Ensign Energy Services Inc. Reports 2014 Results2015-03-16 CALGARY, March 16, 2015 /CNW/ - Overview The Company's revenue for the year ended December 31, 2014 was $2,321.8 million, the highest in the Company's history, an 11 percent increase over 2013 revenue of $2,098.0 million. Operating earnings, expressed as adjusted EBITDA, for 2014 were $537.5 million ($3.52 per common share), an 11 percent increase from adjusted EBITDA of $485.7 million ($3.18 per common share) for the year ended December 31, 2013. Net income for the year ended December 31, 2014 was $71.1 million ($0.47 per common share), a 45 percent decrease from $128.9 million ($0.84 per common share) recorded in 2013. The reduction in net income on a year-over-year basis is primarily due to the asset decommissioning and write-down charge of $89.5 million taken during the fourth quarter of 2014. Excluding the tax-effected impact of asset decommissioning and write-downs, share-based compensation and foreign exchange and other, adjusted net income for the year ended December 31, 2014 totaled $148.6 million ($0.97 per common share), three percent higher than adjusted net income of $143.9 million ($0.94 per common share) recorded for the year ended December 31, 2013. Funds from operations for 2014 increased 13 percent to $491.9 million ($3.22 per common share) from $435.6 million ($2.85 per common share) in the prior year. During the fourth quarter of 2014, the Company generated revenue of $602.7 million, an increase of 12 percent from revenue of $536.0 million recorded in the fourth quarter of 2013. Adjusted EBITDA was $143.0 million ($0.94 per common share) for the fourth quarter of 2014, an increase of 27 percent from adjusted EBITDA of $112.5 million ($0.74 per common share) recorded in the fourth quarter of 2013. The Company recorded a net loss of $31.0 million (-$0.20 per common share) compared to net income of $26.9 million ($0.18 per common share) recorded in 2013. The fourth quarter loss is a result of a non-cash charge of $89.5 million taken for asset decommissioning and write-downs during the three months ended December 31, 2014. Adjusted net income for the fourth quarter of 2014 totaled $44.2 million ($0.29 per common share), 58 percent higher than adjusted net income of $27.9 million ($0.18 per common share) recorded for the fourth quarter of 2013. Funds from operations were $132.3 million ($0.87 per common share) for the fourth quarter of 2014, a 31 percent increase from $101.2 million ($0.66 per common share) recorded in the fourth quarter of 2013. The Company generated strong operating and financial results for the majority of the 2014 fiscal year, even though falling crude oil prices in the second half of the year began to adversely impact current and future cash flows for the Company's customers and the expected levels of future demand for oilfield services, particularly in North America. The Company's international operations continued to grow with new equipment added during the year. Financial results from the Company's United States and international operations were further improved on translation to Canadian dollars due to the strengthening of the United States dollar relative to the Canadian dollar. For the twelve months ended December 31, 2014 a seven percent increase in the Canadian/United States dollar exchange rate positively impacted revenues and margins generated outside Canada. The financial results for the three months and twelve months ended December 31, 2014 were negatively impacted by a $89.5 million non-cash charge for asset decommissioning and write-downs. On an after-tax basis, net income for the three and twelve months ended December 31, 2014 was reduced by $66.2 million ($0.59 per share) due to this asset decommissioning and write-downs charge. Oilfield service equipment has a finite life and, accordingly, asset decommissionings are a normal occurrence for an oilfield service company. The current uncertain market conditions resulting from lower oil and gas commodity prices made it prudent for the Company to take a closer look at its equipment fleet. As a result of this detailed review, the Company has reduced its marketed equipment fleet in the fourth quarter of 2014 by decommissioning 18 drilling rigs and 21 well servicing rigs in Canada, 14 drilling rigs in the United States and three workover rigs in its international fleet. In accordance with its current practice, the Company will retain useful components from the decommissioned rigs for use in its current and future operations. In addition to the non-cash charge associated with the decommissioned equipment, the Company wrote down the value of several other drilling rigs in recognition of current market challenges for specific assets. In 2014, the Company added five new Automated Drill Rigs ("ADR®") to its drilling rig fleet: one in the Canadian market, two in the United States market and two in the international market. All of the newly constructed ADRs are subject to long-term contracts. The new build program also added three new well servicing rigs; one in Canada and two in the United States. The Company increased its dividend in the fourth quarter of 2014 to a quarterly dividend rate of $0.1200 per common share, a 2.1 percent increase from the previous quarterly dividend rate of $0.1175 per common share. The Company declared total dividends of $0.4725 per common share in 2014, a 5.6 percent increase from dividends of $0.4475 per common share declared in 2013. The Company first started paying a dividend 20 years ago and has increased its annual dividend at a 16 percent compound annual growth rate from 1995 to the current year. The Company exited 2014 with working capital of $189.7 million compared to a working capital deficit of $71.1 million at December 31, 2013. The majority of the change in the Company's working capital position is due to the amendment of the global revolving credit facility (the "Global Facility") in June 2014 to a three-year term. The Company's expanded bank credit facilities provide available borrowings of $161.5 million at December 31, 2014 compared to $70.7 million at December 31, 2013.
2014 Highlights
Revenue for the year ended December 31, 2014 was the highest in the Company's history totaling $2,321.8 million, an increase of 11 percent from revenue for the year ended December 31, 2013 of $2,098.0 million. This was a direct result of equipment fleet additions and upgrades as well as stronger demand in the United States and international markets. The Company recorded revenue of $602.7 million for the three months ended December 31, 2014, a 12 percent increase from the $536.0 million recorded in the three months ended December 31, 2013. Demand for oilfield services in the latter part of 2014 was hampered by growing uncertainty regarding the impact, particularly in North America, of a lower oil and gas commodity price environment. Demand for international oilfield services remained steady in many of the areas in which the Company operates, producing generally stronger financial results in 2014 compared to 2013. Revenue generated in the Company's United States and international operations were positively impacted upon translation to Canadian dollars by a seven percent increase in the Canadian/United States dollar exchange rate in 2014 compared to the prior year. Gross margin as a percentage of revenue remained consistent in 2014 with the prior year at 27.4 percent. Gross margin as a percentage of revenue for the fourth quarter of 2014 increased to 28.1 percent compared to 25.4 percent for the fourth quarter of the prior year. Increased costs for labor and higher major maintenance expenditures negatively impacted margins throughout much of 2014. Several international rigs, which began work early in 2014, incurred start-up costs towards the end of 2013. Such expenditures negatively impacted 2013 gross margins.
The Company recorded revenue of $666.1 million in Canada for the year ended December 31, 2014, a one percent increase from $661.0 million recorded in the year ended December 31, 2013. Revenue generated in Canada increased six percent to $167.2 million for the three months ended December 31, 2014, from $158.5 million for the three months ended December 31, 2013. In the fourth quarter of 2014, Canadian revenues accounted for 28 percent of total revenue (2013 – 30 percent), and during the year ended December 31, 2014, Canadian revenues were 29 percent of total revenue (2013 – 32 percent). The 2014 fiscal year ended relatively strong with respect to operational and financial results for the Company's Canadian operations. However, reductions in the price of crude oil in the second half of 2014 have negatively affected the demand for oilfield services going into the winter drilling season. Utilization and revenue rates for the Company's Canadian oilfield services started to decline towards year-end as the Company's customers began to reduce planned levels of capital expenditures in reaction to the steep decline in crude oil prices. In the prior year, Canadian activity levels had been negatively impacted by unfavorable price differentials for Canadian oil and gas commodities and the impact of a particularly wet spring break-up. These negative impacts were somewhat offset by the positive impact from the expansion of the Company's Canadian oilfield equipment rental and directional drilling equipment fleets in the second quarter of 2013. During the year ended December 31, 2014, operating days recorded by the Company's Canadian operations increased two percent compared to the level of activity in the prior year. Operating days in the fourth quarter of 2014 increased five percent from the fourth quarter of 2013. Canadian well servicing hours increased by three percent in the year ended December 31, 2014 and by three percent in the fourth quarter compared to the comparable period in the prior year. The Company continues to transition its Canadian drilling fleet from shallow drilling rigs to deeper drilling rigs in response to changing market dynamics. In Canada, the Company added one new build ADR® drilling rig and one new well servicing rig; transferred in two existing drilling rigs from the United States and one drilling rig from Gabon; transferred out three drilling rigs to Australia; and decommissioned or disposed of 32 inactive drilling rigs and 25 inactive well servicing rigs in 2014.
The Company's United States operations recorded revenue of $1,026.6 million for the year ended December 31, 2014, up 15 percent from revenue of $890.8 million for the year ended December 31, 2013. Revenue recorded in the United States was $272.0 million in the fourth quarter of 2014, a 15 percent increase from the $235.8 million recorded in the corresponding period of the prior year. The Company's United States operations accounted for 45 percent of the Company's revenue in the fourth quarter of 2014 (2013 - 44 percent); and 44 percent of the Company's revenue in 2014 (2013 - 42 percent), making it the largest contributor to consolidated revenues in 2014, consistent with the prior year. Drilling rig operating days increased by three percent from 22,955 operating days in 2013 to 23,577 operating days in 2014. During the fourth quarter of 2014 the Company recorded 5,860 operating days in the United States, an increase of one percent over 5,778 operating days recorded during the fourth quarter of the prior year. Well servicing activity expressed in operating hours increased by 15 percent in 2014 compared with 2013. Well servicing hours in the fourth quarter of 2014 were down two percent compared to the fourth quarter of the prior year. Overall operating and financial results for the Company's United States operations improved for the year ended December 31, 2014 compared to the prior year. The United States operations enjoyed improved pricing and utilization for the majority of 2014 compared to 2013, when the demand for oilfield services by the Company's customers had been restrained in several regions and did not begin to show signs of recovery until later in the year. After experiencing improved levels of activity and customer demand through the first half of 2014 compared to the prior year, the industry was impacted by uncertain oil and gas commodity prices in the second half of 2014 that caused the demand for oilfield services to decline in certain areas. Offsetting the impact of this decrease were recent additions to the Company's United States fleet as described below and the impact on translation of the strengthening of the United States dollar against the Canadian dollar in the current year compared to 2013. The average United States dollar foreign exchange rate increased approximately seven percent during 2014 compared to 2013. During 2014, the Company added two new build ADR and two new well servicing rigs to its United States fleet; transferred one drilling rig to its international equipment fleet; transferred two drilling rigs to the Canadian fleet; and decommissioned or disposed of 21 inactive drilling rigs and two inactive well servicing rigs in the United States.
International revenue totaled $629.1 million for the year ended December 31, 2014, a 15 percent increase from $546.2 million in 2013. International revenue totaled $163.5 million in the fourth quarter of 2014, a 15 percent increase from $141.7 million recorded in the corresponding period of the prior year. International operations contributed 27 percent of the Company's revenue in the fourth quarter of 2014 (2013 - 26 percent) and 27 percent in the year ended December 31, 2014 (2013 - 26 percent). The Company's international operations recorded 11,339 operating days in 2014, relatively unchanged from the 11,384 operating days recorded in 2013. International operating days for the three months ended December 31, 2014 decreased eight percent over the comparable prior year period to 2,649 operating days compared to 2,888 operating days in the fourth quarter of 2013. The Company's international operations benefited from contributions from the new build and retrofitted drilling rigs added to the international equipment fleet in 2013 and 2014. The Company expanded its operations late in 2013 with the start-up of one drilling rig deployed in Kurdistan. In 2014, the Company added two new build ADRs to the Australian fleet; transferred in three existing drilling rigs to the Australian fleet from Canada; transferred one existing drilling rig to Argentina from the United States; transferred one existing drilling rig from Gabon to Canada; and decommissioned three workover rigs. The positive impact of the net increases to the Company's international equipment fleet was somewhat muted by the completion of a contract in Gabon in early 2014, the suspension of operations in Libya due to an escalation of civil unrest in the third quarter and a slowdown in activity in Australia late in the year as the first stage of LNG-related development drilling was completed and operators shifted their focus to the start-up and commissioning of some of the recently completed LNG trains. Generally speaking, the reduction in crude oil prices in the second half of 2014 has not yet had a significant impact on the demand for international oilfield services due to the longer-term nature of such projects. However, the lower crude oil price is expected to create challenges for Venezuela due to the heavy economic reliance on energy revenues in the country. Consistent with the translation of financial results from the Company's United States operations, the operating results from the Company's international operations were improved on translation into Canadian dollars by the seven percent strengthening of the United States dollar relative to the Canadian dollar in 2014 when compared to the prior year.
Depreciation expense increased 20 percent to $298.9 million for the year ended December 31, 2014 compared with $248.0 million for the year ended December 31, 2013. Depreciation expense totaled $79.3 million for the fourth quarter of 2014 compared with $69.2 million for the fourth quarter of 2013, an increase of 15 percent. Higher depreciation expense in 2014 over 2013 was attributable to higher valued equipment being added to the Company's global fleet in recent years through the new build program in addition to the impacts of the Canadian acquisitions of the oilfield rental assets of EGOC Enviro Group of Companies Ltd. ("EGOC"), and the directional drilling assets of Departure Energy Services Inc. ("Departure") in the second quarter of 2013.
General and administrative expense totaled $97.9 million (4.2 percent of revenue) for the year ended December 31, 2014 compared with $88.1 million (4.2 percent of revenue) for the year ended December 31, 2013, an increase of 11 percent. General and administrative expense increased 12 percent to $26.6 million (4.4 percent of revenue) for the fourth quarter of 2014 compared with $23.7 million (4.4 percent of revenue) for the fourth quarter of 2013. The increase in general and administrative expense reflects the negative translational impact of a stronger United States dollar on United States and international administrative expenses in the current year and increased costs to support growing international operations. Additionally, general and administrative expense in the 2014 fiscal year and fourth quarter include costs relating to improvements made by the Company to its administrative and cost structure to compete more effectively in a lower commodity price environment.
As a result of a detailed review of its equipment fleet in light of current market conditions, the Company has reduced its marketed equipment fleet in the fourth quarter of 2014 by decommissioning 18 drilling rigs and 21 well servicing rigs in Canada, 14 drilling rigs in the United States and three workover rigs in its international fleet. In accordance with its current practice, the Company will retain useful components from the decommissioned rigs for use in its current and future operations. In addition to the non-cash charge associated with the decommissioned equipment, the Company wrote down the value of several other drilling rigs in recognition of current market challenges for specific assets.
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 market price of the Company's common shares. For 2014, share-based compensation was a recovery of $13.6 million compared with an expense of $2.0 million for the year ended December 31, 2013. For the three months ended December 31, 2014, share-based compensation recovery was $5.9 million compared with a recovery of $4.0 million recorded in the fourth quarter of 2013. The change in share-based compensation for the three and twelve months ended December 31, 2014 arises from the change in the fair value of share-based compensation liability primarily due to a decrease in the market price of the Company's common shares during the year. The closing price of the Company's common shares was $10.20 as at December 31, 2014 compared with $16.73 at December 31, 2013.
Interest is incurred on the Company's bank credit facilities, comprised of the $10.0 million Canadian-based revolving credit facility (the "Canadian Facility") and the expanded and extended $600.0 million Global Facility, and the USD $300.0 million 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 for the years ended December 31, 2014 and 2013. Interest expense in 2014 increased 15 percent compared to 2013 due to increased draws on the expanded Global Facility and the negative translational impact of a stronger United States dollar on United States and international interest expense in the current year. For the three months ended December 31, 2014 interest expense decreased one percent to $5.3 million compared to the comparative period in 2013. Interest income was lower in 2014 compared to 2013 as a result of lower average balances of interest-earning cash and cash equivalents in 2014 compared to the prior year.
Included in this amount are foreign currency movements, mainly in the Company's subsidiaries that have functional currencies other than Canadian dollars. During the year ended December 31, 2014 the Australian dollar weakened by approximately nine percent against the United States dollar causing a foreign currency loss on translation of the Company's United States dollar denominated debt into Australian dollars. When compared to other world currencies, the United States dollar generally strengthened in 2014 compared to 2013.
For the year ended December 31, 2014, the Company's effective income tax rate was 36.1 percent compared with 34.6 percent for the year ended December 31, 2013. The effective income tax rate for the three months ended December 31, 2014 was 30.8 percent compared with 26.5 percent for the three months ended December 31, 2013. The increase in the overall effective tax rate in 2014, when compared with 2013, is due to an increased proportion of taxable income earned in higher rate jurisdictions, including those which assess tax on deemed income as a percentage of gross revenue. Additionally, the change in effective tax rate in the fourth quarter 2014, when compared with the fourth quarter of 2013, is due to the impact of inflationary adjustments in certain foreign jurisdictions, where the accounting adjustments differ from the tax adjustments. Financial Position The following chart outlines significant changes in the consolidated statement of financial position from December 31, 2013 to December 31, 2014:
Funds from operations totaled $491.9 million ($3.22 per common share) for 2014, an increase of 13 percent compared to $435.6 million ($2.85 per common share) generated in 2013. During the three months ended December 31, 2014, the Company generated funds from operations of $132.3 million ($0.87 per common share) compared with $101.2 million ($0.66 per common share) for the three months ended December 31, 2013, an increase of 31 percent. The increase in funds from operations in 2014 compared to 2013 is due to increased demand for both North American and international oilfield services and contributions from the additions and upgrades to the Company's global equipment fleet through the new build and major retrofit program. At December 31, 2014, the Company's working capital was $189.7 million compared to a working capital deficit of $71.1 million at December 31, 2013. The Company's working capital resources fund the ongoing new build and major retrofits construction programs that as at December 31, 2014 are anticipated to deliver an additional eight new build ADR® drilling rigs and two major retrofits to existing drilling rigs in 2015. The Company expects funds generated by operations, combined with current and future credit facilities, to fully support current operating and capital requirements. The newly expanded bank credit facilities provide for total borrowing of up to $610.0 million, of which $161.5 million was available at December 31, 2014.
Purchases of property and equipment for the year ended December 31, 2014 totaled $583.0 million (2013 - $342.2 million) and for the three months ended December 31, 2014 totaled $157.3 million (2013 - $106.9 million). The purchases of property and equipment relate primarily to expenditures made pursuant to the Company's new build and major retrofit program. Significant additions in 2014 as a result of the new build program include:
During the second quarter of 2013 the Company acquired the rental assets of EGOC and the directional drilling assets of Departure.
The Company's available bank credit facilities consist of an expanded and extended $600.0 million Global Facility and a $10.0 million 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 $600.0 million Canadian dollars. The amount available under the Canadian Facility is $10.0 million or the equivalent in United States dollars. During the second quarter of 2014, the Company amended its existing Global Facility, increasing the amount available from $400.0 million to $600.0 million and extending the term for three years. Net draws of the Global Facility for the year ended December 31, 2014 were mainly used to fund the ongoing new build and major retrofit programs that added five new ADR® drilling rigs to the Company's global fleet in 2014, one in Canada, two in the United States and two in Australia; as well as to complete six major retrofits to existing drilling rigs, two in Canada and four in international operations. As of December 31, 2014, the Global Facility is primarily being used to fund the Company's current new build and major retrofit programs and to support international operations. During the first quarter of 2014, the Company secured a $20.0 million uncommitted facility, solely for issuing letters of credit, that is used primarily for bidding on contracts in the normal course of business. As at December 31, 2014, $11,901 was drawn on the facility. On September 25, 2014 the Company received approval from the Toronto Stock Exchange to acquire for cancellation up to three percent of the Company's issued and outstanding common shares under a Normal Course Issuer Bid (the "Bid"). The Company may purchase up to 4,600,477 common shares for cancellation. The Bid commenced on September 29, 2014 and will terminate on September 28, 2015 or such earlier time as the Bid is completed or terminated at the option of the Company. As at December 31, 2014, 289,100 common shares were purchased at an average price of $12.38 and cancelled pursuant to the Bid. The Company previously had a Normal Course Issuer Bid that commenced on June 25, 2013 and terminated on June 24, 2014, under which no common shares were purchased and cancelled. The Company declared dividends of $0.4725 per common share in the 2014 fiscal year, an increase of 5.6 percent over dividends of $0.4475 per common share declared in 2013. No employees exercised stock options to acquire common shares in 2014; the Company received $2.0 million from the issuance of common shares in connection with exercises pursuant to the employee stock option program in 2013. Subsequent to December 31, 2014, the Company declared a dividend for the first quarter of 2015. A quarterly dividend of $0.1200 per common share is payable April 2, 2015 to all Common Shareholders of record as of March 25, 2015. The dividend is pursuant to the quarterly dividend policy adopted by the Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act ("ITA"), the dividend being paid is designated as an eligible dividend, as defined in subsection 89(1) of the ITA. New Builds and Major Retrofits During the year ended December 31, 2014 the Company commissioned one new ADR® drilling rig in Canada; two new ADRs in the United States; two new ADRs in Australia; retrofitted two drilling rigs transferred from the United States to Canada; retrofitted three drilling rigs transferred from Canada to Australia; and retrofitted one drilling rig transferred from the United States to Argentina. In addition, two new well servicing rigs were added to the United States fleet; and one new well servicing rig was added to the Canadian well servicing fleet. The Company continues to build new ADR® drilling rigs and upgrade existing rigs to meet the increasing technical demands of its customers. However, the recent decline in crude oil prices has resulted in the Company proactively and aggressively reducing the current rig build program. The Company's new build program currently consists of plans to construct eight new build ADRs that will be added to its fleet by the third quarter of 2015. A total of two major retrofits are currently planned for the United States market in 2015. The estimated delivery schedule for new ADRs and major retrofits of existing drilling rigs under construction at December 31, 2014 is as follows:
Outlook The precipitous drop in oil and gas commodity prices through the last half of 2014 has resulted in reduced cash flows for exploration and production companies and, consequently, a reduction in demand for oilfield services, particularly in North America. In the face of global supply growth for crude oil exceeding global demand growth, the Organization of the Petroleum Exporting Countries ("OPEC"), at its meeting in November 2014, refused to reduce its production quotas in an apparent effort to maintain market share and squeeze higher cost production from non-OPEC countries, such as the United States. The United States Department of Energy (the "DOE") has noted that the impact of increased drilling productivity in the United States could mean that fewer drilling rigs may be needed to maintain and grow production levels in the future. If the DOE is correct, then even with a meaningful reduction in the number of operating drilling rigs it may be some time before United States crude oil production levels begin to fall to levels that allow the rebalancing of global crude oil supply and demand, absent any supply response from OPEC. Until this rebalancing occurs, crude oil prices and associated oilfield service activity levels are likely to remain depressed and volatile. Data sourced from the United States Energy Information Administration (the "EIA") indicates that the current imbalance in supply and demand for crude oil has resulted in the WTI spot price for crude oil reaching lows of USD$44.08 per barrel on January 28, 2015 before moving to a recent price of USD$49.95 per barrel on March 9, 2015. One year ago, on March 7, 2014, the spot price for WTI was USD$102.82 per barrel. While many of the headlines have focused on the drop in the spot price for crude oil, natural gas has suffered a similar fate in North America. The EIA data shows that the Henry Hub natural gas spot price hit a recent low of USD$2.62 per million Btu on February 9, 2015 before recovering slightly to a recent spot price of USD$2.75 per million Btu on March 9, 2015 as colder weather returned to the natural gas consuming regions of North America. One year ago, on March 7, 2014, the Henry Hub spot price for natural gas was USD$4.78 per million Btu as North America was finishing up a colder than normal winter and natural gas storage approached lower winter season-ending inventory levels. The lower commodity price environment has placed downward pressure on equipment utilization and rates in the Company's Canadian operations. The Canadian Association of Oilwell Drilling Contractors (the "CAODC") recently lowered its drilling forecast to 76,696 operating days for the 2015 fiscal year. This represents an expected reduction of 41% from the 131,021 operating days recorded by the industry in the 2014 fiscal year. In addition to the reduction in rig and equipment utilization, the Company also expects that revenue rates in Canada may reduce by approximately 20% in the current environment. The Company's activity levels in the first quarter of 2015 are reflective of both the CAODC's bearish outlook for the Canadian industry and the current commodity price environment. The Baker Hughes Rig Count shows weekly declines in the number of operating drilling rigs in the United States as operators defer, reduce or curtail their programs in light of reduced levels of cash flows and refocus on more profitable areas. The Baker Hughes Rig Count has dropped by 619 drilling rigs in the United States since the start of 2015 to 1,192 operating drilling rigs on March 6, 2015. One year ago, on March 7, 2014, the Baker Hughes Rig Count stood at 1,792 drilling rigs in the United States. The drilling rig count recently peaked at 1,931 drilling rigs on September 19, 2014. Despite the large drop in operating drilling rigs in the United States, the Company's active rig count has remained somewhat resilient everywhere except for California, where operators reacted very quickly to a lower crude oil price environment. There has also been pressure on rig revenue rates similar to the 20% reductions seen in Canada. The Company expects that activity levels in the Rocky Mountain and southern regions of its United States operations will soon begin to fall in line with experience in the industry elsewhere in North America. The longer term nature of the international oilfield services market means that activity levels are slower to increase or decrease in reaction to changes in oil and gas commodity prices. Accordingly, oilfield service activity levels outside North America have not reduced in reaction to the lower oil and gas commodity price environment to the same extent as in Canada and the United States. Challenges in some of the Company's international operations persist due to geopolitical, civil unrest, economic constraints and other factors inherent in international operations; however, several of the Company's drilling rigs that were either newly built or significantly refurbished for transfer from other markets in the recent past have now commenced operations and this has partially mitigated overall challenges. Softness in the global economy outside the United States, tensions in Eastern Europe and sectarian violence in the Middle East continue to weigh on global energy demand prospects. There are also numerous views regarding the length of time over which global crude oil supply and demand will eventually rebalance. Until such a rebalancing occurs and oil and gas commodity prices recover, the oilfield services industry will face some challenging times as activity levels and pricing remain depressed. In such a challenging environment, the Company has been proactive in making difficult choices designed to preserve the balance sheet and streamline its operations. The 2015 capital expenditures budget has been reduced since December 2014 and now sits at $220 million, including the costs to complete eight drilling rigs under the Company's reduced new build program. The Company has also initiated plans to address its administrative and supervisory structure to ensure that the Company is cost effective in the new commodity price environment. Additionally, the salaries for the Company's senior executives and fees to its directors have recently been reduced in anticipation of the challenging times ahead for the industry. Supply and demand fundamentals will ultimately determine when oil and gas commodity prices will recover and consequently improve demand for oilfield services. The Company is preparing for what may be a slow recovery and is monitoring what may become a new "normal" for the industry. Accordingly, the Company has intensified its focus on costs and efficiencies to lower its overall cost structure and maintain its competitiveness. The Company believes its proactive response to market conditions, coupled with recent additions and improvements to its equipment fleet resulting from its new build and major refurbishment program, have positioned it to respond to customers' desires for premium oilfield services equipment and services around the world in the challenging prevailing market environment. Risks and Uncertainties This document contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, political, economic and market conditions, crude oil and gas natural 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 year-end 2014 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, March 16, 2015. The conference call number is (647) 427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until March 23, 2015 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 35104277. 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.
SOURCE Ensign Energy Services Inc.  For further information: Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361. |
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