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 November 4, 2015 - 8:14 PM EST
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Essential Energy Services Announces Third Quarter Results, Dividend Reduction and 2016 Capital Spending Budget

CALGARY, ALBERTA--(Marketwired - Nov. 4, 2015) - Essential Energy Services Ltd. (TSX:ESN) ("Essential" or the "Company") announces third quarter revenue and EBITDAS(1) of $47.8 million and $8.5 million respectively, compared to $96.1 million and $22.7 million in the third quarter of 2014. While revenue was impacted by pricing pressure and customer activity, Essential's focus on cost control and proactive steps taken in the first quarter of 2015 enabled the Company to protect operating margins despite significant revenue declines.

During the third quarter of 2015 well completions in the Western Canadian Sedimentary Basin, a key driver of Essential's services, decreased 48% compared to the same period in 2014. Essential's masted coil tubing and pumping outperformed industry activity with utilization of 70% and 57% respectively, as key customers remained active in the Bakken, Montney and Duvernay regions during the quarter. Activity declines in service rigs, downhole tools and rentals were comparable to the industry-wide decreases in drilling and well completions.

SELECTED INFORMATION

    Three months ended   Nine months ended
(in thousands of dollars   September 30,   September 30,
except per share, percentages and fleet data)   2015   2014   2015     2014
                   
Revenue $ 47,824 $ 96,136 $ 142,233   $ 252,618
                   
Gross margin   11,927   27,515   27,809     60,064
  Gross margin %   25%   29%   20%     24%
                     
EBITDAS(1)   8,503   22,657   16,530     45,604
  EBITDAS % (1)   18%   24%   12%     18%
                   
Net income (loss)   2,996   10,777   (4,403 )   15,501
  Per share - basic   0.02   0.09   (0.03 )   0.12
  Per share - diluted   0.02   0.08   (0.03 )   0.12
                   
Total assets   346,564   454,745   346,564     454,745
Total long-term debt   34,738   65,043   34,738     65,043
                   
Utilization                  
  Masted coil tubing rigs   70%   105%   62%     85%
  Service rigs   24%   48%   26%     49%
                   
Equipment fleet                  
  Masted coil tubing rigs   19   17   19     17
  Service rigs   48   54   48     54
                   
(1) Refer to Non-IFRS Measures section for further information

OUTLOOK AND DIVIDEND

There was significant deterioration in the industry outlook during the third quarter of 2015. Evolving world events and deteriorating oil price fundamentals increased the uncertainty of a near-term oil price recovery. The decline in oil prices resulted in an increasingly negative industry outlook and "lower for longer" became the industry mantra. At this point, the duration and extent of the downturn remains highly uncertain with many industry experts not seeing an oilfield services reprieve until late 2016 or in 2017. Unique to Canada, the industry is subject to incremental barriers given pending policy decisions on carbon taxes, royalties, oil export pipelines and the slow progression of liquefied natural gas export terminals.

The Canadian oilfield services industry has experienced significant service price deterioration during the year. Management anticipates additional price reductions as the landscape for Essential's services remains very competitive.

Facing this industry uncertainty and a number of cash-constrained customers that are financially unable to continue with drilling, completion and production programs, management has taken steps to reduce all significant elements of cash outflow. Protecting Essential's strong balance sheet continues to be at the forefront of decisions. This is reflected in the Company's reduced 2016 capital spending budget, cost management initiatives and the dividend strategy.

Essential announces a modest 2016 capital budget of $9 million, including $4 million for growth capital and $5 million for maintenance capital. This allows for completion of the Generation IV masted coil tubing capital build program in 2016. Upon completion, Essential will have 10 new Generation III/IV masted coil tubing rigs. Through the downturn, the masted coil tubing rigs have maintained strong utilization in a shrinking well completions market. Essential has a relatively new equipment fleet that is suited to the current industry direction of long-reach horizontal wells. Upon completion of the build program in 2016, the Company will have spent approximately $52 million on new masted coil tubing rigs in the past few years. This will position Essential with an advanced fleet allowing the Company to take advantage when the industry improves.

Essential has been an industry leader in disciplined cost management. Cost management has become engrained in the Company's culture. Cost reduction steps taken earlier in the year have allowed for the reasonably strong margins reported this quarter, despite a significant reduction of revenue. Essential is on track to realize annualized fixed cost savings of $10 million. The bulk of these cost reductions have been personnel and compensation-related, with employee headcount decreasing by approximately 40%, or 420 employees, since the beginning of 2015. With that in mind, continual review and monitoring of the cost structure is required. Despite significant cost cutting and headcount reductions, Essential remains focused on investing in key personnel during the downturn so the business is ready to benefit when the market turns around.

Essential's Board of Directors (the "Board") reviews the dividend on a quarterly basis. Given the current industry outlook, the Board has determined that a further dividend reduction is prudent. Starting with the November 4, 2015 dividend announcement, the quarterly dividend will be $0.003 per share, resulting in annualized savings of $6 million.

In the near term, activity for the fourth quarter is expected to be slower than the third quarter of 2015 and significantly below the fourth quarter of 2014, as exploration and production companies reach their 2015 capital budget limits and cash flow remains constrained. Essential has reduced its 2015 capital spending plans by $3 million and expects to have annual capital spending in 2015 of $18 million.

Since year-end 2014, Essential has reduced its debt by $21 million while nearing completion of its large- scale masted coil tubing build program. At this point, Essential maintains one of the strongest balance sheets in the Canadian oilfield services sector. Maintaining that strength through timely and prudent spending, and a dividend reduction, underpins the Company's strength and future viability as it continues to navigate the downturn. At November 4, 2015, Essential had $32.3 million of debt outstanding and reported debt to EBITDAS(1) of 0.9x at the end of the third quarter.

DIVIDEND DECLARATION

The cash dividend for the period October 1, 2015 to December 31, 2015 has been set at $0.003 per share. The dividend will be paid on January 15, 2016 to shareholders of record on December 31, 2015. The ex-dividend date is December 29, 2015. This dividend is an eligible dividend for Canadian income tax purposes.

SEGMENT RESULTS - WELL SERVICING

    Three months ended   Nine months ended
(in thousands of dollars,   September 30,   September 30,
except percentages, hours and fleet data)   2015   2014   2015   2014
 
Revenue                
  Coil well service (i) $ 24,432 $ 39,233 $ 66,295 $ 98,130
  Service rigs   7,682   22,105   29,533   71,041
 
Total revenue   32,114   61,338   95,828   169,171
 
Operating expenses   23,188   45,309   75,153   133,959
 
Gross margin $ 8,926 $ 16,029 $ 20,675 $ 35,212
  Gross margin %   28%   26%   22%   21%
 
Utilization (ii)                
  Masted coil tubing rigs                
    Utilization   70%   105%   62%   85%
    Operating hours   12,319   15,524   31,995   36,930
 
  Pumping                
    Utilization   57%   66%   47%   56%
    Operating hours   15,747   19,397   39,714   49,253
 
  Service rigs                
    Utilization   24%   48%   26%   49%
    Operating hours   10,418   23,997   37,402   73,520
                     
  Equipment fleet (iii)                
  Masted coil tubing rigs   19   17   19   17
  Pumping   30   32   30   32
  Service rigs   48   54   48   54
(i) Includes revenue from coil tubing rigs, nitrogen and fluid pumpers.
(ii) Utilization is calculated using a 10 hour day.
(iii) Fleet data represents the number of units at the end of the period.

Despite industry fundamentals, coil well service performance was strong with third quarter 2015 revenue decreasing 38% due to activity and pricing, compared to a 48% decrease in industry well completions. Masted coil tubing and pumping utilization was 70% and 57%, respectively. In this low activity environment, management is pleased with the activity of the coil well service business. This is, in part, attributable to continued work by key customers and Essential's high quality equipment and service. Competitive pricing pressure resulted in revenue per hour declining approximately 15% in the third quarter of 2015 compared to the same period in 2014.

Service rigs continued to be impacted by the industry downturn with revenue 65% lower than the third quarter of 2014. Activity and pricing decreases both contributed to the revenue decline. Service rigs in the Grande Prairie and Fort St. John regions had relatively strong utilization in comparison to industry utilization of 31%. However, the Company's overall service rig utilization was offset by lower activity in central and southern Alberta. In the third quarter, service rig revenue per hour declined approximately 10% compared to the same period in 2014.

Well servicing gross margin as a percentage of revenue for the third quarter of 2015 was higher than the prior year. Both the coil well service and service rig operations were profitable as Essential benefited from significant cost reduction initiatives. Pricing reductions have been offset by lower labour, repairs and maintenance costs and a reduction of discretionary spending.

On a year-to-date basis, well servicing gross margin as a percentage of revenue was higher than prior year as Essential benefited from cost reduction measures implemented earlier in the year. These measures offset the year-over-year revenue decline that was driven by lower activity, particularly in Essential's service rig operations, and a reduction in revenue per hour for all services.

SEGMENT RESULTS - DOWNHOLE TOOLS & RENTALS

    Three months ended   Nine months ended
    September 30,    September 30,
(in thousands of dollars)   2015   2014   2015   2014
 
Revenue $ 15,919 $ 35,261 $ 46,990 $ 85,068
 
Operating expenses   12,229   22,212   37,064   56,350
 
Gross margin $ 3,690 $ 13,049 $ 9,926 $ 28,718
  Gross margin %   23%   37%   21%   34%
                   
Downhole Tools & Rentals revenue - % of revenue              
  Tryton MSFS®   40%   53%   35%   42%
  Conventional Tools & Rentals   60%   47%   65%   58%

Downhole tools & rentals third quarter 2015 revenue decreased 55% from the same quarter of 2014. Activity in Tryton MSFS® tools, conventional tools and rentals decreased due to industry declines for drilling, well completions and production services. This business continues to be negatively impacted by aggressive competition, reduced activity from certain key customers and pricing pressure. U.S. revenue was less impacted, but remains a small part of the business. Third quarter 2015 experienced pricing reductions of up to 20% compared to 2014.

Downhole tools & rentals gross margin as a percentage of revenue was 23% in the third quarter of 2015 compared to 37% for the same period in 2014. In spite of significant cost reductions implemented earlier in 2015, margins are lower due to a decline in pricing and lower contribution from the higher margin rentals business.

Gross margin as a percentage of revenue for the nine months ended September 30, 2015 decreased compared to the prior year due to a decline in downhole tools activity and pricing, as well as lower contribution from the higher margin rentals business.

GENERAL AND ADMINISTRATIVE

    Three months ended   Nine months ended
    September 30,    September 30,
(in thousands of dollars)   2015   2014   2015   2014
 
General and administrative expenses $ 3,424 $ 4,858 $ 11,279 $ 14,460
  As a % of revenue   7%   5%   8%   6%

General and administrative ("G&A") expenses are comprised of wages, professional fees, office space and other administrative costs incurred at corporate and operational levels. G&A expenses for the three and nine months ended September 30, 2015 were lower than the same period in 2014 due primarily to reductions in employee headcount, salaries and incentive and benefit plans in 2015. G&A as a percentage of revenue increased from the same periods in 2014 due to the significant revenue declines.

OTHER (INCOME) EXPENSES

    Three months ended     Nine months ended  
    September 30,     September 30,  
(in thousands of dollars)   2015     2014     2015     2014  
   
Loss on disposal and write-down of assets $ 61   $ 834   $ 1,204   $ 1,683  
Foreign exchange gain   (875 )   (693 )   (1,638 )   (753 )
Other loss (gain)   32     4     (47 )   68  
   
Other (income) expenses $ (782 ) $ 145   $ (481 ) $ 998  

Loss on disposal and write-down of assets relates to the sale or retirement of equipment that is no longer used in operations. The weakening Canadian dollar in relation to the U.S. dollar resulted in higher foreign exchange gains in the first nine months of 2015 compared to the same period in 2014.

INCOME TAX

    Three months ended   Nine months ended
    September 30,   September 30,
(in thousands of dollars)   2015     2014   2015     2014
 
Current income tax expense (recovery) $ 1,805   $ 3,268 $ (1,757 ) $ 4,584
Deferred income tax (recovery) expense   (2,155 )   703   1,960     1,153
 
Income tax (recovery) expense $ (350 ) $ 3,971 $ 203   $ 5,737

For the nine months ended September 30, 2015, there is a current income tax recovery compared to an expense in 2014 due to the decline in earnings before income taxes. 2015 losses will be applied to recover taxes paid in previous years.

For the nine months ended September 30, 2015, deferred income tax expense increased compared to 2014 due to legislation that was enacted during the second quarter 2015 to increase the Alberta provincial corporate income tax rate from 10% to 12% effective July 1, 2015. This resulted in the revaluation of the deferred income tax liability.

FINANCIAL RESOURCES AND LIQUIDITY

FUNDS FLOW FROM OPERATIONS(1)

    Three months ended     Nine months ended  
    September 30,     September 30,  
(in thousands of dollars, except per share amounts)   2015     2014     2015     2014  
   
Net cash (used in) provided by operating activities $ (2,717 ) $ (16,515 ) $ 49,310   $ 20,240  
Add (deduct):                        
  Changes in non-cash working capital   10,504     36,477     (29,058 )   20,644  
Funds flow provided by operations(1) $ 7,787   $ 19,962   $ 20,252   $ 40,884  
Per share - basic $ 0.06   $ 0.16   $ 0.16   $ 0.33  
Per share - diluted $ 0.06   $ 0.16   $ 0.16   $ 0.32  

WORKING CAPITAL(1)

                As at     As at  
                September 30     December 31  
(in thousands of dollars, except ratios)               2015     2014  
   
Current assets             $ 75,731   $ 118,758  
Current liabilities               (18,709 )   (37,789 )
Working capital (1)             $ 57,022   $ 80,969  
Working capital ratio               4.1:1     3.1:1  

The accounts receivable portion of working capital typically grows through the first, third and fourth quarters of the year when activity is greater. The inventory component is comprised of downhole tools and coil tubing inventory, which does not fluctuate as much with activity. Essential uses its revolving credit facility to meet the variable nature of its working capital needs as collection periods for accounts receivable are longer than payment cycles to vendors and employees. In periods of higher activity, debt initially tends to increase and in periods of lower activity debt initially declines.

EQUIPMENT EXPENDITURES AND FLEET ADDITIONS

    Three months ended     Nine months ended  
    September 30,     September 30,  
(in thousands of dollars)   2015     2014     2015     2014  
   
Well Servicing $ 4,195   $ 8,629   $ 11,869   $ 21,786  
Downhole Tools & Rentals   -     1,695     692     7,011  
Corporate   136     313     623     1,012  
Total equipment expenditures   4,331     10,637     13,184     29,809  
   
Less proceeds on disposal of property and equipment (302 )   (1,150 )   (1,112 )   (3,052 )
Net equipment expenditures(1) $ 4,029   $ 9,487   $ 12,072   $ 26,757  

Essential classifies its equipment expenditures as growth capital(1) and maintenance capital(1):

    Three months ended   Nine months ended
    September 30,   September 30,
(in thousands of dollars)   2015   2014   2015   2014
Growth capital(1) $ 3,704 $ 6,538 $ 10,716 $ 20,752
Maintenance capital(1)   627   4,099   2,468   9,057
Total equipment expenditures $ 4,331 $ 10,637 $ 13,184 $ 29,809

Essential's capital budget for 2015 has been reduced from $21 million to $18 million. The $18 million is comprised of $14 million in growth capital and $4 million of maintenance capital. Growth capital consists primarily of costs related to building one Generation III and four Generation IV masted coil tubing rigs. The Generation III masted coil tubing rig went into service early in the fourth quarter and the Company's third Generation IV masted coil tubing rig is expected in service later in the fourth quarter. The $4 million decrease in maintenance capital is due to lower industry activity and Essential's equipment requiring less maintenance with reduced utilization.

2016 Capital Budget

Given the industry outlook, Essential is announcing a very modest 2016 capital budget of $9 million, comprised of $4 million of growth capital and $5 million of maintenance capital. The growth capital will be used to complete the remaining three Generation IV masted coil tubing rigs. One rig is expected to be in service in each of the second, third and fourth quarters of 2016.

Essential's long-term capital build program will increase the size and depth capacity of its masted coil tubing fleet. To date, the Company has added four Generation III and two Generation IV masted coil tubing rigs. Upon completion in 2016, Essential will have spent approximately $52 million on this program. Essential will have four Generation III and six Generation IV masted coil tubing rigs in service. At September 30, 2015, Essential has spent $45 million on this program. The Generation III and Generation IV masted coil tubing rigs have the capability to work on long-reach horizontal wells and are well-suited to work in deep, high pressure regions including the Montney, Bakken and Duvernay. With a coil diameter of 2 3/8", the Generation III masted coil tubing rigs can reach 6,300 meters and the Generation IV masted coil tubing rigs can reach 7,900 meters.

The following table shows the expected in-service dates of the major equipment as at November 4, 2015:

  # Rigs # Rigs Expected
Masted coil tubing rigs: In Program In-Service In-Service Dates
Generation III 4 4 -
Generation IV 6 2 Q4'15, 2016(3)(i)
(i) One Generation IV masted coil tubing rig is expected to go into service in each of Q2'16, Q3'16 and Q4'16.

The Management's Discussion and Analysis and Financial Statements are available on Essential's website at www.essentialenergy.ca and on SEDAR at www.sedar.com.

(1)NON-IFRS MEASURES

Throughout this news release, certain terms that are not specifically defined in IFRS are used to analyze Essential's operations. In addition to the primary measures of net earnings and net earnings per share in accordance with IFRS, Essential believes that certain measures not recognized under IFRS assist both Essential and the reader in assessing performance and understanding Essential's results. Each of these measures provides the reader with additional insight into Essential's ability to fund required working capital, principal debt repayments, capital programs and pay dividends. As a result, the method of calculation may not be comparable with other companies. These measures should not be considered alternatives to net earnings and net earnings per share as calculated in accordance with IFRS.

EBITDAS (Earnings before finance costs, income taxes, depreciation, amortization, transaction costs, losses or gains on disposal of equipment, write-down of assets, impairment loss, foreign exchange gains or losses, and share-based compensation, which includes both equity-settled and cash-settled transactions) - These adjustments are relevant as they provide another measure which is considered an indicator of Essential's ability to generate funds flow in order to fund required working capital, service debt, invest in capital programs and pay dividends.

EBITDAS % - This measure is considered an indicator of Essential's ability to generate funds flow as calculated by EBITDAS divided by revenue.

Funds flow or funds flow provided by operations - This measure is an indicator of Essential's ability to generate funds flow in order to fund working capital, principal debt repayments, capital programs and pay dividends. Funds flow or funds flow from operations is defined as cash flow from operations before changes in non-cash operating working capital. This measure is useful in assessing Essential's operational cash flow as it provides cash generated in the period excluding the timing of non-cash operating working capital. This reflects the ability of the operations of Essential to meet the above noted funding requirements.

Growth capital - Growth capital is capital spending which is intended to result in incremental increases in revenue. Growth capital is considered to be a key measure as it represents the total expenditures on equipment expected to add incremental revenue and funds flow to Essential.

Maintenance capital - Equipment additions that are incurred in order to refurbish or replace previously acquired equipment. Such additions do not provide incremental increases in revenue. Maintenance capital is a key component in understanding the sustainability of Essential's business as cash resources retained within Essential must be sufficient to meet maintenance capital needs to replenish the assets for future cash generation.

Net equipment expenditures - This measure is equipment expenditures less proceeds on the disposal of equipment. Essential uses net equipment expenditures to describe net cash outflows related to the financing of Essential's capital program.

Working capital - Working capital is calculated as current assets less current liabilities.

SUMMARY OF QUARTERLY DATA

Essential operates primarily in western Canada, where activity is directly impacted by seasonality. Activity is traditionally higher in the first, third and fourth quarters of the year and lower in the second quarter. With the onset of spring, melting snow renders many roadways incapable of supporting heavy equipment. In addition, certain areas in Canada are typically only accessible during the winter months. The following table provides the Company's quarterly information for the past eight quarters:

(in thousands of dollars, except per share amounts, percentages and fleet data)   Sept 30, 2015   Jun 30,
2015
  Mar 31,
2015
  Dec 31,
2014
    Sept 30,
2014
  Jun 30,
2014
  Mar 31,
2014
  Dec 31,
2013
 
Well Servicing:                                    
  Coil well service   24,432   9,887   31,976   41,426     39,233   17,398   41,499   36,150  
  Service rigs   7,682   6,825   15,026   22,034     22,105   16,437   32,499   25,593  
Total Well Servicing   32,114   16,712   47,002   63,460     61,338   33,835   73,998   61,743  
Downhole Tools & Rentals   15,919   7,460   23,611   35,921     35,261   19,521   30,286   31,560  
Inter-segment eliminations   (209 ) (182 ) (194 ) (527 )   (463 ) (604 ) (554 ) (480 )
Total revenue   47,824   23,990   70,419   98,854     96,136   52,752   103,730   92,823  
   
Gross margin   11,927   580   15,302   27,330     27,515   5,222   27,327   25,332  
  Gross margin %   25%   2%   22%   28%     29%   10%   26%   27%  
   
EBITDAS(1)   8,503   (2,832 ) 10,859   21,992     22,657   440   22,507   20,705  
  EBITDAS %(1)   18%   (12)%   15%   22%     24%   1%   22%   22%  
Net income (loss) (i)   2,996   (10,495 ) 3,096   (38,323 )   10,777   (5,425 ) 10,149   11,126  
  Per share - basic   0.02   (0.08 ) 0.02   (0.30 )   0.09   (0.04 ) 0.08   0.09  
  Per share - diluted   0.02   (0.08 ) 0.02   (0.30 )   0.08   (0.04 ) 0.08   0.09  
   
Total assets   346,564   337,299   371,496   397,351     454,745   408,964   439,745   423,963  
Long-term debt   34,738   27,027   39,817   55,253     65,043   38,433   50,821   39,027  
   
Utilization (ii)                                    
  Masted coil tubing rigs   70%   25%   90%   104%     105%   42%   109%   107%  
  Pumping (iii)   57%   23%   61%   72%     66%   34%   69%   55%  
  Service rigs   24%   19%   37%   49%     48%   34%   66%   53%  
   
Operating hours                                    
  Masted coil tubing rigs   12,319   4,341   15,335   17,469     15,524   6,094   15,312   14,699  
  Pumping (iii)   15,747   6,381   17,586   20,885     19,397   9,861   19,995   16,612  
  Conventional coil tubing rigs   1,174   1,088   3,665   3,951     4,426   2,942   6,959   6,612  
  Service rigs   10,418   9,239   17,745   24,394     23,997   16,907   32,616   26,557  
   
Downhole Tools & Rentals - % of revenue                                    
  Tryton MSFS®   40%   16%   38%   45%     46%   25%   39%   55%  
  Conventional Tools & Rentals   60%   84%   62%   55%     54%   75%   61%   45%  
   
Equipment fleet (iv)                                    
  Masted coil tubing rigs   19   19   19   19     17   17   16   15  
  Fluid pumpers   18   18   18   18     18   18   18   18  
  Nitrogen pumpers   12   12   14   14     14   14   14   14  
  Conventional coil tubing rigs   11   11   17   17     29   30   30   30  
  Service rigs   48   54   54   54     54   55   55   55  
(i) The quarter ended December 31, 2014 includes an impairment loss on goodwill and intangible assets of $47.2 million.
(ii) Utilization is calculated using a 10 hour day.
(iii) Pumping includes both fluid and nitrogen pumpers.
(iv) Fleet data represents the number of units at the end of the period.
 
ESSENTIAL ENERGY SERVICES LTD.   
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION   
(Unaudited)   
       
  As at   As at
  September 30   December 31
(in thousands of dollars)   2015     2014
 
Assets          
Current          
  Trade and other accounts receivable $ 41,951   $ 79,651
  Inventories   30,674     35,991
  Prepayments   3,106     3,116
    75,731     118,758
 
Non-current          
  Property and equipment   233,607     239,696
  Intangible assets   22,436     24,599
  Goodwill   14,790     14,298
    270,833     278,593
 
Total assets $ 346,564   $ 397,351
 
Liabilities          
Current          
  Bank indebtedness $ 328   $ 991
  Trade and other accounts payable   16,493     32,822
  Dividends payable   1,888     3,773
  Income taxes payable   -     203
    18,709     37,789
 
Non-current          
  Long-term debt   34,738     55,253
  Deferred tax liabilities   30,262     28,299
    65,000     83,552
 
Total liabilities   83,709     121,341
 
Equity          
  Share capital   262,977     262,871
  (Deficit) retained earnings   (5,135 )   8,706
  Other reserves   5,013     4,433
Total equity   262,855     276,010
 
Total liabilities and equity $ 346,564   $ 397,351
 
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED INTERIM STATEMENTS OF NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
         
    For the three months ended   For the nine months ended
    September 30,   September 30,
(in thousands of dollars, except per share amounts)   2015     2014   2015     2014
 
Revenue $ 47,824   $ 96,136 $ 142,233   $ 252,618
 
Operating expenses   35,897     68,621   114,424     192,554
Gross margin   11,927     27,515   27,809     60,064
 
General and administrative expenses   3,424     4,858   11,279     14,460
    8,503     22,657   16,530     45,604
 
Depreciation and amortization   6,280     6,827   19,434     20,188
Share-based compensation   34     484   648     1,813
Other (income) expenses   (782 )   145   (481 )   998
Operating profit (loss)   2,971     15,201   (3,071 )   22,605
 
Finance costs   325     453   1,129     1,367
Income (loss) before income taxes   2,646     14,748   (4,200 )   21,238
 
Current income tax expense (recovery)   1,805     3,268   (1,757 )   4,584
Deferred income tax (recovery) expense   (2,155 )   703   1,960     1,153
Income tax (recovery) expense   (350 )   3,971   203     5,737
 
Net income (loss) $ 2,996   $ 10,777 $ (4,403 ) $ 15,501
 
Unrealized foreign exchange gain   179     236   366     70
 
Comprehensive income (loss) $ 3,175   $ 11,013 $ (4,037 ) $ 15,571
 
 
Net income (loss) per share                    
  Basic $ 0.02   $ 0.09 $ (0.03 ) $ 0.12
  Diluted $ 0.02   $ 0.08 $ (0.03 ) $ 0.12
 
Comprehensive income (loss) per share                    
  Basic $ 0.03   $ 0.09 $ (0.03 ) $ 0.12
  Diluted $ 0.02   $ 0.09 $ (0.03 ) $ 0.12
   
ESSENTIAL ENERGY SERVICES LTD.  
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS  
(Unaudited)  
       
    For the nine months ended  
    September 30,  
(in thousands of dollars)   2015     2014  
   
Operating activities:            
   
Net (loss) income $ (4,403 ) $ 15,501  
   
Non-cash adjustments to reconcile net income for the period to operating cash flow:            
  Depreciation and amortization   19,434     20,188  
  Deferred income tax expense   1,960     1,153  
  Share-based compensation   252     592  
  Provision for impairment of trade accounts receivable   676     400  
  Finance costs   1,129     1,367  
  Loss on disposal and write-down of assets   1,204     1,683  
Operating cash flow before changes in non-cash operating working capital   20,252     40,884  
Changes in non-cash operating working capital:            
  Trade and other accounts receivable before provision   38,754     (8,292 )
  Inventories   5,317     (10,448 )
  Prepayments   11     (47 )
  Trade and other accounts payable   (12,976 )   2,673  
  Current income taxes receivable   (2,048 )   (4,530 )
Net cash provided by operating activities   49,310     20,240  
   
Investing activities:            
  Purchase of property, equipment and intangible assets   (13,184 )   (29,809 )
  Business acquisition, net of cash acquired   -     (6,043 )
  Non-cash investing working capital in trade and other accounts payable   (3,354 )   (625 )
  Proceeds on disposal of equipment   1,112     3,052  
Net cash used in investing activities   (15,426 )   (33,425 )
   
Financing activities:            
  (Decrease) increase in long-term debt   (20,515 )   26,016  
  Proceeds from exercise of options   68     1,011  
  Repurchase of shares   -     (500 )
  Dividends paid   (11,324 )   (11,307 )
  Finance costs   (1,129 )   (1,367 )
Net cash (used in) provided by financing activities   (32,900 )   13,853  
   
Foreign exchange gain on cash held in a foreign currency   (321 )   (211 )
   
Net increase in cash   663     457  
Bank indebtedness, beginning of period   (991 )   (2,112 )
Bank indebtedness, end of period $ (328 ) $ (1,655 )
   
Supplemental cash flow information            
  Cash taxes paid, net of refunds $ 290   $ 9,104  
  Cash interest and standby fees paid $ 1,056   $ 1,229  

2015 THIRD QUARTER FINANCIAL RESULTS CONFERENCE CALL AND WEBCAST

Essential has scheduled a conference call and webcast at 10:00 am MT (12:00 pm ET) on November 5, 2015.

The conference call dial in numbers are 416-340-2217 or 866-696-5910, passcode 4076876.

An archived recording of the conference call will be available approximately one hour after completion of the call until November 19, 2015 by dialing 905-694-9451 or 800-408-3053, passcode 1095856.

A live webcast of the conference call will be accessible on Essential's website at www.essentialenergy.ca by selecting "Investors" and "Events and Presentations". Shortly after the live webcast, an archived version will be available for approximately 30 days.

ABOUT ESSENTIAL

Essential is a growth-oriented, dividend paying corporation that provides oilfield services to producers in western Canada for producing wells and new drilling activity. Essential operates the largest masted coil tubing fleet in Canada and has a fleet of service rigs. Essential also sells, rents and services downhole tools and equipment including the Tryton Multi-Stage Fracturing System (Tryton MSFS®). Further information can be found at www.essentialenergy.ca.

® MSFS is a registered trademark of Essential Energy Services Ltd.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This news release contains "forward-looking statements" and "forward-looking information" (collectively referred to herein as "forward-looking statements") within the meaning of applicable securities legislation. Such forward-looking statements include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to a number of material factors, assumptions, risks and uncertainties, many of which are beyond the control of the Company.

Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "continues", "projects", "potential", "budget" and similar expressions, or are events or conditions that "will", "would", "may", "could" or "should" occur or be achieved. This news release contains forward-looking statements, pertaining to, among other things, the following: capital spending; application of losses to recover taxes paid in previous years; cash flow and earnings; the impact of Essential's financial resources or liquidity on its future operating, investing and financing activities; Essential's long-term build program and the addition of new masted coil tubing rigs, the costs and timing associated with such program, the delivery and in-service dates of the equipment, and the positioning advantage of Essential's equipment fleet; activity levels, pricing pressures and competition; the retention of key employees; continued focus on cost management and anticipated savings from cost reduction initiatives; maintaining strength of Essential's balance sheet and the impact of that on the future strength and viability of Essential; the extent and duration of this downturn and the impact of the downturn on oilfield services companies in particular; and the landscape for Essential's services.

Although the Company believes that the material factors, expectations and assumptions expressed in such forward-looking statements are reasonable based on information available to it on the date such statements are made, undue reliance should not be placed on the forward-looking statements because the Company can give no assurances that such statements and information will prove to be correct and such statements are not guarantees of future performance. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties.

Actual performance and results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: known and unknown risks, including those set forth in the Company's Annual Information Form (a copy of which can be found under Essential's profile on SEDAR at www.sedar.com); the risks associated with the oilfield services sector (e.g. demand, pricing and terms for oilfield services; current and expected oil and natural gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks); integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation, including but not limited to tax laws, royalties, incentive programs and environmental regulations; stock market volatility and the inability to access sufficient capital from external and internal sources; the ability of the Company's subsidiaries to enforce legal rights in foreign jurisdictions; general economic, market or business conditions; global economic events; changes to Essential's financial position and cash flow; the availability of qualified personnel, management or other key inputs; currency exchange fluctuations; changes in political and security stability; risks and uncertainty related to distribution and pipeline constraints; and other unforeseen conditions which could impact the use of services supplied by the Company. Accordingly, readers should not place undue importance or reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive.

Statements, including forward-looking statements, contained in this news release are made as of the date they are given and the Company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

Additional information on these and other factors that could affect the Company's operations and financial results are included in reports on file with applicable securities regulatory authorities and may be accessed under Essential's profile on SEDAR at www.sedar.com.

The TSX has neither approved nor disapproved the contents of this news release.

Essential Energy Services Ltd.
Garnet K. Amundson
President and CEO
(403) 513-7272
service@essentialenergy.ca

Essential Energy Services Ltd.
Karen Perasalo
Investor Relations
(403) 513-7272
service@essentialenergy.ca


Source: Marketwired (November 4, 2015 - 8:14 PM EST)

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