Ensign Energy Services Inc. Reports 2010 First Quarter Earnings2010-05-10 CALGARY, May 10 /CNW/ -
Overview
Ensign Energy Services Inc. (the "Company") recorded revenues of $352.8 million for the first quarter of 2010, a decrease of 12 percent from revenues of $400.4 million for the comparable quarter of 2009. Net income for the three months ended March 31, 2010 was $40.0 million ($0.26 per common share), a decline of 45 percent from $72.7 million compared to the first quarter of 2009. EBITDA (as defined below) totaled $94.9 million ($0.62 per common share) for the three months ended March 31, 2010 compared to EBITDA of $128.4 million ($0.84 per common share) for the three months ended March 31, 2009, a decline of 26 percent. Funds from operations increased six percent to $87.3 million ($0.57 per common share) during the first quarter of 2010 from $82.0 million ($0.54 per common share) in same period of the prior year. The decrease in the Company's first quarter financial results compared to the prior year is attributable to overall lower pricing which was partially offset by higher equipment utilization during the three months ended March 31, 2010. Further, the results of the United States and international operations in the first three months of 2010 were negatively impacted by the strengthening of the Canadian dollar, compared to the same period in 2009. Gross margin was $107.7 million (30.5 percent of revenues) for the first quarter of 2010 compared with $140.6 million (35.1 percent of revenues) in the first quarter of 2009. Gross margin deteriorated compared to the prior year as base revenue rates in the first quarter of 2010 reflect the deterioration of revenue rates that occurred throughout much of 2009. Spot prices for uncontracted oilfield services equipment remained weak in the quarter due to relatively low demand and an oversupply of equipment in Canada and the United States. Working capital at March 31, 2010 was $156.4 million compared to $107.9 million at December 31, 2009. Positive working capital and no long-term debt means that the balance sheet remains a source of strength for the Company. A strong balance sheet, financial discipline, commitment to safety, geographic diversification and the drive to be a technological leader are the cornerstones of a proven strategy that will enable the Company to continue to grow opportunistically and generate positive returns throughout the challenges of a cyclical industry.
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FINANCIAL AND OPERATING HIGHLIGHTS
($ thousands, except per share data and operating information)
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Three months ended
March 31
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2010 2009 % change
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Revenue 352,839 400,420 (12)
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EBITDA(1) 94,943 128,415 (26)
EBITDA per share(1)
Basic $ 0.62 $ 0.84 (26)
Diluted $ 0.62 $ 0.84 (26)
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Adjusted net income(2) 39,825 70,149 (43)
Adjusted net income per share(2)
Basic $ 0.26 $ 0.46 (43)
Diluted $ 0.26 $ 0.46 (43)
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Net income 40,030 72,686 (45)
Net income per share
Basic $ 0.26 $ 0.47 (45)
Diluted $ 0.26 $ 0.47 (45)
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Funds from operations(3) 87,296 82,005 6
Funds from operations per share(3)
Basic $ 0.57 $ 0.54 6
Diluted $ 0.57 $ 0.54 6
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Weighted average shares
- basic (000s) 153,228 153,135 -
Weighted average shares
- diluted (000s) 153,445 153,191 -
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Drilling
Number of marketed rigs
Canada
Conventional 146 158 (8)
Oil sands coring/coal bed methane 28 28 -
United States 80 76 5
International(4) 58 44 32
Operating days
Canada 6,554 5,136 28
United States 3,262 2,875 13
International 2,228 1,968 13
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Well Servicing
Number of marketed rigs/units
Canada 112 108 4
United States 18 18 -
Operating hours
Canada 38,280 31,649 21
United States 11,504 9,536 21
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(1) EBITDA is defined as "income before interest expense, income taxes,
depreciation and stock-based compensation expense". Management
believes that in addition to net income, EBITDA and EBITDA per share
are useful supplemental measures as they provide an indication of the
results generated by the Company's principal business activities
prior to consideration of how these activities are financed, how the
results are taxed in various jurisdictions or how the results are
impacted by the accounting standards associated with the Company's
stock-based compensation plan. EBITDA and EBITDA per share as defined
above are not recognized measures under Canadian generally accepted
accounting principles and accordingly may not be comparable to
measures used by other companies.
(2) Adjusted net income is defined as "net income before stock-based
compensation expense, tax-effected using an income tax rate of 35%".
Adjusted net income and adjusted net income per share are useful
supplemental measures as they provide an indication of the results
generated by the Company's principal business activities prior to
consideration of how the results are impacted by the accounting
standards associated with the Company's stock-based compensation
plan, net of income taxes. Adjusted net income and adjusted net
income per share as defined above are not recognized measures under
Canadian generally accepted accounting principles and accordingly may
not be comparable to measures used by other companies.
(3) Funds from operations is defined as "cash provided by operating
activities before the change in non-cash working capital". Funds from
operations and funds from operations per share are measures that
provide shareholders and potential investors with additional
information regarding the Company's liquidity and its ability to
generate funds to finance its operations. Management utilizes these
measures to assess the Company's ability to finance operating
activities and capital expenditures. Funds from operations and funds
from operations per share are not measures that have any standardized
meaning prescribed by Canadian generally accepted accounting
principles and accordingly may not be comparable to similar measures
used by other companies.
(4) Includes workover rigs.
Revenue and Oilfield Services Expense
Three months ended March 31
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($ thousands) 2010 2009 Change % change
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Revenue
Canada 178,878 181,114 (2,236) (1)
United States 103,955 127,704 (23,749) (19)
International 70,006 91,602 (21,596) (24)
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352,839 400,420 (47,581) (12)
Oilfield services
expense 245,168 259,797 (14,629) (6)
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107,671 140,623 (32,952) (23)
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Gross margin 30.5% 35.1%
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Revenue recorded in the first quarter of 2010 totaled $352.8 million, a decrease of 12 percent over the first quarter of 2009. As a percentage of revenue, gross margin for the first quarter of 2010 fell to 30.5 percent from 35.1 percent for the first quarter of 2009. Further, the results of the United States and international operations in the first three months of 2010 were reduced due to the strengthening of the Canadian dollar, compared to the same period in 2009. The reduction in revenues in North America was a reflection of low natural gas prices and an oversupply of oilfield service equipment, which, in turn, continues to negatively impact revenue rates. These pricing pressures are further reflected in the deterioration in gross margins despite in overall increase in operating activity during the three months ended March 31, 2010, compared to the same period in 2009. International revenues were down from the prior year as the Company's Latin American operations were in a period of transition.
Canadian Oilfield Services
--------------------------
Revenues decreased one percent to $178.9 million for the three months ended March 31, 2010, from $181.1 million for the three months ended March 31, 2009. Reductions in day rates were offset by an increase in operating days. The Canadian segment accounted for 51 percent of the Company's revenue in the first quarter of 2010 compared with 45 percent in the same period of 2009. In general, operating days were higher in the first quarter of 2010 as spring break-up began later than in the prior year. Drilling days recorded by the Canadian segment in the first quarter of 2010 increased by 28 percent to 6,554 days from 5,136 days for the comparable period of the prior year. Similarly, Canadian well servicing hours increased by 21 percent to 38,280 hours in the first quarter of 2010 compared with 31,649 hours in the same period of 2009. During the three months ended March, 31, 2010, 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
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The Company's United States operations recorded revenue of $104.0 million in the first quarter of 2010, a 19 percent decrease from the $127.7 million recorded in the corresponding period of the prior year. The impact from the weakening United States dollar relative to the Canadian dollar accounts for a major portion of the decrease in the United States segment revenues. Additionally, revenues were reduced due to lower pricing implemented during the fourth quarter of 2009 that was partially offset by an increase in operating days. The United States segment accounted for 29 percent of the Company's revenue in the first quarter of 2010 compared with 32 percent in the same period of 2009. In general, operating days were higher in the first quarter of 2010 as demand for oilfield services equipment in crude oil focused areas, such as North Dakota and California, increased due to favorable commodity prices. Drilling days recorded by the United States segment in the first quarter of 2010 increased by 13 percent to 3,262 days from 2,875 days for the comparable period of the prior year. Similarly, United States well servicing hours increased by 21 percent to 11,504 hours in the first quarter of 2010 compared with 9,536 hours in the same period of 2009. The United States industry's land drilling rig count has recovered significantly from its lows experienced in mid 2009 but the industry continues to operate well below the historical highs of 2008. Weakened market conditions have resulted in increased competition and reduced margins for the rigs working in the spot market. During the three months ended March 31, 2010, the Company mobilized an additional rig in each of the unconventional shale gas plays of Haynesville and Marcellus and now has two rigs operating in each area. In addition, the Company decommissioned two drilling rigs in its United States fleet with the intention of utilizing the serviceable components in the construction of a new ADRTM drilling rig. The new drilling rig is expected to be operational by the third quarter of 2010.
International Oilfield Services
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The Company's international operations recorded revenue of $70.0 million in the first quarter of 2010, a 24 percent decrease from the $91.6 million recorded in the corresponding period of the prior year. Similar to the United States segment, the impact from the weakening United States dollar relative to the Canadian dollar accounts for the major portion of the decrease in the international segment revenues. Furthermore, revenues were lower in Africa and Latin America, as the operations that were reduced in 2009 continue to operate at lower than expected levels. The international segment contributed 20 percent of the Company's revenue in the first quarter of 2010 compared with 23 percent in the same period of 2009. International operating days for the three months ended March 31, 2010 totaled 2,228 compared with 1,968 in 2009, an increase of 13 percent. The increase in operating days is attributable to the Company's expansion in Australia, Mexico and Oman, partially offset by reductions in Latin America and Africa. The Company's international operations struggled in a few key areas during the first quarter of 2010, as the Company worked through a significant reduction in operating activity in Africa and Latin America due to regional geopolitical issues.
Depreciation
Three months ended March 31
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($ thousands) 2010 2009 Change % change
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Depreciation 34,250 28,940 5,310 18
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The Company uses the unit of production method of calculating depreciation for the majority of its property and equipment. Depreciation expense totalled $34.3 million for the first quarter of 2010 compared with $28.9 million for the first quarter of 2009. This increased depreciation reflects an increase in the operating days during the three months ended March 31, 2010 compared to the operating days in the same period of 2009. Additionally, depreciation increased due to the utilization of higher valued equipment added to the Company's fleet over the course of 2009.
General and Administrative Expense
Three months ended March 31
-----------------------------
($ thousands) 2010 2009 Change % change
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General and administrative 11,379 13,943 (2,564) (18)
% of revenue 3.2% 3.5%
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General and administrative expense decreased 18 percent to $11.4 million (3.2 percent of revenue) for the first quarter of 2010 compared with $13.9 million (3.5 percent of revenue) for the first quarter of 2009. The reduction in general and administrative expense reflects the ongoing efforts of the Company to reduce fixed costs and the transitional impact of a weaker United States dollar on United States and international administrative expenses.
Stock-Based Compensation Recovery
Three months ended March 31
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($ thousands) 2010 2009 Change % change
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Stock-based compensation (316) (3,902) 3,586 (92)
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Stock-based compensation expense arises from the intrinsic value accounting associated with the Company's stock option plan, whereby the liability associated with stock-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, 2010, stock-based compensation recovery was $0.3 million compared with a recovery of $3.9 million recorded in the first quarter of 2009. These recoveries result from a decline in the price of the Company's common shares over these periods, net of the impact of additional granting and vesting of stock options. The closing price of the Company's common shares was $14.70 at March 31, 2010, compared with $15.00 at December 31, 2009.
Interest Expense
Three months ended March 31
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($ thousands) 2010 2009 Change % change
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Interest 643 729 (86) (12)
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Interest is incurred on the Company's $200 million global revolving credit facility at prime interest rates or bankers' acceptance rates/LIBOR plus 0.75 percent.
Other
Three months ended March 31
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($ thousands) 2010 2009 Change % change
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Other 1,349 (1,735) 3,084 (178)
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This amount consists primarily of foreign exchange gains and losses on the conversion of the Australian operations from Australian dollars to United States dollars. The Australian currency weakened during the first quarter of 2010, but strengthened against the United States dollar during the first quarter of 2009.
Income Taxes
Three months ended March 31
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($ thousands) 2010 2009 Change % change
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Current income tax 6,964 45,678 (38,714) (85)
Future income tax 13,372 (15,716) 29,088 (185)
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20,336 29,962 (9,626) (32)
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Effective income tax rate (%) 33.7% 29.2%
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The effective income tax rate for the three months ended March 31, 2010 was 33.7 percent compared with 29.2 percent for the three months ended March 31, 2009. The increase in effective income tax rate in the current quarter is due to higher effective rates in Canada and the United States. In addition, the effective rate was increased due to the estimated tax effects of the currency devaluation in Venezuela in early January and a greater proportion of international income that was generated in higher rate jurisdictions.
Financial Position
The following chart outlines significant changes in the consolidated balance sheet from December 31, 2009 to March 31, 2010:
($ thousands) Change Explanation
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Cash and cash equivalents (26,253) See consolidated statement of
cash flows.
Accounts receivable 51,014 Increase due to an increase in
operating activity levels in the
first quarter of 2010 compared with
the fourth quarter of 2009.
Income taxes recoverable (5,835) Decrease due to the current income
tax provision for the period,
net of tax instalments.
Inventory and other (4,607) Decrease due to normal course use
of consumables and spare parts.
Property and equipment (38,728) Decrease due to increased
depreciation on higher-value
equipment and the impacts of
foreign exchange fluctuations on
the consolidation of the Company's
foreign self-sustaining
subsidiaries.
Long-term note receivable (94) Decrease due to the collection of
the long-term note receivable.
Accounts payable and (23,948) Decrease due to capital
accrued liabilities expenditures related to the
completion of the new build program
at the end of fiscal 2009, offset
by increased operating activity
levels in the first quarter of 2010
compared with the fourth quarter
of 2009.
Operating lines of credit (10,168) Decrease due to net repayments of
the operating lines of credit.
Stock-based compensation (356) Decrease due to a reduction in the
price of the Company's common
shares as at March 31, 2010 compared
with December 31, 2009.
Dividends payable 4 Increase due to a slight increase
in the number of outstanding common
shares during the first quarter
of 2010.
Future income taxes 8,504 Increase due to a higher estimated
tax depreciation in Canada.
Shareholders' equity 1,461 Increase due to the net income for
the period being offset by the
impact of foreign exchange rate
fluctuations on net assets of
foreign self-sustaining subsidiaries
and the amount of dividends declared
in the period.
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Funds from Operations and Working Capital
Three months ended March 31
($ thousands, -----------------------------
except per
share data) 2010 2009 Change % change
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Funds from operations 87,296 82,005 5,291 6
Funds from operations
per share $ 0.57 $ 0.54 0.03 6
Working capital(1) 156,401 107,894 48,507 45
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(1) Comparative figure as of December 31, 2009.
During the three months ended March 31, 2010, the Company generated funds from operations of $87.3 million ($0.57 per common share) compared with funds from operations of $82.0 million ($0.54 per common share) for the three months ended March 31, 2009, an increase of six percent. At March 31, 2010, the Company's working capital totaled $156.4 million, compared to $107.9 million at December 31, 2009, an increase of 45 percent. These increases are primarily attributable to higher operating activity levels across all geographic segments during the first quarter of 2010 compared to those during the fourth quarter of 2009; and are further driven by contributions from the completed 2008 new build program, pursuant to which 14 ADRs were deployed under long-term contracts in the United States and international markets.
The Company's strong working capital 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 approximately $35.6 million was available as at March 31, 2010. The Company exited the first quarter with a strong balance sheet and no long-term debt.
Investing Activities
Three months ended March 31
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($ thousands) 2010 2009 Change % change
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Net purchase of
property and
equipment (25,552) (46,094) 20,542 (45)
Net change in
non-cash
working
capital 3,483 19,830 (16,347) (82)
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Cash used in
investing
activities (22,069) (26,264) 4,195 (16)
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Net purchases of property and equipment during the first quarter of 2010
totaled $25.6 million (2009 - $46.1 million). The net purchase of property and
equipment relates predominantly to expenditures pursuant to the completion of
the Company's most recent new build program, as all other non-critical capital
expenditures continue to be tightly controlled.
Financing Activities
Three months ended March 31
---------------------------
($ thousands) 2010 2009 Change % change
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Net decrease in
operating
lines of
credit (10,168) (36,502) 26,334 (72)
Dividends (13,407) (13,016) (391) 3
Net change in
non-cash
working
capital 98 - 98 -
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Cash used in financing
activities (23,477) ( 49,518) 26,041 (53)
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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, 2010, 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 $0.0875 per common share to be payable July 6, 2010 to all Common Shareholders of record as of June 21, 2010. 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.
Normal Course Issuer Bid
On May 7, 2010 the Board of Directors approved a resolution to file with the Toronto Stock Exchange a Notice of Intention to purchase by way of a normal course issuer bid up to five percent of the Company's issued and outstanding common shares. Subject to acceptance by the Toronto Stock Exchange of the Notice of Intention, the purchases would be made through the facilities of the Toronto Stock Exchange.
New Builds
In anticipation of continued opportunities for new oilfield services equipment to meet the growing technical demands of exploration and production companies, the Company has commenced a 2010 new build program that will result in six new ADR(TM)-1500 model drilling rigs being constructed for delivery starting in early 2011 and four new well servicing rigs being constructed for delivery in 2010. Currently, four drilling rigs and three well servicing rigs have been allocated to the United States while the remaining two drilling rigs and one well servicing rig will be offered to Canadian customers. The Company plans to fund the construction program using internally generated cash flows and available operating lines of credit.
Outlook
After several quarters of global economic contraction, encouraging signs have recently emerged, such as the easing of credit restrictions, improved liquidity, and a partial recovery in equity markets. Despite these improvements, global concerns about the effects of pending stimulus withdrawals, ongoing national balance sheet adjustments, and persistent unemployment remain in major advanced economies. The demand for energy services is highly dependent on general economic conditions. To date, improvements in the energy sector have been primarily based on growing confidence in higher and stable crude oil prices over the past few quarters. While average natural gas prices have trended upward slightly from one year ago, this increase has been insufficient to stimulate oilfield service activity, other than for plays with exceptional economics or based on other factors such as holding land positions. Despite modestly improved activity levels worldwide, oilfield services suppliers continue to face margin pressures which are likely to persist for at least the next several quarters. Our Canadian operations experienced a 28 percent increase in drilling operating days for the first quarter of 2010 versus the corresponding period in the prior year. Increased operating days in Canada reflect strong expectations for crude oil price stability and good prospects in unconventional plays such as the Montney, Horn River and Cardium. Improved industry cash flows and the potential to target valuable liquids content in large natural gas plays have contributed to stronger activity levels in the first quarter of 2010 compared to the prior year. However conditions in Canada remain somewhat uncertain, based on weak natural gas fundamentals, particularly from decreasing demand for exports to the United States. Although the Company has guarded expectations for the balance of the current year, two of the new ADR(TM) drilling rigs under the current new build have been earmarked for Canada. The Company's United States operations have increased drilling operating days for the first quarter of 2010 by 13 percent over the same quarter in 2009. Improved crude oil prices have particularly benefited our California operations, and the Company's position in key natural gas resource plays is expected to maintain increased levels of utilization for the balance of 2010. Overall activity levels in the United States energy services sector are encouraging - the number of rigs drilling for oil has recovered in early 2010 from the downturn and is now higher than peak levels prior to the recent recession. Based solely on rig count numbers, sector drilling in natural gas has recovered only slightly. Despite a relatively cold winter, the late heating season warm trend left storage levels at the beginning of the injection season well above the five-year average, similar to those at the same time in 2009. Supply and demand fundamentals appear bearish for natural gas for at least the remainder of 2010, although there is an argument that a strong "pricing floor" has been established and economic recovery could support improving prices. The Company remains cautious about the near term prospects with respect to the United States as much of the current activity appears devoted to lease retention in the unconventional resource plays, the proving of reserves and the targeting of natural gas wells with high liquids content. The Company's international results mirrored overall industry trends with operating days increasing for the current quarter by 13 percent over the first quarter of 2009. This positive trend is expected to continue for the remainder of the year, based on growth prospects in the eastern hemisphere and expected improvements from the Company's Latin American operations. Despite expectations for high and stable crude oil prices, geopolitical challenges persist in Latin America, which temper overall prospects for improved industry conditions in these locations. The 2010 fiscal year is taking shape as a year of challenges and opportunities, largely in line with our earlier expectations. After nearly two years of challenging operating conditions, the Company has maintained its strong balance sheet and looks forward to controlled expansion from the current new build program and other opportunities as these arise. International markets, particularly those in the eastern hemisphere, are continuing to show prospects for growth. Establishing our Mexico presence and working through issues elsewhere in Latin America will further strengthen the Company's performance over the near-term.
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 2010 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 10, 2010. 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 17, 2010 by dialing 1-416-849-0833 (in Toronto) or 1-800-642-1687 (outside Toronto) and entering the reservation number 69250124. A live broadcast may be accessed through the Company's web site at www.ensignenergy.com.
Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI.
CONSOLIDATED BALANCE SHEETS
As at March 31, 2010 and December 31, 2009
(Unaudited - in thousands of Canadian dollars)
March 31 December 31
2010 2009
---------------------------
Assets
Current assets
Cash and cash equivalents $ 108,900 $ 135,153
Accounts receivable 293,366 242,352
Income taxes recoverable 591 6,426
Inventory and other 56,424 61,031
Future income taxes 488 377
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459,769 445,339
Property and equipment 1,636,416 1,675,144
Long-term note receivable 7,513 7,607
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$ 2,103,698 $ 2,128,090
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Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 129,712 $ 153,660
Operating lines of credit 158,836 169,004
Current portion of stock-based compensation 1,413 1,378
Dividends payable 13,407 13,403
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303,368 337,445
Stock-based compensation - 391
Future income taxes 268,072 259,457
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571,440 597,293
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Contingencies and commitments
Shareholders' Equity
Capital stock (note 3) 170,932 170,932
Accumulated other comprehensive loss (121,526) (96,364)
Retained earnings 1,482,852 1,456,229
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1,532,258 1,530,797
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$ 2,103,698 $ 2,128,090
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See accompanying notes to the interim consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the three months ended March 31, 2010 and 2009
(Unaudited - in thousands of Canadian dollars - except per share data)
2010 2009
---------------------------
Revenue
Oilfield services $ 352,839 $ 400,420
Expenses
Oilfield services 245,168 259,797
Depreciation 34,250 28,940
General and administrative 11,379 13,943
Stock-based compensation (316) (3,902)
Interest 643 729
Other 1,349 (1,735)
---------------------------
292,473 297,772
---------------------------
Income before income taxes 60,366 102,648
Income taxes
Current 6,964 45,678
Future 13,372 (15,716)
---------------------------
20,336 29,962
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Net income for the period 40,030 72,686
Retained earnings - beginning of period 1,456,229 1,383,249
Dividends (note 3) (13,407) (13,016)
---------------------------
Retained earnings - end of period $ 1,482,852 $ 1,442,919
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---------------------------
Net income per share (note 3)
Basic $ 0.26 $ 0.47
Diluted $ 0.26 $ 0.47
---------------------------
---------------------------
See accompanying notes to the interim consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2010 and 2009
(Unaudited - in thousands of Canadian dollars)
2010 2009
---------------------------
Cash provided by (used in)
Operating activities
Net income for the period $ 40,030 $ 72,686
Items not affecting cash:
Depreciation 34,250 28,940
Stock-based compensation, net of cash paid (356) (3,905)
Future income taxes 13,372 (15,716)
---------------------------
87,296 82,005
Net change in non-cash working capital (note 5) (68,003) (2,066)
---------------------------
19,293 79,939
---------------------------
Investing activities
Net purchase of property and equipment (25,552) (46,094)
Net change in non-cash working capital (note 5) 3,483 19,830
---------------------------
(22,069) (26,264)
---------------------------
Financing activities
Net decrease in operating lines of credit (10,168) (36,502)
Dividends (note 3) (13,407) (13,016)
Net change in non-cash working capital (note 5) 98 -
---------------------------
(23,477) (49,518)
---------------------------
Net (decrease) increase in cash and cash
equivalents during the period (26,253) 4,157
Cash and cash equivalents - beginning of
period 135,153 95,905
---------------------------
Cash and cash equivalents - end of period $ 108,900 $ 100,062
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Supplemental information
Interest paid $ 620 $ 461
Income taxes paid $ 1,129 $ 8,107
---------------------------
---------------------------
See accompanying notes to the interim consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2010 and 2009
(Unaudited - in thousands of Canadian dollars)
2010 2009
---------------------------
Net income for the period $ 40,030 $ 72,686
Other comprehensive (loss) income
Foreign currency translation adjustment (25,162) 25,538
---------------------------
Comprehensive income for the period $ 14,868 $ 98,224
---------------------------
---------------------------
See accompanying notes to the interim consolidated financial statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
For the three months ended March 31, 2010 and 2009
(Unaudited - in thousands Canadian of dollars)
2010 2009
---------------------------
Accumulated other comprehensive loss -
beginning of period $ (96,364) $ (1,583)
Foreign currency translation adjustment (25,162) 25,538
---------------------------
Accumulated other comprehensive (loss)
income - end of period $ (121,526) $ 23,955
---------------------------
---------------------------
See accompanying notes to the interim consolidated financial statements.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2010 and 2009 (Unaudited - in thousands of Canadian dollars, except share and per share data)
The interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), and include the accounts of Ensign Energy Services Inc. and its subsidiaries and partnerships (the "Company"), substantially all of which are wholly-owned. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the year ended December 31, 2009. The disclosures provided below are incremental to those included with the annual consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in the Company's annual report for the year ended December 31, 2009.
1. Recent accounting pronouncements
The Canadian Institute of Chartered Accountants ("CICA") Accounting Standards Board ("AcSB") confirmed in February 2008 that International Financial Reporting Standards ("IFRS") will replace Canadian GAAP in 2011 for profit-oriented Canadian publicly accountable enterprises. The Company has assessed which accounting policies will be affected by the change to IFRS and continues to assess the potential impact of these changes on its financial position and results of operations. As of January 1, 2011, the Company will be required to adopt the following CICA Handbook sections:
a) CICA Handbook Section 1582 "Business Combinations" will replace the
existing business combinations standard. The new standard requires
assets and liabilities acquired in a business combination and
contingent consideration to be measured at fair value as at the date
of the acquisition. Acquisition costs that are currently capitalized
as part of the purchase price will be recognized in the consolidated
statement of income. The adoption of this standard will impact the
accounting treatment of future business combinations.
b) CICA Handbook Section 1601 "Consolidated Financial Statements" and
Section 1602 "Non-controlling Interests" will replace the former
consolidated financial statements standard. These standards establish
the requirements for the preparation of consolidated financial
statements and the accounting for a non-controlling interest
(previously referred to as minority interest) in a subsidiary. The
new standard requires non-controlling interest to be presented as a
separate component of equity and requires net income and other
comprehensive income to be attributed to both the parent and non-
controlling interest. The adoption of this standard is not expected
to have a material impact on the Company's consolidated financial
statements.
2. Seasonality of operations
The Company's Canadian oilfield services operations are seasonal in nature and are impacted by weather conditions that may hinder the Company's ability to access locations or move heavy equipment. The lowest activity levels are experienced during the second quarter of the year when road weight restrictions are in place and access to wellsites in Canada is reduced.
3. Capital Stock
(a) Authorized
Unlimited common shares
Unlimited preferred shares, issuable in series
(b) Outstanding
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Number of
Common Shares Amount
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Balance at January 1, 2010 153,228,106 $ 170,932
Balance at March 31, 2010 153,228,106 $ 170,932
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(c) Options
A summary of the Company's stock option plan as of March 31,
2010, and the changes during the three month period then ended,
is presented below:
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Weighted
Average
Number of Exercise
Options Price
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Outstanding at January 1, 2010 10,719,300 $ 18.67
Exercised for cash (18,000) (13.50)
Forfeited (43,500) (19.75)
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Outstanding at March 31, 2010 10,657,800 $ 18.67
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Exercisable at March 31, 2010 3,913,800 $ 18.71
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Average Weighted Weighted
Vesting Average Average
Exercise Options Remaining Exercise Options Exercise
Price Outstanding (in years) Price Exercisable Price
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$11.33 to $13.79 1,416,200 0.08 $ 13.52 1,378,400 $ 13.52
$15.10 to $19.95 5,188,600 2.20 17.15 942,000 19.61
$21.95 to $23.33 4,053,000 1.32 22.42 1,593,400 22.67
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10,657,800 1.59 $ 18.67 3,913,800 $ 18.71
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(d) Common share dividends
During the three months ended March 31, 2010, the Company
declared dividends of $13,407 (2009 - $13,016), being $0.0875 per
common share (2009 - $0.085 per common share).
(e) Net income per share
Net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the
period. Diluted net income per share is calculated using the
treasury stock method, which assumes that all outstanding stock
options are exercised, if dilutive, and the assumed proceeds are
used to purchase the Company's common shares at the average
market price during the period.
The weighted average number of common shares outstanding for the
three month period ended March 31, 2010 and 2009 are as follows:
2010 2009
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Weighted average number of common
shares outstanding - basic 153,228,106 153,135,132
Weighted average number of common
shares outstanding - diluted 153,445,426 153,190,735
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Stock options of 6,370,100 (2009 - 8,424,600) were excluded from
the calculation of diluted weighted average number of common
shares outstanding as the options' exercise price was greater
than the average market price of the common shares for the
period.
4. Segmented information
The Company operates in three geographic areas within one industry
segment. Oilfield services are provided in Canada, the United States
and internationally. The amounts related to each geographic area are
as follows:
Canada United States International Total
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Three months ended March 31, 2010
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Revenue $178,878 $103,955 $70,006 $352,839
Property and
equipment, net $740,394 $523,409 $372,613 $1,636,416
Capital
expenditures,
net $7,935 $12,693 $4,924 $25,552
Depreciation $15,931 $10,733 $7,586 $34,250
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Three months ended March 31, 2009
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Revenue $181,114 $127,704 $91,602 $400,420
Property and
equipment, net $820,558 $540,148 $393,456 $1,754,162
Capital
expenditures,
net $1,047 $21,903 $23,144 $46,094
Depreciation $14,410 $9,000 $5,530 $28,940
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5. Supplemental disclosure of cash flow information
The net change in non-cash working capital for the three months ended
March 31, 2010 and 2009 is determined as follows:
2010 2009
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Net change in non-cash working capital
Accounts receivable $ (51,014) $ 23,971
Income taxes recoverable 5,835 37,572
Inventory and other 4,607 662
Accounts payable and accrued liabilities (23,948) (44,441)
Long-term note receivable 94 -
Dividends payable 4 -
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$ (64,422) $ 17,764
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Relating to
Operating activities $ (68,003) $ (2,066)
Investing activities 3,483 19,830
Financing activities 98 -
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$ (64,422) $ 17,764
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6. Prior year amounts
Certain prior period amounts have been reclassified to conform to the
current period's presentation.
%SEDAR: 00001999E
For further information: Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361
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