Ensign Energy Services Inc. Reports Increase in 2011 First Quarter Earnings2011-05-09 CALGARY, May 9 /CNW/ - Overview Ensign Energy Services Inc. ("Ensign" or the "Company") began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS") effective January 1, 2011. Accordingly the financial results for the three months ended March 31, 2011, and all comparative information, has been prepared in accordance with IFRS. The Company recorded revenue of $502.2 million in the three months ended March 31, 2011, an increase of 42 percent from revenue of $352.8 million recorded in the first quarter of the prior year. Net income for the first quarter of 2011 increased 105 percent to $79.7 million ($0.52 per common share) compared to net income of $38.8 million ($0.25 per common share) for the first quarter of 2010. EBITDA (defined as earnings before interest, taxes, depreciation, amortization, and share-based compensation) totaled $170.3 million in the first quarter of 2011, 82 percent higher than EBITDA of $93.7 million in the first three months of 2010. Similarly, funds from operations increased 78 percent to $154.5 million ($1.01 per common share) in the first three months of 2011 from $86.7 million ($0.57 per common share) in the first three months of the prior year. The improved start to the 2011 financial year is directly attributable to improved operating and financial results from the Company's Canadian and United States operations resulting from improved levels of demand for oilfield services in the first quarter of 2011 compared to the prior year. The Company's international financial contributions also improved slightly from the prior year despite the negative translational impact from a weakening United States dollar. Gross margin improved to $171.9 million (34.2 percent of revenue) for the first quarter of 2011 compared with gross margin of $109.6 million (31.1 percent of revenue) for the first quarter of 2010. Increased demand for oilfield services resulted in improved margins in the first quarter of 2011 as spot prices, particularly in Canada, improved in line with the increased level of operating activity. Additionally, the level of major maintenance expenditures subsided in the first quarter of 2011 compared to the prior two quarters when much of the maintenance was completed in anticipation of increased levels of demand for oilfield services, particularly for the Canadian winter drilling season. Working capital at March 31, 2011 was $147.5 million compared to $84.5 million at December 31, 2010. Positive working capital, no long term debt and improved levels of funds from operations will enable the Company to fund its current new build program, which will deliver 22 new state-of-the-art drilling rigs and 19 well servicing rigs over the next 12 to 15 months. These new builds will continue to expand the technical capabilities of the Company's extensive oilfield services equipment fleet.
1 EBITDA is defined as "income before interest expense, income taxes,
depreciation and share-based compensation
(recovery)/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 share-based compensation
plans. EBITDA and EBITDA per share as defined above are not recognized
measures under International Financial Reporting Standards and
accordingly may not be comparable to measures used by other companies.
Revenue and Oilfield Services Expense
Revenue recorded in the first quarter of 2011 totaled $502.2 million, an increase of 42 percent over the first quarter of 2010. As a percentage of revenue, gross margin for the first quarter of 2011 increased to 34.2 percent from 31.1 percent for the first quarter of 2010. The increases in revenue in Canada and the United States are a reflection of higher activity levels in crude oil and liquids-rich natural gas resource plays. The increased demand for oilfield services has resulted in improved margins. The pricing pressures arising from the excess supply of oilfield services equipment experienced over the past two years were reduced as a result of the higher activity levels. International revenues were up slightly over the prior year as the Company's Latin American operations held steady and activities in the eastern hemisphere generally increased, despite temporary weather setbacks in Australia and the disruption of activity related to the ongoing public protests in parts of north Africa and the Middle East. Canadian Oilfield Services Revenue increased 54 percent to $275.2 million for the three-months ended March 31, 2011, from $178.9 million for the three months ended March 31, 2010. Canadian revenues accounted for 55 percent of the Company's total revenue in the first quarter of 2011, compared with 51 percent in the first quarter of 2010. Increased revenues were attributable to higher equipment utilization, combined with increased day rates. Drilling days in the current quarter of 7,927 days were 21 percent higher than the 6,554 days for the first quarter of 2010. Canadian well servicing hours increased by three percent to 39,521 hours in the first quarter of 2011 compared with 38,280 hours in the same period of 2010. During the three months ended March 31, 2011, the Company decommissioned eight drilling rigs in its Canadian fleet. The Company will retain the serviceable components from these drilling rigs to support the remainder of its drilling rig fleet. United States Oilfield Services The Company's United States operations recorded revenue of $148.5 million in the first quarter of 2011, a 43 percent increase from the $104.0 million recorded in the corresponding period of the prior year, in spite of the negative translational impact given the approximately six percent weakening of the United States dollar relative to the Canadian dollar in the first quarter of 2011 compared to the first quarter of 2010. The United States segment accounted for 29 percent of the Company's revenue in the first quarter of 2011 consistent with the same period in 2010. Increased revenue was largely attributable to an increase in drilling operating days of 31 percent to 4,266 days in the first quarter of 2011 versus 3,262 days in the first quarter of 2010. Additionally, well servicing hours increased 52 percent from 11,504 hours in the first three months of 2010 to 17,450 hours in the first three months of 2011. During the three months ended March 31, 2011, the Company mobilized two additional drilling rigs and two additional well servicing rigs in California, where demand for oilfield services remains steady, due to a focus on crude oil in the area. International Oilfield Services The Company's international operations recorded revenue of $78.5 million in the first quarter of 2011, a 12 percent increase from $70.0 million recorded in the corresponding period of the prior year. Similar to the United States segment, the increase in revenue in the segment was tempered by the negative translational impact of the weakening United States dollar relative to the Canadian dollar. The international segment contributed 16 percent of the Company's revenue in the first quarter of 2011 compared with 20 percent in the same period of 2010. International operating days for the three months ended March 31, 2011 totaled 2,665 days compared with 2,228 days in 2010, an increase of 20 percent. A significant portion of the increase in operating days is attributable to Latin America, as operations in Venezuela improved significantly on a year-over-year basis after the resumption of operations in the first quarter of 2010. The Company's international operations were challenged in a few key areas during the first quarter of 2011, as the Company worked through weather-related issues in Australia, as well as regional geopolitical issues in north Africa and the Middle East. Funds from Operations and Working Capital
1 Comparative figure as of December 31, 2010. During the three months ended March 31, 2011, the Company generated funds from operations of $154.5 million ($1.01 per common share) compared with funds from operations of $86.7 million ($0.57 per common share) for the three months ended March 31, 2010, an increase of 78 percent. At March 31, 2011, the Company's working capital totaled $147.5 million, compared to $84.5 million at December 31, 2010, an increase of 74 percent. These increases are primarily attributable to higher operating activity levels in North America during the first quarter of 2011 compared to those during the fourth quarter of 2010; and are further driven by contributions from the new equipment added pursuant to the new build program. The Company's strong working capital position and existing credit facilities are expected to adequately support its future operations and capital expansion initiatives. Existing credit facilities provide for total borrowings of $210.0 million, of which $55.4 million was available as at March 31, 2011. The Company exited the first quarter with a strong balance sheet and no long-term debt. Investing Activities
Net purchases of property and equipment during the first quarter of 2011 totaled $66.7 million (2010 - $26.7 million). The net purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's ongoing new build program, as well as other capital expenditures. Financing Activities
The Company's available operating lines of credit consist of a $200 million global revolving credit facility (the "Global Facility") and a $10 million Canadian based revolving credit facility (the "Canadian Facility"). The Global Facility is available to the Company and any of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $200 million Canadian dollars. The amount available under the Canadian Facility is $10 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, 2011, 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. The Board of Directors of the Company has declared a second quarter dividend of $0.095 per common share to be payable July 6, 2011 to all Common Shareholders of record as of June 21, 2011. 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 In response to continued customer demand for new oilfield services equipment to meet the growing technical demands of resource plays, the Company's new build program will result in 22 new ADR™ style drilling rigs and 19 new well servicing rigs being constructed for delivery throughout 2011 and early 2012. One drilling rig has been allocated to the international segment; 11 drilling rigs and 15 well servicing rigs have been allocated to the United States; and the remaining 10 drilling rigs and four well servicing rigs have been allocated to Canada. The Company plans to fund the construction program using internally generated cash flows and available operating lines of credit. The new build delivery schedule, by geographic area, is as follows:
Outlook The energy sector currently faces many challenges that will ultimately impact future activity levels. Crude oil prices have risen in recent quarters on the back of concerns over potential disruptions to future energy supplies. Such concerns run the gamut from the increasing challenges of replacing reserves in many oil producing regions of the world to the impact of events of public protest in parts of north Africa and the Middle East to the impact on energy supplies from the earthquake-related disaster in Japan. Short term the concern over crude oil supply and the impact on crude oil prices serves as a positive driver for oilfield services activity levels; however, there is concern that rising crude oil pricing levels, if left unchecked, could hurt the fragile global economic recovery and ultimately lead to lower levels of demand. Against the backdrop of rising crude oil prices on the global stage, there has been an increase in demand for oilfield services aimed at crude oil projects throughout North America, but overall levels of North American activity continue to be negatively impacted by a lingering over-supply of natural gas. Reduced levels of demand in North America for energy in general, and natural gas in particular, coming out of the last economic recession have hit at a time of rising levels of supply of natural gas due to the technical success of many of the new natural gas resource plays. It will likely take a number of years before there is a rebalancing of natural gas supply and demand fundamentals and a more "normal" correlation between natural gas prices and crude oil prices resumes. Drilling days in the Company's Canadian operations increased 21 percent in the first quarter of 2011 when compared to the first quarter of 2010. The strength and positive outlook for crude oil fundamentals drove activity levels higher in the 2010/11 winter drilling season. As anticipated, margins are also improving into 2011, a positive reaction to increased levels of demand for oilfield services and as a result of a reduction in the required levels of major maintenance expenditures, as much of these expenditures were previously incurred to prepare portions of the Company's fleet for higher activity levels. The Company expects improved levels of demand for oilfield services in the coming year, as its customers continue to focus on crude oil and liquids-rich natural gas resource plays. Rising activity levels do not occur without challenges. The Canadian energy services industry continues to be challenged by crew labor constraints; and there remains the possibility of an extended spring break-up as field conditions in western Canada transform from prolonged winter conditions. The Company's United States operations increased drilling operating days in the first quarter of 2011 by 31 percent over the same quarter of 2010, as its customers increased the demand for oilfield services to take advantage of rising crude oil prices. For the broader energy services industry in the United States, the current cycle of natural gas drilling appears to have peaked, with rigs drilling for natural gas trending down in 2011 compared to the prior year. Current challenging supply and demand fundamentals for natural gas are further exacerbated by expanding domestic production capacity, resulting in constrained natural gas prices in the short term. The demand for United States oilfield services into the second quarter and for the balance of 2011 will be supported by expected continuing favorable economics for crude oil and liquids rich natural gas resource plays. The Company currently has nine new ADR drilling rigs under construction for its United States operations to meet the growing demand for new technology to effectively develop such resource plays. Consistent with the Company's increased utilization in the first quarter of 2011, its expectations are for continued improvements in the operational and financial contributions from its United States oilfield services division through the balance of 2011. The Company's international operations experienced a 20 percent increase in drilling operating days in the first quarter of 2011 when compared to the corresponding quarter of 2010; however, activity levels were relatively flat in comparison to the previous two quarters. Operating days are expected to show a positive trend for the remainder of the year, as the adverse effects of wet weather in Australia subside and the Company is able to effect improvements in Latin America. The Company still faces challenges in certain of its eastern hemisphere operations due to continuing political unrest in parts of north Africa and the Middle East. The Company remains hopeful that tensions will subside and it can resume normal operations in the near future. Overall, the Company continues to anticipate slow but steady growth in its international operations. Favorable crude oil supply and demand fundamentals are expected to drive improved levels of demand for oilfield services through the remainder of 2011. The Company's strong balance sheet, increasing profitability and prudent cash management will support its focus on pursuing opportunistic growth, and it anticipates expansion benefits from the fleet modernization and expanding new build programs. 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. Transition to IFRS Additional details and disclosure with respect to the effect of the Company's transition to IFRS will be included in the consolidated financial statements for the three months ended March 31, 2011 and the related management's discussion and analysis ("MD&A") of such financial statements. These documents will be filed with regulators and available to all interested parties in due course. Conference Call A conference call will be held to discuss the Company's first quarter 2011 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 9, 2011. 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 16, 2011 by dialing 1-416-849-0833 (in Toronto) or 1-800-642-1687 (outside Toronto) and entering the reservation number 58623790. 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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