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Ensign Energy Services Inc. Reports 2015 Third Quarter Results

Ensign Energy Services Inc. Reports 2015 Third Quarter Results

Canada NewsWire

CALGARY, Nov. 9, 2015 /CNW/ -

OVERVIEW

Revenue for the third quarter of 2015 was $324.0 million, a decrease of 44 percent from revenue for the third quarter of 2014 of $583.3 million.  Revenue for the nine months ended September 30, 2015 was $1,107.1 million, 36 percent lower than revenue of $1,719.1 million for the nine months ended September 30, 2014.  Adjusted EBITDA totaled $66.9 million ($0.44 per common share) in the third quarter of 2015, 51 percent lower than adjusted EBITDA of $137.3 million ($0.90 per common share) in the third quarter of 2014.  For the first nine months of 2015 adjusted EBITDA was $248.8 million ($1.63 per common share), 37 percent lower than adjusted EBITDA of $394.5 million ($2.58 per common share) for the first nine months of 2014. 

Net loss for the third quarter of 2015 was $77.3 million ($0.51 per common share), having decreased 392 percent compared to net income of $26.5 million ($0.17 per common share) for the third quarter of 2014.  Net loss for the nine months ended September 30, 2015 decreased 162 percent to a loss of $62.9 million ($0.41 per common share) compared to net income of $102.2 million ($0.67 per common share) for the first nine months of 2014.  Adjusted net loss for the third quarter of 2015 was $33.0 million ($0.22 per common share), 191 percent lower than adjusted net income of $36.1 million for the third quarter of 2014 ($0.24 per common share).  Adjusted net loss for the nine months ended September 30, 2015 was $4.0 million ($0.03 per common share), 104 percent lower than adjusted net income of $104.4 million ($0.68 per common share) for the nine months ended September 30, 2014.  The net loss recorded in the third quarter and first nine months of 2015 included a one-time provision of $28.2 million ($0.19 per common share) for asset decommissioning and write-downs expense in the third quarter.

Funds from operations decreased 48 percent to $68.2 million ($0.45 per common share) in the third quarter of 2015 compared to $132.2 million ($0.87 per common share) in the third quarter of the prior year.  For the nine months ended September 30, 2015 funds from operations were $247.4 million ($1.62 per common share), 31 percent lower than $359.6 million ($2.35 per common share) for the nine months ended September 30, 2014. 

Operating days across the Company's fleet were lower in the third quarter of 2015 when compared to the third quarter of 2014 due to weaker demand for oilfield services caused by continued low oil and natural gas commodity prices.  A strengthening of the United States dollar against the Canadian dollar positively impacted United States and international financial results on translation to Canadian dollars.  The average United States exchange rate versus the Canadian dollar for the first nine months of 2015 increased 15 percent compared to the first nine months of 2014.

Gross margin decreased to $84.5 million (26.1 percent of revenue) for the third quarter of 2015 compared to a gross margin of $162.7 million (27.9 percent of revenue) for the third quarter of 2014.  For the nine months ended September 30, 2015 gross margin decreased to $307.1 million (27.7 percent of revenue) compared to $465.8 million (27.1 percent of revenue) for the nine months ended September 30, 2014.  The decrease in gross margin in the first nine months of 2015 compared to the first nine months of 2014 was  primarily due to weaker activity levels and revenue rates across the oilfield service equipment fleet, costs related to field office restructuring and costs associated with moving idle equipment to storage facilities.  Effective cost management contributed to higher gross margin percentages when compared to prior year to date periods.

Working capital at September 30, 2015 was $144.2 million, compared to $189.7 million at December 31, 2014.  The Company's bank credit facilities provide available borrowings of $204.2 million at September 30, 2015 compared to $161.5 million at December 31, 2014. The Company has reduced its capital spending and has focused on further strengthening its balance sheet over the first nine months of 2015.


FINANCIAL AND OPERATING HIGHLIGHTS

(Unaudited, in thousands of Canadian dollars, except per share data and operating information)



Three months ended September 30



Nine months ended September 30


2015



2014



% change



2015



2014



% change

Revenue

324,002



583,299



(44)



1,107,091



1,719,074



(36)

Adjusted EBITDA 1

66,914



137,295



(51)



248,781



394,501



(37)

Adjusted EBITDA per share 1













Basic

$

0.44



$

0.90



(51)



$

1.63



$

2.58



(37)


Diluted

$

0.44



$

0.89



(51)



$

1.63



$

2.57



(37)

Adjusted net income (loss) 2

(33,002)



36,076



(191)



(3,972)



104,386



(104)

Adjusted net income (loss) per share 2













Basic

$

(0.22)



$

0.24



(192)



$

(0.03)



$

0.68



(104)


Diluted

$

(0.22)



$

0.24



(192)



$

(0.03)



$

0.68



(104)

Net income (loss)

(77,265)



26,505



(392)



(62,874)



102,158



(162)

Net income (loss) per share













Basic

$

(0.51)



$

0.17



(400)



$

(0.41)



$

0.67



(161)


Diluted

$

(0.51)



$

0.17



(400)



$

(0.41)



$

0.67



(161)

Funds from operations 3

68,218



132,187



(48)



247,368



359,629



(31)

Funds from operations per share 3













Basic

$

0.45



$

0.87



(48)



$

1.62



$

2.35



(31)


Diluted

$

0.45



$

0.86



(48)



$

1.62



$

2.34



(31)

Weighted average shares - basic (000s)

152,291



152,680





152,484



152,741



Weighted average shares - diluted (000s)

152,291



153,433



(1)



152,484



153,533



(1)

Drilling












   Number of rigs













Canada 4

90



103



(13)



90



103



(13)


United States

98



110



(11)



98



110



(11)


International 5

54



59



(8)



54



59



(8)

   Operating days













Canada 4

1,731



3,780



(54)



5,392



10,807



(50)


United States

2,768



6,054



(54)



9,478



17,717



(47)


International 5

1,893



2,710



(30)



6,639



8,690



(24)

Well Servicing












   Number of rigs













Canada

72



92



(22)



72



92



(22)


United States

46



44



5



46



44



5

   Operating hours













Canada

14,496



30,353



(52)



47,572



93,736



(49)


United States

21,188



32,033



(34)



58,394



91,493



(36)

1.

Adjusted EBITDA is defined as "income before interest, income taxes, depreciation, asset decommissioning and write-downs, share-based compensation
and foreign exchange and other".  Management believes that in addition to net income, Adjusted EBITDA is a useful supplemental measure as it provides 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, how the results are impacted by foreign exchange or how the results are impacted by the accounting standards associated
with the Company's share-based compensation plans.  Adjusted EBITDA and Adjusted EBITDA per share are not recognized measures under International
Financial Reporting Standards and thus may not be comparable to measures used by other companies.

2.

Adjusted net income is defined as "net income before asset decommissioning and write-downs, share-based compensation and foreign exchange and other,
tax-effected using the expected income tax rate for each item or an estimate of 35 percent".  Adjusted net income is a useful supplemental measure as it provides
an indication of the results generated by the Company's principal business activities prior to consideration of how the results are impacted by non-cash charges
for equipment write-downs, how the results are impacted by foreign exchange and how the results are impacted by the accounting standards associated with
the Company's share-based compensation plans, net of income taxes.  Adjusted net income and Adjusted net income per share are not recognized measures
under International Financial Reporting Standards and thus 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 is a measure
that provides 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 International Financial Reporting Standards and thus may not be comparable to similar measures used by other
companies.

4.

Excludes coring rigs.  Includes coring drilling days in Q1, 2015.

5.

Includes workover rigs.

 

THIRD QUARTER HIGHLIGHTS

  • Revenue for the third quarter of 2015 was $324.0 million, a decrease of 44 percent from revenue for the third quarter of 2014 of $583.3 million.
  • Third quarter revenue by geographic area:
    • Canada - $81.6 million, 25 percent;
    • United States - $143.9 million, 45 percent;
    • International - $98.5 million, 30 percent.
  • Canadian drilling (excluding coring) recorded 1,731 operating days in the third quarter of 2015, a 54 percent decrease from 3,780 operating days in the third quarter of 2014. Canadian well servicing recorded 14,496 operating hours in the third quarter of 2015, a 52 percent decrease from 30,353 operating hours in the third quarter of 2014.
  • United States drilling recorded 2,768 operating days in the third quarter of 2015, a 54 percent decrease from 6,054 operating days in the third quarter of 2014. United States well servicing recorded 21,188 operating hours in the third quarter of 2015, a 34 percent decrease from 32,033 operating hours in the third quarter of 2014.
  • International drilling recorded 1,893 operating days in the third quarter of 2015, a 30 percent decrease from 2,710 operating days recorded in the third quarter of 2014.
  • Adjusted EBITDA for the third quarter of 2015 was $66.9 million, a 51 percent decrease from adjusted EBITDA of $137.3 million for the third quarter of 2014. Funds from operations for the third quarter of 2015 decreased 48 percent to $68.2 million from $132.2 million in the third quarter of the prior year.
  • Two new ADR® drilling rigs were added to the Company's Canadian equipment fleet in the third quarter of 2015.
  • The Company's construction in progress at September 30, 2015 consists of two new ADR® drilling rigs scheduled for delivery by the end of the year.
  • The Company recorded a non-cash charge of $28.2 million for asset decommissioning and write-downs in its Latin American operations.

REVENUE AND OILFIELD SERVICES EXPENSE


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Revenue













Canada

81,597



161,730



(50)



245,194



498,885



(51)


United States

143,889



260,072



(45)



477,199



754,620



(37)


International

98,516



161,497



(39)



384,698



465,569



(17)

Total revenue

324,002



583,299



(44)



1,107,091



1,719,074



(36)

Oilfield services expense

239,532



420,553



(43)



799,949



1,253,315



(36)

Gross margin

84,470



162,746



(48)



307,142



465,759



(34)

Gross margin percentage (%)

26.1



27.9





27.7



27.1




 

Revenue for the three months ended September 30, 2015 totaled $324.0 million, a decrease of 44 percent from the third quarter of 2014 of $583.3 million.  Revenue for the nine months ended September 30, 2015 was $1,107.1 million, 36 percent lower than revenue for the nine months ended September 30, 2014 of $1,719.1 million. As a percentage of revenue, gross margin for the third quarter of 2015 decreased to 26.1 percent (2014 - 27.9 percent) and increased to 27.7 percent for the nine months ended September 30, 2015 (2014 - 27.1 percent).

The decline in the oil and natural gas commodity prices that commenced in the second half of 2014 has continued to reduce the demand for oilfield services and has caused the Company to achieve lower equipment utilization rates and revenue rates compared to the first nine months of 2014.  The United States dollar strengthened by 15 percent relative to the Canadian dollar in the first nine months of 2015 compared to the first nine months of 2014, which served to reduce the impact of some of the revenue rate declines experienced during the period.

CANADIAN OILFIELD SERVICES

Revenue decreased 50 percent to $81.6 million for the three months ended September 30, 2015, from $161.7 million for the three months ended September 30, 2014. For the nine months ended September 30, 2015 revenue decreased 51 percent to $245.2 million compared to $498.9 million for the same period in 2014. Canadian revenues accounted for 25 percent of the Company's total revenue in the third quarter of 2015, compared to 28 percent in the third quarter of 2014.  During the nine months ended September 30, 2015 Canadian revenues were 22 percent of total revenue (2014 - 29 percent). 

The Company's Canadian operations recorded 1,731 drilling days in the third quarter of 2015, compared to 3,780 drilling days for the third quarter of 2014, a decrease of 54 percent.  For the nine months ended September 30, 2015 the Company recorded 5,392 drilling days compared to 10,807 drilling days for the nine months ended September 30, 2014, a decrease of 50 percent.  Canadian well servicing hours decreased by 52 percent to 14,496 operating hours in the third quarter of 2015 compared to 30,353 operating hours in the corresponding period of 2014.  For the nine months ended September 30, 2015 well servicing hours decreased by 49 percent to 47,572 operating hours compared with 93,736 operating hours for the nine months ended September 30, 2014. 

Demand for the Company's Canadian oilfield services was lower compared to prior quarters due to lower oil and natural gas commodity prices reducing Canadian operating and financial results.

During the nine months ended September 30, 2015 four new build ADR® drilling rigs and one new ASR™ well servicing rig were completed and delivered to the Canadian fleet offset by one drilling rig transferred to the coring fleet and one drilling rig decommissioned in the first nine months of 2015.

UNITED STATES OILFIELD SERVICES

The Company's United States operations recorded revenue of $143.9 million in the third quarter of 2015, a 45 percent decrease from the $260.1 million recorded in the corresponding period of the prior year. During the nine months ended September 30, 2015 revenue of $477.2 million was recorded, a decrease of 37 percent from the $754.6 million recorded for the nine months ended September 30, 2014. The Company's United States operations accounted for 45 percent of the Company's revenue in the third quarter of 2015 (2014 - 44 percent) and 43 percent of total revenue in the nine months ended September 30, 2015 (2014 - 44 percent). 

Drilling rig operating days decreased by 54 percent to 2,768 drilling days in the third quarter of 2015 from 6,054 drilling days in the third quarter of 2014.  For the nine months ended September 30, 2015 drilling days decreased 47 percent to 9,478 drilling days from 17,717 drilling days in the nine months ended September 30, 2014.  Well servicing activity decreased by 34 percent in the third quarter of 2015 to 21,188 operating hours from 32,033 operating hours in the third quarter of 2014.  For the nine months ended September 30, 2015 well servicing activity decreased 36 percent to 58,394 operating hours from 91,493 operating hours in the first nine months of 2014.  

Activity levels and revenue rates in the United States oilfield service operations started to decline in the fourth quarter of 2014.  The decline continued into the first nine months of 2015 resulting in lower activity levels compared to the first nine months of the prior year.  The reduced activity and associated pricing declines were partially offset by a strengthening of the United States dollar, which increased 15 percent versus the Canadian dollar when compared to the first nine months of 2014. The new builds and the upgrades that the Company has made to its United States fleet throughout the previous years have allowed the Company to maintain revenue rates in some operating jurisdictions.  In the first nine months of 2015 the Company added three new ADR® drilling rigs and two new well servicing rigs to the United States equipment fleet, offset by one well service rig being removed from the marketed fleet.

INTERNATIONAL OILFIELD SERVICES

The Company's international operations recorded revenue of $98.5 million in the third quarter of 2015, a 39 percent decrease from the $161.5 million recorded in the corresponding period of the prior year. Similarly, international revenues for the nine months ended September 30, 2015 decreased by 17 percent to $384.7 million from $465.6 million recorded for the nine months ended September 30, 2014. International operations contributed 30 percent of the Company's revenue in the third quarter of 2015 (2014 - 28 percent) and 35 percent of the Company's revenue in the first nine months of 2015 (2014 - 27 percent).

International operating days for the three months ended September 30, 2015 totaled 1,893 drilling days compared to 2,710 drilling days in 2014, a decrease of 30 percent.  For the nine months ended September 30, 2015 international operating days totaled 6,639 drilling days compared to 8,690 drilling days for the nine months ended September 30, 2014, a decrease of 24 percent. 

Similar to the Company's United States operations, international operations were positively impacted by the strengthening United States dollar versus the Canadian dollar on translation into Canadian dollars for reporting purposes in the first nine months of 2015 compared to the same period of the prior year.  During the nine month period ended September 30, 2015 the Company decommissioned two rigs from the international fleet.

DEPRECIATION


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Depreciation

89,546



77,069



16


214,757



219,597



(2)

 

Depreciation expense totaled $89.5 million for the third quarter of 2015 compared with $77.1 million for the third quarter of 2014, an increase of 16 percent.  Depreciation expense for the first nine months of 2015 was $214.8 million, a decrease of 2 percent from $219.6 million recorded for the first nine months of 2014. Depreciation expense in the first nine months when compared to the first nine months of 2014 was lower due to the decrease in operating activity. The decrease in depreciation due to reduced operating activity was offset by the following: the reduction in the residual values of certain equipment from 15%-25% to 10% effective in 2015, the inactive depreciation incurred during the first nine months of 2015 relating to idle rigs, the impact of higher dollar value equipment being utilized in the nine month period ended September 30, 2015 and the negative translational impact of a stronger United States dollar compared to the Canadian dollar on United States and international depreciation in the first nine months of the current year. 

ASSET DECOMMISSIONING AND WRITE-DOWNS


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Asset decommissioning and write-downs

28,281





N/A


28,281





N/A

 

As a result of a detailed review of its equipment fleet in light of the persistent downturn in market conditions throughout 2015, the Company assessed future prospects for its drilling equipment fleet in the third quarter of 2015, resulting in a non-cash charge of $28.3 million to asset decommissioning and write-downs expense relating to specific assets in its Latin American operations.

GENERAL AND ADMINISTRATIVE EXPENSE


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

General and administrative

17,556



25,451



(31)


58,361



71,258



(18)

% of revenue

5.4



4.4





5.3



4.1




 

General and administrative expense decreased 31 percent to $17.6 million (5.4 percent of revenue) for the third quarter of 2015 compared to $25.5 million (4.4 percent of revenue) for the third quarter of 2014. For the nine months ended September 30, 2015 general and administrative expense totaled $58.4 million (5.3 percent of revenue) compared to $71.3 million (4.1 percent of revenue) recorded for the nine months ended September 30, 2014, a decrease of 18 percent. 

The decrease in general and administrative expense resulted from the Company's initiatives to reduce fixed costs in reaction to lower oil and natural gas commodity prices.  The decrease in the first nine months of 2015, when compared to the corresponding period of 2014, was partially offset by restructuring costs incurred during the first nine months of 2015 and the negative translational impact of a strengthening United States dollar versus the Canadian dollar on United States and international general and administrative expenses in the current year.

SHARE-BASED COMPENSATION


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Share-based compensation

(5,560)



(7,362)



(24)


(84)



(7,660)



(99)

 

Share-based compensation arises from the Black-Scholes valuation accounting associated with the Company's share-based compensation plans, whereby the liability associated with share-based compensation is adjusted for the effect of granting and vesting of employee stock options and changes in the underlying market price of the Company's common shares.

For the three months ended September 30, 2015 share-based compensation was a recovery of $5.6 million compared with a recovery of $7.4 million recorded in the third quarter of 2014. For the nine months ended September 30, 2015 share-based compensation was a recovery of $0.1 million compared with a recovery of $7.7 million for the nine months ended September 30, 2014.  The decrease in the share-based compensation recovery in the first nine months of 2015 was a result of the amortization of stock options and the change in the fair value of the share-based compensation liability primarily due to changes in the price of the Company's common shares during the period.  The closing price of the Company's common shares was $8.21 at September 30, 2015 ($14.71 at September 30, 2014), compared with $12.24 at June 30, 2015 ($16.57 at June 30, 2014) and $10.20 at December 31, 2014 ($16.73 at December 31, 2013).

INTEREST EXPENSE


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Interest expense

7,279



5,327



37



18,840



16,215



16

Interest income

(82)



(315)



(74)



(275)



(774)



(64)


7,197



5,012



44



18,565



15,441



20

 

Interest is incurred on the Company's $10.0 million Canadian-based revolving credit facility (the "Canadian Facility"), the $600.0 million global revolving credit facility (the "Global Facility") and the United States dollar $300.0 million senior unsecured notes (the "Notes") issued in February 2012.  The amortization of deferred financing costs associated with the issuance of the Notes is included in interest expense.

Interest expense in the first nine months of 2015 increased over interest expense in the same period of 2014 due to the negative translational impact of a strengthening United States dollar versus the Canadian dollar on United States and international interest expense.

FOREIGN EXCHANGE AND OTHER


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Foreign exchange and other

30,199



22,087



37



47,244



11,088



326

 

Included in this amount is the impact of foreign currency fluctuations in the Company's subsidiaries that have functional currencies other than Canadian dollars.  During the three months ended September 30, 2015 the Australian dollar weakened by approximately nine percent against the United States dollar causing a foreign currency loss on translation of the Company's United States dollar-denominated debt into Australian dollars.  During the nine months ended September 30, 2015 the Australian dollar weakened against the United States dollar by approximately 15 percent, compared with the Australian dollar weakening against the United States dollar by two percent during the nine months ended September 30, 2014. In general, the United States dollar strengthened when compared to other world currencies in the first nine months of 2015 compared to the same period of 2014. 

Effective July 1, 2015, as a result of amendments to a number of currency arrangements the Company had in place in Venezuela, the Company changed the estimated foreign exchange rate it used in translating Venezuelan Bolivars from the Venezuelan Central Bank "official rate" to the exchange mechanism rate newly created in February 2015 called "SIMADI" or the Marginal Currency System.  On a prospective basis, revenues and expenses will be estimated using the new rate. The change to the new rate resulted in a revaluation to the assets and liabilities recorded by the Company's International operations, and a $2.3 million charge to Foreign exchange and other expense.

INCOME TAXES


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Current income tax

(5,365)


308


(1,842)



(9,784)


21,997


(144)

Deferred income tax

(119)


13,676


(101)



12,676


31,880


(60)

Total income tax

(5,484)


13,984


(139)



2,892


53,877


(95)

Effective income tax rate (%)

6.6


34.5





(4.8)


34.5



 

The effective income tax rate for the three months ended September 30, 2015 was 6.6 percent compared to 34.5 percent for the three months ended September 30, 2014. The effective income tax rate for the nine months ended September 30, 2015 was negative 4.8 percent compared with 34.5 percent for the nine months ended September 30, 2014.

The effective income tax rate for the three months ended September 30, 2015 was much lower in comparison to the effective tax rate for the three months ended September 30, 2014 due to a higher proportion of the current quarter pretax losses arising in low rate jurisdictions, further reduced by the impact of foreign exchange translation losses for which the effective tax rate varies from statutory rates. 

The effective tax rate for the nine months ended September 30, 2015 varies from the combination of statutory rates as applied to taxable incomes and losses in each of the Company's jurisdictions, due to the recognition of the increase in the Alberta corporate tax rate in the second quarter of 2015 and the impact of foreign exchange translation losses for which the effective tax rate varies from statutory rates.

FINANCIAL POSITION

The following chart outlines significant changes in the consolidated statement of financial position from December 31, 2014 to September 30, 2015:

($ thousands)

Change

Explanation

Cash and cash equivalents

(10,101)


See consolidated statements of cash flows.




Accounts receivable

(219,861)


Decrease is due to the revaluation of Bolivar-denominated receivables in Venezuela as well as an increase in collections and a decline in activity in the third quarter of 2015 compared to the fourth quarter of 2014.




Inventories and other

3,101


Increase is due to the impact of an increase in the quarter-end foreign exchange rate on the consolidation of the inventory and prepaid balances of the Company's foreign subsidiaries as well as additional expenditures on prepaid expenses, offset by normal course usage of consumables and amortization of prepaid expenses during the period.




Property and equipment

156,627


Increase is due to additions from the new build and major retrofit program and the impact of an increase in the quarter-end foreign exchange rate on the consolidation of the property and equipment of the Company's foreign subsidiaries, offset by depreciation and asset decommissioning and write-downs.




Accounts payable and accruals

(180,088)


Decrease is due to the revaluation of Bolivar-denominated payables in Venezuela as well as a reduction in operating activity in the current period and reduction in the size of the Company's new build and major retrofit program.




Share-based compensation

(70)


Decrease is due to a decrease in the price of the Company's common shares as at September 30, 2015 compared with December 31, 2014, offset by the vesting of share-based awards.




Long-term debt

10,548


Increase is due to the strengthening of the United States dollar from December 31, 2014 to September 30, 2015, offset by repayments of $93.9 million during the first nine months of 2015.




Deferred income taxes

10,667


Increase is primarily due to accelerated tax depreciation of assets added during the period and utilization of non-capital losses as well as the corporate income tax rate increase enacted in Alberta, effective July 1, 2015.




Shareholders' equity

90,037


Increase is due to the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries, offset by a net loss and dividends declared in the first nine months of 2015.

 

FUNDS FROM OPERATIONS AND WORKING CAPITAL

($ thousands, except per share amounts)

Three months ended September 30


Nine months ended September 30

2015


2014


% change


2015


2014


% change

Funds from operations

68,218



132,187



(48)



247,368



359,629



(31)

Funds from operations per share

$

0.45



$

0.87



(48)



$

1.62



$

2.35



(31)

Working capital 1

144,241



189,698



(24)



144,241



189,698



(24)

1

Comparative figure as of December 31, 2014.

 

During the three months ended September 30, 2015 the Company generated funds from operations of $68.2 million ($0.45 per common share) compared to funds from operations of $132.2 million ($0.87 per common share) for the three months ended September 30, 2014, a decrease of 48 percent. For the nine months ended September 30, 2015 the Company generated funds from operations of $247.4 million ($1.62 per common share), which was 31 percent lower than funds from operations of $359.6 million ($2.35 per common share) generated in the first nine months of 2014.  This decrease was due to reduced operating and financial results for the Company in the first nine months of 2015 compared to the first nine months of the prior year. 

At September 30, 2015 the Company's working capital totaled $144.2 million, compared to $189.7 million at December 31, 2014.  The decrease in working capital in the first nine months of 2015 was mainly related to reduced financial results in the period and the amount spent on the new build and major retrofit program.  The Company expects funds generated by operations, combined with current and future credit facilities, to fully support current operating and capital requirements.  Existing revolving credit facilities provide for total borrowings of $610.0 million, of which $204.2 million was available at September 30, 2015.

INVESTING ACTIVITIES


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Purchase of property and equipment

(25,055)



(167,996)



(85)



(150,856)



(425,665)



(65)

Net change in non-cash working capital

(14,187)



4,956



(386)



(55,624)



2,822



(2,071)

Cash used in investing activities

(39,242)



(163,040)



(76)



(206,480)



(422,843)



(51)

Purchases of property and equipment during the third quarter of 2015 totaled $25.1 million (2014 - $168.0 million).  Purchases of property and equipment during the first nine months of 2015 totaled $150.9 million (2014 - $425.7 million).  The purchase of property and equipment relates predominantly to expenditures made pursuant to the Company's new build and major retrofit program.

 

FINANCING ACTIVITIES


Three months ended September 30


Nine months ended September 30

($ thousands)

2015


2014


% change


2015


2014


% change

Net (decrease) increase in bank credit facilities

(21,267)



6,590



(423)



(93,902)



67,397



(239)

Purchase of shares held in trust

(279)



(534)



(48)



(6,468)



(5,282)



22

Dividends

(18,368)



(18,019)



2



(55,102)



(54,056)



2

Net change in non-cash working capital

5,016



3,201



57



4,987



3,066



63

Cash provided by (used in)financing activities

(34,898)



(8,762)



298



(150,485)



11,125



(1,453)

 

The Company's available bank credit facilities are composed of a $600.0 million Global Facility and a $10.0 million Canadian Facility.  The Global Facility is available to the Company and certain of its wholly-owned subsidiaries and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $600.0 million Canadian dollars.  The Global Facility has a three-year term that expires in June, 2017.  The amount available under the Canadian Facility is $10.0 million or the equivalent in United States dollars.

In addition, the Company has a $20.0 million uncommitted facility, solely for issuing letters of credit, primarily used for bidding on contracts in the normal course of business.

The Company has made repayments of $93.9 million during the first nine months of 2015, reducing the outstanding balance.  As of September 30, 2015 the credit facilities are primarily being used to fund capital expenditures and to support international operations.

NEW BUILDS AND MAJOR RETROFITS

During the three months ended September 30, 2015 the major retrofit identified in previous periods was upgraded to a new build ADR® drilling rig and delivered to the Canadian fleet. A second new build ADR® was also added to the Canadian drilling fleet during the quarter, one drilling rig was decommissioned and one rig was transferred out of the drilling rig fleet to the coring fleet.

The Company continues to selectively build new ADR® drilling rigs and upgrade existing rigs to meet the increasing technical demands of its customers.  The recent decline in oil and natural gas commodity prices during the latter half of 2014 resulted in the Company proactively and aggressively reducing the rig build program in late 2014. However, in response to customer demand in the previous quarter, the Company reinstated the completion of one new build ADR® drilling rig that had been among the drilling rigs for which construction had been paused in late 2014. The Company's new build program currently consists of plans to complete two new build ADR® drilling rigs by the end of the year.

OUTLOOK

Despite an increase in negative economic drivers, energy demand continues to slowly increase and supply growth has either flattened or reversed, with an eventual sustained rebalancing of supply and demand expected to occur. Meanwhile, the timing and extent of any energy commodity price recovery will be a key determinant in the survival of energy explorers as balance sheets in the sector continue to deteriorate and credit concerns escalate.

Oilfield services activity levels in Canada continue to be weak, as a second year of decline in producer expenditures begins to unfold. The Canadian dollar was 20 percent lower against the United States dollar in the current quarter, when compared to the same period in 2014. Other than partial mitigation from currency changes, the Canadian industry has been harder hit than many other jurisdictions and may experience the lowest utilization levels in 25 years. Activity levels for the Company's Canadian equipment fleet continues to be challenged, in line with the industry. Future expectations are for the Company to track with lower industry levels, although the Company's deeper rigs continue to perform well in larger plays under development with major operators. The extent to which the Canadian oilfield services market will recover in line with the eventual global rebalancing of energy supply and demand will depend on regaining competitiveness in the backdrop of royalty, tax and other regulatory uncertainty.

Following some price relief in the second quarter of 2015, energy commodity prices trended down in the current quarter, with West Texas Intermediate crude prices averaging US$46 per barrel, down approximately 50 percent from the average price in 2014 and down considerably from the average price of US$58 per barrel in the second quarter of 2015. NYMEX natural gas prices averaged US$2.77 per mcf during the current quarter, down 32 percent from the average price in the third quarter of 2014. In spite of some patches of optimism that the bottom may have been found for the United States drilling rig count earlier this year, the decline has continued through the current quarter. As of mid-October, active land-based rigs operating in the United States had declined by 59 percent year-over-year to 751 rigs. Some industry observers believe the industry has not yet touched bottom, which could be under 700 operating rigs. The Company's United States equipment fleet continues to perform slightly favorably when compared with the overall industry, but pressures on day rates and contract retention persist.

Operating days in the Company's international equipment fleet for the third quarter of 2015 were down 30 percent when compared with the corresponding quarter in 2014. Consistent with global industry trends, oilfield services activity in the Company's operations outside of North America have declined less than those in Canada and the United States. However, market challenges in certain jurisdictions have had a more significant impact on the Company's operating levels than previously expected, particularly in Australia, where the pace of LNG development projects has been significantly reduced. While increasing budget pressures on international operators and national oil companies are emerging, the Company is optimistic that activity levels have bottomed for its international operations.

Consistent with prior quarters and the prevailing industry environment, the Company remains focused on: operational improvements, close attention to customer credit conditions, and safeguarding the balance sheet. While the industry remains optimistic that a recovery may develop in late 2016 or early 2017, the Company continues to seek and execute measures to build a business that can weather what may become the "new normal" for the oilfield services sector as well as position itself for efficient upscaling when conditions warrant.

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, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the Company's defense of lawsuits and the ability of oil and gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions which could impact on the use of the services supplied by the Company.

CONFERENCE CALL

A conference call will be held to discuss the Company's third quarter 2015 results at 2:00 p.m. MST (4:00 p.m. EST) on Monday, November 9, 2015.  The conference call number is (647) 427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto).  A taped recording will be available until November 16, 2015 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 35102852.  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.


Ensign Energy Services Inc.
Consolidated Statements of Financial Position






As at


September 30
2015



December 31
 2014

(Unaudited, in thousands of Canadian dollars)





Assets





Current assets






Cash and cash equivalents


$

43,896



$

53,997


Accounts receivable


243,957



463,818


Inventories and other


67,963



64,862


Income taxes receivable


17,169



15,841



372,985



598,518

Property and equipment


3,281,554



3,124,927



$

3,654,539



$

3,723,445

Liabilities





Current liabilities






Accounts payable and accruals


$

208,470



$

388,558


Dividends payable


18,367



18,367


Share-based compensation


1,907



1,895



228,744



408,820

Long-term debt


796,875



786,327

Share-based compensation


595



677

Deferred income taxes


493,051



482,384



1,519,265



1,678,208

Shareholders' equity






Share capital


169,484



169,215


Contributed surplus


1,190



1,967


Foreign currency translation reserve


322,401



113,880


Retained earnings


1,642,199



1,760,175



2,135,274



2,045,237



$

3,654,539



$

3,723,445

 

Ensign Energy Services Inc.
Consolidated Statements of Income








Three months ended


Nine Months Ended



September 30
 2015


September 30
 2014


September 30
 2015


September 30
 2014

(Unaudited, in thousands of Canadian dollars, except per share data)









Revenue


$

324,002



$

583,299



$

1,107,091



$

1,719,074

Expenses










Oilfield services


239,532



420,553



799,949



1,253,315


Depreciation


89,546



77,069



214,757



219,597


General and administrative


17,556



25,451



58,361



71,258


Asset decommissioning and write-downs


28,281





28,281




Share-based compensation


(5,560)



(7,362)



(84)



(7,660)


Foreign exchange and other


30,199



22,087



47,244



11,088



399,554



537,798



1,148,508



1,547,598

Income (loss) before interest and income taxes

(75,552)



45,501



(41,417)



171,476

Interest income


82



315



275



774

Interest expense


(7,279)



(5,327)



(18,840)



(16,215)

Income (loss) before income taxes


(82,749)



40,489



(59,982)



156,035

Income taxes










Current tax


(5,365)



308



(9,784)



21,997


Deferred tax


(119)



13,676



12,676



31,880



(5,484)



13,984



2,892



53,877

Net income (loss)


$

(77,265)



$

26,505



$

(62,874)



$

102,158

Net income (loss) per share










Basic


$

(0.51)



$

0.17



$

(0.41)



$

0.67


Diluted


$

(0.51)



$

0.17



$

(0.41)



$

0.67

 

Ensign Energy Services Inc.
Consolidated Statements of Cash Flows








Three months ended


Nine months ended



September 30
 2015


September 30
 2014


September 30
 2015


September 30
 2014

(Unaudited, in thousands of Canadian dollars)









Cash provided by (used in)









Operating activities









Net income (loss)


$

(77,265)



$

26,505



$

(62,874)



$

102,158

Items not affecting cash










Depreciation


89,546



77,069



214,757



219,597


Asset decommissioning and write-downs


28,281





28,281




Share-based compensation, net of cash paid


(3,020)



(6,047)



5,796



(5,440)


Unrealized foreign exchange and other


30,691



20,898



48,431



11,173


Accretion on long-term debt


104



86



301



261


Deferred income tax


(119)



13,676



12,676



31,880



68,218



132,187



247,368



359,629

Net change in non-cash working capital


(6,151)



(35,106)



91,344



4,998



62,067



97,081



338,712



364,627

Investing activities









Purchase of property and equipment


(25,055)



(167,996)



(150,856)



(425,665)

Net change in non-cash working capital


(14,187)



4,956



(55,624)



2,822



(39,242)



(163,040)



(206,480)



(422,843)

Financing activities









Net (decrease) increase in bank credit facilities


(21,267)



6,590



(93,902)



67,397

Purchase of shares held in trust


(279)



(534)



(6,468)



(5,282)

Dividends


(18,368)



(18,019)



(55,102)



(54,056)

Net change in non-cash working capital


5,016



3,201



4,987



3,066



(34,898)



(8,762)



(150,485)



11,125

Net decrease in cash and cash equivalents


(12,073)



(74,721)



(18,253)



(47,091)

Effects of foreign exchange on cash and cash equivalents


4,722



(1,259)



8,152



(9,037)

Cash and cash equivalents – beginning of period


51,247



98,710



53,997



78,858

Cash and cash equivalents – end of period


$

43,896



$

22,730



$

43,896



$

22,730

Supplemental information










Interest paid


$

3,470



$

3,026



$

14,826



$

12,641


Income taxes paid


$

(2,244)



$

11,073



$

(8,456)



$

27,940

 

SOURCE Ensign Energy Services Inc.

Timothy Lemke, Vice President Finance and Chief Financial Officer, (403) 262-1361Copyright CNW Group 2015


Source: Canada Newswire (November 9, 2015 - 5:00 AM EST)

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