Ensign Energy Services Reports 2007 First Quarter Results2007-05-07
CALGARY, May 7 /CNW/ - Overview Ensign Energy Services Inc. (the "Company") recorded net income of $102.3 million ($0.67 per common share) for the three months ended March 31, 2007 compared with net income of $127.9 million ($0.85 per common share) for the three months ended March 31, 2006, a decline of 20 percent. Revenue for the first quarter of 2007 totaled $509.5 million, a decline of 10 percent compared with the first quarter of 2006. Although partially offset by strong results from the Company's United States and international operations, the decline in revenue and net income on a quarter-over-quarter basis is predominantly due to softening demand in the Canadian market. Demand for oilfield services in Western Canada has tempered compared to the record levels of the prior year given the uncertainty surrounding natural gas commodity prices and the resultant impact on customers' drilling programs. An early spring break-up also negatively impacted operating activity levels in Canada in the first quarter of 2007, compared with the more favorable weather conditions of the first quarter of 2006 that extended the winter drilling season through the end of March. ------------------------------------------------------------------------- FINANCIAL AND OPERATING HIGHLIGHTS ($thousands, except per share data and operating information) ------------------------------------------------------------------------- Three months ended March 31 ------------------------------------------------------------------------- 2007 2006 % change ------------------------------------------------------------------------- Revenue 509,485 567,999 (10) ------------------------------------------------------------------------- EBITDA(1) 185,419 229,919 (19) EBITDA per share(1),(5) Basic $1.22 $1.52 (20) Diluted $1.19 $1.46 (18) ------------------------------------------------------------------------- Adjusted net income(2) 106,060 129,448 (18) Adjusted net income per share(2),(5) Basic $0.70 $0.86 (19) Diluted $0.68 $0.82 (17) ------------------------------------------------------------------------- Net income 102,321 127,850 (20) Net income per share(5) Basic $0.67 $0.85 (21) Diluted $0.66 $0.81 (19) ------------------------------------------------------------------------- Funds from operations(3) 117,607 155,105 (24) Funds from operations per share(3),(5) Basic $0.77 $1.03 (25) Diluted $0.76 $0.99 (23) ------------------------------------------------------------------------- Weighted average shares - basic (000s)(5) 152,357 151,616 - Weighted average shares - diluted (000s)(5) 155,553 157,450 (1) ------------------------------------------------------------------------- Drilling Number of marketed rigs Canada Conventional 163 159 3 Oil sands coring/coal bed methane 31 21 48 United States 66 61 8 International(4) 47 47 - Operating days Canada 9,175 11,885 (23) United States 4,479 4,420 1 International 2,361 2,367 - ------------------------------------------------------------------------- Well Servicing Number of marketed rigs/units Canada 114 116 (2) United States 11 8 38 Operating hours Canada 59,231 68,346 (13) United States 5,963 5,435 10 ------------------------------------------------------------------------- (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. (5) All share and per share data has been restated to reflect the two-for-one common share split in May 2006. Revenue and Oilfield Services Expense Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- Revenue Canada 312,614 392,556 (79,942) (20) United States 136,747 122,517 14,230 12 International 60,124 52,926 7,198 14 ------------------------------------------------------- 509,485 567,999 (58,514) (10) Oilfield services expense 309,824 325,003 (15,179) (5) ------------------------------------------------------- 199,661 242,996 (43,335) (18) ------------------------------------------------------- Gross margin 39.2% 42.8% ------------------------------------------------------------------------- The Company's Canadian oilfield services division experienced a decline in demand for its services in the first quarter of 2007 compared to the record demand and operating activity levels enjoyed in the first quarter of 2006. The concerns over natural gas commodity prices that surfaced in the latter half of 2006 continued to have a negative impact on the cash flows and capital spending of the Company's customers in the first quarter of 2007. The cutback in drilling programs, particularly in the shallow natural gas and coal bed methane markets, resulted in decreased equipment utilization for the Company's Canadian oilfield services divisions and a corresponding decline in revenue. Revenue for the Company's Canadian oilfield services divisions totaled $312.6 million for the three months ended March 31, 2007, a decline of 20 percent from revenue of $392.6 million recorded in the first three months of 2006. The softness noted in natural gas drilling activity was somewhat mitigated by relatively strong levels of demand for oil-related services. First quarter financial results and operating activity levels of the Canadian oilfield services segment are impacted by the occurrence and timing of spring break-up, whereby the Company's ability to move its equipment is hindered by soft ground conditions and road bans. Spring break-up occurred earlier in March 2007 than in March 2006, further contributing to the quarter-over-quarter decline in revenue and operating activity levels. The Company's United States oilfield services divisions continued to perform strongly in the first quarter of 2007, increasing revenue by 12 percent over the first quarter of 2006. The Company's United States operations have helped to mitigate weakening demand in Canada, and will continue to be a growth area as the Company expands its United States-based equipment fleet over the remainder of 2007. The United States oilfield services divisions have benefited from the addition of highly efficient Automated Drill Rig (ADR(TM)) technology to its equipment fleet. Three new ADRs under long-term take-or-pay contracts were added to the drilling rig fleet in the first quarter of 2007. This new equipment, in addition to the three ADRs that were placed in service in the United States in 2006, contributed to the revenue growth experienced in the first three months of 2007 as the inherent efficiency of newly constructed equipment typically supports higher revenue rates. Despite the additional drilling rigs added in the first quarter, drilling operating days in the United States have remained flat quarter-over-quarter primarily due to adverse weather conditions in the Rocky Mountain region in the first quarter of 2007 compared to the prior year. The Company's international operations continue to show steady improvement in financial results. Operating activity levels for the first quarter of 2007 are comparable to that experienced in the first quarter of 2006; however, the Company is growing revenue as contracts are renewed or negotiated at more favorable rates. Revenue for the international oilfield services division totaled $60.1 million for the three months ended March 31, 2007, a 14 percent increase over revenue of $52.9 million recorded in the three months ended March 31, 2006. The Company continues to see opportunities in the international market given the favorable indicators around global supply and demand fundamentals for crude oil. As a result, the Company is making preparations to relocate one drilling rig from its Canadian fleet of equipment to Australia in the second quarter of 2007 and is modernizing its equipment fleet based in the Middle East and Africa with the refurbishment of two drilling rigs and the upgrade and reactivation of one previously idle drilling rig. Gross margin percentages for the first quarter of 2007 for the Company's United States and international oilfield services divisions remained comparable with those achieved in the first quarter of 2006. The overall decline in gross margin as a percentage of revenue is the result of margin compression in the Canadian segment in the first three months of 2007. The Company has taken steps to control costs in an environment of reduced activity levels; however, industry-wide labour rate increases in Canada (effective October 2006) partially offset these efforts. Depreciation Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- Depreciation 23,307 23,090 217 1 ------------------------------------------------------------------------- Depreciation expense totaled $23.3 million for the three months ended March 31, 2007 compared with $23.1 million for the three months ended March 31, 2006. Although operating activity levels in the first quarter of 2007 declined compared with the same period of 2006, depreciation expense has remained flat due to a higher capital asset base resulting from the Company's equipment building program over the past several years. General and Administrative Expense Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- General and administrative 14,242 13,077 1,165 9 % of revenue 2.8% 2.3% ------------------------------------------------------------------------- General and administrative expense totaled $14.2 million for the three months ended March 31, 2007, an increase of nine percent over the three months ended March 31, 2006. The increase in general and administrative expense is primarily due to additional administrative requirements associated with the Company's expanded operations in the United States. General and administrative expense expressed as a percentage of revenue was 2.8 percent for the three months ended March 31, 2007, compared with 2.3 percent for the three months ended March 31, 2006. Stock-Based Compensation Expense Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- Stock-based compensation 5,752 2,459 3,293 134 ------------------------------------------------------------------------- Stock-based compensation expense arises from the intrinsic value accounting of the Company's stock option plan, whereby the liability associated with stock-based compensation is adjusted on a quarterly basis for the effect of vesting and exercising of stock options, as well as changes in the underlying price of the Company's common shares. For the three months ended March 31, 2007, stock-based compensation expense is comprised of $1.9 million for additional granting and vesting of stock options, $5.9 million related to the increase in the price of the Company's common shares, net of a recovery of $2.0 million due to forfeitures during the quarter. The closing price of the Company's common shares was $19.35 at March 31, 2007 compared with $18.39 at December 31, 2006. Interest Expense Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- Interest 943 1,727 (784) (45) ------------------------------------------------------------------------- Interest expense is incurred on the Company's operating lines of credit. The decrease in interest expense on a period-over-period basis is due to the decrease in the average balance outstanding of the Company's operating lines of credit. The average balance outstanding for the first quarter of 2007 was $89.6 million compared with $164.9 million for the first quarter of 2006. Income Taxes Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- Current income tax 56,759 57,836 (1,077) (2) Future income tax (3,663) 16,957 (20,620) (122) ------------------------------------------------------- 53,096 74,793 (21,697) (29) ------------------------------------------------------- Effective income tax rate (%) 34.2% 36.9% ------------------------------------------------------------------------- The effective income tax rate for the three months ended March 31, 2007 was 34.2 percent compared with 36.9 percent for the three months ended March 31, 2006. The decrease in the Company's effective income tax rate on a period-over-period basis is primarily due to federal and provincial income tax rate reductions in Canada. The future income tax recovery in the first quarter of 2007 is due to partnership timing differences. 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 March 31, 2007 due to the expected decline in income generated by Canadian partnerships. Financial Position The following chart outlines significant changes in the consolidated balance sheet from December 31, 2006 to March 31, 2007: ($ thousands) Change Explanation ------------------------------------------------------------------------- Cash and cash equivalents (65) See consolidated statement of cash flows. Accounts receivable 38,340 Increase due to an increase in operating activity levels in the first quarter of 2007 compared with the fourth quarter of 2006. Inventory and other 2,074 Increase due to additions to drill pipe inventory. Property and equipment 70,275 Increase due to ongoing capital expenditures and equipment under construction, offset by depreciation for the period. Accounts payable and accrued liabilities (10,656) Decrease due to a reduction in the aging of accounts payable. Operating lines of credit 39,244 Increase due to the use of operating lines of credit to finance the Company's rig building program. Stock-based compensation (5,496) Decrease due to stock option exercises and forfeitures, net of the increase associated with additional vesting and share price increases. Income taxes payable (909) Decrease due to income tax payments, net of the current income tax provision for the period. Dividends payable 33 Increase due to a slight increase in the number of outstanding common shares compared with the fourth quarter of 2006. Future income taxes (3,414) Decrease due to the future income tax recovery in the period. Shareholders' equity 91,822 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 March 31 ---------------------------- ($ thousands, except per share data) 2007 2006 Change % change ------------------------------------------------------------------------- Funds from operations 117,607 155,105 (37,498) (24) Funds from operations per share $0.77 $1.03 $(0.26) (25) Working capital(1) 73,217 63,162 10,055 16 ------------------------------------------------------------------------- (1) Comparative figure as of December 31, 2006. Funds from operations for the three months ended March 31, 2007 declined 24 percent compared with the three months ended March 31, 2006. The decline is predominantly due to a reduction in operating activity and compressed margins in the Company's Canadian oilfield services divisions on a period-over-period basis. At March 31, 2007, the Company's working capital totaled $73.2 million compared with working capital of $63.2 million at December 31, 2006. The improvement in working capital at March 31, 2007 is largely due to the increase in revenue, and therefore accounts receivable, in the first quarter of 2007 compared with the fourth quarter of 2006. Offsetting this improvement was an increase in the utilized balance of the Company's operating lines of credit, which was used to finance capital expenditure activities. As of March 31, 2007, the Company continues to operate with sufficient liquidity to meet its obligations as they come due, and anticipates that its planned capital expenditures and dividend payments will continue to be financed with internally generated funds and existing credit facilities. Investing Activities Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- Net purchase of property and equipment (93,608) (90,570) (3,038) 3 Net change in non-cash working capital (4,262) (7,537) 3,275 (43) ------------------------------------------------------- Cash used in investing activities (97,870) (98,107) 237 - ------------------------------------------------------------------------- Net investing activities for the three months ended March 31, 2007 totalled $97.9 million compared with $98.1 million for the three months ended March 31, 2006. In addition to the ongoing refurbishment of existing equipment, a significant portion of capital expenditures in the first quarter of 2007 relates to the Company's new-build program that commenced in 2006. Of the previously announced projects, 13 ADRs for the United States and two slant well servicing rigs for Canada were scheduled for completion in 2007. During the first quarter of 2007, three of the 13 ADRs for the United States were completed and placed into service. Construction of the two slant well servicing rigs is ongoing and the Company expects construction to be complete in the second quarter of 2007. In addition to these previously announced projects, the Company bolstered its oil sands coring fleet of equipment in the first quarter of 2007 with the addition of nine coring rigs. The Company is also in the process of refurbishing two drilling rigs and reactivating one previously idle drilling rig for the international market. Financing Activities Three months ended March 31 ---------------------------- ($ thousands) 2007 2006 Change % change ------------------------------------------------------------------------- Net increase (decrease) in operating lines of credit 39,244 (1,720) 40,964 (2,382) Issue of capital stock 826 1,800 (974) (54) Dividends (12,188) (7,583) (4,605) 61 Net change in non-cash working capital 33 17 16 94 ------------------------------------------------------- Cash provided by (used in) financing activities 27,915 (7,486) 35,401 (473) ------------------------------------------------------------------------- The Company increased the utilized balance of its operating lines of credit by $39.2 million during the first quarter of 2007. The funds provided by this increase were used primarily to finance the Company's capital expenditure program in North America. During the first quarter of 2007, the Company amended the terms of its United States-based operating line of credit and increased the amount available to US$50.0 million. The increased credit facility will be used to finance the Company's new build projects and support its expanded operations in the United States. Other financing activities during the first quarter of 2007 include the receipt of $0.8 million on the exercise of employee stock options and the payment of dividends in the amount of $12.2 million. The increase in dividends on a quarter-over-quarter basis is due to an increase in the Company's quarterly dividend rate from $0.05 per common share in the first quarter of 2006 to $0.08 per common share in the first quarter 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. Outlook The 2007 fiscal year started as expected with weaker year-over-year first quarter financial results from our Canadian operations; improved first quarter results from our United States operations; and slight improvements in the first quarter results from our international operations. The early start to spring break-up in Canada has continued into the second quarter of 2007. Wet conditions have resulted in low drilling rig and equipment utilization rates in April; however, utilization should improve in May as indicated by the current level of equipment bookings, subject to region specific weather conditions. Activity levels and financial results throughout the second and third quarters of 2007 are expected to lag last year's record quarters. It is anticipated that the supply of oilfield services equipment in Western Canada will exceed demand at a time when there is significant uncertainty surrounding the scale of customers' drilling programs for the remainder of 2007. Despite improved natural gas fundamentals, as indicated by the current futures strip for natural gas commodity prices, the capital spending outlook by Canadian exploration and production companies remains conservative. While there are many reasons for the cautious approach, customers appear to be grappling with the issue of inflation in finding and development costs and its contribution to the declining economics of operating in the Western Canadian Sedimentary Basin. In this regard, the Company continues to work with its customers to alleviate some of the inefficiencies of the past several years when an over-heated industry had to wait on services and is focused on providing cost-effective solutions throughout our suite of oilfield services. The United States market continues to display remarkable resiliency compared to the Canadian market. The United States oilfield services industry is subject to the same crude oil and natural gas commodity supply and demand fundamentals that drive the Canadian industry; however, the company's United States customers appear to be drilling through the malaise that has negatively impacted activity levels north of the border. As such, we expect financial results from our Rocky Mountain and California operations to continue to improve throughout the balance of 2007 as demand holds steady and we expand our equipment fleet in this important market segment. Finally, we remain optimistic about our opportunities in the international market. The demand for oilfield services in certain key markets remains high supported by strong crude oil commodity prices. An expanded equipment fleet and continuous improvement to our operations should result in improved financial results through the remainder of the year. 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 first quarter results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 7, 2007. The conference call number is 1-800-814-4861. A taped recording will be available until May 14, 2007 by dialing 1-877-289-8525 and entering reservation number 21231904 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) March 31 December 31 2007 2006 ------ ------ (Unaudited) Assets Current assets Cash and cash equivalents 14,505 14,570 Accounts receivable 403,415 365,075 Inventory and other 79,302 77,228 Future income taxes 12,281 11,010 ------------------------------- 509,503 467,883 Property and equipment 1,364,541 1,294,266 ------------------------------- 1,874,044 1,762,149 ------------------------------- ------------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities 231,320 241,976 Operating lines of credit 109,233 69,989 Current portion of stock-based compensation 37,671 33,818 Income taxes payable 45,874 46,783 Dividends payable 12,188 12,155 ------------------------------- 436,286 404,721 Stock-based compensation 8,650 17,999 Future income taxes 229,681 231,824 ------------------------------- 674,617 654,544 ------------------------------- Shareholders' Equity Capital stock (note 2) 156,802 154,838 Accumulated other comprehensive income (note 1) (21,152) (20,163) Retained earnings 1,063,777 972,930 ------------------------------- 1,199,427 1,107,605 ------------------------------- 1,874,044 1,762,149 ------------------------------- ------------------------------- See accompanying notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the three months ended March 31, 2007 and 2006 (Unaudited, in thousands of dollars, except per share data) 2007 2006 ------ ------ Revenue Oilfield services 509,485 567,999 Expenses Oilfield services 309,824 325,003 Depreciation 23,307 23,090 General and administrative 14,242 13,077 Stock-based compensation 5,752 2,459 Interest 943 1,727 ------------------------------- 354,068 365,356 ------------------------------- Income before income taxes 155,417 202,643 ------------------------------- Income taxes Current 56,759 57,836 Future (3,663) 16,957 ------------------------------- 53,096 74,793 ------------------------------- Net income for the period 102,321 127,850 Retained earnings - beginning of period, as originally reported 972,930 674,151 Transition adjustment on adoption of financial instruments standard (note 1) 714 - ------------------------------- Retained earnings - beginning of period, as restated 973,644 674,151 Dividends (note 2) (12,188) (7,583) ------------------------------- Retained earnings - end of period 1,063,777 794,418 ------------------------------- ------------------------------- Net income per share (note 2) Basic $ 0.67 $ 0.85 Diluted $ 0.66 $ 0.81 ------------------------------- ------------------------------- See accompanying notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS For the three months ended March 31, 2007 and 2006 (Unaudited, in thousands of dollars) 2007 2006 ------ ------ Cash provided by (used in) Operating Activities Net income for the period 102,321 127,850 Items not affecting cash: Depreciation 23,307 23,090 Stock-based compensation, net of cash paid (4,358) (12,792) Future income taxes (3,663) 16,957 ------------------------------- Cash provided by operating activities before the change in non-cash working capital 117,607 155,105 Net change in non-cash working capital (note 4) (47,717) (40,736) ------------------------------- 69,890 114,369 ------------------------------- Investing Activities Net purchase of property and equipment (93,608) (90,570) Net change in non-cash working capital (note 4) (4,262) (7,537) ------------------------------- (97,870) (98,107) ------------------------------- Financing Activities Net (decrease) increase in operating lines of credit 39,244 (1,720) Issue of capital stock 826 1,800 Dividends (note 2) (12,188) (7,583) Net change in non-cash working capital (note 4) 33 17 ------------------------------- 27,915 (7,486) ------------------------------- (Decrease) increase in cash and cash equivalents during the period (65) 8,776 Cash and cash equivalents - beginning of period 14,570 31,993 ------------------------------- Cash and cash equivalents - end of period 14,505 40,769 ------------------------------- ------------------------------- Supplemental information Interest paid 961 1,362 Income taxes paid 57,668 31,570 ------------------------------- ------------------------------- See accompanying notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three months ended March 31, 2007 and 2006 (Unaudited, in thousands of dollars) 2007 2006 ------ ------ Net income for the period 102,321 127,850 Other comprehensive income Foreign currency translation adjustment (989) (2,851) ------------------------------- Comprehensive income 101,332 124,999 ------------------------------- ------------------------------- See accompanying notes to the consolidated financial statements. CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME For the three months ended March 31, 2007 and 2006 (Unaudited, in thousands of dollars) 2007 2006 ------ ------ Accumulated other comprehensive income - beginning of period (20,163) (39,221) Foreign currency translation adjustment (989) (2,851) ------------------------------- Accumulated other comprehensive income - end of period (21,152) (42,072) ------------------------------- See accompanying notes to the consolidated financial statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three months ended March 31, 2007 and 2006 (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, and include the accounts of Ensign Energy Services Inc. and all of 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, 2006, 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, 2006. 1. Change in accounting policies Effective January 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants Handbook Section 1530 "Comprehensive Income", Section 3251 "Equity" and Section 3855 "Financial Instruments - Recognition and Measurement". As required by the new standards, prior periods have not been restated except to reclassify the cumulative translation adjustment balance. Comprehensive income The new standards introduce comprehensive income, which consists of net income and other comprehensive income ("OCI"). For the Company, OCI is comprised entirely of the movement in the cumulative translation adjustment balance. The Company's consolidated financial statements now include Consolidated Statements of Comprehensive Income, which include the components of comprehensive income. The cumulative changes in OCI are included in accumulated other comprehensive income ("AOCI"), which is presented as a new category within shareholders' equity in the Consolidated Balance Sheets. The cumulative translation adjustment, formerly presented as a separate category within shareholders' equity, is now included in AOCI. The Company's consolidated financial statements now include Consolidated Statements of Accumulated Other Comprehensive Income, which provide the continuity of the AOCI balance. Financial instruments The financial instruments standard establishes the recognition and measurement criteria for financial assets and financial liabilities. All financial instruments are required to be measured at fair value on initial recognition of the instrument. Measurement in subsequent periods depends on how the financial instruments have been classified in accordance with the standard. The adjustment to recognize financial instruments at fair value on the balance sheet was recorded as an adjustment to the opening balance of retained earnings. 2. Capital stock Authorized Unlimited common shares Unlimited preferred shares, issuable in series Common share split The Company's shareholders approved a split of its issued and outstanding common shares on a two-for-one basis at the Company's Annual and Special Meeting of Shareholders held on May 17, 2006. All common share, stock option and per common share amounts have been restated to retroactively reflect the two-for-one common share split. Outstanding Number of Common Shares Amount --------------------------------------------------------------------- Balance at January 1, 2007 152,267,928 $ 154,838 Issued under employee stock option plan 104,800 1,964 --------------------------- Balance at March 31, 2007 152,372,728 $ 156,802 --------------------------------------------------------------------- Options A summary of the status of the Company's stock option plan as of March 31, 2007, and the changes during the three-month period then ended, is presented below: Weighted Average Exercise Number of Options Price --------------------------------------------------------------------- Outstanding at January 1, 2007 11,112,100 $ 13.16 Granted 130,500 18.85 Exercised for shares (104,800) (7.88) Exercised for cash (966,050) (8.09) Forfeited (605,300) (17.46) --------------------------------------------------------------------- Outstanding at March 31, 2007 9,566,450 $ 13.53 --------------------------------------------------------------------- Exercisable at March 31, 2007 4,161,350 $ 9.07 --------------------------------------------------------------------- Options Outstanding Options Exercisable --------------------------------------------------------------------- Average Weighted Weighted Vesting Average Average Exercise Options Remaining Exercise Options Exercise Price Outstanding (in years) Price Exercisable Price --------------------------------------------------------------------- $6.25 to $8.75 2,285,950 0.09 $ 6.73 2,079,950 $ 6.53 $9.45 to $13.50 4,675,000 1.51 11.76 2,059,000 11.51 $16.55 to $23.33 2,605,500 2.98 22.68 22,400 20.39 ------------------------------------------------------ 9,566,450 1.57 $13.53 4,161,350 $ 9.07 --------------------------------------------------------------------- Common share dividends During the three months ended March 31, 2007, the Company declared dividends of $12,188 (2006 - $7,583), being $0.08 per common share (2006 - $0.05 per common share). Net income per share Net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the treasury stock method, which assumes that all outstanding stock options are exercised, if dilutive, and the assumed proceeds are used to purchase the Company's common shares at the average market price during the period. The weighted average number of common shares outstanding for the three months ended March 31, 2007 and 2006 are as follows: 2007 2006 ------------ ------------- Weighted average number of common shares outstanding - basic 152,356,587 151,616,520 Weighted average number of common shares outstanding - diluted 155,552,697 157,450,976 ------------ ------------- Stock options of 2,449,000 (2006 - 1,791,000) 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. 3. Segmented information The Company operates in three geographic areas within one industry segment. Oilfield services are provided in Canada, the United States and internationally. The amounts related to each geographic area are as follows: Three months ended March 31, 2007 --------------------------------------------------------------------- Canada United States International Total --------------------------------------------------------------------- Revenue $ 312,614 $ 136,747 $ 60,124 $ 509,485 Property and equipment, net $ 804,795 $ 291,522 $ 268,224 $1,364,541 Capital expenditures, net $ 40,360 $ 40,669 $ 12,579 $ 93,608 Depreciation $ 13,346 $ 4,639 $ 5,322 $ 23,307 --------------------------------------------------------------------- Three months ended March 31, 2006 --------------------------------------------------------------------- Canada United States International Total --------------------------------------------------------------------- Revenue $ 392,556 $ 122,517 $ 52,926 $ 567,999 Property and equipment, net $ 672,383 $ 180,295 $ 242,385 $1,095,063 Capital expenditures, net $ 48,950 $ 40,281 $ 1,339 $ 90,570 Depreciation $ 13,536 $ 3,467 $ 6,087 $ 23,090 --------------------------------------------------------------------- 4. Supplemental disclosure of cash flow information 2007 2006 -------------- ----------- Net change in non-cash working capital Accounts receivable $ (38,340) $ (68,411) Inventory and other (2,074) (5,445) Accounts payable and accrued liabilities (10,656) (683) Income taxes payable (909) 26,266 Dividends payable 33 17 ------------- ------------ $ (51,946) $ (48,256) ------------- ------------ ------------- ------------ Relating to Operating activities $ (47,717) $ (40,736) Investing activities (4,262) (7,537) Financing activities 33 17 ------------- ------------ $ (51,946) $ (48,256) ------------- ------------ ------------- ------------ 5. Prior period amounts Certain prior year amounts have been reclassified to conform to the current year's presentation. %SEDAR: 00001999E For further information: Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361 |