Ensign Energy Services Inc. Reports 2007 Financial Results2008-03-17
CALGARY, March 17 /CNW/ -
Overview
Ensign Energy Services Inc. (the "Company") reports net income of
$249.8 million ($1.64 per common share) for the year ended December 31, 2007,
a decrease of $91.5 million or 27 percent from net income of $341.3 million
($2.25 per common share) recorded in the year ended December 31, 2006. The
Canadian industry malaise that started in the second half of 2006 continued
into 2007 as the Company's customers reacted to the issues undermining the
economics of their opportunities in the Western Canada Sedimentary Basin
("WCSB"), such as moderate natural gas prices, a strong Canadian dollar and
proposed changes to the structure of oil and natural gas royalties in the
Province of Alberta, and adjusted their drilling programs accordingly. Despite
the decline in operating activity levels associated with the exploration and
development of natural gas in Canada, the Company is pleased with the
performance of its operating divisions focused on the oil sands and crude oil
sectors, which were supported by strong crude oil commodity prices throughout
2007. Expansion of the Company's fleet of proprietary Automated Drill Rigs
("ADR(TM)") led the growth achieved in the United States oilfield services
division in 2007, and mitigated some of the negative influences impacting the
Canadian market. The Company's international operations also showed signs of
growth as bidding activity increased in select markets. The Company responded
in 2007 with the construction of three drilling rigs under long-term contracts
for the international market.
Net income of $72.6 million ($0.48 per common share) for the fourth
quarter of 2007 compares with net income of $63.9 million ($0.42 per common
share) recorded in the fourth quarter of 2006, an increase of 13 percent. Net
income for the fourth quarter of 2007 was positively impacted by a stock-based
compensation recovery of $15.1 million, compared with an expense of
$3.4 million recorded in the fourth quarter of 2006. The recovery arose due to
a decline in the price of the Company's common shares over this period. The
fourth quarter of 2007 also reflects the recognition of substantively enacted
income tax rate reductions in Canada. During the fourth quarter of 2007, the
application of the income tax rate reductions resulted in a $14.2 million
decline in future income tax liability balances.
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FINANCIAL AND OPERATING HIGHLIGHTS
($ thousands, except per share data and operating information)
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Three months ended Year ended
December 31 December 31
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% %
2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Revenue 388,261 421,908 (8) 1,577,601 1,807,230 (13)
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EBITDA(1) 108,554 122,194 (11) 468,178 593,334 (21)
EBITDA per
share(1)
Basic $0.71 $0.80 (11) $3.07 $3.91 (21)
Diluted $0.70 $0.78 (10) $3.03 $3.80 (20)
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Adjusted net
income(2) 62,739 66,155 (5) 244,966 337,352 (27)
Adjusted net
income per
share(2)
Basic $0.41 $0.44 (7) $1.61 $2.22 (27)
Diluted $0.41 $0.42 (2) $1.59 $2.16 (26)
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Net income 72,561 63,938 13 249,765 341,284 (27)
Net income per
share
Basic $0.48 $0.42 14 $1.64 $2.25 (27)
Diluted $0.47 $0.41 15 $1.62 $2.18 (26)
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Funds from
operations(3) $85,305 109,579 (22) 296,048 420,173 (30)
Funds from
operations per
share(3)
Basic $0.56 $0.72 (22) $1.94 $2.77 (30)
Diluted $0.55 $0.70 (21) $1.92 $2.69 (29)
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Weighted average
shares -
basic (000s) 152,703 151,975 - 152,517 151,775 -
Weighted average
shares -
diluted (000s) 154,018 155,779 (1) 154,306 156,229 (1)
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Drilling
Number of
marketed rigs
Canada
Conventional 160 164 (2) 160 164 (2)
Oil sands
coring/
coal-bed
methane 31 22 41 31 22 41
United States 76 64 19 76 64 19
International(4) 49 47 4 49 47 4
Operating days
Canada 5,938 6,793 (13) 24,046 32,689 (26)
United States 4,839 4,538 7 19,110 18,252 5
International 2,362 2,453 (4) 9,291 9,151 2
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Well Servicing
Number of
marketed
rigs/units
Canada 116 114 2 116 114 2
United States 14 11 27 14 11 27
Operating hours
Canada 38,414 48,009 (20) 168,313 206,951 (19)
United States 7,073 5,169 37 26,494 21,383 24
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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 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 Year ended
December 31 December 31
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% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Revenue
Canada 184,344 231,430 (20) 777,228 1,074,491 (28)
United States 138,333 128,185 8 555,072 505,748 10
International 65,584 62,293 5 245,301 226,991 8
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388,261 421,908 (8) 1,577,601 1,807,230 (13)
Oilfield
services
expense 263,183 283,982 (7) 1,054,334 1,161,213 (9)
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125,078 137,926 (9) 523,267 646,017 (19)
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Gross margin 32.2% 32.7% 33.2% 35.7%
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Revenue totaled $388.3 million for the fourth quarter of 2007 compared
with $421.9 million for the fourth quarter of 2006. Revenue for the year ended
December 31, 2007 totaled $1,577.6 million, a decline of 13 percent from the
prior year. The decline in revenue originating from the Company's Canadian
oilfield services division for both the quarter and year ended December 31,
2007 was partially offset by increases achieved by both the United States and
international oilfield services divisions over these same periods.
For the three months ended December 31, 2007, gross margin was
32.2 percent compared with 32.7 percent for the three months ended
December 31, 2006. Gross margin was 33.2 percent in 2007, compared with
35.7 percent in 2006. The compression in operating margins on a
period-over-period basis is predominantly a reflection of the Canadian market,
which faced pricing pressure in light of increased competition and declining
demand in 2007. The cost control initiatives implemented by the Company have,
to the extent possible, ensured its cost structure is commensurate with
activity levels. However, in all geographic areas the Company continues to
experience some cost inflation as it must compete with other oilfield services
providers and other industries for skilled labour, as well as source materials
in a tight supply market.
Canadian Oilfield Services
--------------------------
The Canadian oilfield services division recorded revenue of
$184.3 million in the fourth quarter of 2007 and $777.2 million for the year
ended December 31, 2007, declines of 20 percent and 28 percent, respectively,
compared with the corresponding periods of 2006. Fiscal 2007 proved to be a
challenging year for the Company's Canadian oilfield services division as
demand for oilfield services in Western Canada tempered in 2007 compared with
the record levels of demand experienced in 2006. The Company's customers
rationalized drilling programs in 2007 in light of several issues negatively
impacting their operations, including a strong Canadian dollar, unfavourable
proposed royalty regime changes in Alberta and a negative outlook for natural
gas commodity prices. The number of wells drilled in the WCSB totaled 19,144
(per the Canadian Association of Oilwell Drilling Contractors) in 2007, the
lowest level of drilling activity in the region since 2002. Record industry
equipment capacity further compounded the impact to the Company's Canadian
equipment utilization rates and pricing. Gross margins realized by the
Canadian oilfield services division eroded in 2007 compared with 2006 as the
Company endeavored to maintain its market share in a difficult environment.
The Company's diverse product offering and established presence in key
oil regions of the WCSB have somewhat mitigated the natural gas-driven market
softness, and the Company further bolstered its equipment fleet directed
towards serving customers in the crude oil sector in 2007. During the year
ended December 31, 2007, the Canadian oilfield services division added to its
equipment fleet nine oil sands coring rigs, three well servicing rigs deployed
in the heavy oil servicing sector, and one triple drilling rig for operation
in south-eastern Saskatchewan. In response to customer demand, the Company
also completed the construction of one conventional double drilling rig and
one ADR(TM) for operations in northern British Columbia and Alberta,
respectively, both of which are operating under long-term contracts.
The Company demonstrated the value of its global reach in 2007 and
transferred two idle drilling rigs from its Canadian fleet of equipment to
Australia. These redeployments further expand the application of its ADR(TM)
technology to international markets, and the Company is encouraged by the
growing demand for its proprietary technology. In light of current market
conditions in Canada, the Company also removed five conventional drilling rigs
from its Canadian marketed fleet of equipment in 2007, and will retain the rig
packages and critical components for servicing the remainder of its drilling
rig fleet.
United States Oilfield Services
-------------------------------
The Company's strategic geographic diversification and United States
focused growth initiatives proved successful in 2007, and served to mitigate
the challenging operating environment experienced in Canada. The Company's
United States oilfield services division achieved an eight percent increase in
revenue in the fourth quarter of 2007 compared with the fourth quarter of
2006. For the year ended December 31, 2007, revenue generated by the United
States oilfield services division totaled $555.1 million, an increase of ten
percent over 2006. Although lower natural gas prices resulted in a softening
of demand in certain areas of the United States market in 2007, the impact was
far less than that experienced in Canada, owing to the more favorable
economics associated with unconventional natural gas development plays that
drove demand for oilfield services in the Rocky Mountain region. The Company's
California operation is primarily focused on crude oil and, as such,
experienced stable levels of demand throughout the year, supported by strong
market prices for crude oil. Revenue generated by the Company's United States
oilfield services division now accounts for 35 percent of the Company's annual
consolidated revenue, compared with 28 percent in 2006.
The Company underwent its most significant United States expansion
program in recent years, adding 13 fit-for-purpose ADRs to the Rocky Mountain
equipment fleet in 2007. The Company's proprietary ADR(TM) technology has been
well received by customers in the Rocky Mountain and California regions and
has served to diversify its service offerings to customers in those markets.
The Company worked closely with its customers in constructing the latest
generation of ADRs to ensure the technologically advanced and mobile equipment
met the special needs of their often complex drilling programs. The inherent
efficiency of the newly constructed equipment supported higher revenue rates
during the year, and the long-term contracts under which these rigs operate
have partially shielded the Company from the effects of short-term
fluctuations in spot prices for drilling services.
International Oilfield Services
-------------------------------
The Company's international oilfield services division delivered
promising results in 2007, including a five percent increase in revenue in the
fourth quarter of 2007 compared with the fourth quarter of 2006, and an eight
percent increase in revenue on a year-over-year basis. Demand for oilfield
services in the international market remained steady throughout 2007, driven
primarily by crude oil pricing levels that remained near historical highs.
Although bidding activity was heightened throughout the year, more rapid
growth was not achieved given the significant lead times associated with
contract negotiations and equipment mobilizations inherent in international
operations.
The Company embarked on several rig relocation and construction programs
in 2007 that will begin to have a meaningful impact on financial results in
2008. During the year ended December 31, 2007, the Company relocated two
drilling rigs from Canada to Australia where they commenced operations under
long-term contracts, one in the third quarter and one in the fourth quarter of
2007. In December 2007, upon completion of its construction, an additional
deep capacity drilling rig commenced operations in the Middle East. The
construction of two additional drilling rigs was nearing completion at the end
of 2007, and the deployment of these rigs, one to the Middle East and one to
north Africa, was complete in the first quarter of 2008.
Depreciation
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Depreciation 27,698 18,604 49 92,636 80,921 14
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Depreciation expense increased 49 percent to $27.7 million for the fourth
quarter of 2007, compared with depreciation expense of $18.6 million recorded
in the fourth quarter of 2006. Depreciation expense totaled $92.6 million for
the year ended December 31, 2007, an increase of $11.7 million or 14 percent
compared with the year ended December 31, 2006.
The Company depreciates the majority of its equipment on a
unit-of-production basis. Although consolidated operating activity levels
declined in 2007 compared with 2006, depreciation expense increased due to the
significant capital additions made during the last two years. Depreciation
expense on a per day basis increased in 2007 as the Company introduced newly
constructed and higher valued assets to its equipment fleet.
General and Administrative Expense
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
General and
administrative 16,524 15,732 5 55,089 52,683 5
% of revenue 4.3% 3.7% 3.5% 2.9%
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For the three months ended December 31, 2007, general and administrative
expense totaled $16.5 million (4.3 percent of revenue), compared with
$15.7 million (3.7 percent of revenue) for the three months ended December 31,
2006. General and administrative expense totaled $55.1 million for the year
ended December 31, 2007, an increase of five percent over the prior year. As a
percentage of revenue, general and administrative expense was 3.5 percent in
2007 compared with 2.9 percent in 2006. The increase in general and
administrative expense in 2007 relates primarily to the Company's growth
initiatives in the United States.
Stock-Based Compensation Expense
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Stock-based
compensation (15,111) 3,410 (543) (7,383) (6,050) 22
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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 on a quarterly
basis for the effect of granting and vesting of employee stock options, and
changes in the underlying price of the Company's common shares.
Stock-based compensation was a recovery of $15.1 million in the fourth
quarter of 2007 compared with an expense of $3.4 million recorded in the
fourth quarter of 2006. For the year ended December 31, 2007, stock-based
compensation is a recovery of $7.4 million, compared with a recovery of
$6.1 million for the year ended December 31, 2006. The recovery in both the
three months and year ended December 31, 2007 is due to a decline in the price
of the Company's common shares over these periods, net of the impact of
additional granting and vesting of stock options. The closing price of the
Company's common shares was $15.25 at December 31, 2007, compared with $18.78
at September 30, 2007 and $18.39 at December 31, 2006.
Interest Expense
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Interest 1,154 1,177 (2) 5,249 5,127 2
-------------------------------------------------------------------------
Interest expense is incurred on the Company's operating lines of credit.
Interest expense totaled $1.2 million for the fourth quarter of 2007 and
$5.2 million for the year ended December 31, 2007, both of which are
comparable to the corresponding periods of 2006.
Income Taxes
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Current income
tax 12,070 6,236 94 142,846 131,436 9
Future income
tax 10,182 28,829 (65) (14,935) 40,616 (137)
----------------------------------------------------------
22,252 35,065 (37) 127,911 172,052 (26)
----------------------------------------------------------
Effective
income tax
rate(%) 23.5% 35.4% 33.9% 33.5%
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The effective income tax rate for the fourth quarter of 2007 was
23.5 percent compared with 35.4 percent in the fourth quarter of 2006. The
decline in the effective income tax rate on a quarter-over-quarter basis is
due to income tax rate reductions in Canada. The application of these income
tax rate reductions on opening income tax balances has been reflected as a
reduction in future income tax expense.
The effective income tax rate for the year ended December 31, 2007 was
33.9 percent compared with 33.5 percent for the year ended December 31, 2006.
The future income tax recovery in 2007 is partially due to partnership timing
differences and income tax rate reductions in Canada. Taxable income generated
in Canadian partnerships was a significant component of the future income tax
liability as at December 31, 2006. This balance has declined as of
December 31, 2007 due to the decline in income generated by Canadian
partnerships. The impact of the income tax rate reductions noted above has
also reduced future income taxes in the year ended December 31, 2007.
Current income tax expense for the year ended December 31, 2007 includes
$3.8 million related to Omani tax assessments. As previously disclosed, the
Company's Oman operating entity was appealing income tax assessments received
for the 1994, 1995 and 1996 financial years. The Company was appealing these
assessments on the basis that they were without merit under Omani law;
however, the Company's appeal was dismissed during the year ended December 31,
2007. Excluding the impact of the Omani tax assessments, the effective income
tax rate would have been 32.9 percent for the year ended December 31, 2007.
Financial Position
The following table outlines significant changes in the consolidated
balance sheets from December 31, 2006 to December 31, 2007:
($ thousands) Change Explanation
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Cash and cash (12,630) See consolidated statements of cash
equivalents flows.
Accounts receivable (63,354) Decrease due to a decline in operating
activity in the fourth quarter of 2007
compared with the fourth quarter of
2006 within the Canadian oilfield
services division.
Inventory and other 12,524 Increase due to additions to drill pipe
inventory.
Property and equipment 96,514 Increase due to the new drilling rig
build programs and ongoing capital
expenditures, offset by depreciation
and changes in foreign exchange rates
in the year.
Accounts payable and (64,381) Decrease due to a decline in operating
accrued liabilities activity in the fourth quarter of 2007
compared with the fourth quarter of
2006 within the Canadian oilfield
services division.
Operating lines of 47,980 Increase in utilization of the United
credit States and Australian-based operating
lines of credit during the year in
support of rig construction activities.
Stock-based (39,038) Decrease due to a decline in the price
compensation of the Company's common shares and the
exercise of employee stock options in
the year.
Income taxes payable (27,518) Decrease due to income tax payments
made during the year, offset by the
current income tax provision for the
year.
Dividends payable 468 Increase due to a three-percent
increase in the fourth quarter dividend
rate and a slight increase in the
number of outstanding common shares
compared with the fourth quarter of
2006.
Future income taxes (21,058) Decrease due to the future income tax
recovery in the year, primarily
resulting from the effect of income tax
rate reductions in Canada.
Shareholders' equity 136,601 Increase due to the aggregate impact of
net income for the year, increase in
common shares due to exercises of
employee stock options, impact of
foreign exchange rate fluctuations on
the net assets of foreign
self-sustaining subsidiaries, net of
dividends declared in the year.
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Working Capital and Funds from Operations
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Funds from
operations 85,305 109,579 (22) 296,048 420,173 (30)
Funds from
operations
per share $0.56 $0.72 (22) $1.94 $2.77 (30)
Working capital 60,272 63,162 (5) 60,272 63,162 (5)
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Funds from operations totaled $85.3 million ($0.56 per common share) in
the fourth quarter of 2007 compared with funds from operations of
$109.6 million ($0.72 per common share) recorded in the fourth quarter of
2006, a decline of 22 percent. During the year ended December 31, 2007, the
Company generated funds from operations of $296.0 million ($1.94 per common
share), a decrease of 30 percent from the prior year. The decline from the
record levels of funds from operations generated in 2006 is predominantly due
to a reduction in operating activity levels and compressed margins in the
Company's Canadian oilfield services division, partially offset by increased
financial contributions delivered by the Company's United States operations.
Despite the challenges experienced in the Canadian market in 2007, the
Company has maintained a strong balance sheet, with working capital of
$60.3 million at December 31, 2007. With a positive working capital position
at December 31, 2007, available credit facilities and anticipated internally
generated funds, the Company has sufficient liquidity to meet its obligations
as they come due.
Investing Activities
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Net purchase
of property
and equipment (48,017) (85,662) (44) (271,984) (325,483) (16)
Net change in
non-cash
working
capital (39,950) 12,000 (433) (54,168) 40,053 (235)
----------------------------------------------------------
Cash used in
investing
activities (87,967) (73,662) 19 (326,152) (285,430) 14
-------------------------------------------------------------------------
During the fourth quarter of 2007, cash used in investing activities
totalled $88.0 million, an increase of 19 percent over cash used in investing
activities of $73.7 million in the fourth quarter of 2006. Cash used in
investing activities totalled $326.2 million for the year ended December 31,
2007, an increase of 14 percent over cash used in investing activities of
$285.4 million in 2006.
Over half of the Company's 2007 capital expenditure initiatives were
directed towards expansion of the Company's United States-based equipment
fleet, which included the addition of 13 ADRs and the purchase of two well
servicing rigs.
Although the overall Canadian market was characterized by weak demand and
over supply in 2007, the Company bolstered its Canadian-based equipment fleet
in strategic areas to further position itself to benefit from crude oil driven
demand. The Company also capitalized on opportunities to provide its customers
with fit-for-purpose equipment under long-term contracts. Additions to the
Canadian oilfield services division's equipment fleet in 2007 include:
- nine oil sands coring rigs;
- three newly constructed well servicing rigs, all of which were
deployed in the heavy oil sector;
- one triple drilling rig for the Company's operations in south-eastern
Saskatchewan, a predominantly crude oil based market;
- one conventional double drilling rig for operations in north-eastern
British Columbia; and
- one ADR(TM) that will operate under a long-term contract in northern
Alberta.
Two additional well servicing rigs were under construction in Canada at
December 31, 2007 and were placed into operation in January 2008.
Capital expenditure activities within the Company's international
oilfield services division include the construction of three drilling rigs for
operations in the Middle East and Africa. One of the three drilling rigs
commenced operations in the Middle East in the fourth quarter of 2007 and the
remaining two became operational in the first quarter of 2008. The Company's
Australian-based equipment fleet also benefited from the transfer of two ADRs
from Canada in the second half of 2007.
Financing Activities
Three months ended Year ended
December 31 December 31
----------------------------------------------------------
% %
($ thousands) 2007 2006 change 2007 2006 change
-------------------------------------------------------------------------
Net increase
(decrease) in
operating lines
of credit 5,605 (24,670) (123) 47,980 (95,790) (150)
Issue of capital
stock 3,199 3,623 (12) 5,141 6,556 (22)
Dividends (12,623) (12,155) 4 (49,214) (42,505) 16
Net change
in non-cash
working
capital 421 769 (45) 468 4,589 (90)
----------------------------------------------------------
Cash (used in)
provided by
financing
activities (3,398) (32,433) (90) 4,375 (127,150) (103)
-------------------------------------------------------------------------
The Company maintains operating lines of credit in Canada, the United
States and Australia. The total utilized balance outstanding as at
December 31, 2007 totaled $118.0 million, an increase of $5.6 million over the
outstanding balance as at the end of the third quarter of 2007 and an increase
of $48.0 million over the prior year.
During the year ended December 31, 2007, the Company increased the amount
available under its United States-based operating line of credit to
USD$50.0 million to fund the Company's new build projects and to support
expanded operations in that country, and the Company also increased the amount
available under its Australia-based operating line of credit to
AUD$66.5 million to support international drilling rig construction projects.
During the fourth quarter of 2007, the Company announced a three percent
increase in its quarterly dividend rate to $0.0825 per common share. Dividends
declared for the year ended December 31, 2007 totaled $49.2 million ($0.3225
per common share), an increase of 16 percent over dividends of $42.5 million
($0.28 per common share) declared in 2006. Subsequent to December 31, 2007,
the Company declared a dividend for the first quarter of 2008 of approximately
$12.7 million, being $0.0825 per common share. 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.
Other financing activities include the issue of capital stock on the
exercise of employee stock options, which totaled $3.2 million in the fourth
quarter of 2007 and $5.1 million in the year ended December 31, 2007.
Outlook
There continues to be much uncertainty surrounding the outlook for
Canadian oilfield services in 2008. The combined effect of weaker natural gas
prices, a stronger Canadian dollar, the uncertainty associated with proposed
changes to the Alberta royalty regime and an expanded fleet of equipment in
the industry has negatively impacted the overall short term prospects for the
Canadian oilfield services industry. While natural gas prices have recovered
somewhat in recent weeks, it remains to be seen if such a recovery is
sustainable over the longer term given the currently negative outlook for the
United States economy. Despite all of the negative factors, the Company
started 2008 with Canadian utilization that has, so far, exceeded earlier
expectations. In fact, the Canadian division could have been more active in
the first quarter of 2008 had the Company not been crew constrained. The
relatively good start to the year in Canada has not added much clarity to the
remainder of 2008. The Company still feels that there will be reduced levels
of activity within the industry over the next several quarters before the
overall business climate in the Canadian oilfield services industry begins to
recover. The Company has taken steps to keep its share of the work and
optimize margins through stringent control over costs.
The United States oilfield services market is also governed by the
overall supply and demand of natural gas. The current market appears to be
adequately supplied with equipment and there remain select opportunities to
introduce new, fit-for-purpose equipment with expanded technical capabilities
into the United States. The Company recently added 13 new ADRs to its United
States fleet and 2008 will be the first full year of contributions from the
expanded drilling rig fleet. The Company expects that 2008 will be a
relatively stable year for its United States operations with select
opportunities to introduce new equipment into the market, a market the Company
has been involved in for over 13 years.
The Company's established position in the international oilfield services
market qualifies it for many bidding opportunities that are under
consideration. The three larger capacity drilling rigs recently constructed
and put into service will have a meaningful impact on the Company's
international operations in 2008. Additionally, the Company began construction
in early 2008 of six ADRs that are slated for operations in the Middle East
and Africa, representing the largest expansion of the Company's
international-based ADR(TM) fleet to date. It is anticipated that the new ADRs
will be delivered over the November 2008 to May 2009 time frame, at which
point these new builds will begin contributing to the financial results of the
Company's international oilfield services division. Further growth prospects
for the Company's international division remain solid in the coming year.
The Company's geographic diversification began in 1994 with its entrance
into the United States oilfield services market and continued in 2002 with the
Company's first international acquisition outside of North America. The
strategic importance of the Company's diversification outside of Canada is
underscored by the overall reduction in the Canadian oilfield services
activity that began in late 2006 and continued into 2007. An over supply of
equipment in the Canadian market has now resulted in many of the Company's
competitors looking for new markets to redeploy idle Canadian equipment. In
this regard, the Company enjoys the competitive advantage of having an
infrastructure in place to understand and accommodate the needs of markets
outside of Canada. The Company will continue to exploit this advantage in the
future and lessen its exposure to the cyclicality of any one particular market
segment.
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.
A conference call will be held to discuss the Company's fourth quarter
results at 2:00 p.m. MT (4:00 p.m. ET) on Monday, March 17, 2008. The
conference call number is 1-416-644-3419 or toll free 1-800-732-9303. A taped
recording will be available until March 24, 2008 by dialing 1-416-640-1917 or
toll free 1-877-289-8525 and entering reservation number 21266036 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
(in thousands of dollars)
December 31 December 31
2007 2006
---- ----
Assets
Current assets
Cash and cash equivalents 1,940 14,570
Accounts receivable 301,721 365,075
Inventory and other 89,752 77,228
Future income taxes 2,367 11,010
-------------------------
395,780 467,883
Property and equipment 1,390,780 1,294,266
-------------------------
1,786,560 1,762,149
-------------------------
-------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 177,595 241,976
Operating lines of credit 117,969 69,989
Current portion of stock-based compensation 8,056 33,818
Income taxes payable 19,265 46,783
Dividends payable 12,623 12,155
-------------------------
335,508 404,721
Stock-based compensation 4,723 17,999
Future income taxes 202,123 231,824
-------------------------
542,354 654,544
-------------------------
Shareholders' Equity
Capital stock 167,599 154,838
Cumulative translation adjustment (97,588) (20,163)
Retained earnings 1,174,195 972,930
-------------------------
1,244,206 1,107,605
-------------------------
1,786,560 1,762,149
-------------------------
-------------------------
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of dollars, except per share data)
Three months ended Year ended
December 31 December 31
2007 2006 2007 2006
---- ---- ---- ----
Revenue
Oilfield services 388,261 421,908 1,577,601 1,807,230
Expenses
Oilfield services 263,183 283,982 1,054,334 1,161,213
Depreciation 27,698 18,604 92,636 80,921
General and
administrative 16,524 15,732 55,089 52,683
Stock-based compensation (15,111) 3,410 (7,383) (6,050)
Interest 1,154 1,177 5,249 5,127
--------------------------------------------------
293,448 322,905 1,199,925 1,293,894
--------------------------------------------------
Income before income
taxes 94,813 99,003 377,676 513,336
Income taxes
Current 12,070 6,236 142,846 131,436
Future 10,182 28,829 (14,935) 40,616
--------------------------------------------------
22,252 35,065 127,911 172,052
--------------------------------------------------
Net income for the year 72,561 63,938 249,765 341,284
Retained earnings -
beginning of period,
as originally reported 1,114,257 921,147 972,930 674,151
Transition adjustment
on adoption of
financial
instruments
standard - - 714 -
--------------------------------------------------
Retained earnings -
beginning of period,
as restated 1,114,257 921,147 973,644 674,151
Dividends (12,623) (12,155) (49,214) (42,505)
--------------------------------------------------
Retained earnings -
end of period 1,174,195 972,930 1,174,195 972,930
--------------------------------------------------
--------------------------------------------------
Net income per share
Basic $0.48 $0.42 $1.64 $2.25
Diluted $0.47 $0.41 $1.62 $2.18
-------------------------------------------------
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Three months ended Year ended
December 31 December 31
2007 2006 2007 2006
---- ---- ---- ----
Cash provided by
(used in)
Operating activities
Net income for the period 72,561 63,938 249,765 341,284
Items not affecting cash:
Depreciation 27,698 18,604 92,636 80,921
Stock-based
compensation, net of
cash paid (25,136) (1,792) (31,418) (42,648)
Future income taxes 10,182 28,829 (14,935) 40,616
-------------------------------------------------
Cash provided by
operating activities
before the change in
non-cash working
capital 85,305 109,579 296,048 420,173
Net change in non-cash
working capital (7,301) (9,854) 13,099 (25,016)
-------------------------------------------------
78,004 99,725 309,147 395,157
-------------------------------------------------
Investing activities
Net purchase of
property and equipment (48,017) (85,662) (271,984) (325,483)
Net change in non-cash
working capital (39,950) 12,000 (54,168) 40,053
-------------------------------------------------
(87,967) (73,662) (326,152) (285,430)
-------------------------------------------------
Financing activities
Net (decrease) increase
in operating lines of
credit 5,605 (24,670) 47,980 (95,790)
Issue of capital stock 3,199 3,623 5,141 6,556
Dividends (12,623) (12,155) (49,214) (42,505)
Net change in non-cash
working capital 421 769 468 4,589
-------------------------------------------------
(3,398) (32,433) 4,375 (127,150)
-------------------------------------------------
(Decrease) increase in
cash and cash
equivalents during
the period (13,361) (6,370) (12,630) (17,423)
Cash and cash
equivalents -
beginning of period 15,301 20,940 14,570 31,993
-------------------------------------------------
Cash and cash
equivalents -
end of period 1,940 14,570 1,940 14,570
-------------------------------------------------
-------------------------------------------------
Supplemental information
Interest paid 1,871 1,069 5,683 5,358
Income taxes paid 29,296 22,078 170,364 108,958
-------------------------------------------------
-------------------------------------------------
%SEDAR: 00001999E
For further information: Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361 |