      9,913
                          ---------------------------------------------------

                                  22,640       6,685      75,736      81,478
                          ---------------------------------------------------
    Net income for
     the period                   25,135      46,646     127,456     174,496

    Retained earnings -
     beginning of period,
     as originally reported    1,063,777     794,418     972,930     674,151
    Transition adjustment
     on adoption of
     financial instruments
     standard (note 1)                 -           -         714           -
                            -------------------------------------------------
    Retained earnings -
     beginning of period,
     as restated               1,063,777     794,418     973,644     674,151


    Dividends (note 2)           (12,201)    (11,381)    (24,389)    (18,964)
                            -------------------------------------------------

    Retained earnings -
     end of period            $1,076,711  $  829,683  $1,076,711  $  829,683
                            -------------------------------------------------
                            -------------------------------------------------

    Net income per
     share (note 2)
    Basic                          $0.16       $0.31       $0.84       $1.15
    Diluted                        $0.16       $0.30       $0.82       $1.11
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited - in thousands of dollars)

                                 Three months ended       Six months ended
                                       June 30                 June 30
                                  2007        2006        2007        2006
                                  ----        ----        ----        ----
    Cash provided by
     (used in)

    Operating activities
    Net income for
     the period               $  25,135    $  46,646   $ 127,456   $ 174,496
    Items not affecting cash:
      Depreciation               19,603       16,918      42,910      40,008
      Stock-based
       compensation, net of
       cash paid                 (2,426)        (684)     (6,784)    (13,476)
      Future income taxes        (2,433)      (7,044)     (6,096)      9,913
                            -------------------------------------------------

    Cash provided by operating
     activities before the
     change in non-cash
     working capital              39,879      55,836     157,486     210,941
    Net change in non-cash
     working capital (note 4)    101,654      81,562      53,938      40,826
                            -------------------------------------------------

                                 141,533     137,398     211,424     251,767
                            -------------------------------------------------

    Investing activities
    Net purchase of property
     and equipment               (67,509)    (74,535)   (161,117)   (165,105)
    Net change in non-cash
     working capital (note 4)    (22,138)      6,491     (26,401)     (1,046)
                            -------------------------------------------------

                                 (89,647)    (68,044)   (187,518)   (166,151)
                            -------------------------------------------------
    Financing activities
    Net decrease in operating
     lines of credit             (45,112)    (80,226)     (5,868)    (81,946)
    Issue of capital stock           840         711       1,666       2,511
    Dividends (note 2)           (12,201)    (11,381)    (24,389)    (18,964)
    Net change in non-cash
     working capital (note 4)         13       3,798          46       3,815
                            -------------------------------------------------

                                 (56,460)    (87,098)    (28,545)    (94,584)
                            -------------------------------------------------

    Decrease in cash and cash
     equivalents during the
     period                       (4,574)    (17,744)     (4,639)     (8,968)

    Cash and cash equivalents -
     beginning of period          14,505      40,769      14,570      31,993
                            -------------------------------------------------

    Cash and cash equivalents -
     end of period             $   9,931   $  23,025   $   9,931   $  23,025
                            -------------------------------------------------
                            -------------------------------------------------

    Supplemental information
    Interest paid              $   1,366   $   1,736   $   2,327   $   3,098
    Income taxes paid          $  46,255   $  28,715   $ 103,923   $  60,285
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (Unaudited - in thousands of dollars)

                                  Three months ended      Six months ended
                                       June 30                 June 30
                                  2007        2006        2007        2006
                                  ----        ----        ----        ----

    Net income for the period  $  25,135   $  46,646   $ 127,456   $ 174,496
    Other comprehensive income
      Foreign currency
       translation adjustment    (37,362)    (15,714)    (38,351)    (18,565)
                            -------------------------------------------------
    Comprehensive (loss)
     income                    $ (12,227)  $  30,932   $  89,105   $ 155,931
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
    (Unaudited - in thousands of dollars)

                                  Three months ended      Six months ended
                                       June 30                 June 30
                                  2007        2006        2007        2006
                                  ----        ----        ----        ----
    Accumulated other
     comprehensive income -
     beginning of period       $ (21,152)  $ (42,072)  $ (20,163)  $ (39,221)
      Foreign currency
       translation adjustment    (37,362)    (15,714)    (38,351)    (18,565)
                            -------------------------------------------------
    Accumulated other
     comprehensive income -
     end of period             $ (58,514)  $ (57,786)  $ (58,514)  $ (57,786)
                            -------------------------------------------------
                            -------------------------------------------------

    See accompanying notes to the consolidated financial statements.



    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

    For the six months ended June 30, 2007 and 2006
    (Unaudited - in thousands of dollars, except per share data)

    The interim consolidated financial statements have been prepared in
    accordance with Canadian generally accepted accounting principles, and
    include the accounts of Ensign Energy Services Inc. and all of its
    subsidiaries and partnerships (the "Company"), substantially all of which
    are wholly-owned. The interim consolidated financial statements have been
    prepared following the same accounting policies and methods of
    computation as the consolidated financial statements for the year ended
    December 31, 2006, except as noted below. The disclosures provided below
    are incremental to those included with the annual consolidated financial
    statements. These interim consolidated financial statements should be
    read in conjunction with the consolidated financial statements and the
    notes thereto in the Company's annual report for the year ended
    December 31, 2006.

    1.  Change in accounting policies

        Effective January 1, 2007, the Company adopted the Canadian Institute
        of Chartered Accountants Handbook Section 1530 "Comprehensive
        Income", Section 3251 "Equity" and Section 3855 "Financial
        Instruments -Recognition and Measurement". As required by the new
        standards, prior periods have not been restated except to reclassify
        the cumulative translation adjustment balance.

        Comprehensive income

        The new standards introduce comprehensive income, which consists of
        net income and other comprehensive income ("OCI"). For the Company,
        OCI is comprised entirely of the movement in the cumulative
        translation adjustment balance. The Company's consolidated financial
        statements now include Consolidated Statements of Comprehensive
        Income, which outline the components of comprehensive income.

        The cumulative changes in OCI are included in accumulated other
        comprehensive income ("AOCI"), which is presented as a new category
        within shareholders' equity in the Consolidated Balance Sheets. The
        cumulative translation adjustment, formerly presented as a separate
        category within shareholders' equity, is now included in AOCI. The
        Company's consolidated financial statements now include Consolidated
        Statements of Accumulated Other Comprehensive Income, which provide
        the continuity of the AOCI balance.

        Financial instruments

        The financial instruments standard establishes the recognition and
        measurement criteria for financial assets and financial liabilities.
        All financial instruments are required to be measured at fair value
        on initial recognition of the instrument. Measurement in subsequent
        periods depends on how the financial instruments have been classified
        in accordance with the standard. The adjustment to recognize
        financial instruments at fair value on the balance sheet on initial
        recognition was recorded as an adjustment to the opening balance of
        retained earnings.

    2.  Capital stock

        Authorized

        Unlimited common shares
        Unlimited preferred shares, issuable in series


        Outstanding
                                                 Number of
                                               Common Shares          Amount
        ---------------------------------------------------------------------
        Balance at January 1, 2007               152,267,928    $    154,838
        Issued under employee stock
         option plan                                 237,550           4,578
                                               ------------------------------
        Balance at June 30, 2007                 152,505,478    $    159,416
        ---------------------------------------------------------------------

        Options

        A summary of the status of the Company's stock option plan as of
        June 30, 2007, and the changes during the six-month period then
        ended, is presented below:

                                                                    Weighted
                                                                     Average
                                                   Number of        Exercise
                                                     Options           Price
        ---------------------------------------------------------------------
        Outstanding at January 1, 2007            11,112,100    $      13.16
        Granted                                    2,515,000           19.83
        Exercised for common shares                 (237,550)          (7.01)
        Exercised for cash                        (1,240,100)          (7.96)
        Forfeited                                   (615,300)         (17.18)
        ---------------------------------------------------------------------
        Outstanding at June 30, 2007              11,534,150    $      15.06
        ---------------------------------------------------------------------
        Exercisable at June 30, 2007               3,754,550    $       9.28
        ---------------------------------------------------------------------


                             Options Outstanding        Options Exercisable
    -------------------------------------------------------------------------
                                    Average   Weighted              Weighted
                                    Vesting    Average    Options    Average
                         Options  Remaining   Exercise   Exercis-   Exercise
    Exercise Price   Outstanding  (in years)     Price       able      Price
    -------------------------------------------------------------------------
    $6.25 to $8.75     1,915,650       0.11    $  6.74  1,709,650    $  6.50
    $9.45 to $13.50    4,642,500       1.52      11.76  2,026,500      11.52
    $16.55 to $23.33   4,976,000       3.47      21.35     18,400      21.23
                     --------------------------------------------------------
                      11,534,150       2.13    $ 15.06  3,754,550    $  9.28
    -------------------------------------------------------------------------


        Common share dividends

        During the six months ended June 30, 2007, the Company declared
        dividends of $24,389 (2006 - $18,964), being $0.16 per common share
        (2006 - $0.125 per common share).

        Net income per share

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

        The weighted average number of common shares outstanding for the
        three months ended June 30, 2007 and 2006 are as follows:

                                                          2007          2006
                                                 -------------- -------------
        Weighted average number of
         common shares outstanding - basic         152,425,337   151,668,921
        Weighted average number of
         common shares outstanding - diluted       155,557,069   157,258,430
                                                 -------------- -------------

        Stock options of 4,833,500 (2006 - 1,791,000) were excluded from the
        calculation of diluted weighted average number of common shares
        outstanding, as the options' exercise price was greater than the
        average market price of the common shares for the period.

    3.  Segmented information

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

        Six months ended June 30, 2007
        ---------------------------------------------------------------------
                                              United      Inter-
                                  Canada      States    national       Total
        ---------------------------------------------------------------------
        Revenue                 $423,158    $267,631    $115,235    $806,024
        Property and equipment,
         net                    $813,140    $289,570    $270,703  $1,373,413
        Capital expenditures,
         net                     $58,214     $76,842     $26,061    $161,117
        Depreciation             $22,855      $9,692     $10,363     $42,910
        ---------------------------------------------------------------------

        Six months ended June 30, 2006
        ---------------------------------------------------------------------
                                              United      Inter-
                                  Canada      States    national       Total
        ---------------------------------------------------------------------
        Revenue                 $571,937    $244,575    $109,032    $925,544
        Property and equipment,
         net                    $702,503    $196,484    $237,267  $1,136,254
        Capital expenditures,
         net                     $89,574     $68,180      $7,351    $165,105
        Depreciation             $24,041      $6,934      $9,033     $40,008
        ---------------------------------------------------------------------

    4.  Supplemental disclosure of cash flow information

                                        Three months              Six months
                                       ended June 30           ended June 30
                                    2007        2006        2007        2006
                                ---------------------------------------------
        Net change in non-cash
         working capital
          Accounts receivable   $160,670    $133,721    $122,330     $65,310
          Inventory and other     (4,626)      1,121      (6,700)     (4,324) 
          Accounts payable
           and accrued
           liabilities           (55,346)    (31,803)    (66,002)    (32,486)
          Income taxes payable   (21,182)    (14,986)    (22,091)     11,280

          Dividends payable           13       3,798          46       3,815
                                ---------------------------------------------
                                $ 79,529    $ 91,851    $ 27,583    $ 43,595
                                ---------------------------------------------
                                ---------------------------------------------
        Relating to
          Operating activities  $101,654    $ 81,562    $ 53,938    $ 40,826
          Investing activities   (22,138)      6,491     (26,401)     (1,046)
          Financing activities        13       3,798          46       3,815
                                ---------------------------------------------
                                $ 79,529    $ 91,851    $ 27,583    $ 43,595
                                ---------------------------------------------
                                ---------------------------------------------

    5.  Contingencies and commitments

        The Company's Oman operating entity had previously received income
        tax assessments for the 1994, 1995 and 1996 financial years. The
        Company was appealing these assessments on the basis that they were
        without merit under Omani law; however, the Company's appeal was
        dismissed by the Omani courts during the three-month period ended
        June 30, 2007. Current income tax expense for the three and six
        months ended June 30, 2007 includes $4,000 (2006 - $nil) related to
        this matter.

    6.  Prior period amounts

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





For further information:

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


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