CWC Energy Services Corp. Announces Second Quarter 2019 Results and Commencement of U.S. Drilling Rig Operations in June 2019

CALGARY, July 31, 2019 /CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three and six months ended June 30, 2019. The Financial Statements and Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2019 are filed on SEDAR at www.sedar.com.

Financial Highlights

Highlights for the Three Months Ended June 30, 2019

• Average Q2 2019 crude oil pricing, as measured by WTI, of US$59.89/bbl was 9% higher than the Q1 2019 average price of US$54.87/bbl (Q2 2018: $67.97/bbl). The price differential in Q2 2019 between Canadian heavy crude oil, as represented by WCS, and WTI maintained a differential in the range of US$10.00/bbl to US$15.00/bbl as the Government of Alberta mandated crude oil production curtailment was reduced from 250,000 bbls/day at the start of Q2 2019 to 175,000 bbls/day by the end of Q2 2019. Natural gas prices, as measured by AECO, decreased 57% from an average of $1.84/GJ in Q1 2019 to $0.79/GJ in Q2 2019 (Q2 2018 $1.14/GJ), which is very low in historical terms.
  
  
• CWC moved two Contract Drilling rigs into the United States in Q2 2019 with operations beginning in mid-June 2019. U.S.Contract Drilling revenue of $1.7 million and 25 drilling rig operating days for Q2 2019 was achieved. Q2 2019 average revenue per operating day of US $54,188 was largely due to customer recovery of mobilization costs to relocate equipment from Canada to the Eagle Ford basin in Texas and the DJ basin in Wyoming.
  
  
• CWC's Canadian drilling rig utilization in Q2 2019 of 11% (Q2 2018: 16%) was below the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 18%, as CWC's customers reduced or delayed their drilling programs in the quarter. Activity levels decreased 46% to 72 drilling rig operating days in Q2 2019 (Q2 2018: 133 drilling rig operating days) as the Company prepared to move two drilling rigs to its U.S. operations. CWC's U.S. drilling rig utilization in Q2 2019 was 69% (Q2 2018: n/a) as CWC started its U.S. drilling operations in mid-June 2019. CWC's service rig utilization in Q2 2019 of 28% (Q2 2018: 30%) was driven by 23,129 operating hours being 20% lower than the 28,831 operating hours in Q2 2018. The significant drop in Q2 2019 activity level for both the drilling rigs and our production-oriented service rigs was a direct result of a prolonged spring breakup and wet weather conditions combined with a lower crude oil price during the quarter, compared to a year ago. In addition, the Government of Alberta mandated production curtailment continued to temporarily slow down the need for newly drilled wells and workover and maintenance work on producing wells. These lower activity levels resulted in lower revenue in Q2 2019 compared to Q2 2018, while Adjusted EBITDA ⁽¹⁾ and net loss stayed constant as a result of management's unrelenting focus on reducing costs, as noted below.
  
  
• Revenue of $18.7 million, a decrease of $3.5 million (16%) compared to $22.2 million in Q2 2018.
  
  
• Adjusted EBITDA⁽¹⁾ of $0.1 million, an increase of $0.07 million compared to $0.03 million in Q2 2018. CWC has achieved 24 consecutive quarters of positive Adjusted EBITDA since Q2 2013.
  
  
• Net loss of $0.6 million, a decrease of $2.5 million compared to net loss of $3.1 million in Q2 2018.
  
  
• During Q2 2019, 623,000 (Q2 2018: 1,023,000) common shares were purchased under the Normal Course Issuer Bid ("NCIB") and 744,000 common shares (Q2 2018: 935,500) were cancelled and returned to treasury.

Highlights for the Six Months Ended June 30, 2019

• CWC's Canadian drilling rig utilization in the first six months of 2019 of 31% (2018: 39%) exceeded the CAODC industry average of 27%. CWC's U.S. drilling rig utilization in the first six months of 2019 was 69% (Q2 2018: n/a) as CWC started its U.S. drilling operations in mid-June 2019. CWC's service rig utilization in the first six months of 2019 was 28% compared to 43% in the same period in 2018. Activity levels in both the drilling rig and service rig divisions dropped in 2019 as a result of CWC's exploration and production ("E&P") customers reducing or delaying their drilling and well maintenance programs as a result of lower crude oil prices and the Government of Alberta mandated production curtailment temporarily slowing down the need for newly drilled wells and workover and maintenance work on producing wells.
  
  
• Revenue of $50.0 million, a decrease of $21.2 million (30%) compared to $71.2 million in the first six months of 2018.
  
  
• Adjusted EBITDA ⁽¹⁾ of $4.8 million, a decrease of $2.7 million (36%) compared to $7.5 million in the first six months of 2018.
  
  
• Net loss of $0.6 million, a decrease of $1.2 million (67%) compared to $1.9 million in the first six months of 2018.
  
  
• For the six months ended June 30, 2019, the Company purchased 2,673,500 (2018: 2,417,500) common shares under its NCIB and 2,536,000 (2018: 2,254,000) common shares were cancelled and returned to treasury.

Operational Overview

Contract Drilling

CWC Ironhand Drilling, the Company's Contract Drilling segment, has a fleet of nine telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. Eight of nine rigs have top drives and three have pad rig walking systems. All of the drilling rigs are well suited for the most active depths for horizontal drilling in the Western Canadian Sedimentary Basin ("WCSB"), including the Montney, Cardium, Duvernay and other deep basin horizons. The Company has expanded its drilling rig services into select United States basins including the Permian, Eagle Ford, Denver-Julesburg ("DJ") and Bakken.  One of the Company's strategic initiatives is to continue to increase the capabilities of its existing fleet to meet the growing demands of E&P customers for deeper depths at a cost effective price while providing a sufficient internal rate of return for CWC's shareholders.

Canadian Contract Drilling revenue of $1.6 million for Q2 2019 (Q2 2018: $2.8 million) was achieved with a utilization rate of 11% (Q2 2018: 16%), compared to the CAODC industry average of 18%, as CWC's customers reduced or delayed their drilling programs in the quarter.  CWC completed 72 drilling rig operating days in Q2 2019, a 46% decrease from 133 drilling rig operating days in Q2 2018, as the Company prepared to move two drilling rigs to its U.S. operations. The Q2 2019 average revenue per operating day of $22,750 was an increase of 7% from $21,227 in Q2 2018.  The significant reduction in Q2 2019 activity level was a direct result of a prolonged spring breakup and wet weather conditions combined with a lower crude oil price during the quarter, compared to a year ago. In addition, the Government of Alberta mandated production curtailment continued to temporarily slow down the need for newly drilled wells.

CWC moved two Contract Drilling rigs into the United States in Q2 2019 with operations beginning in mid-June 2019. U.S. Contract Drilling revenue of $1.7 million and 25 drilling rig operating days for Q2 2019 was achieved. Q2 2019 average revenue per operating day of US $54,188 was largely due to customer recovery of mobilization costs to relocate equipment from Canada to the Eagle Ford basin in Texas and the DJ basin in Wyoming. CWC intends to move two more drilling rigs into the United States by the end of 2019, subject to obtaining contracts with U.S. customers.

Production Services

With a fleet of 148 service rigs, CWC is the largest well servicing company in Canada as measured by operating hours. CWC's service rig fleet consists of 77 single, 57 double, and 14 slant rigs providing services which include completions, maintenance, workovers and abandonments with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park 56 of its service rigs and focus its sales and operational efforts on the remaining 92 active service rigs due to the reduction in the number of service rigs required to service the WCSB, in part as a result of the Government of Alberta's mandated crude oil production curtailments. 

CWC's fleet of nine coil tubing units consist of six Class I and three Class II coil tubing units having depth ratings from 1,500 to 3,200 metres. The Company continues to focus its sales and operational efforts on servicing steam-assisted gravity drainage ("SAGD") wells that are shallower in depth and more appropriate for coil tubing operations.

CWC's fleet of 13 swabbing rigs operate under the trade name CWC Swabtech.  The swabbing rigs are used to remove liquids from the wellbore and allow reservoir pressures to push the commodity up the tubing casing.  The Company has chosen to park five of its swabbing rigs and focus its sales and operational efforts on the remaining eight active swabbing rigs.

Production Services revenue was $15.4 million in Q2 2019, down $4.0 million (21%) compared to $19.4 million in Q2 2018. The significant drop in Q2 2019 activity level for our production-oriented service rigs was a direct result of a prolonged spring breakup and wet weather conditions combined with a lower crude oil price during the quarter, compared to a year ago. CWC estimates that 4,224 service rig operating hours (Q2 2018: 1,856 operating hours) of lost activity were due to wet weather conditions in Q2 2019 out of a total 83,840 operating hours. In addition, the Government of Alberta mandated production curtailment continued to temporarily slow down the need for workover and maintenance work on producing wells.

CWC's service rig utilization in Q2 2019 of 28% (Q2 2018: 30%) was driven by 23,129 operating hours being 20% lower than the 28,831 operating hours in Q2 2018. However, the Q2 2019 average revenue per hour of $646 increased $4 per hour (1%) over the $642 in Q2 2018. Furthermore, Q2 2019 average revenue per hour excluding the top volume customers of $687 was $10 per hour (1%) higher than Q2 2018 average revenue per hour of $677 suggesting the loss in CWC's service rig operating hours in Q2 2019 were primarily from CWC's top volume customers who were the most affected by the Government of Alberta's mandated production curtailment.

CWC's coil tubing utilization in Q2 2019 of 4% (Q2 2018: 17%) with 301 operating hours was 75% lower than the 1,212 operating hours in Q2 2018. Average revenue per hour for coil tubing services of $830 in Q2 2019 is 9% higher than $762 in Q2 2018. The lower utilization reflects the continuing challenge of low natural gas prices and lower crude oil prices during the quarter, compared to a year ago, as well as the Government of Alberta mandated production curtailments temporarily slowing down the need for work on SAGD wells.

CWC swabbing rig utilization in Q2 2019 of 9% (Q2 2018: 13%) with 661 operating hours was 31% lower than the 958 operating hours in Q2 2018. Average revenue per hour for swabbing rigs of $262 in Q2 2019 is 1% lower than $265 in Q2 2018 reflecting the continuing challenge of low natural gas prices.

Capital Expenditures

Capital expenditures of $1.9 million in Q2 2019, a decrease of $4.2 million (69%) compared to $6.1 million in Q2 2018.

Capital expenditures of $3.2 million for the six months ended June 30, 2019, a decrease of $3.9 million (55%) compared to $7.1 million in the same period in 2018.

The 2019 capital expenditure budget of $5.4 million was approved by the Board of Directors on January 16, 2019 and comprises entirely of maintenance and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rigs, service rigs and coil tubing divisions as well as information technology infrastructure.

Outlook

Crude oil, as represented by WTI, averaged US$59.89/bbl in Q2 2019, an increase of 9% compared to Q1 2019 average price of US$54.87/bbl (Q2 2018: US$67.97/bbl) and finished the quarter on June 30, 2019 at US$58.20/bbl. Natural gas prices, as measured by AECO, decreased 57% from an average of $1.84/GJ in Q1 2019 to $0.79/GJ in Q2 2019 (Q2 2018 $1.14/GJ), which remains very low in historical terms. The price differential in Q2 2019 between Canadian heavy crude oil, as represented by WCS, and WTI maintained a differential in the range of US$10.00/bbl to US$15.00/bbl as the Government of Alberta mandated crude oil production curtailment was reduced from 250,000 bbls/day at the start of Q2 2019 to 175,000 bbls/day by the end of Q2 2019. A further approved 25,000 bbls/day reduction in each of August 2019 and September 2019 will reduce the total production curtailment to 125,000 bbls/day. In addition, recent negotiations between certain senior E&P companies and the Government of Alberta to reduce the remaining production curtailment by allowing E&P companies to increase their crude oil production if such incremental capacity is transported by railcars, appears to have both industry and government support. The existing and future reductions in the production curtailment has and will continue to allow CWC's E&P customers to increase their production capacity, which in turn has and will continue to gradually increase CWC's activity levels for both its Contract Drilling and Production Services segment.

CWC has sustainably positioned itself by providing its E&P customers with the highest quality service from the highest quality people at reasonable prices. However, the Canadian federal government's passing of Bill C-69 and Bill C-48 has negatively affected the availability of investment capital and growth for Canada's oil and gas industry.  Bill C-69 imposes more requirements for consulting affected Indigenous communities, widens public participation in the review process and requires climate change to be considered when major national resource-exploitation and transportation projects are being evaluated. It applies to a wide range of projects including interprovincial pipelines, highways, mines and power links.  Bill C-48 imposes a moratorium on oil tankers north of Vancouver Island.  Despite these challenges, there appears to be renewed optimism in Canada's energy industry with Albertans electing a new government on April 16, 2019 whose leader intends to fight for Canada's energy sector, and with the recent approval by the National Energy Board of the expansion of the Trans Mountain Pipeline on June 18, 2019.   Combining these recent events with the positive final investment decisions made in Q4 2018 by proponents of a liquefied natural gas processing facility (LNG Canada) and the building of its corresponding pipeline (Coastal GasLink) in northeast British Columbia, there is renewed optimism that investment capital and growth may return to the Canadian Energy sector.

While Canadian oilfield service activity currently remains muted, the United States energy industry continues to experience exponential growth. Over the past year, CWC has been actively identifying opportunities to establish a U.S. presence and is pleased to report that in March 2019 the Company signed its first U.S. contract to deliver contract drilling services to a multinational E&P company in the Eagle Ford basin in Texas. A second U.S. contract was signed in April 2019 to move a second drilling rig for another E&P customer to the DJ basin in Wyoming. Both drilling rigs began operations in the U.S. in mid-June 2019. It is the Company's intent to move an additional two drilling rigs to the U.S. in the second half of 2019 subject to signing customer contracts such that CWC positions up to four of its nine drilling rig fleet (44%) in the U.S. CWC believes these moves will help the Company achieve higher utilization, revenue and Adjusted EBITDA for its Contract Drilling segment over a longer-term period.

While CWC remains focused on its operational and financial performance, it also recognizes the need to pursue opportunities that create long-term shareholder value. With the support of the Board of Directors, management continues to actively pursue business combinations in North America and globally in the drilling and well servicing industry. CWC cautions that there are no guarantees that strategic opportunities will result in a transaction, or if a transaction is undertaken, as to its terms or timing.

About CWC Energy Services Corp.

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the WCSB and the United States with a complementary suite of oilfield services including drilling rigs, service rigs, swabbing rigs and coil tubing units. The Company's corporate office is located in Calgary, Alberta, with a U.S. office in Houston, Texas and operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

Forward-Looking Information

This news release contains certain forward-looking information and statements within the meaning of applicable Canadian securities legislation. Certain statements contained in this MD&A, including most of those contained in the section titled "Outlook" and including statements which may contain such words as "anticipate", "could", "continue", "should", "seek", "may", "intend", "likely", "plan", "estimate", "believe", "expect", "will", "objective", "ongoing", "project" and similar expressions are intended to identify forward-looking information or statements. In particular, this MD&A contains forward-looking statements including management's assessment of future plans and operations, planned levels of capital expenditures, expectations as to activity levels, expectations on the sustainability of future cash flow and earnings, expectations with respect to crude oil and natural gas prices, activity levels in various areas, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB and the United States, expectations regarding entering into long term drilling contracts and expanding its customer base, and expectations regarding the business, operations, revenue and debt levels of the Company in addition to general economic conditions. Although the Company believes that the expectations and assumptions on which such forward-looking information and statements are based are reasonable, undue reliance should not be placed on the forward-looking information and statements because the Company can give no assurances that they will prove to be correct. Since forward-looking information and statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the drilling and oilfield services sector (ie. demand, pricing and terms for oilfield drilling and services; current and expected oil and 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 and environmental regulations, stock market volatility and the inability to access sufficient capital from external and internal sources. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through SEDAR at www.sedar.com. The forward-looking information and statements contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Any forward-looking statements made previously may be inaccurate now.

Reconciliation of Non-IFRS Measures

SOURCE CWC Energy Services Corp.

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