Ensign Energy Services Reports 2007 First Quarter Results

2007-05-07
6:00am

 

    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