Ensign Energy Services Reports 2008 Second Quarter Results2008-08-11
CALGARY, Aug. 11 /CNW/ -
Overview
Ensign Energy Services Inc. (the "Company") reports net income of
$32.3 million ($0.21 per common share) for the second quarter of 2008 compared
with $25.1 million ($0.16 per common share) for the second quarter of 2007, an
increase of 28 percent. For the six months ended June 30, 2008, net income
totaled $114.1 million ($0.75 per common share), a decrease of 11 percent from
net income of $127.5 million ($0.84 per common share) recorded in the first
six months of 2007. The comparability of net income on a period-over-period
basis is impacted by stock-based compensation expense, which increased
significantly in 2008 compared with 2007 due to increases in the price of the
Company's common shares. Adjusted net income, which eliminates the
tax-effected impact of stock-based compensation expense, increased 51 percent
in the second quarter of 2008 compared with the second quarter of 2007. For
the first six months of 2008, adjusted net income is on par with that recorded
in the first six months of 2007.
Funds from operations for the three months ended June 30, 2008 totaled
$82.5 million ($0.54 per common share) and represents a record second quarter
for the Company and a 107 percent increase over funds from operations recorded
in the second quarter of 2007. For the six months ended June 30, 2008, funds
from operations totaled $206.8 million ($1.35 per common share), second only
to funds from operations recorded in the first half of fiscal 2006, which
remains the best year on record for the Company.
The strong financial results and record cash flows delivered by the
Company in the second quarter of 2008 arise primarily from better than
expected financial results from the Canadian oilfield services division and
record contributions from the Company's United States operations. Recent
growth initiatives executed in the United States oilfield services segment,
which added 13 fit-for-purpose Automated Drill Rigs ("ADRs") under term
contracts to that market over the last year, were important contributors to
the improved results from the United States segment on a quarter-over-quarter
basis. The transfer of two ADRs from Canada to Australia and the deployment of
three additional drilling rigs in the Middle East and Africa markets in the
latter half of 2007 and early 2008 have further contributed to the revenue
growth achieved in the three months ended June 30, 2008 compared with the
corresponding period of 2007. Although results from the Canadian oilfield
services segment for the second quarter of 2008 lagged that of the second
quarter of 2007, improvement in natural gas prices and continued strength in
crude oil prices during the three months ended June 30, 2008 contributed to
equipment utilization levels that exceeded the Company's initial expectations
for the period. In fact, the Company was the most active driller in the
Western Canada Sedimentary Basin ("WCSB") in the second quarter of 2008,
recording more metres drilled in that region than any other contractor.
-------------------------------------------------------------------------
FINANCIAL AND OPERATING HIGHLIGHTS
($ thousands, except per share data and operating information)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
-------------------------------------------------------------------------
2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Revenue 337,774 296,539 14 809,958 806,024 -
-------------------------------------------------------------------------
EBITDA(1) 90,935 70,686 29 261,990 256,105 2
EBITDA per
share(1)
Basic $0.59 $0.46 28 $1.71 $1.68 2
Diluted $0.59 $0.45 31 $1.69 $1.65 2
-------------------------------------------------------------------------
Adjusted net
income(2) 39,238 26,010 51 131,901 132,070 -
Adjusted net
income per
share(2)
Basic $0.26 $0.17 53 $0.86 $0.87 (1)
Diluted $0.25 $0.17 47 $0.85 $0.85 -
-------------------------------------------------------------------------
Net income 32,262 25,135 28 114,058 127,456 (11)
Net income per
share
Basic $0.21 $0.16 31 $0.75 $0.84 (11)
Diluted $0.21 $0.16 31 $0.74 $0.82 (10)
-------------------------------------------------------------------------
Funds from
operations(3) 82,526 39,879 107 206,767 157,486 31
Funds from
operations per
share(3)
Basic $0.54 $0.26 108 $1.35 $1.03 31
Diluted $0.53 $0.26 104 $1.34 $1.01 33
-------------------------------------------------------------------------
Weighted average
shares -
basic (000s) 153,074 152,494 - 153,064 152,425 -
Weighted
average shares
- diluted
(000s) 155,161 155,796 - 154,669 155,557 (1)
-------------------------------------------------------------------------
Drilling
Number of
marketed
rigs
Canada
Conven-
tional 157 162 (3) 157 162 (3)
Oil sands
coring/
coal-bed
methane 28 31 (10) 28 31 (10)
United
States 76 71 7 76 71 7
Inter-
national(4) 48 49 (2) 48 49 (2)
Operating days
Canada 3,399 3,173 7 11,931 12,348 (3)
United States 5,110 4,674 9 10,027 9,153 10
International 2,596 2,294 13 4,963 4,655 7
-------------------------------------------------------------------------
Well Servicing
Number of
marketed
rigs/units
Canada 118 113 4 118 113 4
United
States 15 12 25 15 12 25
Operating
hours
Canada 28,478 30,994 (8) 73,449 90,225 (19)
United
States 8,629 6,423 34 17,431 12,386 41
-------------------------------------------------------------------------
(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 plans. 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
plans, 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 June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Revenue
Canada 108,378 110,544 (2) 368,828 423,158 (13)
United
States 152,825 130,884 17 292,140 267,631 9
Inter-
national 76,571 55,111 39 148,990 115,235 29
-------------------------------------------------------------
337,774 296,539 14 809,958 806,024 -
Oilfield
services
expense 232,715 213,057 9 520,179 522,881 (1)
-------------------------------------------------------------
105,059 83,482 26 289,779 283,143 2
-------------------------------------------------------------
Gross margin 31.1% 28.2% 35.8% 35.1%
-------------------------------------------------------------------------
Canada
------
The fundamentals of the Canadian oilfield services market improved
gradually throughout the first half of 2008 alongside the strengthening of
natural gas prices and the continued strength of crude oil prices. Operating
activity levels recorded in Canada in the second quarter of 2008 exceeded the
Company's initial estimates and surpassed the total operating days recorded in
the second quarter of 2007. Although there has been a positive shift in the
overall sentiment of the Canadian market and demand has improved somewhat from
earlier in the year, pricing for the second quarter of 2008 remained below
that of 2007, resulting in period-over-period declines in revenue. As well,
the realities of operating in the WCSB, where spring break-up and wet weather
conditions hinder the Company's ability to move heavy equipment and access
drilling locations, served to offset any meaningful increase in demand in the
second quarter of 2008. The year-to-date results for the Canadian oilfield
services division for 2008 reflect a weak first quarter. While there has been
an upward trend in demand in Canada in 2008, the majority of oilfield services
activity in the first quarter of 2008 was based on capital budgets set by
customers late in 2007, at which point the Canadian market was characterized
by an oversupply of equipment and a significant amount of concern surrounding
the sustainability of natural gas prices.
Oilfield service activity in the WCSB is weighted most heavily to natural
gas exploration and development; however, crude oil exploration and
development remained active throughout 2008 supported by near record prices
for crude oil. The Company was well positioned to capture crude oil driven
activity in the first half of 2008, with a strong presence in the oil sands
coring market and in the predominantly crude oil based market in southeast
Saskatchewan. Subsequent to June 30, 2008, to further bolster its capabilities
in the oil sands coring market, the Company acquired 12 specialty drilling
rigs and related equipment. The specialty drilling rigs are primarily designed
for oil sands coring applications but also have the capability of drilling
coal bed methane and conventional wells. The Company will benefit from the
retention of the experienced personnel associated with this acquisition.
United States
-------------
Revenue from the United States oilfield services segment totaled
$152.8 million for the second quarter of 2008, an increase of 17 percent over
the second quarter of 2007. Revenue growth was also achieved in the six months
ended June 30, 2008 with revenue surpassing the prior period by nine percent.
The growth and positive financial results achieved by the Company's United
States oilfield services segment are somewhat muted by the foreign exchange
rates in effect in the first half of 2008 compared with the first half of
2007. The average United States dollar exchange rate at which the results are
translated to Canadian dollars declined 11 percent in the first six months of
2008 compared with the first six months of 2007.
Growth in this United States oilfield services segment is primarily
attributable to the significant expansion of the United States-based equipment
fleet which occurred in 2007, with 2008 being the first period to fully
reflect financial contributions from this additional equipment. The expansion
added 13 ADRs under term contracts and three well servicing rigs to the Rocky
Mountain region of the United States, driving a nine percent increase in
drilling operating activity and a 34 percent increase in well servicing hours
in the second quarter of 2008 compared with the second quarter of 2007.
Similarly, a 10 percent increase in drilling operating activity and a 41
percent increase in well servicing hours was achieved in the first half of
2008 compared with the first half of 2007. The expansion of the United States
ADR(TM) fleet has been timely in meeting the growing demand for specialty,
fit-for-purpose drilling rigs to support the exploration and development of
unconventional resource plays and technologically demanding drilling programs.
The introduction of newly constructed equipment under term contracts partially
mitigated fluctuations in equipment utilization levels arising on short-term
volatility in natural gas and crude oil prices. The near immediate impact of
the ADR(TM) expansion program to improved financial results demonstrates the
Company's ability to efficiently expand its existing operations in growing
markets, leveraging its established support infrastructure, training programs
and recruitment initiatives.
Crediting the success of the 2007 ADR(TM) build program and in response
to additional demand for the Company's proprietary technology, the Company has
recently initiated construction of 20 additional ADRs for the United States
market. Of the 20 ADRs to be constructed, 14 ADRs are being constructed for
operations in the Rocky Mountain region and six ADRs are being constructed for
operations in California. In addition, the Company will add four newly built
well servicing rigs to its United States equipment fleet in the latter half of
2008.
International
-------------
The Company's international operations delivered meaningful
period-over-period revenue growth in the three months and six months ended
June 30, 2008. Revenue for the international oilfield services segment totaled
$76.6 million for the second quarter of 2008, an increase of 39 percent over
the second quarter of 2007. For the six months ended June 30, 2008, revenue
generated by the international oilfield services segment totaled $149.0
million, an increase of 29 percent over the prior period. Over the past
several years, the Company has repositioned equipment to better capture crude
oil driven activity and more favorable contracts. The rewards associated with
these often long, complex and costly moves are reflected in the revenue growth
delivered by the international division in 2008. Recent equipment deployments
contributing to this success include the relocation of two ADRs from Canada to
Australia in the latter half of 2007, the deployment of one drilling rig to
the Middle East in the fourth quarter of 2007, as well as the completion of
two drilling rig construction projects in the Middle East and Africa in the
first quarter of 2008. Future growth for this important segment includes the
construction of six ADRs and one conventional triple drilling rig for the
Middle East and Africa markets, the operations of which are expected to
commence in early 2009.
Gross Margin
------------
Gross margin for the second quarter of 2008 was 31.1 percent compared
with 28.2 percent for the second quarter of 2007, while for the six months
ended June 30, 2008 gross margin was 35.8 percent compared with 35.1 percent
for the six months ended June 30, 2007. The maintenance of strong operating
margins on a period-over-period basis is the result of improved margins in the
United States and international oilfield services divisions, offset by slight
margin compression in the Canadian oilfield services segment. Gross margin in
the second quarter of each fiscal year will typically lag that recorded on a
year-to-date basis as the Company performs much of its annual maintenance in
Canada during the second quarter when utilization is lower due to spring
break-up conditions.
Depreciation
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Depreciation 27,465 19,603 40 55,718 42,910 30
-------------------------------------------------------------------------
Depreciation expense totaled $27.5 million for the second quarter of 2008
compared with $19.6 million for the second quarter of 2007. Depreciation
expense increased to $55.7 million for the six months ended June 30, 2008
compared with $42.9 million for the six-month period ended June 30, 2007.
These increases are due to the introduction of higher valued equipment to the
drilling rig fleet following the completion of the 2007 rig building programs,
primarily in the United States, as well as a slight increase in consolidated
operating activity levels on a period-over-period basis. In addition,
effective January 1, 2008 the Company reduced the estimated useful life of oil
sands coring rigs and coiled tubing units, thereby accelerating the
depreciation of this equipment.
General and Administrative Expense
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
General and
admini-
strative 14,124 12,796 10 27,789 27,038 3
% of revenue 4.2% 4.3% 3.4% 3.4%
-------------------------------------------------------------------------
As a percentage of revenue, general and administrative expense was 4.2
percent for the second quarter of 2008 and 3.4 percent for the six months
ended June 30, 2008, both comparable to the corresponding periods of 2007. As
a percentage of revenue, general and administrative expense is typically
higher during the second quarter compared with other periods of the year, as
revenue levels decline significantly during this period as a result of spring
break-up conditions in Canada.
Stock-Based Compensation Expense
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Stock-based
compensation 10,734 1,346 697 27,450 7,098 287
-------------------------------------------------------------------------
Stock-based compensation expense arises from the fair value accounting
for the Company's stock option plan. For the quarter-ended June 30, 2008,
stock-based compensation expense is comprised of additional vesting of stock
options of $2.5 million and the impact of an increase in the Company's common
share price of $8.2 million. For the six months ended June 30, 2008,
stock-based compensation expense comprises $3.6 million for additional vesting
of stock options and $23.9 million associated with an increase in the price of
the Company's common shares. The price of the Company's common shares was
$22.22 at June 30, 2008 compared with $20.01 at March 31, 2008 and $15.25 at
December 31, 2007.
Interest Expense
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Interest 2,007 1,962 2 3,944 2,905 36
-------------------------------------------------------------------------
Interest expense is incurred on the Company's operating lines of credit.
The variance in interest expense on a period-over-period basis is due to the
increase in the average balance outstanding of the Company's operating lines
of credit. The average utilized balance of the operating lines of credit
during the six months ended June 30, 2008 was $96.6 million compared with
$67.1 million for the same period in 2007.
Income Taxes
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Current income
tax 2,175 25,073 (91) 45,521 81,832 (44)
Future income
tax 16,292 (2,433) (770) 15,299 (6,096) (351)
-------------------------------------------------------------
18,467 22,640 (18) 60,820 75,736 (20)
-------------------------------------------------------------
Effective
income tax
rate (%) 36.4% 47.4% 34.8% 37.3%
-------------------------------------------------------------------------
The effective income tax rate for the second quarter of 2008 was
36.4 percent compared with 47.4 percent in the second quarter of 2007. For the
six months ended June 30, 2008, the effective income tax rate was 34.8 percent
compared with 37.3 percent for the six months ended June 30, 2007. The
decrease in the effective income tax rate in the second quarter and six months
ended June 30, 2008 compared to the same periods of 2007 is partially the
result of $4.0 million of Omani tax assessments included in current income tax
expense for the three and six months ended June 30, 2007. Excluding the impact
of the Omani tax assessments, the effective income tax rate would have been
39.0 percent for the second quarter of 2007 and 35.3 percent for the six
months ended June 30, 2007.
The decrease in the Company's effective income tax rate on a
quarter-over-quarter and year-to-date basis is also due to ongoing income tax
rate reductions in Canada. Income tax rate reductions previously announced by
the federal government will phase in income tax rate reductions each year
until 2012, at which point the federal corporate income tax rate in Canada
will reduce to 15.0 percent from its current level of 19.5 percent.
Financial Position
The following chart outlines significant changes in the consolidated
balance sheets from December 31, 2007 to June 30, 2008:
($ thousands) Change Explanation
-------------------------------------------------------------------------
Cash and cash equivalents 31,790 See consolidated statement of
cash flows.
Accounts receivable (18,224) Decrease due to the reduction in
operating activity in the second
quarter of 2008 as a result of
spring break-up in Canada.
Inventory and other (36,775) Decrease due to the
reclassification of drill pipe
inventory to property and
equipment as a result of a
change in the estimated useful
life.
Property and equipment 106,345 Increase due to ongoing capital
expenditures and the
reclassification of drill pipe
inventory, offset by depreciation
in the period.
Accounts payable and accrued (15,127) Decrease due to the reduction in
liabilities operating activity in the second
quarter of 2008 as a result of
spring break-up in Canada.
Operating lines of credit (42,773) Decrease due to net repayments in
Canada during the period, net of
increases in the utilized balance
of the United States and
Australian-based operating lines
of credit.
Stock-based compensation 21,414 Increase due to additional
vesting of stock options and
common share price increases,
net of stock option exercises.
Income taxes payable (29,713) Decrease due to income tax
instalments, net of the current
income tax provision for the
period.
Dividends payable 6 Increase due to a slight
increase in the number of
outstanding common shares
compared with the fourth quarter
of 2007.
Future income taxes 18,747 Increase due to the current
period future income tax
provision and changes in foreign
exchange rates in the period.
Shareholders' equity 130,582 Increase due to the aggregate
impact of net income for the
period, increase in capital
stock due to exercises of
employee stock options, impact
of foreign exchange rate
fluctuations on net assets of
foreign self-sustaining
subsidiaries, less dividends
declared in the period.
-------------------------------------------------------------------------
Working Capital and Funds from Operations
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Funds from
operations 82,526 39,879 107 206,767 157,486 31
Funds from
operations
per share $0.54 $0.26 108 $1.35 $1.03 31
Working
capital(1) 113,450 60,272 88 113,450 60,272 88
-------------------------------------------------------------------------
(1) Comparative figures as of December 31, 2007.
During the three months ended June 30, 2008, the Company generated funds
from operations of $82.5 million ($0.54 per common share) compared with funds
from operations of $39.9 million ($0.26 per common share) for the three months
ended June 30, 2007, an increase of 107 percent. Funds from operations totaled
$206.8 million ($1.35 per common share) in the first six months of 2008, an
increase of 31 percent over funds from operations of $157.5 million ($1.03 per
common share) generated in the six months ended June 30, 2007. The increase in
funds from operations is predominantly due to increasing activity levels and
improved operating margins generated by the Company's United States and
international oilfield services divisions offset by a slight decline in
operating margins in Canada in both the second quarter of 2008 and the six
months ended June 30, 2008. Comparability of funds from operations on a
period-over-period basis is also impacted by the timing of cash flows
associated with the Company's stock-based compensation plan.
At June 30, 2008, the Company had a positive working capital position of
$113.5 million compared with working capital of $60.3 million at December 31,
2007. The improvement in working capital in the first six months of 2008 is
attributable to positive cash flows generated by all of the Company's
operating segments. Although slightly lagging results recorded in the first
six months of 2007, the Company's Canadian oilfield services division
continued to generate strong cash flows in the first half of 2008 and reduced
the utilized balance of its operating line of credit from $56.1 million at
December 31, 2007 to nil at June 30, 2008. Offsetting the improvement in
working capital arising from strong operating margins, working capital was
reduced by the reclassification of drill pipe inventory to property and
equipment as a result of a change in the estimated useful lives of these
assets.
As of June 30, 2008, the Company continues to operate with no long-term
debt and operates with sufficient liquidity to meet its obligations as they
come due.
Investing Activities
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Net purchase
of property
and
equipment (44,979) (67,509) (33) (78,523) (161,117) (51)
Net change in
non-cash
working
capital (2,006) (22,138) (91) (5,255) (26,401) (80)
-------------------------------------------------------------
Cash used in
investing
activities (46,985) (89,647) (48) (83,778) (187,518) (55)
-------------------------------------------------------------------------
Net purchases of property and equipment during the second quarter of 2008
totaled $45.0 million compared with $67.5 million for the second quarter of
2007. Net purchases of property and equipment for the six months ended June
30, 2008 totaled $78.5 million compared with $161.1 million for the six months
ended June 30, 2007. Capital expenditures in the first half of 2008 relate to
ongoing drilling rig upgrade initiatives, as well as finalization of the 2007
international build programs, including the deployment of one drilling rig to
the Middle East and one drilling rig to north Africa in the first six months
of 2008. The Company also completed the construction of two well servicing
rigs for the Canadian market in the first half of 2008.
Capital expenditure activity during the first six months of 2008 also
includes ongoing construction projects as the Company expands its fleet of
proprietary ADRs. Construction programs in progress at June 30, 2008 include
six ADRs and one conventional triple drilling rig destined for the Middle East
and African markets. In addition, the Company has commenced the early stages
of a new global build program that will add an additional 20 ADRs to its
United States fleet of equipment and nine well servicing rigs to the Canadian
and United States markets.
Subsequent to June 30, 2008, the Company announced the purchase of
12 specialty drilling rigs and related equipment from Terracore Specialty
Drilling Ltd. ("Terracore"). The specialty rigs are newly constructed within
the last four years and are primarily designed for coring operations in the
oil sands industry. The specialty rigs are also capable of drilling
conventional oil and natural gas wells and coal bed methane drilling. The
acquisition of this specialty drilling equipment further expands the Company's
offering to its customers operating in the oil sands industry and brings the
Company's total fleet of oil sands coring/coal bed methane drilling rigs to
40. The acquisition was funded from existing working capital and available
credit facilities.
Financing Activities
Three months ended June 30 Six months ended June 30
-------------------------------------------------------------
($ thousands) 2008 2007 % change 2008 2007 % change
-------------------------------------------------------------------------
Net decrease
in operating
lines of
credit (50,449) (45,112) 12 (42,773) (5,868) 629
Issue of
capital
stock 111 840 (87) 411 1,666 (75)
Dividends (12,629) (12,201) 4 (25,257) (24,389) 4
Net change in
non-cash
working
capital 1 13 (92) 6 46 (87)
-------------------------------------------------------------
Cash used in
financing
activities (62,966) (56,460) 12 (67,613) (28,545) 137
-------------------------------------------------------------------------
The Company decreased the utilized balance of its operating lines of
credit during the three months and six months ended June 30, 2008. Net
repayments of the operating lines of credit were the result of strong
operating cash flows generated by the Company's Canadian and United States
oilfield services divisions in excess of capital expenditure requirements.
During the second quarter of 2008, the Company restructured its operating
credit facilities to better support its global operations and international
growth initiatives. Effective June 26, 2008, the Company's available operating
lines of credit consist of a $200 million global revolving credit facility
(the "global facility") and a $50 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 $50 million or the equivalent United States dollars.
Other financing activities during the second quarter of 2008 include the
receipt of $0.1 million on the exercise of employee stock options and the
payment of dividends in the amount of $12.6 million. Dividends were declared
at a quarterly dividend rate of $0.0825 per common share for the second
quarter of 2008, an increase of three percent over dividends of $0.08 per
common share declared in the second quarter of 2007. For the six months ended
June 30, 2008, cash received on employee stock option exercises totaled
$0.4 million and dividends totaled $25.3 million. During the first six months
of 2008, the Company declared year-to-date dividends totaling $0.165 per
common share compared with $0.16 per common share during the first six months
of 2007. All dividends paid by the Company subsequent to January 1, 2006
qualify as an eligible dividend, as defined by subsection 89(1) of the Income
Tax Act.
New Builds
The Company has commenced a world-wide drilling rig construction program
that will add 27 new drilling rigs, including 26 state-of-the-art ADR(TM)
drilling rigs and one conventional triple drilling rig, to the Company's
global fleet over the next 18 months. The majority of these new builds are
under long-term contracts. The construction program includes six ADRs destined
for the international market, as previously disclosed, representing the
largest expansion of the ADR(TM) fleet outside of North America to date.
The ADR(TM) provides a unique, automated solution to reduce move time
between wells, increase penetration rates, reduce drill time and provide a
safer work environment for employees. The ADR(TM) is a scalable rig technology
solution for well depths of 1,000 to 18,000 feet. Building on the foundation
of the original ADR(TM)-100 design first introduced in Canada in 1995, the
Company now offers a suite of ADRs - the 100, 200, 250, 300, 350, 500 and 750
models - to meet the needs of its customers world wide. Of the 26 ADRs to be
constructed, two are ADR(TM)-250 models, six are ADR(TM)-300 models, four are
ADR(TM)-350 models, 11 are ADR(TM)-500 models and three are ADR(TM)-750
models, the latest and most powerful generation of ADR(TM). Upon completion of
this new build program the Company will have a total of 74 ADRs in its fleet.
The Company is also bolstering its well servicing rig fleet in Canada and
the United States and will add a total of nine newly built well servicing rigs
to those markets over the remainder of 2008 and early 2009.
The estimated new build delivery schedule, by geographic area, is as
follows:
Q3 Q4 Q1 Q2 Q3 Q4 Q1
2008 2008 2009 2009 2009 2009 2010 Total
-------------------------------------------------------------------------
ADRs
United States - - 4 3 5 5 3 20
International - - 5 1 - - - 6
-------------------------------------------------------
Total - - 9 4 5 5 3 26
-------------------------------------------------------------------------
Conventional
Drilling Rigs
International - - - 1 - - - 1
-------------------------------------------------------------------------
Well Servicing Rigs
Canada - 2 1 2 - - - 5
United States 2 2 - - - - - 4
-------------------------------------------------------
Total 2 4 1 2 - - - 9
-------------------------------------------------------------------------
Outlook
The improved earnings in the second quarter of 2008 compared to the
second quarter of 2007 reflect better than expected operating conditions in
Canada, driven in large part by higher activity levels in the Province of
Saskatchewan, and the positive impact of Ensign's established global strategy.
Accordingly, the Company expects the positive outlook for the oilfield
services industry to enable it to generate cash flow that exceeds the
Company's original expectations for the 2008 fiscal year. To take advantage of
the investment opportunities for such higher levels of cash flow, the Company
has commenced the first phase of a new world-wide drilling rig construction
program that will add 26 new state-of-the-art ADR(TM) drilling rigs and one
conventional triple drilling rig to the Company's global drilling rig fleet
over the next 18 months. These new drilling rigs will add to the advancement
of the overall technical capabilities of the Company's equipment fleet and
further increase the geographic diversity of the Company, as the new rigs are
to be deployed outside of Canada. Additionally, the Company is building four
new well servicing rigs for the United States and five new well servicing rigs
for Canada.
As previously mentioned, the demand for oilfield services in Canada
improved on a year-over-year basis as the Company's Canadian customers
experienced better than expected levels of cash flow due to improved commodity
prices throughout the second quarter. Activity levels for the third quarter
remain strong owing to continued favorable spot and forward prices for crude
oil and natural gas. Although activity levels for the third and fourth
quarters are expected to be somewhat muted, at this point the majority of the
Company's Canadian drilling rigs are "booked" for the upcoming 2008/09 winter
drilling season. The major challenge facing the industry will be to attract
and train personnel to handle the expected level of demand. The Company is
well down this path, having ramped up recruiting and training efforts earlier
this spring.
The activity levels in the United States market have, as expected, held
steady, reflecting a market that is well-balanced. There remain opportunities
to build new equipment for select new projects and areas that require new
technology to improve the economics of development activities. In this regard,
20 new ADR(TM) drilling rigs and four new well servicing rigs, as discussed
above, are being constructed to meet customer demands for new technology
equipment. The outlook for demand for oilfield services in the United States
market remains strong for the foreseeable future based on favorable oil and
natural gas commodity prices.
The international operations of the Company continue to move in a
positive direction, albeit at a rate slower than record crude oil prices would
suggest. That said, the Company has confidence in the potential of the
international market and continues to search for investment opportunities that
meet the Company's investment criteria. The previously announced construction
of six new ADRs and one conventional triple drilling rig for the Middle East
and African markets is well underway; the newly constructed drilling rigs will
begin to contribute to the Company's financial results starting in the 2009
fiscal year. Results from the international operations for the remainder of
2008 are expected to remain steady as existing contracts roll over and new
contracts commence. As always, the challenge will remain to reduce down time
between projects, an unfortunate reality in the international oilfield
services market.
The Company's overall outlook has become more optimistic over the past
several months based on record levels of crude oil prices and continued
favorable levels of natural gas commodity prices. Tempering the optimism;
however, are concerns around the prospects of economic recessions or, at a
minimum, reduced levels of growth in North American, European and Asian
markets, and the impact on overall demand for energy supplies should such
negative events occur. Additionally, the energy industry must grapple with the
impact of the costs of increased environmental initiatives; and the intended
and unintended consequences of continued governmental focus, both domestically
and abroad, on royalty structures, pace of activity and other aspects of
energy development. In other words, this remains a cyclical industry and there
remains uncertainty with respect to the future level of demand for oilfield
services even in an environment of currently favorable commodity prices. The
Company's financial strength and the geographic diversity of its operations
make it well prepared for such challenges and opportunities, and it will
continue to manage in a way that will benefit Ensign's shareholders.
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 second quarter
results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, August 11, 2008. The
conference call number is 1-800-590-1508. A taped recording will be available
until August 18, 2008 by dialing 1-877-289-8525 and entering reservation
number 21280391 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 June 30, 2008 and December 31, 2007
(Unaudited, in thousands of dollars)
June 30 December 31
2008 2007
-------------------------
Assets
Current assets
Cash and cash equivalents $ 33,730 $ 1,940
Accounts receivable 283,497 301,721
Inventory and other 52,977 89,752
Future income taxes 7,042 2,367
-------------------------
377,246 395,780
Property and equipment 1,497,125 1,390,780
-------------------------
$ 1,874,371 $ 1,786,560
-------------------------
-------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 162,468 $ 177,595
Operating lines of credit (note 4) 75,196 117,969
Current portion of stock-based compensation 23,951 8,056
Income taxes payable (10,448) 19,265
Dividends payable 12,629 12,623
-------------------------
263,796 335,508
Stock-based compensation 10,242 4,723
Future income taxes 225,545 202,123
-------------------------
499,583 542,354
-------------------------
Shareholders' Equity
Capital stock (note 5) 168,288 167,599
Accumulated other comprehensive income (56,496) (97,588)
Retained earnings 1,262,996 1,174,195
-------------------------
1,374,788 1,244,206
-------------------------
$ 1,874,371 $ 1,786,560
-------------------------
-------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the three and six months ended June 30, 2008 and 2007
(Unaudited - in thousands of dollars, except per share data)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
---------------------------------------------------
Revenue
Oilfield services $ 337,774 $ 296,539 $ 809,958 $ 806,024
Expenses
Oilfield services 232,715 213,057 520,179 522,881
Depreciation 27,465 19,603 55,718 42,910
General and
administrative 14,124 12,796 27,789 27,038
Stock-based compensation 10,734 1,346 27,450 7,098
Interest 2,007 1,962 3,944 2,905
---------------------------------------------------
287,045 248,764 635,080 602,832
---------------------------------------------------
Income before income
taxes 50,729 47,775 174,878 203,192
---------------------------------------------------
Income taxes
Current 2,175 25,073 45,521 81,832
Future 16,292 (2,433) 15,299 (6,096)
---------------------------------------------------
18,467 22,640 60,820 75,736
Net income for the period 32,262 25,135 114,058 127,456
Retained earnings -
beginning of period 1,243,363 1,063,777 1,174,195 973,644
Dividends (note 5) (12,629) (12,201) (25,257) (24,389)
---------------------------------------------------
Retained earnings -
end of period $ 1,262,996 $ 1,076,711 $ 1,262,996 $ 1,076,711
---------------------------------------------------
---------------------------------------------------
Net income per share
(note 5)
Basic $ 0.21 $ 0.16 $ 0.75 $ 0.84
Diluted $ 0.21 $ 0.16 $ 0.74 $ 0.82
---------------------------------------------------
---------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended June 30, 2008 and 2007
(Unaudited - in thousands of dollars)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
---------------------------------------------------
Cash provided by (used in)
Operating activities
Net income for the
period $ 32,262 $ 25,135 $ 114,058 $ 127,456
Items not affecting
cash:
Depreciation 27,465 19,603 55,718 42,910
Stock-based
compensation, net
of cash paid 6,507 (2,426) 21,692 (6,784)
Future income taxes 16,292 (2,433) 15,299 (6,096)
---------------------------------------------------
Cash provided by
operating activities
before the change
in non-cash working
capital 82,526 39,879 206,767 157,486
Net change in non-cash
working capital (note 7) 47,295 101,654 (23,586) 53,938
---------------------------------------------------
129,821 141,533 183,181 211,424
---------------------------------------------------
Investing activities
Net purchase of property
and equipment (44,979) (67,509) (78,523) (161,117)
Net change in non-cash
working capital (note 7) (2,006) (22,138) (5,255) (26,401)
---------------------------------------------------
(46,985) (89,647) (83,778) (187,518)
---------------------------------------------------
Financing activities
Net decrease in operating
lines of credit (50,449) (45,112) (42,773) (5,868)
Issue of capital stock 111 840 411 1,666
Dividends (note 5) (12,629) (12,201) (25,257) (24,389)
Net change in non-cash
working capital (note 7) 1 13 6 46
---------------------------------------------------
(62,966) (56,460) (67,613) (28,545)
---------------------------------------------------
Increase (decrease) in
cash and cash
equivalents during
the period 19,870 (4,574) 31,790 (4,639)
Cash and cash
equivalents - beginning
of period 13,860 14,505 1,940 14,570
---------------------------------------------------
Cash and cash equivalents
- end of period $ 33,730 $ 9,931 $ 33,730 $ 9,931
---------------------------------------------------
---------------------------------------------------
Supplemental information
Interest paid $ 2,081 $ 1,366 $ 4,064 $ 2,327
Income taxes paid $ 37,364 $ 46,255 $ 75,233 $ 103,923
---------------------------------------------------
---------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended June 30, 2008 and 2007
(Unaudited - in thousands of dollars)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
---------------------------------------------------
Net income for the
period $ 32,262 $ 25,135 $ 114,058 $ 127,456
Other comprehensive
income
Foreign currency
translation
adjustment 6,380 (37,362) 41,092 (38,351)
---------------------------------------------------
Comprehensive income
for the period $ 38,642 $ (12,227) $ 155,150 $ 89,105
---------------------------------------------------
---------------------------------------------------
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
For the three and six months ended June 30, 2008 and 2007
(Unaudited - in thousands of dollars)
Three months ended Six months ended
June 30 June 30
2008 2007 2008 2007
---------------------------------------------------
Accumulated other
comprehensive income
- beginning of
period $ (62,876) $ (21,152) $ (97,588) $ (20,163)
Foreign currency
translation
adjustment 6,380 (37,362) 41,092 (38,351)
---------------------------------------------------
Accumulated other
comprehensive income
- end of period $ (56,496) $ (58,514) $ (56,496) $ (58,514)
---------------------------------------------------
---------------------------------------------------
See accompanying notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 2008 and 2007
(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, 2007, except as noted below. 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, 2007.
1. Adoption of new accounting standards
Capital disclosures
Effective January 1, 2008, the Company adopted the Canadian Institute
of Chartered Accountants ("CICA") Handbook Section 1535 "Capital
Disclosures". The new section requires an entity to disclose
information about its capital and how it is managed. The Company's
capital management strategy is outlined in note 8.
Financial instruments
Effective January 1, 2008, the Company adopted CICA Handbook Section
3862 "Financial Instruments - Disclosures" and Section 3863
"Financial Instruments - Presentation", which replaced Section 3861
"Financial Instruments - Disclosure and Presentation". The new
sections revise and enhance financial instruments disclosure
requirements and place increased emphasis on disclosures about the
nature and extent of risks arising from financial instruments and how
the Company manages those risks.
The Company has designated its financial instruments as follows:
- Cash and cash equivalents are classified as "held for trading" and
any period change in fair value is recorded through net income;
- Accounts receivable are classified as "loans and receivables".
After their initial fair value measurement, they are measured at
amortized cost using the effective interest rate method. For the
Company, the measured amount generally corresponds to historical
cost; and
- Accounts payable and accrued liabilities, operating lines of
credit, and dividends payable are classified as "other financial
liabilities". After their initial fair value measurement, they are
measured at amortized cost using the effective interest rate
method. For the Company, the measured amount generally corresponds
to historical cost.
Inventories
Effective January 1, 2008, the Company adopted CICA Handbook Section
3031 "Inventories", which requires inventory to be valued on a
'first-in, first out' or weighted average basis. The new standard
also requires fixed and variable production overheads that are
incurred in converting materials into finished goods to be allocated
to the cost of inventory on a systematic basis. The adoption of this
standard did not have a material impact on the Company's consolidated
financial statements.
Recent accounting pronouncements
In January 2006, the CICA Accounting Standards Board ("AcSB") adopted
a strategic plan for the direction of accounting standards in Canada.
As part of that plan, the 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.
2. Change in accounting estimates
Effective January 1, 2008 the Company revised the estimated useful
life of drill pipe to 1,500 operating days, to be depreciated on a
unit-of-production basis. The change in estimated useful life
reflects the Company's recent experience with respect to the period
over which future benefits are derived from drill pipe and the impact
improved technologies have had on extending the useful lives of these
assets. As a result of this change in accounting estimate, drill pipe
of $39,000 previously classified as inventory and other on the
consolidated balance sheet has been reclassified to property and
equipment on the basis that its estimated useful life of 1,500
operating days extends beyond the current period.
Effective January 1, 2008 the Company revised the estimated useful
life of oil sands coring rigs from 3,650 operating days to 1,000
operating days. The oil sands coring rigs will continue to be
depreciated on a unit-of-production basis with a 20% residual value.
Further, the Company revised the estimated useful life of coiled
tubing units from 24,000 operating hours to five years, to be
depreciated on a straight-line basis.
These changes in accounting estimates have been applied on a
prospective basis and did not have a significant effect on
consolidated net income for the six months ended June 30, 2008. It is
impracticable to estimate the effect of these changes in accounting
estimates on future periods as such an estimate would depend on a
forecast of future operating activity levels.
3. 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
well sites in Canada is reduced.
4. Operating lines of credit
During the period ended June 30, 2008, the Company restructured its
operating credit facilities to better support its global operations.
Effective June 26, 2008, the Company's available operating lines of
credit consist of a $200,000 global revolving credit facility (the
"global facility") and a $50,000 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 $200,000 Canadian
dollars. Interest is incurred on the utilized balance of the global
facility at prime interest rates or bankers' acceptance rates/LIBOR
plus 0.75%. The global facility is unsecured.
The amount available under the Canadian facility is $50,000 or the
equivalent United States dollars. Interest is incurred on the
utilized balance of the Canadian facility at prime interest rates or
bankers' acceptance rates/LIBOR plus 0.85%. The Canadian facility is
unsecured.
5. Capital stock
Authorized
Unlimited common shares
Unlimited preferred shares, issuable in series
Outstanding
Number of
Common
Shares Amount
---------------------------------------------------------------------
Balance at January 1, 2008 153,041,378 $ 167,599
Issued under employee stock option plan 35,200 689
-------------------------
Balance at June 30, 2008 153,076,578 $ 168,288
---------------------------------------------------------------------
Options
A summary of the status of the Company's stock option plan as of June
30, 2008, and the changes during the six-month period then ended, is
presented below:
Weighted
Average
Number of Exercise
Options Price
---------------------------------------------------------------------
Outstanding at January 1, 2008 9,655,450 $ 16.55
Granted 2,274,500 21.75
Exercised for common shares (35,200) (11.68)
Exercised for cash (697,560) (11.12)
Forfeited (49,900) (16.74)
---------------------------------------------------------------------
Outstanding at June 30, 2008 11,147,290 $ 17.96
---------------------------------------------------------------------
Exercisable at June 30, 2008 3,453,490 $ 14.69
---------------------------------------------------------------------
Options Outstanding Options Exercisable
---------------------------------------------------------------------
Average Weighted Weighted
Vesting Average Options Average
Options Remaining Exercise Exer- Exercise
Exercise Price Outstanding (in years) Price cisable Price
---------------------------------------------------------------------
$8.75 to $11.05 2,296,590 0.55 $ 10.44 1,623,590 $ 10.42
$13.50 to $18.85 1,974,200 1.50 14.08 879,800 13.69
$19.88 to $23.33 6,876,500 2.96 21.59 950,100 22.93
-----------------------------------------------------
11,147,290 2.21 $ 17.96 3,453,490 $ 14.69
---------------------------------------------------------------------
Common share dividends
During the six months ended June 30, 2008, the Company declared
dividends of $25,257 (2007 - $24,389), being $0.165 per common share
(2007 - $0.160 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 six-
month period ended June 30, 2008 and 2007 are as follows:
2008 2007
-------------------------
Weighted average number of common shares
outstanding - basic 153,063,904 152,425,337
Weighted average number of common shares
outstanding - diluted 154,669,014 155,557,069
-------------------------
Stock options of 6,876,500 (2007 - 4,833,500) 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.
6. 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 June 30, 2008
---------------------------------------------------------------------
Canada United States International Total
---------------------------------------------------------------------
Revenue $ 108,378 $ 152,825 $ 76,571 $ 337,774
Property and
equipment, net $ 780,034 $ 365,890 $ 351,201 $ 1,497,125
Capital
expenditures,
net $ 3,752 $ 18,202 $ 23,025 $ 44,979
Depreciation $ 12,854 $ 7,270 $ 7,341 $ 27,465
---------------------------------------------------------------------
Three months ended June 30, 2007
---------------------------------------------------------------------
Canada United States International Total
---------------------------------------------------------------------
Revenue $ 110,544 $ 130,884 $ 55,111 $ 296,539
Property and
equipment, net $ 771,102 $ 324,942 $ 277,369 $ 1,373,413
Capital
expenditures,
net $ 5,727 $ 45,568 $ 16,214 $ 67,509
Depreciation $ 9,509 $ 5,053 $ 5,041 $ 19,603
---------------------------------------------------------------------
Six months ended June 30, 2008
---------------------------------------------------------------------
Canada United States International Total
---------------------------------------------------------------------
Revenue $ 368,828 $ 292,140 $ 148,990 $ 809,958
Property and
equipment, net $ 780,034 $ 365,890 $ 351,201 $ 1,497,125
Capital
expenditures,
net $ 5,509 $ 29,180 $ 43,834 $ 78,523
Depreciation $ 27,828 $ 13,926 $ 13,964 $ 55,718
---------------------------------------------------------------------
Six months ended June 30, 2007
---------------------------------------------------------------------
Canada United States International Total
---------------------------------------------------------------------
Revenue $ 423,158 $ 267,631 $ 115,235 $ 806,024
Property and
equipment, net $ 771,102 $ 324,942 $ 277,369 $ 1,373,413
Capital
expenditures,
net $ 16,176 $ 112,214 $ 32,727 $ 161,117
Depreciation $ 22,855 $ 9,692 $ 10,363 $ 42,910
---------------------------------------------------------------------
7. Supplemental disclosure of cash flow information
The net change in non-cash working capital for the three and six
months ended June 30, 2008 and 2007 is determined as follows:
Three months ended Six months ended
June 30 June 30
---------------------------------------------------
2008 2007 2008 2007
---------------------------------------------------
Net change in
non-cash working
capital
Accounts
receivable $ 98,435 $ 160,670 $ 18,224 $ 122,330
Inventory and
other (1,451) (4,626) (2,225) (6,700)
Accounts payable
and accrued
liabilities (16,505) (55,346) (15,127) (66,002)
Income taxes
payable (35,190) (21,182) (29,713) (22,091)
Dividends payable 1 13 6 46
---------------------------------------------------
$ 45,290 $ 79,529 $ (28,835) $ 27,583
---------------------------------------------------
Relating to
Operating
activities $ 47,295 $ 101,654 $ (23,586) $ 53,938
Investing
activities (2,006) (22,138) (5,255) (26,401)
Financing
activities 1 13 6 46
---------------------------------------------------
$ 45,290 $ 79,529 $ (28,835) $ 27,583
---------------------------------------------------
---------------------------------------------------
8. Capital management strategy
The Company's objectives when managing capital are to exercise
financial discipline, and to deliver positive returns and stable
dividend streams to its shareholders. The Company's capital
management strategy remained unchanged during the six months ended
June 30, 2008; however, the Company continues to be cognizant of the
challenges associated with operating in a cyclical, commodity-based
industry and may make future adjustments to its capital management
strategy in light of changing economic conditions.
The Company considers its capital structure to include shareholders'
equity and operating lines of credit. In order to maintain or adjust
its capital structure, the Company may from time to time adjust its
capital spending or dividend policy to manage the level of its short-
term borrowings, or may revise the terms of its operating lines of
credit to support future growth initiatives. During the period ended
June 30, 2008, the Company revised the terms of its operating lines
of credit as described in note 4. As at June 30, 2008, operating
lines of credit totalled $75,196 and shareholders' equity totalled
$1,374,788.
The Company is subject to externally imposed capital requirements
associated with its operating lines of credit, including financial
covenants that incorporate shareholders' equity and level of
indebtedness. As at June 30, 2008, the Company is in compliance with
these requirements.
9. Financial instruments
Fair value
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities, operating lines of credit
and dividends payable approximate fair value due to the short-term
nature of these instruments.
Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its
contractual obligations. Credit risk arises principally from the
Company's accounts receivable balances owing from customers operating
primarily in the oil and natural gas industry in Canada, the United
States and internationally. The carrying amount of accounts
receivable represents the maximum credit exposure as at June 30,
2008.
The Company assesses the credit worthiness of its customers on an
ongoing basis and considers the credit risk on these amounts normal
for the industry. The Company establishes credit limits for each
customer based on external credit reports, internal analysis and
historical experience with the customer. Credit limits are approved
by senior management and are reviewed on a regular basis or when
changing economic circumstances dictate. The Company also monitors
the amount and age of accounts receivable balances on an ongoing
basis. At June 30, 2008 the Company's allowance for doubtful accounts
was $331, a decrease of $82 from the balance as at December 31, 2007.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meets
its financial obligations as they are due. The Company manages
liquidity by forecasting cash flows on an annual basis and secures
sufficient credit facilities to meet financing requirements that
exceed anticipated internally generated funds. As at June 30, 2008,
the remaining contractual maturities of accounts payable and accrued
liabilities, operating lines of credit and dividends payable are less
than one year.
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates and interest rates, will affect the Company's
net income or the value of the financial statements.
Interest rate risk
------------------
The Company is exposed to interest rate risk with respect to its
operating lines of credit that bear interest at floating market
rates. For the six months ended June 30, 2008, if interest rates
applicable to the operating lines of credit had been 1% higher or
lower, with all other variables held constant, net income would have
been $630 higher or lower.
Foreign currency exchange rate risk
-----------------------------------
The Company operates internationally and is exposed to foreign
exchange risk arising from various currency exposures, primarily with
respect to the United States dollar and the Australian dollar. The
principal foreign exchange risk relates to the conversion of the
Company's self-sustaining subsidiaries from their functional
currencies to Canadian dollars. At June 30, 2008, had the Canadian
dollar weakened or strengthened by 1% against the United States
dollar, with all other variables held constant, the Company's other
comprehensive income would have been approximately $5,100 higher or
lower. At June 30, 2008, had the Canadian dollar weakened or
strengthened by 1% against the Australian dollar, with all other
variables held constant, the Company's other comprehensive income
would have been approximately $2,100 higher or lower.
10. 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 |