Ensign Energy Services Announces Record 2006 Financial Results2007-03-19 Overview CALGARY, March 19 /CNW/ - The year ended December 31, 2006 was a record financial year for the Company, and the fourth consecutive year in which the Company has delivered year-over-year growth in all key financial measures. The 2006 fiscal year started strong, with customer demand and operating activity levels building on the momentum gained in 2005. Oil and natural gas commodity prices remained strong during the first half of 2006 and supported high levels of oil and natural gas exploration and development activity throughout North America and internationally. Significant growth in Canada in the first half of 2006, steady performance by the Company's United States oilfield services division throughout the year, and gradual improvements in the international market all contributed to the record financial performance of 2006. The Company operates in a cyclical industry, the effects of which were felt in the latter half of 2006. Concerns over natural gas commodity prices began to impact demand for the Company's services in the Canadian market. As natural gas commodity prices began to decline as a result of concerns over rising natural gas inventory levels and predictions of warm winter weather in North America, the Company's customers began to curtail their drilling programs, particularly in the shallow natural gas and coal bed methane markets of the Western Canada Sedimentary Basin. These factors negatively impacted equipment utilization rates in Canada late in the third quarter, and throughout the fourth quarter of 2006. As a result, the Canadian oilfield services division exited 2006 at utilization levels lower than that experienced in the prior year. Operating activities in the Company's United States oilfield services division in the fourth quarter of 2006 were not impacted as significantly by these short-term fluctuations in natural gas spot market prices as customers' drilling programs in these regions tend to have a longer-term focus. The strong financial performance delivered by the Company's United States oilfield services division in the fourth quarter of 2006 partially mitigated the softness noted in the Canadian market and the quarter-over-quarter decline in operating activity in the international oilfield services division. ------------------------------------------------------------------------- FINANCIAL AND OPERATING HIGHLIGHTS ($ thousands, except per share data and operating information) ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- % % 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Revenue 421,908 476,192 (11) 1,807,230 1,520,724 19 ------------------------------------------------------------------------- EBITDA(1) 122,194 152,414 (20) 593,334 448,163 32 EBITDA per share(1,6) Basic $0.80 $1.01 (21) $3.91 $2.97 32 Diluted $0.78 $0.97 (20) $3.80 $2.87 32 ------------------------------------------------------------------------- Adjusted net income(2) 66,155 81,796 (19) 337,352 231,685 46 Adjusted net income per share(2,6) Basic $0.44 $0.54 (19) $2.22 $1.53 45 Diluted $0.42 $0.52 (19) $2.16 $1.49 45 ------------------------------------------------------------------------- Net income 63,938 59,969 7 341,284 169,665 101 Net income per share(6) Basic $0.42 $0.40 5 $2.25 $1.12 101 Diluted $0.41 $0.38 8 $2.18 $1.09 100 ------------------------------------------------------------------------- Funds from operations(3) 109,579 112,154 (2) 420,173 337,186 25 Funds from operations per share(3,6) Basic $0.72 $0.74 (3) $2.77 $2.23 24 Diluted $0.70 $0.71 (1) $2.69 $2.16 25 ------------------------------------------------------------------------- Weighted average shares - basic (000s)(6) 151,975 151,338 - 151,775 151,202 - Weighted average shares - diluted (000s)(6) 155,779 157,590 (1) 156,229 156,224 - ------------------------------------------------------------------------- Drilling Number of marketed rigs Canada Conventional 164 159 3 164 159 3 Oil sands coring/ coal-bed methane 22 21 5 22 21 5 United States 64 61 5 64 61 5 International(4) 47 47 - 47 47 - Operating days(5) Canada 6,793 10,098 (33) 32,689 33,683 (3) United States 4,538 4,103 11 18,252 15,897 15 International 2,453 2,794 (12) 9,151 10,282 (11) ------------------------------------------------------------------------- Well Servicing Number of marketed rigs/units Canada 114 116 (2) 114 116 (2) United States 11 8 38 11 8 38 Operating hours Canada 48,009 59,579 (19) 206,951 209,667 (1) United States 5,169 1,732 198 21,383 1,732 1,135 ------------------------------------------------------------------------- (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 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 segments now report operating days based on "spud to rig release". Accordingly, certain prior period comparatives may have been changed to conform to the current year's presentation. (6) 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 December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Revenue Canada 231,430 302,912 (24) 1,074,491 916,974 17 United States 128,185 110,388 16 505,748 387,050 31 International 62,293 62,892 (1) 226,991 216,700 5 -------------------------------------------------------- 421,908 476,192 (11) 1,807,230 1,520,724 19 Oilfield services expense 283,982 308,000 (8) 1,161,213 1,031,412 13 -------------------------------------------------------- 137,926 168,192 (18) 646,017 489,312 32 -------------------------------------------------------- Gross margin 32.7% 35.3% 35.7% 32.2% ------------------------------------------------------------------------- For the year ended December 31, 2006, revenue totaled $1,807.2 million, the highest recorded in the Company's history and a 19 percent increase over the prior year. Increased operating activity and pricing strength in the Company's United States oilfield services division, as well as a strong operating and pricing environment in Canada in the first three quarters of 2006, were the largest contributors to the increase. Revenue for the fourth quarter of 2006 totaled $421.9 million compared with $476.2 million for the fourth quarter of 2005, a decrease of 11 percent. The net decrease in revenue on a quarter-over-quarter basis is due to a decline in operating activity in Canada resulting from softening demand, partially offset by an increase in operating activity in the United States oilfield services division. Oilfield services expense totaled $1,161.2 million for the year ended December 31, 2006, a 13 percent increase from the prior year. Robust levels of oilfield services activity around the globe in 2006 caused a marked increase in demand for the skilled labour and materials that are critical to providing the Company's services. This inflationary pressure on labour and material costs is the primary cause of the increase in oilfield services expense on a year-over-year basis. Oilfield services expense declined eight percent in the fourth quarter of 2006 compared with the fourth quarter of 2005 due to a decline in operating activity; however, increasing labour costs continued to be a factor as labour rate increases became effective in Canada in October 2006. Gross margin increased to 35.7 percent in 2006, compared with 32.2 percent in the prior year. The improvement in gross margin is attributable to higher revenue rates, partially offset by higher labour and material costs. Gross margin was negatively impacted in the fourth quarter of 2006 by lower equipment utilization rates and pricing pressure in Canada, as well as annual maintenance activities in the Company's international oilfield services division. Canadian Oilfield Services -------------------------- The Company's Canadian oilfield services division delivered solid financial performance in 2006, growing revenue by 17 percent over the prior year. The majority of this growth was achieved in the first half of 2006, when strong oil and natural gas commodity prices drove operating activity to record levels. High demand for the Company's services over this period also supported strong pricing, with 2005/2006 winter pricing holding through most of the summer and fall. However, towards the end of the third quarter of 2006 the Company's Canadian operations noted a downward trend in operating activity. The concern over declining natural gas prices and the resultant slow down in shallow natural gas drilling activity were the contributing factors to this decrease. Softening commodity prices continued to be a concern in the fourth quarter of 2006, when the Company's Canadian operations experienced a decline in operating activity and pricing pressure from customers. These factors negatively impacted revenue and gross margins, both of which declined in the fourth quarter of 2006 compared with the same period of the prior year. During the year ended December 31, 2006, the Canadian oilfield services division added five newly constructed drilling rigs, and one specialty drilling rig to its fleet of equipment. These new drilling rigs have bolstered the fleet in that the new equipment commands higher revenue rates and supports the Company's ongoing safety initiatives. Two of the five drilling rigs introduced in 2006 are Automated Drill Rigs (ADR(TM)s). The Company continues to experience high demand for its proprietary ADR(TM) technology and has expanded the technology to accommodate slant drilling capabilities and greater depth capacity. As of December 31, 2006, the Canadian oilfield services division had two slant well servicing rigs under construction. It is expected that these well servicing rigs will be completed and placed into service in the second quarter of 2007. The addition of these two slant well servicing rigs in 2007 will offset the transfer of two well servicing rigs to the United States, which occurred in the fourth quarter of 2006. United States Oilfield Services ------------------------------- The United States oilfield services division generated record financial results in 2006 on the strength of heightened drilling activity in the Rocky Mountain and California regions of the United States. The factors negatively impacting Canadian operations in the latter half of 2006 did not meaningfully impact United States operations, which continued to achieve revenue, gross margin and operating activity increases on both a year-over-year and quarter-over-quarter basis. Revenue for the year ended December 31, 2006 increased 31 percent over the prior year. Revenue increased 16 percent in the fourth quarter of 2006 compared with the fourth quarter of 2005. In addition to improved revenue rates and increased operating activity levels, these increases also reflect contributions from the well servicing acquisition completed near the end of 2005. As the Company continues to introduce new equipment into the United States market, it mitigates the impact of volatile commodity prices on operating activity levels by ensuring that the new equipment is constructed and operated under long-term take-or-pay contracts. Of the 16 new drilling rigs approved for construction in 2006, three were completed and placed into service by December 31, 2006. Construction of the remaining 13 ADR(TM) drilling rigs is continuing as planned and will be completed throughout 2007. Due to the early success of the United States well servicing acquisition completed in 2005 and the potential for growth in this market, the Company transferred two well servicing units from its Canadian fleet to the United States in the fourth quarter of 2006. International Oilfield Services ------------------------------- The Company's international operations achieved moderate improvements in financial performance in 2006, increasing revenue by five percent compared with 2005. This was accomplished despite an 11 percent decline in operating activity in 2006 compared with 2005. Revenue remained flat in the fourth quarter of 2006 compared with the fourth quarter of 2005, while operating activity declined 12 percent over this same period. The decline in operating activity was partially due to contract renewal delays in Venezuela and the relocation of two workover rigs from Ecuador to Argentina. These negative events were partially offset by increases in operating activity in other international locations, as well as by gradual price increases in these areas. The Company continuously evaluates the international markets in which it operates, and relocates equipment in response to changing market conditions and to capitalize on opportunities in other regions. During 2006, the Company entered the Thailand market, transferring one rig from New Zealand, and added two rigs to its fleet of equipment based in Libya. Of the two rigs transferred to Libya, one rig was redeployed from the Company's operations in Oman and the other from New Zealand. The Company is also planning to bolster its equipment fleet based in the Middle East and Africa with the refurbishment of two drilling rigs and the reactivation of one previously idle drilling rig. In addition, the Company plans to transfer one drilling rig from its Canadian fleet to Australia in early 2007. Depreciation Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Depreciation 18,604 20,117 (8) 80,921 74,917 8 ------------------------------------------------------------------------- Depreciation expense totaled $80.9 million for the year ended December 31, 2006, an increase of eight percent over the prior year. Although 2006 operating activity levels remained fairly flat compared with 2005, depreciation expense has increased due to a higher capital asset base associated with the Company's rig building program. For the three months ended December 31, 2006, depreciation expense totaled $18.6 million compared with $20.1 million for the three months ended December 31, 2005, a decline of eight percent. The decline in depreciation expense in the fourth quarter of 2006 is due to a decline in operating activity levels, offset by a higher capital asset base, compared with the prior period. General and Administrative Expense Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- General and administrative 15,732 15,778 - 52,683 41,149 28 % of revenue 3.7% 3.3% 2.9% 2.7% ------------------------------------------------------------------------- General and administrative expense totaled $52.7 million for the year ended December 31, 2006, an increase of 28 percent over the prior year. The increase is consistent with the expanded operations of the Company and the revenue growth achieved during 2006. As a percentage of revenue, general and administrative expense was 2.9 percent for 2006 compared 2.7 percent for the year ended December 31, 2005. For the three months ended December 31, 2006, general and administrative expense totaled $15.7 million, consistent with the same period of the prior year. As a percentage of revenue, general and administrative expense was 3.7 percent in the fourth quarter of 2006 compared with 3.3 percent in the fourth quarter of 2005. Stock-Based Compensation Expense Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Stock-based compensation 3,410 33,580 (90) (6,050) 95,415 (106) ------------------------------------------------------------------------- Stock-based compensation expense arises from the intrinsic value accounting associated with the Company's stock option plan, whereby the liability associated with stock-based compensation is adjusted on a quarterly basis for the effect of vesting and exercising of stock options, as well as changes in the underlying price of the Company's common shares. For the year ended December 31, 2006, stock-based compensation is a net recovery of $6.1 million. The net recovery is due to a decline in the price of the Company's common shares, net of the impact of additional granting and vesting of stock options. Stock-based compensation expense for the three months ended December 31, 2006 totaled $3.4 million and is predominantly comprised of additional vesting of stock options. The closing price of the Company's common shares was $18.39 at December 31, 2006, compared with $18.55 at September 30, 2006 and $23.46 at December 31, 2005. Interest Expense Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Interest 1,177 1,818 (35) 5,127 6,823 (25) ------------------------------------------------------------------------- Interest expense is incurred on the Company's operating lines of credit. The decrease in interest expense on both a year-over-year and quarter-over-quarter basis is due to a decrease in the average utilized balance outstanding of the Company's operating lines of credit, partially offset by a slight increase in interest rates. Income Taxes Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Current income tax 6,236 32,602 (81) 131,436 80,841 63 Future income tax 28,829 4,328 566 40,616 20,502 98 ------------------------------------------------------- 35,065 36,930 (5) 172,052 101,343 70 ------------------------------------------------------- Effective income tax rate (%) 35.4% 38.1% 33.5% 37.4% ------------------------------------------------------------------------- The effective income tax rate for the year ended December 31, 2006 was 33.5 percent compared with 37.4 percent in 2005. The decrease in the Company's effective income tax rate on a year-over-year basis is primarily due to substantively enacted federal and provincial income tax rate reductions in Canada. The income tax rate reductions not only impact the current and future income tax provision in 2006, but also resulted in a favourable adjustment to the opening future income tax liability balance. The effective income tax rate for the fourth quarter of 2006 was 35.4 percent compared with 38.1 percent in the fourth quarter of 2006. The movement in the Company's effective income tax rate on a quarter-over-quarter basis is partially due to the recognition of substantively enacted income tax rate reductions in Canada. The impact of rate reductions in Canada is offset by the fact that a greater proportion of pre-tax net income was generated in the United States in the fourth quarter of 2006 compared with the fourth quarter of 2005. Income generated in the United States is subject to higher income tax rates than Canada. Financial Position The following chart outlines significant changes in the consolidated balance sheets from December 31, 2005 to December 30, 2006: ($ thousands) Change Explanation ------------------------------------------------------------------------- Cash and cash equivalents (17,423) See consolidated statements of cash flows. Accounts receivable (22,031) Decrease due to a decline in operating activity in the fourth quarter of 2006 compared with the fourth quarter of 2005. Inventory and other 24,764 Increase due to additions to drill pipe inventory in late 2006. Property and equipment 264,024 Increase due to ongoing capital expenditures and equipment under construction, offset by depreciation for the year. Accounts payable and accrued liabilities (4,708) Decrease due to a decline in operating activity in the fourth quarter of 2006 compared with the fourth quarter of 2005, offset by ongoing capital expenditure activity. Operating lines of credit (95,790) Decrease due to net repayments during the year. Stock-based compensation (53,958) Decrease due to a decline in the price of the Company's common shares and the exercise of employee stock options in the year. Income taxes payable 22,478 Increase due to the current income tax provision for the year, offset by income tax installments. Dividends payable 4,589 Increase due to a 60-percent increase in the quarterly dividend rate. Future income taxes 41,020 Increase due to the future income tax provision for the year, offset by a one-time reduction associated with substantively enacted income tax rate reductions in Canada. Shareholders' equity 335,703 Increase due to the aggregate impact of net income for the year, increase in capital stock due to exercises of employee stock options, impact of foreign exchange rate fluctuations on the net assets of foreign self- sustaining subsidiaries, less dividends declared in the year. ------------------------------------------------------------------------- Working Capital and Funds from Operations Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Funds from operations 109,579 112,154 (2) 420,173 337,186 25 Funds from operations per share $0.72 $0.74 (3) $2.77 $2.23 24 Working capital 63,162 (11,878) 632 63,162 (11,878) 632 ------------------------------------------------------------------------- During 2006, the Company generated sufficient funds from operations to finance its investing activities and dividend payments, as well as support a net repayment of its operating lines of credits. Funds from operations totaled $420.2 million ($2.77 per common share) in the year ended December 31, 2006, a 25 percent increase from the $337.2 million ($2.23 per common share) generated in the year ended December 31, 2005. For the three months ended December 31, 2006, funds from operations totaled $109.6 million ($0.72 per common share) compared with $112.2 million ($0.74 per common share) for the three months ended December 31, 2005, a decline of two percent. The Company's working capital position as at December 31, 2006 was $63.2 million, a $75.0 million improvement over the working capital deficit of $11.9 million at December 31, 2005. As of December 31, 2006, the Company continued to operate with sufficient liquidity to meet its obligations as they come due. The Company anticipates that its capital expenditure program and quarterly dividend distributions will continue to be financed with internally generated funds and available credit facilities. Investing Activities Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Acquisitions - (17,430) (100) - (79,021) (100) Net purchase of property and equipment (85,662) (84,506) 1 (325,483) (247,696) 31 Net change in non-cash working capital 12,000 17,750 (32) 40,053 14,956 168 -------------------------------------------------------- Cash used in investing activities (73,662) (84,186) 13 (285,430) (311,761) 8 ------------------------------------------------------------------------- The Company strives to provide its customers with safe and modern equipment. In support of this goal, the Company expended $325.5 million in 2006 in connection with the modernization of its existing rig fleet and new-build program, $85.7 million of which was expended in the fourth quarter of 2006. Capital projects approved in 2006 included 16 newly constructed or refurbished drilling rigs for the United States (including 13 ADR(TM)s); and six drilling rigs (including two ADR(TM)s) and two slant well servicing rigs for Canada. Of the United States additions, two conventional drilling rigs and one ADR(TM) were completed and placed into service in 2006, with the remaining ADR(TM)s expected to be delivered throughout 2007. All six of the new drilling rigs constructed for the Canadian market were completed and placed into service in 2006. The two new slant well servicing rigs are expected to be completed and in service by the second quarter of 2007. The Company is also planning to bolster its international equipment fleet with the refurbishment of two drilling rigs and the reactivation of one previously idle drilling rig. The remaining 2006 capital projects scheduled for completion in 2007 will be financed with internally generated funds and available credit facilities. The Company did not complete any corporate acquisitions during the year ended December 31, 2006. In the year ended December 31, 2005, the Company completed two corporate acquisitions totaling $79.0 million. In January 2005, the Company acquired all of the issued and outstanding shares of Servicios Petroleros Flint, C.A. and Flintco del Ecuador C.A. (subsequently renamed Ensign de Venezuela C.A. and Ensign del Ecuador, C.A., respectively). Ensign de Venezuela provides contract drilling and workover services in Venezuela. The Company ceased operations in Ecuador in 2006 and repositioned the two workover rigs previously operating in that country to Argentina. In November 2005, the Company entered the well servicing market in the United States through the acquisition of Action Energy Services and Action Oil Field Services, Inc. (subsequently renamed Ensign Well Services Inc.). Ensign Well Services Inc. operates 11 well servicing units in the Rocky Mountain region of the United States. Financing Activities Three months ended December 31 Year ended December 31 -------------------------------------------------------- % % ($ thousands) 2006 2005 change 2006 2005 change ------------------------------------------------------------------------- Net (decrease) increase in operating lines of credit (24,670) (10,534) 134 (95,790) 68,842 (239) Issue of capital stock 3,623 663 446 6,556 3,132 109 Dividends (12,155) (7,565) 61 (42,505) (25,706) 65 Net change in non-cash working capital 769 1,515 (49) 4,589 1,530 200 -------------------------------------------------------- Cash (used in) provided by financing activities (32,433) (15,921) 104 (127,150) 47,798 (366) ------------------------------------------------------------------------- During the year ended December 31, 2006, the Company generated cash flows in excess of its operating and capital requirements, thereby allowing the Company to reduce the utilized balance of its operating lines of credit. The Company repaid a net $95.8 million and $24.7 million in the year ended December 31, 2006 and in the three months ended December 31, 2006, respectively. Subsequent to December 31, 2006, the Company increased the amount available under its United States operating line of credit to USD $50.0 million to finance its new build projects and support its expanded operations in the United States. As of March 19, 2007, the Company had not yet drawn on this United States based credit facility. During the year ended December 31, 2006, the Company declared dividends of $0.28 per common share, an increase of 65 percent over $0.17 per common share declared in 2005. During 2006, the Company announced two increases to its quarterly dividend rate: a 50 percent increase in the second quarter; and a further seven percent increase in the fourth quarter of 2006. The Company has increased its dividend every year since it began paying a dividend in 1995. Subsequent to December 31, 2006, the Company declared a dividend for the first quarter of 2007. A quarterly dividend of approximately $12.2 million, being $0.08 per common share, was declared for payment on April 2, 2007, to all shareholders of record as of March 20, 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. Other financing activities include the issue of capital stock on the exercise of employee stock options. During the year ended December 31, 2006, $6.6 million was received on the exercise of employee stock options, $3.6 million of which was received in the fourth quarter of 2006. Outlook The record financial results achieved by the Company during the 2006 fiscal year were generated despite a softening in demand for oilfield services in Canada in late 2006. The demand for oilfield services in the Company's core Canadian market was negatively impacted by the effect of reduced natural gas commodity prices on the cash flows and operating plans of the Company's customers. While natural gas and crude oil commodity prices have recovered somewhat from recent lows, the Company does not anticipate a recovery in demand for oilfield services in Canada until such time as the market is satisfied with natural gas supply and demand fundamentals. At this point, we have seen reduced winter level activity in Canada compared to the prior year and the outlook for the second and third quarters calls for lower utilization accompanied by reduced margins. In contrast, the Company's United States operations have not only enjoyed its most successful year ever, but this important market has yet to show any significant signs of slow down. In 2007 the Company will complete its previously announced build program in the United States, that will result in a larger, very modern, technically-efficient rig fleet that will better position the Company in the Rocky Mountain region and California markets. Activity levels in the Rocky Mountain region will primarily be determined by natural gas fundamentals and in this regard it is possible that demand for oilfield services in the United States will follow Canada's lead and decrease later in the year. Should activity levels begin to decrease, the Company's United States drilling divisions have some protection given the term contracts associated with the newly built or refurbished drilling equipment. The Company's international operations continue to show steady improvement in operational and financial results. A tighter global drilling rig market has resulted in less downtime between contracts and improved margins as contracts are renewed or negotiated. While there has not been a "step change" in the magnitude of the improvements in the international onshore drilling market, the direction of the changes have been positive and the outlook is optimistic given favorable indicators around global supply and demand fundamentals for crude oil. There remain a number of geopolitical issues in key international onshore markets; however, the risks are being monitored and managed to the extent that the Company is able. The overall uncertainty around the current outlook for oilfield services creates not only volatility with respect to the Company's financial results, but also opportunities within the sector. The Company's strong balance sheet and growth strategy will enable it to search for and take advantage of opportunities to continue to grow through any real or perceived downturn in activity in all of its market segments. Recent Developments The Company is pleased to announce the appointment of Mr. Bob Geddes and Mr. Barth Whitham to its Board of Directors effective March 15, 2007. Effective January 1, 2007, Mr. Geddes assumed the role of President and Chief Operating Officer of the Company and has been with the Company for over 15 years. Mr. Whitham currently holds the position of President and Chief Executive of Enduring Resources, LLC., based in Denver, Colorado. Mr. Whitham also serves on several boards, including Western Bank Corporation and First National Bank. Mr. Whitham holds a BS in Petroleum Engineering and a MS in Economics. Risks and Uncertainties This document contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, political and economic conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions and the ability of oil and natural gas companies to raise capital or other unforeseen conditions which could impact on the use of the services supplied by the Company. A conference call will be held to discuss the Company's fourth quarter results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, March 19, 2007. The conference call number is 1-416-644-3418 or toll free 1-800-731-5774. A taped recording will be available until March 26, 2007 by dialing 1-416-640-1917 or toll free 1-877-289-8525 and entering reservation number 21223758 followed by the number sign. A live broadcast may be accessed through the Company's web site at www.ensignenergy.com. Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI. CONSOLIDATED BALANCE SHEETS As at December 31, 2006 and 2005 (in thousands of dollars) December 31 December 31 2006 2005 ---- ---- Assets Current assets Cash and cash equivalents 14,570 31,993 Accounts receivable 365,075 387,106 Inventory and other 77,228 52,464 Future income taxes 11,010 20,534 ------------------------- 467,883 492,097 Property and equipment 1,294,266 1,030,242 ------------------------- 1,762,149 1,522,339 ------------------------- ------------------------- Liabilities Current liabilities Accounts payable and accrued liabilities 241,976 246,684 Operating lines of credit 69,989 165,779 Current portion of stock-based compensation 33,818 59,641 Income taxes payable 46,783 24,305 Dividends payable 12,155 7,566 ------------------------- 404,721 503,975 Stock-based compensation 17,999 46,134 Future income taxes 231,824 200,328 ------------------------- 654,544 750,437 ------------------------- Shareholders' Equity Capital stock 154,838 136,972 Cumulative translation adjustment (20,163) (39,221) Retained earnings 972,930 674,151 ------------------------- 1,107,605 771,902 ------------------------- 1,762,149 1,522,339 ------------------------- ------------------------- CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (in thousands of dollars, except per share data) Three months ended Year ended December 31 December 31 2006 2005 2006 2005 ---- ---- ---- ---- Revenue Oilfield services 421,908 476,192 1,807,230 1,520,724 Expenses Oilfield services 283,982 308,000 1,161,213 1,031,412 Depreciation 18,604 20,117 80,921 74,917 General and administrative 15,732 15,778 52,683 41,149 Stock-based compensation 3,410 33,580 (6,050) 95,415 Interest 1,177 1,818 5,127 6,823 ------------------------------------------------ 322,905 379,293 1,293,894 1,249,716 ------------------------------------------------ Income before income taxes 99,003 96,899 513,336 271,008 Income taxes Current 6,236 32,602 131,436 80,841 Future 28,829 4,328 40,616 20,502 ------------------------------------------------ 35,065 36,930 172,052 101,343 ------------------------------------------------ Net income for the year 63,938 59,969 341,284 169,665 Retained earnings - beginning of year 921,147 621,747 674,151 530,192 Dividends (12,155) (7,565) (42,505) (25,706) ------------------------------------------------ Retained earnings - end of year 972,930 674,151 972,930 674,151 ------------------------------------------------ ------------------------------------------------ Net income per share Basic $ 0.42 $ 0.40 $ 2.25 $ 1.12 Diluted $ 0.41 $ 0.38 $ 2.18 $ 1.09 ------------------------------------------------ ------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) Three months ended Year ended December 31 December 31 2006 2005 2006 2005 ---- ---- ---- ---- Cash provided by (used in) Operating activities Net income for the year 63,938 59,969 341,284 169,665 Items not affecting cash: Depreciation 18,604 20,117 80,921 74,917 Stock-based compensation, net of cash paid (1,792) 27,740 (42,648) 72,102 Future income taxes 28,829 4,328 40,616 20,502 ------------------------------------------------ Cash provided by operating activities before the change in non-cash working capital 109,579 112,154 420,173 337,186 Net change in non-cash working capital (9,854) (12,771) (25,016) (56,941) ------------------------------------------------ 99,725 99,383 395,157 280,245 ------------------------------------------------ Investing activities Acquisitions - (17,430) - (79,021) Net purchase of property and equipment (85,662) (84,506) (325,483) (247,696) Net change in non-cash working capital 12,000 17,750 40,053 14,956 ------------------------------------------------ (73,662) (84,186) (285,430) (311,761) ------------------------------------------------ Financing activities Net (decrease) increase in operating lines of credit (24,670) (10,534) (95,790) 68,842 Issue of capital stock 3,623 663 6,556 3,132 Dividends (12,155) (7,565) (42,505) (25,706) Net change in non-cash working capital 769 1,515 4,589 1,530 ------------------------------------------------ (32,433) (15,921) (127,150) 47,798 ------------------------------------------------ (Decrease) increase in cash and cash equivalents during the year (6,370) (724) (17,423) 16,282 Cash and cash equivalents - beginning of year 20,940 32,717 31,993 15,711 ------------------------------------------------ Cash and cash equivalents - end of year 14,570 31,993 14,570 31,993 ------------------------------------------------ ------------------------------------------------ Supplemental information Interest paid 1,069 1,984 5,358 7,350 Income taxes paid 22,078 16,464 108,958 76,189 ------------------------------------------------ ------------------------------------------------ %SEDAR: 00001999E For further information: Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361 |