Ensign Energy Services Inc. Reports 2009 First Quarter Results2009-05-11
CALGARY, May 11 /CNW/ -
Overview
Ensign Energy Services Inc. (the "Company") reports net income of $72.7
million ($0.47 per common share) for the first quarter of 2009, a decline of
11 percent compared with the first quarter of 2008. EBITDA (as defined below)
totaled $128.4 million ($0.84 per common share) for the three months ended
March 31, 2009 compared with EBITDA of $171.1 million ($1.12 per common share)
for the three months ended March 31, 2008, a decline of 25 percent. The
decrease in financial performance quarter-over-quarter reflects declining
activity levels in the Company's Canada and United States geographic segments
as the industry-wide slow down and economic downturn negatively impacted
equipment utilization rates and heightened competition across all business
lines. Partially offsetting the reduced North America results was a slight
improvement in the results generated by the Company's international
operations.
The Company's earnings are highly dependent upon crude oil and natural
gas commodity prices which drive the level of cash flow realized by the
Company's customers and, in turn, demand for the oilfield services provided by
the Company. The sharp decline in the global economy which began in the latter
half of 2008 and the ongoing recessionary conditions present in the first
quarter of 2009 continued to drag down crude oil and natural gas commodity
prices. West Texas Intermediate ("WTI") crude oil averaged US$43.08/barrel in
the first quarter of 2009, which represents a decline of 27 percent from
US$58.73/barrel in the fourth quarter of 2008 and a 56 percent decline from
US$97.90/barrel in the first quarter of 2008. Similarly, natural gas prices as
quoted on NYMEX averaged US$4.89/mmbtu for the first quarter of 2009, down
from US$6.94/mmbtu in the fourth quarter of 2008 and US$8.03/mmbtu in the
first quarter of 2008, declines of 30 percent and 39 percent, respectively.
In reaction to these sharp declines in commodity prices, reduced access
to credit and lingering economic uncertainty, the Company's customers have
either delayed or cancelled portions of their drilling programs, focusing on
developing only the projects with the highest returns. Operators have
curtailed capital expenditures pending improved commodity pricing which will
be substantially dependent upon an economic recovery, increasing levels of
demand for crude oil and natural gas, and rationalization of current high
inventory levels and excess production capacity, particularly in the North
American natural gas market.
While the Company's geographic diversity and advancement of its Automated
Drill Rig ("ADR(TM)") technology have somewhat countered the effects of the
severe downturn in the market, the impact of the global economic crisis is
ultimately far-reaching and has negatively impacted activity levels in all of
the Company's geographic segments.
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FINANCIAL AND OPERATING HIGHLIGHTS
($thousands, except per share data and operating information)
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Three months ended March 31
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2009 2008 % change
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Revenue 400,420 472,184 (15)
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EBITDA(1) 128,415 171,055 (25)
EBITDA per share(1)
Basic $ 0.84 $ 1.12 (25)
Diluted $ 0.84 $ 1.11 (24)
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Adjusted net income(2) 70,149 92,661 (24)
Adjusted net income per share(2)
Basic $ 0.46 $ 0.61 (25)
Diluted $ 0.46 $ 0.60 (23)
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Net income 72,686 81,796 (11)
Net income per share
Basic $ 0.47 $ 0.53 (11)
Diluted $ 0.47 $ 0.53 (11)
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Funds from operations(3) 82,005 124,241 (34)
Funds from operations per share(3)
Basic $ 0.54 $ 0.81 (33)
Diluted $ 0.54 $ 0.80 (33)
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Weighted average shares
- basic (000s) 153,135 153,054 -
Weighted average shares
- diluted (000s) 153,191 154,357 (1)
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Drilling
Number of marketed rigs
Canada
Conventional 158 157 1
Oil sands coring/coal bed methane 28 31 (10)
United States 76 76 -
International(4) 44 48 (8)
Operating days
Canada 5,136 8,532 (40)
United States 2,875 4,917 (42)
International 1,968 2,367 (17)
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Well Servicing
Number of marketed rigs/units
Canada 108 118 (8)
United States 18 14 29
Operating hours
Canada 31,649 44,971 (30)
United States 9,536 8,802 8
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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) 2009 2008 Change % change
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Revenue
Canada 181,114 260,450 (79,336) (30)
United States 127,704 139,315 (11,611) (8)
International 91,602 72,419 19,183 26
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400,420 472,184 (71,764) (15)
Oilfield services
expense 259,797 287,464 (27,667) (10)
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140,623 184,720 (44,097) (24)
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Gross margin 35.1% 39.1%
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Revenue for the first quarter of 2009 totaled $400.4 million, a decline
of 15 percent from revenue of $472.2 million recorded in the first quarter of
2008. For the three months ended March 31, 2009 gross margin totaled $140.6
million (35.1 percent of revenue) compared with $184.7 million for the three
months ended March 31, 2008 (39.1 percent of revenue), a decline of 24
percent.
Canada
------
The oilfield services industry in Canada experienced a slow-down across
all services and business lines in the first quarter of 2009 and revenue
realized from this segment declined 30 percent compared with the first quarter
of 2008. The challenges present in the Canadian oilfield services market,
which include an oversupply of equipment in a mature, high-cost basin, were
only further exasperated by depressed commodity prices and declining economic
conditions. A majority of the Company's customers announced reduced 2009
drilling budgets and, as a result, oilfield services activity in the Western
Canada Sedimentary Basin ("WCSB") experienced a sharp decline. Although
attractive resource plays in northeastern British Columbia and southeastern
Saskatchewan remain a focus for several of the Company's customers,
development in those areas has also tempered pending any meaningful,
sustainable increase in natural gas and crude oil commodity prices.
The Company's Canadian oilfield services segment saw its drilling
operating days and well servicing hours decline 40 percent and 30 percent,
respectively, in the first quarter of 2009 compared with the first quarter of
2008. Looking back to the first quarter of 2006, a time of peak activity
levels for the Canadian industry, drilling operating days recorded by the
Company in Canada in the first quarter of 2009 have decreased 57 percent and
well servicing hours have decreased by 54 percent over this same period. While
Canada remains a core market for the Company, these dramatic declines
highlight the challenges inherent in the Canadian industry and the importance
of the Company's strategic growth initiatives underway to expand its
geographic reach and to deploy its ADR(TM) technology abroad.
In ongoing efforts to control costs and maintain its drilling rig fleet
in the most cost-effective manner, the Company decommissioned five drilling
rigs in Canada in the first quarter of 2009. The Company will retain the
serviceable components from these drilling rigs to support the remainder of
its drilling rig fleet.
United States
-------------
The impact of declining economic conditions and depressed commodity
prices began to take its toll on the Company's United States oilfield services
segment most notably in the first quarter of 2009. While signs of a slow-down
in United States oilfield services activity were evident in the fourth quarter
of 2008, activity levels declined sharply in the first quarter of 2009. The
average number of active drilling rigs in the Rocky Mountain region of the
United States was down each month in the first quarter of 2009 compared with
the first quarter of 2008, with the largest decline of 47 percent, down to 180
active drilling rigs, occurring in the month of March. The Company's
California operations also experienced a reduction in demand and operating
activity levels in the first quarter of 2009 compared with the same period of
2008. Total drilling operating days for the United States oilfield services
segment totaled 2,875 for the first three months of 2009, a decline of 42
percent from the corresponding period of 2008. The United States well
servicing division achieved an increase in operating hours of eight percent in
the first quarter of 2009 compared with the first quarter of 2008 as the
division benefited from the addition of two well servicing rigs to its fleet
of equipment in the first quarter of 2009, offset by the retirement of one
well servicing rig.
The United States oilfield services segment generated revenue of $127.7
million in the first quarter of 2009 compared with revenue of $139.3 million
recorded in the first quarter of 2008, a decline of eight percent. Long-term
contracts, predominantly for the new ADRs added to the United States equipment
fleet over the past several years, have provided some protection from the
overall downturn in the industry and declining spot market prices for the
Company's services. The comparability of quarter-over-quarter revenue for the
United States segment is also impacted by foreign exchange rates. The average
Canadian/United States dollar foreign exchange rate at which United States
dollar results are translated to Canadian dollars for presentation purposes
was 1.2453 in the first quarter of 2009 compared with 1.0041 in the first
quarter of 2008.
The United States 2009 new-build program is progressing as planned.
During the first quarter of 2009, one new ADR(TM) was placed in service and an
additional four ADRs are under construction with anticipated delivery dates
spanning the second and third quarters of 2009. The new builds will operate in
the Rocky Mountain and California regions under term contracts which will
provide a measure of stability to the Company's earnings over the remainder of
2009. Following completion of the 2009 new-build program, the Company will
have a total of 33 drilling rigs committed under term contracts in the United
States.
International
-------------
Revenue recorded by the international oilfield services segment totaled
$91.6 million for the three months ended March 31, 2009, an increase of 26
percent over the same period of 2008. The Company is expanding the reach of
its ADR(TM) technology and, as previously announced, is constructing six ADRs
for the international market. Two of the six ADRs were placed in service in
the first quarter of 2009 in the Middle East and contributed to the
period-over-period improvement in revenue through its operations and
mobilization charges. The strengthening of the United States dollar relative
to the Canadian dollar presentation currency has also contributed to the
increase in revenue quarter-over-quarter.
The increase in activity levels in the Middle East attributable to the
addition of two new ADRs in the first quarter of 2009 is offset by declines in
operating activity in other regions compared with the first quarter of 2008.
Two drilling rigs that operated in Thailand and Qatar in the first quarter of
2008 were idle in the first quarter of 2009, and are currently being bid for
future contracts. Operating activity levels have declined significantly in
Argentina; three drilling rigs and two workover rigs were idle at the end of
the first quarter of 2009. First quarter activity levels in Venezuela have
been negatively impacted as the national oil company strives to reduce costs
in light of current reduced levels of crude oil commodity prices. As well,
activity levels in Gabon have declined in the first quarter of 2009 compared
with the first quarter of 2008, as the Company prepares to replace the
drilling rig previously operating in that country with a newly constructed
ADR(TM)-350. The new ADR(TM)-350 for Gabon is expected to commence operations
in the second quarter of 2009.
Depreciation
Three months ended March 31
----------------------------
($ thousands) 2009 2008 Change % change
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Depreciation 28,940 28,253 687 2
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Depreciation expense totaled $28.9 million for first quarter of 2009
compared with $28.3 million for the first quarter of 2008. The change in
depreciation is due to the introduction of new, higher valued equipment to the
Company's drilling rig fleet over the course of 2008 and the first quarter of
2009, offset by a decrease in consolidated operating activity levels in the
first quarter of 2009 compared with the first quarter of 2008. In addition,
effective July 1, 2008, the Company began applying a depreciation charge for
drilling and well servicing rigs that have not operated within the last 12
months based on the estimated useful life of such equipment, resulting in
additional depreciation in the first quarter of 2009 compared with the first
quarter of 2008.
General and Administrative Expense
Three months ended March 31
----------------------------
($ thousands) 2009 2008 Change % change
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General and administrative 12,208 13,665 (1,457) (11)
% of revenue 3.0% 2.9%
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General and administrative expense totaled $12.2 million (3.0 percent of
revenue) for the first quarter of 2009 compared with $13.7 million (2.9
percent of revenue) for the first quarter of 2008, a decline of 11 percent.
The decline in general and administrative expense reflects the Company's
efforts to control costs during periods of declining activity levels.
Stock-Based Compensation Expense
Three months ended March 31
----------------------------
($ thousands) 2009 2008 Change % change
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Stock-based compensation (3,902) 16,716 (20,618) (123)
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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 quarter-ended March
31, 2009, the stock based compensation recovery results from the decrease in
the price of the Company's common shares from $13.22 at December 31, 2008 to
$10.92 at March 31, 2009.
Interest Expense
Three months ended March 31
----------------------------
($ thousands) 2009 2008 Change % change
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Interest 729 1,937 (1,208) (62)
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Interest expense is incurred on the Company's operating lines of credit
and promissory note payable. The decrease in interest expense on a
quarter-over-quarter basis is due to lower balances outstanding on the
Company's operating lines of credit during the first quarter of 2009 compared
with the first quarter of 2008, as well as declining interest rates over this
period.
Income Taxes
Three months ended March 31
----------------------------
($ thousands) 2009 2008 Change % change
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Current income tax 45,678 43,346 2,332 5
Future income tax (15,716) (993) (14,723) 1,483
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29,962 42,353 (12,391) (29)
----------------------------------------------------
Effective income
tax rate (%) 29.2% 34.1%
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The effective income tax rate for the three months ended March 31, 2009
was 29.2 percent compared with 34.1 percent for the three months ended March
31, 2008. The decline in effective income tax rate quarter-over-quarter is due
to ongoing income tax rate reductions in Canada (which phase in income tax
rate reductions each year until 2012) and due to a greater proportion of
international income being generated in lower rate jurisdictions.
The relative increase in current income tax and the future income tax
recovery in the first quarter of 2009 primarily results from partnership
timing differences. Taxable income generated by Canadian partnerships was a
significant component of the future income tax liability as at December 31,
2008. These future income tax liabilities decline as taxable income generated
by Canadian partnerships declines, resulting in a recovery in future income
tax.
Financial Position
The following chart outlines significant changes in the consolidated
balance sheet from December 31, 2008 to March 31, 2009:
($ thousands) Change Explanation
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Cash and cash equivalents 4,157 See consolidated statement of
cash flows.
Accounts receivable (23,971) Decrease due to a decrease in
operating activity levels in the
first quarter of 2009 compared with
the fourth quarter of 2008.
Inventory and other (662) Decrease due to normal course
consumption of operating supplies
and spare parts.
Property and equipment 43,581 Increase due to the new-build
construction program, offset by
depreciation.
Accounts payable and (44,441) Decrease due to a decrease in
accrued liabilities operating activity levels in the
first quarter of 2009 compared with
the fourth quarter of 2008.
Operating lines of credit (36,502) Decrease due to net repayments of
the operating line of credit held by
the United States segment.
Stock-based compensation (3,905) Decrease due to a decline in the
price of the Company's common shares
as at March 31, 2009 compared with
December 31, 2008.
Income taxes payable 37,572 Increase due to the current income
tax provision for the period, net of
tax instalments.
Dividends payable - No change as dividends for the
fourth quarter of 2008 and first
quarter of 2009 were both declared
at a rate of $0.085 per
common share.
Future income taxes (14,827) Decrease due to the current period
future income tax recovery arising
from a decrease in partnership
timing differences.
Shareholders' equity 85,208 Increase due to the impact of net
income for the period and the impact
of foreign exchange rate
fluctuations on net assets of
foreign self-sustaining
subsidiaries, net of dividends
declared in the period.
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Working Capital and Funds from Operations
Three months ended March 31
---------------------------
($ thousands, except
per share data) 2009 2008 Change % change
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Funds from operations 82,005 124,241 (42,236) (34)
Funds from operations
per share $ 0.54 $ 0.81 $ (0.27) (33)
Working capital(1) 131,897 107,024 24,873 23
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(1) Comparative figure as of December 31, 2008.
Funds from operations totaled $82.0 million ($0.54 per common share) in
the first quarter of 2009 compared with funds from operations of $124.2
million ($0.81 per common share) recorded in the first quarter of 2008, a
decline of 34 percent. The decrease in funds from operations is due to the
deterioration of market conditions in the Company's Canadian and United States
geographic segments in the first quarter of 2009 compared with the first
quarter of 2008, partially offset by increased contributions from
international operations and the newly constructed ADRs placed in operation
under term contracts in the first quarter of 2009. The significant factors
that may impact the Company's ability to generate funds from operations in
future periods are outlined in the "Risks and Uncertainties" section of the
Management's Discussion and Analysis contained in the Company's 2008 Annual
Report.
The Company does not take its strong balance sheet for granted and
continued to look for opportunities to reduce costs and conserve cash during
the first quarter of 2009. During the first quarter of 2009, the Company
increased its working capital to $131.9 million, up $24.9 million from
December 31, 2008, an enviable achievement given the difficult economic
environment and market conditions present in the first quarter of 2009.
Investing Activities
Three months ended March 31
----------------------------
($ thousands) 2009 2008 Change % change
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Net purchase of
property and equipment (46,094) (33,544) (12,550) 37
Net change in
non-cash working capital 19,830 (3,249) 23,079 (710)
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Cash used in
investing activities (26,264) (36,793) 10,529 (29)
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During the first quarter of 2009, net purchases of property and equipment
totaled $46.1 million, an increase of 37 percent over $33.5 million in the
first quarter of 2008. The net purchase of property and equipment relates
predominantly to the Company's new-build program as all other non-critical
capital expenditures were tightly controlled or suspended during the first
quarter of 2009. Additional details regarding the new-build program are
provided in the "New Builds" section below.
Financing Activities
Three months ended March 31
----------------------------
($ thousands) 2009 2008 Change % change
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Net (decrease)
increase in operating
lines of credit (36,502) 7,676 (44,178) (576)
Issue of capital stock - 300 (300) (100)
Dividends (13,016) (12,628) (388) 3
Net change in
non-cash working capital - 5 (5) (100)
----------------------------------------------------
Cash used in
financing activities (49,518) (4,647) (44,871) 966
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The Company decreased the utilized balance of its operating lines of
credit by a net $36.5 million in the first quarter of 2009, largely owing to
the United States oilfield services segment which generated operating cash
flow in excess of its capital expenditure needs. As of March 31, 2009, the
operating lines of credit are primarily being used to fund the new-build
program and to support international operations. Aside from a $20 million
promissory note due July 2011, the Company has no long-term debt.
In the first quarter of 2009, the Company declared dividends in the
amount of $13.0 million ($0.085 per common share), an increase of three
percent over dividends of $12.6 million ($0.0825 per common share) declared in
the first quarter of 2008. All dividends paid by the Company subsequent to
January 1, 2006 qualify as an eligible dividend, as defined by subsection
89(1) of the Canadian Income Tax Act ("ITA").
The Board of Directors of the Company has declared a dividend of $0.085
to be payable July 2, 2009 to all Common Shareholders of record as of June 22,
2009. The dividend is pursuant to the quarterly dividend policy adopted by the
Company. Pursuant to subsection 89 (14) of the ITA, the dividend being paid is
designated as an eligible dividend, as defined in subsection 89 (1) of the
ITA.
New Builds
As previously disclosed, the Company is expanding its global fleet of
state-of-the-art ADR(TM) drilling rigs. As of May 11, 2009, four ADRs have
been completed and eight remain under construction pursuant to the Company's
world-wide rig construction program, which consists of 12 ADRs and seven well
servicing rigs. Of the 12 ADRs included in the 2009 construction program, two
are ADR(TM)-250 models, two are ADR(TM)-300 models, four are ADR(TM)-350
models and four are ADR(TM)-500 models. Upon completion of this new-build
program, the Company will have a total of 60 ADRs in its fleet. The well
servicing rig new-build program consists of four well servicing rigs for the
Canadian market and three well servicing rigs for the United States market, of
which three have been delivered as of May 11, 2009. The Company has no current
plans to build additional rigs upon completion of the current new-build
program.
The new-build delivery schedule, by geographic area, is as follows:
Actual Forecast
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Q1 2009 Q2 2009 Q3 2009 Total
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ADRs
United States 1 1 3 5
International 2 4 - 6
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Total 3 5 3 11
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Well Servicing Rigs
Canada - 3 1 4
United States 2 - - 2
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Total 2 3 1 6
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Outlook
The global economic recession, reductions in available levels of credit
and significantly lower prices for crude oil and natural gas have all
conspired to negatively impact the demand for oilfield services, particularly
in North America. The Company's first quarter operating and financial results
were down significantly from the prior year. The dynamics of the market would
dictate that financial results will continue to decline from the prior year,
as operating margins continue to fall in line with demand in markets that are
oversupplied by companies and equipment. There is a need for rationalization
within the oilfield services industry at a level that properly addresses the
new reality.
Our Canadian operations began 2009 with weak levels of activity in a
first quarter that weather-wise provided some very good operating conditions.
The demand just was not there to take advantage of the good weather
conditions. Utilization was lower than the prior year and the "spring break
up" period started early for the Canadian market as operators curtailed winter
operations sooner than what would be considered normal for the industry.
Current utilization levels in Canada are at recent historic lows for this time
of year. Activity levels are expected to improve into the summer as road bans
in key operating areas are lifted; however, the activity will be reflective of
the current lingering recessionary conditions and the oversupply of oilfield
service equipment in a market that has been decimated by weak oil and natural
gas fundamentals and commodity prices.
The United States oilfield services market is also driven by the similar
fundamentals that hurt the Canadian market. A major difference for the Company
is that we have more desirable high technology ADR(TM) rigs subject to
contractual commitments in our United States operations compared to our
Canadian operations. Such contractual coverage provides a modicum of
protection from the downturn in the industry; however, the contracts are only
as good as the counter-parties. We are fortunate to be partnered with good
operators who will work with us through the downturn in activity. The bottom
line is that we expect to get our fair share of the work going forward,
supported by our advanced technology and broad array of support services.
The international oilfield services market faces different challenges in
various regions, but activity levels are ultimately determined by crude oil
and natural gas prices, and the local costs of production. Current commodity
price levels are below many economic thresholds which have resulted in delays
with respect to future work. Our existing contracts are holding up well, but
there are reduced opportunities for new work in many areas serviced by the
Company. A bright spot for the Company is the introduction of the new ADRs
that are being deployed into the international operations in early 2009. These
new rigs will have a positive impact on the financial results for our
international operations.
The pressures facing the industry are unprecedented in the recent history
of the Company. We have taken many difficult steps, including staff reductions
and wage rollbacks, to ensure that the Company is able to face the challenges
that lie ahead. We are carefully controlling our capital expenditures; and
managing our balance sheet to ensure that our financial strength is
maintained. Our strong balance sheet and established geographic
diversification puts us in better shape compared to many other oilfield
service companies, but we do not take that for granted. We continue to focus
on cost control and cash management to ensure that we will have the resources
available to continue to grasp continually emerging market opportunities
supported by our advanced technologies, as well as to take advantage of
rationalization opportunities that we believe will occur in the oilfield
services industry as we move through the phases of this cyclical downturn.
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
results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 11, 2009. The
conference call number is 1-800-732-0232. A taped recording will be available
until May 18, 2009 by dialing 1-877-289-8525 and entering reservation number
21299215 followed by the number sign. 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, 2009 and December 31, 2008
(Unaudited, in thousands of dollars)
March 31 December 31
2009 2008
------------- -------------
Assets
Current assets
Cash and cash equivalents $ 100,062 $ 95,905
Accounts receivable 336,515 360,486
Inventory and other 60,162 60,824
Future income taxes 196 1,040
---------------------------
496,935 518,255
Property and equipment 1,754,162 1,710,581
---------------------------
$ 2,251,097 $ 2,228,836
---------------------------
---------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 191,643 $ 236,084
Operating lines of credit 132,941 169,443
Current portion of stock-based compensation 716 3,538
Income taxes payable 26,722 (10,850)
Dividends payable 13,016 13,016
---------------------------
365,038 411,231
Promissory note payable 20,000 20,000
Stock-based compensation 20 1,103
Future income taxes 229,680 245,351
---------------------------
614,738 677,685
---------------------------
Shareholders' Equity
Capital stock (note 3) 169,485 169,485
Accumulated other comprehensive income (loss) 23,955 (1,583)
Retained earnings 1,442,919 1,383,249
---------------------------
1,636,359 1,551,151
---------------------------
$ 2,251,097 $ 2,228,836
---------------------------
---------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the three months ended March 31, 2009 and 2008
(Unaudited, in thousands of dollars, except per share data)
Three months ended March 31
2009 2008
------------- -------------
Revenue
Oilfield services $ 400,420 $ 472,184
Expenses
Oilfield services 259,797 287,464
Depreciation 28,940 28,253
General and administrative 12,208 13,665
Stock-based compensation (3,902) 16,716
Interest 729 1,937
---------------------------
297,772 348,035
---------------------------
Income before income taxes 102,648 124,149
Income taxes
Current 45,678 43,346
Future (15,716) (993)
---------------------------
29,962 42,353
---------------------------
Net income for the period 72,686 81,796
Retained earnings - beginning of period 1,383,249 1,174,195
Dividends (note 3) (13,016) (12,628)
---------------------------
Retained earnings - end of period $ 1,442,919 $ 1,243,363
---------------------------
---------------------------
Net income per share (note 3)
Basic $ 0.47 $ 0.53
Diluted $ 0.47 $ 0.53
---------------------------
---------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2009 and 2008
(Unaudited, in thousands of dollars)
Three months ended March 31
2009 2008
------------- -------------
Cash provided by (used in)
Operating activities
Net income for the period $ 72,686 $ 81,796
Items not affecting cash:
Depreciation 28,940 28,253
Stock-based compensation, net of cash paid (3,905) 15,185
Future income taxes (15,716) (993)
---------------------------
Cash provided by operating activities before
the change in non-cash working capital 82,005 124,241
Net change in non-cash working capital (note 5) (2,066) (70,881)
---------------------------
79,939 53,360
---------------------------
Investing activities
Net purchase of property and equipment (46,094) (33,544)
Net change in non-cash working capital (note 5) 19,830 (3,249)
---------------------------
(26,264) (36,793)
---------------------------
Financing activities
Net (decrease) increase in operating lines of
credit (36,502) 7,676
Issue of capital stock - 300
Dividends (note 3) (13,016) (12,628)
Net change in non-cash working capital (note 5) - 5
---------------------------
(49,518) (4,647)
---------------------------
Increase in cash and cash equivalents during
the period 4,157 11,920
Cash and cash equivalents - beginning of period 95,905 1,940
---------------------------
Cash and cash equivalents - end of period $ 100,062 $ 13,860
---------------------------
---------------------------
Supplemental information
Interest paid $ 461 $ 1,983
Income taxes paid $ 8,107 $ 37,869
---------------------------
---------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2009 and 2008
(Unaudited, in thousands of dollars)
Three months ended March 31
2009 2008
------------- -------------
Net income for the period $ 72,686 $ 81,796
Other comprehensive income
Foreign currency translation adjustment 25,538 34,712
---------------------------
Comprehensive income for the period $ 98,224 $ 116,508
---------------------------
---------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
For the three months ended March 31, 2009 and 2008
(Unaudited, in thousands of dollars)
Three months ended March 31
2009 2008
------------- -------------
Accumulated other comprehensive loss -
beginning of period $ (1,583) $ (97,588)
Foreign currency translation adjustment 25,538 34,712
---------------------------
Accumulated other comprehensive income (loss) -
end of period $ 23,955 $ (62,876)
---------------------------
---------------------------
See accompanying notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2009 and 2008
(Unaudited, in thousands of 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, 2008. 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, 2008.
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. As the
Company will be required to report its results in accordance with IFRS
starting in 2011, the Company is assessing the potential impacts of this
changeover and developing its plan accordingly. When finalized, it will
include project structure and governance, resourcing and training, and an
analysis of key differences between IFRS and Canadian GAAP.
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
assts 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
Authorized
Unlimited common shares
Unlimited preferred shares, issuable in series
Outstanding
Number of
Common Shares Amount
---------------------------------------------------------------------
Balance at January 1, 2009 153,135,006 $ 169,485
Issued under employee stock option plan - -
----------------------------
Balance at March 31, 2009 153,135,006 $ 169,485
---------------------------------------------------------------------
Options
A summary of the status of the Company's stock option plan as of
March 31, 2009, and the changes during the three-month period then
ended, is presented below:
Weighted
Average
Number of Exercise
Options Price
---------------------------------------------------------------------
Outstanding at January 1, 2009 10,445,962 $ 18.09
Granted 11,000 11.33
Exercised for shares - -
Exercised for cash (5,000) (10.50)
Forfeited (50,000) (22.70)
---------------------------------------------------------------------
Outstanding at March 31, 2009 10,401,962 $ 18.06
---------------------------------------------------------------------
Exercisable at March 31, 2009 4,442,162 $ 14.64
---------------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------------------------------------------
Average
Vesting Weighted Weighted
Remain- Average Average
Options ing (in Exercise Options Exercise
Exercise Price Outstanding years) Price Exercisable Price
---------------------------------------------------------------------
$9.45 to $11.33 2,021,162 0.05 $ 10.50 1,947,762 $ 10.50
$13.50 to $18.85 1,884,700 0.83 14.13 1,238,800 13.80
$19.88 to $23.33 6,496,100 2.10 21.56 1,255,600 21.90
----------------------------------------------------
10,401,962 1.47 $ 18.06 4,442,162 $ 14.64
---------------------------------------------------------------------
Common share dividends
During the three months ended March 31, 2009, the Company declared
dividends of $13,016 (2008 - $12,628), being $0.085 per common share
(2008 - $0.0825 per common share).
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 months ended March 31, 2009 and 2008 are as follows:
2009 2008
------------- -------------
Weighted average number of common shares
outstanding - basic 153,135,132 153,054,171
Weighted average number of common shares
outstanding - diluted 153,190,735 154,357,359
------------- -------------
Stock options of 8,424,600 (2008 - 4,890,500) 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:
Three months ended March 31, 2009
---------------------------------------------------------------------
United Inter-
Canada States national Total
---------------------------------------------------------------------
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
---------------------------------------------------------------------
Three months ended March 31, 2008
---------------------------------------------------------------------
United Inter-
Canada States national Total
---------------------------------------------------------------------
Revenue $ 260,450 $ 139,315 $ 72,419 $ 472,184
Property and equipment,
net $ 789,545 $ 357,530 $ 325,208 $1,472,283
Capital expenditures,
net $ 2,168 $ 10,617 $ 20,759 $ 33,544
Depreciation $ 14,974 $ 6,656 $ 6,623 $ 28,253
---------------------------------------------------------------------
5. Supplemental disclosure of cash flow information
The net change in non-cash working capital for the three months ended
March 31, 2008 and 2007 is determined as follows:
2009 2008
-------------- -------------
Net change in non-cash working capital
Accounts receivable $ 23,971 $ (80,211)
Inventory and other 662 (774)
Accounts payable and accrued liabilities (44,441) 1,378
Income taxes payable 37,572 5,477
Dividends payable - 5
-------------- -------------
$ 17,764 $ (74,125)
-------------- -------------
Relating to
Operating activities $ (2,066) $ (70,881)
Investing activities 19,830 (3,249)
Financing activities - 5
-------------- -------------
$ 17,764 $ (74,125)
-------------- -------------
-------------- -------------
6. Prior period 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 |