Ensign Energy Services Inc. Reports Strong 2012 First Quarter Results2012-05-07 CALGARY, May 7, 2012 /CNW/ - Overview Record revenue was recorded in the first quarter of 2012 for Ensign Energy Services Inc. ("Ensign" or the "Company"), increasing 35 percent over the first quarter of 2011 to $677.7 million, the highest quarterly revenue in the Company's history. Net income for the first quarter of 2012 increased 32 percent to $105.5 million ($0.69 per common share) compared to net income of $79.7 million ($0.52 per common share) for the first quarter of 2011. EBITDA (defined as earnings before interest, income taxes, depreciation, and share-based compensation expense (recovery)) totaled $211.1 million ($1.38 per common share) in the first quarter of 2012, 24 percent higher than EBITDA of $170.3 million ($1.11 per common share) in the first three months of 2011. Similarly, Funds from operations increased 15 percent to $177.0 million ($1.16 per common share) in the first three months of 2012 from $154.5 million ($1.01 per common share) in the first three months of the prior year. The acquisition of the land drilling division of Rowan Companies Inc. ("Rowan Land Drilling"), subsequently renamed Ensign US Southern Drilling LLC ("Ensign US Southern"), in the third quarter of 2011 significantly contributed to the strong start to the 2012 financial year compared to the prior year. Additionally, all other areas of the Company produced strong first quarter results, with levels of activity comparable to those of the first quarter of 2011. A slight strengthening in the United States dollar over the Canadian dollar in the first quarter of 2012 compared to the first quarter of the prior year had a positive impact on the operating results of the Company's United States and international operations when translated into Canadian dollars. Gross margin improved to $234.3 million (34.6 percent of revenue) for the first quarter of 2012 compared with gross margin of $171.9 million (34.2 percent of revenue) for the first quarter of 2011. Increased revenue rates in the Company's North American operations contributed to the improved margins. Major maintenance expenses had less of an impact in the first quarter of 2012 compared to the prior two quarters as the majority of the maintenance was completed in prior quarters in anticipation of the increased operating activity levels in the first quarter of 2012 and the Canadian winter drilling season. These costs are generally expensed as incurred. In February 2012 the Company issued USD $300.0 million of senior unsecured notes with the proceeds applied to partially repay the USD $400.0 million term loan. The senior unsecured notes consist of: USD $100.0 million in five year notes with an interest rate of 3.43 percent; USD $100.0 million in seven year notes with an interest rate of 3.97 percent; and USD $100.0 million in ten year notes with an interest rate of 4.54 percent. The remaining USD $100.0 million balance of the term loan makes up the current portion of the Company's long-term debt and is due in February 2013. Long-term debt as at March 31, 2012 totaled $297.6 million.
Total revenue recorded in the first quarter of 2012 was the highest quarterly revenue in the Company's history, totaling $677.7 million, an increase of 35 percent over the first quarter of 2011. As a percentage of revenue, gross margin for the first quarter of 2012 increased to 34.6 percent from 34.2 percent for the first quarter of 2011. The growth in the Company's revenues is a reflection of the increased operations through the addition of Ensign US Southern in the third quarter of 2011 as well as additions to the Company's North American rig fleet through the new build program. The Company added 10 ADR®-style drilling rigs and 16 well servicing rigs in 2011 all through the new build program. The fleet has been further expanded with the delivery of five ADR®-style drilling rigs and three well servicing rigs in the first quarter of 2012. The Company's North American operations benefited in the first quarter of 2012 from higher revenue rates which resulted in increased revenues over the first quarter of 2011. International operating results also improved in the first quarter of 2012 over the first quarter of 2011 as a result of reduced weather impacts in Australia as regional flooding had negatively impacted operating results in the first quarter of 2011. Canadian Oilfield Services Revenue increased 18 percent to $324.9 million for the three months ended March 31, 2012, from $275.2 million for the three months ended March 31, 2011. Canadian revenues accounted for 48 percent of the Company's total revenue in the first quarter of 2011, compared with 55 percent in the first quarter of 2011. Revenue growth in Canada was a result of improved pricing for Canadian oilfield services as activity levels were generally similar to those of the first quarter of the prior year. The Company recorded 7,431 drilling days in the first quarter of 2012, this compares with 7,927 drilling days for the first quarter of 2011, a six percent decrease due to an earlier spring break-up. Canadian well servicing hours increased by two percent to 40,135 operating hours in the first quarter of 2012 compared with 39,521 operating hours in the corresponding period of 2011. During the three months ended March, 31, 2012, the Company added three newly constructed ADRs to its Canadian drilling rig fleet, and decommissioned three inactive drilling rigs. United States Oilfield Services The Company's United States operations recorded revenue of $249.4 million in the first quarter of 2012, a 68 percent increase from the $148.5 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 37 percent of the Company's revenue in the first quarter of 2012, compared to 29 percent in the same period in 2011. Drilling rig operating days increased by 48 percent to 6,313 drilling days in the first quarter of 2012 from 4,266 drilling days in the first quarter of 2011. Well servicing activity increased by 73 percent in the first quarter of 2012 to 30,149 operating hours from 17,450 operating hours in the first quarter of 2011. A significant expansion to the Company's United States equipment fleet in 2011 contributed to the increase in first quarter revenue and operating activity compared to the prior year. The Company acquired Rowan Land Drilling and its fleet of 30 ADR®-style drilling rigs in the third quarter of 2011; and added eight new ADR® drilling rigs and 12 new well servicing rigs throughout 2011. The Company added two new ADR® drilling rigs and three new well servicing rigs; and decommissioned six inactive drilling rigs in the first quarter of 2012. Results from the Company's United States operations were positively impacted on translation to Canadian dollars by a strengthening United States dollar against the Canadian dollar during the first quarter of 2012. In the first three months of 2012 the United States dollar increased by two percent when compared to the same period of the prior year. International Oilfield Services The Company's international operations recorded revenue of $103.4 million in the first quarter of 2012, a 32 percent increase from $78.5 million recorded in the corresponding period of the prior year. International operations contributed 15 percent of the Company's revenue in the first quarter of 2012 compared with 16 percent in the same period of 2011. International operating days for the three months ended March 31, 2012 totaled 2,797 drilling days compared with 2,665 drilling days in 2011, an increase of five percent. The improved start to 2012 from the Company's international operations is mainly a result of increased operating results from the Company's Australian operations which had been negatively impacted by severe flooding in the first quarter of the prior year. Operating results from the Company's other operations (excluding operations in Libya, which remain suspended) were generally consistent in the first quarter of 2012 with the comparable quarter of the prior year. Similar to the Company's United States operations, international operations benefited from the strengthening United States dollar over the Canadian dollar on translation into Canadian dollars for reporting purposes in the first quarter of 2012 compared to the first quarter of the prior year.
The Company uses the unit of production method of calculating depreciation for the majority of its property and equipment. Depreciation expense totaled $58.2 million for the first quarter of 2012 compared with $40.8 million for the first quarter of 2011, an increase of 43 percent. Increased depreciation reflects the impact from the growth of the Company's North American fleet through the addition of Ensign US Southern in the third quarter of 2011 and additions from the Company's new build program.
General and administrative expense increased 29 percent to $19.4 million (2.9 percent of revenue) for the first quarter of 2012 compared with $15.0 million (3.0 percent of revenue) for the first quarter of 2011. The overall increase in general and administrative expense was to support the increased operating activity during the first quarter of 2012, including the impact from the addition of Ensign US Southern in the third quarter of 2011, and also includes the negative translational impact of a stronger United States dollar on United States and international administrative expenses in the current quarter.
Share-based compensation (recovery) 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 price of the Company's common shares. For the three months ended March 31, 2012, share-based compensation (recovery) expense was a recovery of $2.9 million compared with an expense of $12.3 million recorded in the first quarter of 2011. The decrease in share-based compensation expense in the first quarter of 2012 is a result of the change in the fair value of share-based compensation liability primarily resulting from a decrease in the price of the Company's common shares during the first three months of 2012. The closing price of the Company's common shares was $14.91 at March 31, 2012 ($18.26 at March 31, 2011) compared with $16.25 at December 31, 2011 ($15.03 at December 31, 2010).
Interest is incurred on the Company's $10.0 million Canadian-based revolving credit facility, the $250.0 million global revolving credit facility, the USD $100.0 million remaining balance of the term loan, and the USD $300.0 million senior unsecured notes issued in February 2012. The amortization of deferred financing costs associated with the issuance of the Company's long-term debt are included in interest expense in the first quarter of 2012. The increase in interest expense in the first quarter of 2012 reflects the additional debt incurred by the Company in connection with the Rowan Land Drilling acquisition, completed in the third quarter of 2011.
Included in this amount is the impact of the conversion of the Australian operations from Australian dollars to United States dollars. Similar to the first quarter of 2011, the Australian currency strengthened against the United States dollar during the first quarter of 2012, however the impact was much lower in 2012 compared to the prior year.
The effective income tax rate for the three months ended March 31, 2012 was 30.5 percent compared with 31.8 percent for the three months ended March 31, 2011. The effective income tax rate in both quarters was lower than the expected annualized income tax rate for the Company due to the relatively high proportion of taxable income earned in Canada during the first quarter, due to the seasonality of Canadian operations. Financial Position The following chart outlines significant changes in the consolidated statement of financial position from December 31, 2011 to March 31, 2012:
During the three months ended March 31, 2012, the Company generated Funds from operations of $177.0 million ($1.16 per common share) compared with Funds from operations of $154.5 million ($1.01 per common share) for the three months ended March 31, 2011, an increase of 15 percent. This increase is primarily attributable to the increased operations in North America as a result of the addition of Ensign US Southern in the third quarter of 2011 as well as additions from the new build program throughout 2011 and 2012. At March 31, 2012, the Company's working capital totaled negative $25.0 million, compared to negative $10.2 million at December 31, 2011. Included in working capital at March 31, 2012 is the remaining balance of the term loan totaling $99.7 million at March 31, 2012. 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 borrowing of $260.0 million, of which $20.4 million was available at March 31, 2012.
Purchases of property and equipment during the first quarter of 2012 totaled $80.6 million (2011 - $66.7 million). The purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's ongoing new build program.
The Company's available operating lines of credit consist of a $250.0 million global revolving credit facility (the "Global Facility") and a $10.0 million Canadian based revolving credit facility (the "Canadian Facility"). The Global Facility is available to the Company and certain of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $250.0 million Canadian dollars. The amount available under the Canadian Facility is $10.0 million or the equivalent United States dollars. Net repayments of the operating lines of credit were the result of operating cash flows generated by the Company's United States and international divisions in excess of capital expenditure requirements. As of March 31, 2012, the operating lines of credit are primarily being used to fund the completion of the most recent new build program and to support international operations. In February 2012, the Company completed the private placement of USD $300.0 million of senior unsecured notes (the "Notes"), with the proceeds from the issuance being used to repay a portion of the term loan. The Notes consist of: USD $100.0 million in five year notes with an interest rate of 3.43 percent and a maturity date of February 22, 2017; USD $100.0 million in seven year notes with an interest rate of 3.97 percent and a maturity date of February 22, 2019; and USD $100.0 million in ten year notes with an interest rate of 4.54 percent and a maturity date of February 22, 2022. The Notes rank equally with the Company's Global Facility. The remaining USD $100.0 million balance of the term loan matures on February 28, 2013. On June 3, 2011, the Company received approval from the Toronto Stock Exchange to acquire for cancellation up to five percent of the Company's issued and outstanding common shares under a Normal Course Issuer Bid (the "Bid"). The Company may purchase up to 7,660,512 common shares for cancellation. The Bid commenced on June 7, 2011 and will terminate on June 6, 2012 or such earlier time as the Bid is completed or terminated at the option of the Company. As at March 31, 2012, no common shares have been purchased and cancelled pursuant to the Bid. The Board of Directors of the Company has declared a second quarter dividend of $0.105 per common share to be payable July 6, 2012 to all Common Shareholders of record as of June 21, 2012. 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 During the quarter ended March 31, 2012, the Company commissioned two new ADR® drilling rigs and three new well servicing rigs in the United States; and three new ADR® drilling rigs in Canada. The remaining new build estimated delivery schedule, by geographic area, is as follows:
Outlook The impact of modestly improving economic conditions in North America, together with a continuing premium for potential Middle East supply disruptions has sustained WTI crude oil prices above the USD$100 level. However, softening economic expansion in Asia and the ongoing debt crisis in Europe continue to weigh on future prospects for energy demand. Further complicating the outlook for crude oil development in North America are the infrastructure constraints that are resulting in regional differentials from the headline crude oil price. A widening of such differentials would likely have a negative impact on the demand for oilfield services in certain regions. Additionally, the natural gas supply glut in North America has further reduced natural gas prices and activities. While the reduction in natural gas drilling has generally been offset by an increase in drilling and production development activities in crude oil and liquids-rich natural gas plays, a further consequence of lower natural gas prices is the impact on the funds available to producing companies for oilfield services expenditures. While the economics for crude oil development remain encouraging, it may take several years for a rebalancing of the natural gas market to occur in North America. Despite an earlier spring breakup in 2012 compared to the prior year, the Company's Canadian operations had a very strong first quarter, with operating days very similar to the levels recorded last year. Based on forecasts from the Canadian Association of Oilwell Drilling Contractors, activity levels in the Company's Canadian operations are currently expected to continue in line with those experienced in 2011. Margins for the first quarter of 2012 were improved from the fourth quarter of 2011, due to reduced requirements in the current quarter for major maintenance expenditures to prepare the fleet for strong levels of demand. The Company's ability to maintain margins for the remainder of 2012 will depend on successful cost containment, particularly as higher activity and demand for oilfield services has created inflationary pressures on some input costs. The Company expects to add four new ADR® drilling rigs and four new well servicing rigs to the Canadian fleet over the next twelve months pursuant to the ongoing new build program. Despite the anticipated softening of demand for natural gas drilling, the Company's United States activity levels in the first quarter of 2012 were a continuation of the strong performance in the last quarter of 2011 and includes a full quarter of operations from Ensign US Southern, acquired in September 2011. The downward trend in the number of land-based rigs drilling for natural gas continued with the industry recording a 20 percent reduction during the quarter, substantially offset by an increased number of land-based rigs drilling for crude oil and liquids-rich natural gas. The Company currently plans to add eight new ADR® drilling rigs and eight new well servicing rigs to the United States fleet during the next twelve months. This will further increase the Company's operational capability in this important market. The Company's international operations continued to generate steady operating and financial results in the first quarter of 2012. The Company anticipates that demand for international oilfield services will continue to expand at a steady pace, barring any major unforeseen global events. The current new build program will add two new ADR® drilling rigs to the Company's international equipment fleet in 2012. The Company's private placement issuance of USD$300 million of long-term notes during the first quarter of 2012 provides the Company with a measure of stability with respect to its capital structure. The private placement and the recently expanded operating debt facilities, together with the Company's levels of funds from operations and prudent cash management, are expected to serve the Company well in funding further expansion, both in the form of opportunistic acquisitions, and the ongoing new build and fleet modernization program. 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 impact on the use of the services supplied by the Company. Conference Call A conference call will be held to discuss the Company's first quarter 2012 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 7, 2012. The conference call number is (647) 427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until May 14, 2012 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 43339866. 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.
For further information:
Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361. |
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