Ensign Energy Services Inc. Reports 2017 Second Quarter Results2017-08-08 CALGARY, Aug. 8, 2017 /CNW/ - OVERVIEW Revenue for the second quarter of 2017 was $232.2 million, an increase of 32 percent from revenue for the second quarter of 2016 of $175.9 million. Revenue for the six months ended June 30, 2017 was $483.5 million, an increase of 11 percent from revenue for the six months ended June 30, 2016 of $434.4 million. Revenue, net of third party, for the second quarter of 2017 was $211.7 million, an increase of 35 percent from Revenue, net of third party, for the second quarter of 2016 of $156.4 million. Revenue, net of third party, for the six months ended June 30, 2017 was $420.6 million, an increase of 10 percent from Revenue, net of third party, for the six months ended June 30, 2016 of $383.3 million. Adjusted EBITDA totaled $44.3 million ($0.29 per common share) in the second quarter of 2017, 37 percent higher than Adjusted EBITDA of $32.2 million ($0.21 per common share) in the second quarter of 2016. For the first six months of 2017, Adjusted EBITDA totaled $94.4 million ($0.61 per common share), two percent higher than Adjusted EBITDA of $92.8 million ($0.61 per common share) in the first six months of 2016. Net loss for the second quarter of 2017 was $33.8 million ($0.22 per common share) compared to a net loss of $40.0 million ($0.26 per common share) for the second quarter of 2016. Net loss for the six months ended June 30, 2017 was $47.6 million ($0.31 per common share), compared to net loss of $54.9 million ($0.36 per common share) for the six months ended June 30, 2016. Adjusted net loss for the second quarter of 2017 was $27.1 million ($0.17 per common share) compared to Adjusted net loss of $34.5 million for the second quarter of 2016 ($0.22 per common share). For the six months ended June 30, 2017, Adjusted net loss was $51.6 million ($0.33 per common share), compared to Adjusted net loss of $59.0 million ($0.39 per common share) for the six months ended June 30, 2016. Funds flow from operations increased 23 percent to $44.8 million ($0.29 per common share) in the second quarter of 2017 compared to $36.3 million ($0.24 per common share) in the second quarter of the prior year. Funds flow from operations decreased two percent to $89.6 million ($0.58 per common share) in the first six months of 2017 compared to $91.5 million ($0.60 per common share) in the first six months of the prior year. Operating days across the Company's fleet were higher in the second quarter of 2017 when compared to the second quarter of 2016 due primarily to increased demand for oilfield services caused by a modest price recovery of crude oil and natural gas commodity prices. A stabilized United States dollar against the Canadian dollar did not impact United States and international financial results on translation to Canadian dollars. The average United States exchange rate was consistent year over year. Gross margin increased to $55.1 million (26.0 percent of Revenue, net of third party) for the second quarter of 2017 compared to gross margin of $45.4 million (29.0 percent of Revenue, net of third party) for the second quarter of 2016. Gross margin decreased to $115.7 million (27.5 percent of Revenue, net of third party) for the six months ended June 30, 2017 compared to a gross margin of $121.6 million (31.7 percent of Revenue, net of third party) for the six months ended June 30, 2016. The decrease in gross margin in the second quarter of 2017 compared to the second quarter of 2016 was primarily attributed to lower revenue rates in 2017 and short fall revenue earned in 2016 versus no short fall revenue earned in the same period in 2017. Working capital at June 30, 2017 was a surplus of $122.0 million, compared to a deficit of $11.2 million at December 31, 2016, largely due to the repayment of a portion of long-term debt (USD $100.0 million of senior unsecured notes bearing interest at 3.43 percent, paid February 22, 2017). The Company's bank credit facilities provide unused and available borrowings of $20.3 million at June 30, 2017, down by $164.1 million, compared to $184.4 million at December 31, 2016, due to the senior unsecured notes repayment in February 2017. FINANCIAL AND OPERATING HIGHLIGHTS
SECOND QUARTER HIGHLIGHTS
REVENUE AND OILFIELD SERVICES EXPENSE
Revenue for the three months ended June 30, 2017 totaled $232.2 million, an increase of 32 percent from the second quarter of 2016 of $175.9 million. Revenue for the six months ended June 30, 2017 totaled $483.5 million, an 11 percent increase from the six months ended June 30, 2016. As a percentage of Revenue, net of third party, gross margin for the second quarter of 2017 decreased to 26.0 percent (2016 - 29.0 percent) and decreased to 27.5 percent for the six months ended June 30, 2017 (2016 - 31.7 percent). The cautious optimism regarding oil and natural gas commodity prices have increased demand for oilfield services, which resulted in higher equipment utilization rates; however, revenue rates declined throughout the prior years and have yet to increase with demand. CANADIAN OILFIELD SERVICES Revenue increased 50 percent to $51.1 million for the three months ended June 30, 2017 from $34.1 million for the three months ended June 30, 2016. The Company recorded revenue of $135.4 million in Canada for the six months ended June 30, 2017, an increase of 23 percent from $109.7 million recorded for the six months ended June 30, 2016. Canadian revenues accounted for 22 percent of the Company's total revenue in the second quarter of 2017, compared to 19 percent in the second quarter of 2016. During the six months ended June 30, 2017, Canadian revenues were 28 percent of the Company's revenue, compared with 25 percent in the six months ended June 30, 2016. The Company's Canadian operations recorded 1,141 drilling days in the second quarter of 2017, compared to 674 drilling days for the second quarter of 2016, an increase of 69 percent. For the six months ended June 30, 2017, the Company recorded 3,466 drilling days compared to 2,243 drilling days for the six months ended June 30, 2016, an increase of 55 percent. Canadian well servicing hours increased by 11 percent to 15,291 operating hours in the second quarter of 2017 compared to 13,779 operating hours in the corresponding period of 2016. For the six months ended June 30, 2017, well servicing hours increased by 34 percent to 36,846 operating hours compared with 27,454 operating hours for the six months ended June 30, 2016. Demand for the Company's Canadian oilfield services was higher compared to the prior quarters due primarily to the modest increase in oil and natural gas commodity prices. The increase in demand was offset by lower revenue rates and nominal short fall revenue earned, compared to the first half of 2016. During the six months ended June 30, 2017, the Company added one new build ADR® drilling rig to the Canadian fleet. UNITED STATES OILFIELD SERVICES The Company's United States operations recorded revenue of $110.3 million in the second quarter of 2017, a 51 percent increase from the $73.0 million recorded in the corresponding period of the prior year. During the six months ended June 30, 2017, revenue of $208.3 million was recorded, an increase of 20 percent from the $173.2 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 47 percent of the Company's revenue in the second quarter of 2017 (2016 - 42 percent) and 43 percent of the Company's revenue in the first six months of 2017 (2016 - 40 percent). Drilling rig operating days increased by 61 percent to 2,590 drilling days in the second quarter of 2017 from 1,609 drilling days in the second quarter of 2016. Drilling operating days increased by 38 percent from 3,499 operating days in the first six months of 2016 to 4,843 operating days in first six months of 2017. Well servicing activity expressed in operating hours increased by 42 percent in the second quarter of 2017 to 21,594 operating hours from 15,229 operating hours in the second quarter of 2016. For the six months ended June 30, 2017 well servicing activity increased 41 percent to 41,675 operating hours from 29,584 operating hours in the first six months of 2016. Overall operating and financial results for the Company's United States operations were positively impacted by a modest increase in demand for oilfield services due to renewed optimism regarding oil and natural gas commodity prices. During the six months ended June 30, 2017, the Company added one service rig to the United States fleet. INTERNATIONAL OILFIELD SERVICES The Company's international operations recorded revenue of $70.9 million in the second quarter of 2017, a three percent increase from the $68.8 million recorded in the corresponding period of the prior year. International revenues for the six months ended June 30, 2017, decreased eight percent to $139.9 million from $151.5 million recorded in the six months ended June 30, 2016. The Company's international operations contributed 31 percent of the total revenue in the second quarter of 2017 (2016 - 39 percent) and 29 percent of the Company's revenue in the first six months of 2017 (2016 - 35 percent). International operating days for the three months ended June 30, 2017, totaled 1,506 drilling days compared to 1,544 drilling days in the same period of 2016, a decrease of two percent. For the six months ended June 30, 2017, international operating days totaled 3,084 operating days compared to 3,334 drilling days for the six months ended June 30, 2016, a decrease of seven percent. The international operations saw a decrease in activity as certain rigs on long-term contracts rolled off by completing their term and were not renewed. DEPRECIATION
Depreciation expense totaled $75.5 million for the second quarter of 2017 compared with $81.4 million for the second quarter of 2016, a decrease of seven percent. Depreciation expense for the first six months of 2017 decreased by 12 percent to $154.9 million compared with $175.9 million for the first six months of 2016. Depreciation expense was lower in six months ended June 30, 2017 when compared to the six months ended June 30, 2016, due to certain operating assets now being fully depreciated in which case no further depreciation expense is required on such assets. GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense decreased 18 percent to $10.8 million (4.7 percent of revenue) for the second quarter of 2017 compared to $13.1 million (7.5 percent of revenue) for the second quarter of 2016. For the six months ended June 30, 2017, general and administrative expense totaled $21.4 million (4.4 percent of revenue) compared to $28.8 million (6.6 percent of revenue) for the six months ended June 30, 2016. The decrease in general and administrative expense resulted from the Company's initiatives to reduce costs in reaction to lower oil and natural gas commodity prices. We expect normalized general and administrative expenses to run in a $9.5 to $10.5 million range per quarter on a go-forward basis, excluding share-based compensation and subject to variability due to foreign exchange rates. SHARE-BASED COMPENSATION
Share-based compensation expense arises from the Black-Scholes valuation accounting associated with the Company's share-based compensation plans, whereby the liability associated with share-based compensation is adjusted for the effect of granting and vesting of employee stock options and changes in the underlying market price of the Company's common shares. For the three months ended June 30, 2017 share-based compensation was a recovery of $0.8 million compared with an expense of $2.4 million recorded in the three months ended June 30, 2016. For the six months ended June 30, 2017 share-based compensation was a recovery of $1.8 million compared with an expense of $2.9 million for the six months ended June 30, 2016. The share-based compensation expense for the six months ended June 30, 2017 was a result of changes in the fair value of the share-based compensation liability and it impacted by the amortization of share options. The fair value of share-based compensation is impacted by both the input assumptions used to estimate the fair value and the price of the Company's common shares during the period. The closing price of the Company's common shares was $6.93 at June 30, 2017 ($7.25 at June 30, 2016), compared with $7.97 at March 31, 2017 ($5.98 at March 31, 2016) and $9.38 at December 31, 2016 ($7.38 at December 31, 2015). INTEREST EXPENSE
Interest is incurred on the Company's $500.0 million global revolving credit facility (the "Global Facility") and the United States dollar $200.0 million ($300.0 million at December 31, 2016) senior unsecured notes (the "Notes") issued in February 2012. The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense. Interest expense increased by 44 percent in the first half of 2017 compared to the same period in 2016 as a result of borrowings of an additional $25.3 million on the bank credit facilities in the first half of 2017 and due to an increase in the interest rate. FOREIGN EXCHANGE AND OTHER
Included in this amount is the impact of foreign currency fluctuations in the Company's subsidiaries that have functional currencies other than the Canadian dollar. During the three months ended June 30, 2017, the Australian dollar strengthened by approximately six percent against the United States dollar causing a foreign currency loss on translation of the Company's United States dollar denominated assets into Australian dollars. During the six months ended June 30, 2017, the Australian dollar strengthened against the United States dollar by approximately four percent (2016 - four percent). INCOME TAXES
The effective income tax rate for the three months ended June 30, 2017 was 32.9 percent compared to 37.3 percent for the three months ended June 30, 2016. The effective income tax rate for the six months ended June 30, 2017 was 34.3 percent compared with 38.4 percent for the six months ended June 30, 2016. The effective tax rate in the first six months of the current year was lower than the effective tax rate in the first six months of 2016 due to the impact of earnings in foreign jurisdictions. FINANCIAL POSITION Significant changes in the consolidated statement of financial position from December 31, 2016 to June 30, 2017 are outlined below:
FUNDS FROM OPERATIONS AND WORKING CAPITAL
During the three months ended June 30, 2017, the Company generated Funds flow from operations of $44.8 million ($0.29 per common share) compared to Funds flow from operations of $36.3 million ($0.24 per common share) for the three months ended June 30, 2016, an increase of 23 percent. For the six months ended June 30, 2017, the Company generated Funds flow from operations of $89.6 million ($0.58 per common share) a decrease of two percent from $91.5 million ($0.60 per common share) for the six months ended June 30, 2016. The decrease in Funds flow from operations in 2017 compared to 2016 is due to a reduction of seven percent of non-cash items impacting funds flow from operations. At June 30, 2017 the Company's working capital was a surplus of $122.0 million, compared to a working capital deficit of $11.2 million at December 31, 2016. The increase in working capital in the first six months of 2017, was mainly related to the repayment a USD $100.0 million of senior unsecured notes. The Company expects funds generated by operations, combined with current and future credit facilities, to fully support current operating and capital requirements. Existing revolving credit facilities provide for total borrowings of $500.0 million, of which $20.3 million was undrawn and available at June 30, 2017. In addition, the Company finalized a $50 million accordion to be included in the existing revolving credit facilities but not yet exercised. INVESTING ACTIVITIES
Net purchases of property and equipment for the second quarter of 2017 totaled $46.1 million (2016 - $9.6 million). Net purchases of property and equipment during the first six months of 2017 totaled $75.6 million (2016 - $24.2 million). The purchase of property and equipment relates predominantly to the construction of two new ADR® drilling rigs, one service rig and upgrades to certain drilling rigs to a higher specification, as well as for maintenance capital costs incurred in the current quarter and first six months of this year. FINANCING ACTIVITIES
The Company's available bank credit facilities consist of a $500.0 million Global Facility. The Global Facility is available to the Company and certain of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $500.0 million Canadian dollars. The Global Facility matures in early October 2018. 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 finalized a $50 million accordion to be included in the existing revolving credit facilities but not yet exercised. Subsequent to the quarter, the Company has initiated a process to secure the bank credit facilities and the senior notes with the Company's assets. This will allow for additional flexibility into the future when negotiating the bank credit facility. The Company has received net debt proceeds of $25.3 million during the six months ended June 30, 2017, increasing the outstanding long-term debt balance. As of June 30, 2017, the credit facilities are primarily being used to fund capital expenditures. In the settlement of the third quarter dividend, subsequent to June 30, 2017, 39 percent of shareholders elected to reinvest their dividends in common shares of the Company. NEW BUILDS AND MAJOR RETROFITS During the six months ended June 30, 2017, the Company added one new build ADR® drilling rig to its expansive tier one fleet worldwide, which have been contracted on a long-term contract and one service rig in the United States. The Company continues to selectively add new ADR® drilling rigs to meet the increasing technical demands of its customers. The Company is currently in the process of completing one additional new ADR® 1500 for the United States and one new ADR® 1000 for Canada. These rigs are expected to be finished in the third quarter of 2017 and were part of the rig build program that the Company halted in 2014 to preserve the balance sheet in a declining market. OUTLOOK Recent production and inventory increases globally have continued to put pressure on crude oil prices delaying any expected rebalancing. Commodity analysts have now started to reduce the forecasted price of WTI for the remainder of the year to the low $50's and the 2018 forecasts have decreased to an average in the mid $50's. If the recent decline in oil prices lasts for a longer period, it could lead to oil and natural gas producers reducing their capital programs and demand for oilfield services. This potential decrease in oilfield services could start to impact production allowing for prices to react again. The oilfield services industry is expected to be volatile and companies will need to be agile to respond to the changing environment quickly. Over the last two years the Company has made significant changes such as focusing on reducing fixed costs and streamlining processes to adapt to market volatility and to be able to respond appropriately to the changing marketplace. Canada In Canada, the Baker Hughes rig count on July 21, 2017 has increased to 15 rigs from the week before to 206 drilling rigs. This is up 104 rigs from the previous year. The rig count in Canada is expected to grow as spring breakup ends. The Montney continues to be the driver for activity in Canada accounting for about 40% of the active rigs in Q2, 2017. The Montney is also the Company's most active operating area in Canada and utilization for our high-spec triple drilling rigs continues to lead the industry average. Activity post spring breakup continues to increase with a total of 25 rigs running as of July 21, 2017. Of our Canadian rigs, 37 drilling and coring rigs are currently under contract with 27% under contract longer than six months. United States In the USA the Baker Hughes rig count on July 21, 2017 decreased by two drilling rigs from the week before to a total of 950 which is up 488 drilling rigs from the previous year. The rig count in the USA appears to be flattening out with expectations that it could remain flat or potentially decline for the remainder of the year if oil prices do not increase. As at July 21, 2017, nine Company rigs are currently running in the Rockies, nine in California and 18 in the Permian Basin with one rig running in the North East. Of our United States rigs, 38 drilling rigs are currently under contract with 13 under contract longer than six months. We are still experiencing pricing pressure in the California and the Rockies region but are seeing some pricing increases in the Permian Basin for the high-spec walking drilling rigs. International Activity internationally is expected to remain flat for the remainder of the year when compared to the first half of 2017. There are a total of eight Company drilling rigs currently running in Latin America as at July 21, 2017 and that is expected to be maintained throughout the year, but could vary depending on the political situation in Venezuela. We have a total of 11 rigs running in the Middle East and Australia. The Middle East and Australia are expected to see flat activity for the remainder of the year. In the international segment we have 20 drilling rigs under contract with 9, or 20 percent of the marketed fleet under contract longer than six months.
This document contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, political, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the Company's defense of lawsuits and the ability of oil and gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions which could impact on the use of the services supplied by the Company. CONFERENCE CALL A conference call will be held to discuss the Company's second quarter 2017 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Tuesday, August 8, 2017. The conference call number is 1-647-427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until August 15, 2017 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 63511469. 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.
Ensign Energy Services Inc.
Ensign Energy Services Inc.
SOURCE Ensign Energy Services Inc.  For further information: Michael Gray, Chief Financial Officer, (403) 262-1361 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||