CALGARY, July 26, 2017 /CNW/ - Western Energy Services
Corp. ("Western" or the "Company") (TSX: WRG) announces the release
of its second quarter 2017 financial and operating results.
Additional information relating to the Company, including the
Company's financial statements and management's discussion and
analysis as at and for the three and six months ended June 30, 2017 and 2016 will be available on SEDAR
at www.sedar.com. Non-International Financial Reporting
Standards ("Non-IFRS") measures and abbreviations for standard
industry terms are included in this press release. All
amounts are denominated in Canadian dollars (CDN$) unless otherwise
identified.
Second Quarter 2017 Operating Results:
- Operating Revenue in the second quarter of 2017 benefited from
improved commodity prices and resulted in higher customer spending
and a corresponding increase in demand for Western's services.
Second quarter Operating Revenue increased by $18.1 million (or 146%) to $30.5 million in 2017 as compared to $12.4 million in 2016, with the prior period
including $1.8 million in shortfall
commitment revenue. In the contract drilling segment, Operating
Revenue totalled $22.8 million in the
second quarter of 2017 as compared to $7.4
million in the second quarter of 2016, an increase of
$15.4 million (or 208%); while in the
production services segment, Operating Revenue totalled
$7.7 million for the three months
ended June 30, 2017 as compared to
$5.0 million in the second quarter of
2016, an increase of $2.7 million (or
54%). Higher utilization in the second quarter of 2017, and
improved pricing in Canada,
positively impacted Operating Revenue in the contract drilling and
production services segments as described below:
-
- Drilling rig utilization – Operating Days (or "Drilling Rig
Utilization") in Canada averaged
19% in the second quarter of 2017 compared to an average of 3% in
the second quarter of 2016, reflecting a 1,600 basis points ("bps")
increase. Second quarter 2017 Drilling Rig Utilization represented
a premium of 100 bps to the Canadian Association of Oilwell
Drilling Contractors ("CAODC") industry average of 18%, whereas in
the second quarter of 2016, Drilling Rig Utilization of 3%
represented a 400 bps discount to the industry average. The
increase in the Company's utilization premium to the industry
average in the second quarter of 2017 is attributable to:
-
- the quality of Western's drilling rig fleet;
- the ability of the Company's rig crews;
- the efforts by the Company's marketing group to reposition rigs
for existing and new customers; and
- a number of Western's customers increasing their capital
budgets for 2017, as compared to 2016 when customer spending was
limited.
- These factors, combined with improved commodity prices,
resulted in higher demand for the Company's drilling rigs.
Operating Revenue per Billable Day in the second quarter of 2017,
improved by 1% as compared to the first quarter of 2017 which was
aided by seasonal revenue due to cold weather during the winter
drilling season, and by 6% as compared to the same period in the
prior year, as market conditions continued to improve;
- In the United States, four of
the Company's five drilling rigs operated during the quarter, two
of which were working on long term contracts, resulting in Drilling
Rig Utilization of 46% in the second quarter of 2017, as compared
to 18% in the same period of the prior year. Operating Revenue per
Billable Day in the United States
decreased by 20% in the second quarter of 2017 due to changes in
the mix of rigs working on spot day rates versus long term
contracts, as compared to the second quarter of 2016 when the
Company had one rig operating on a long term legacy contract;
and
- Well servicing utilization of 14% in the second quarter of 2017
compared to 11% in the same period of the prior year. As is typical
of the second quarter in Canada,
utilization was restricted by road bans in place due to wet
weather. Improved market conditions resulted in an 11% increase in
hourly rates during the second quarter of 2017, as compared to the
same period in the prior year. Improved utilization and pricing,
led to a $1.7 million (or 45%)
increase in well servicing Operating Revenue in the period.
- Second quarter Adjusted EBITDA improved by $2.1 million to $0.1
million in 2017 as compared to a loss of $2.0 million in the second quarter of 2016.
Normalizing the prior year for $1.8
million of shortfall commitment revenue recognized in the
second quarter of 2016, Adjusted EBITDA in the second quarter of
2017 improved by $3.9 million. The
year over year change in Adjusted EBITDA is due to higher activity
across all divisions in 2017 and improved pricing in the Canadian
market.
- Administrative expenses, excluding depreciation and stock based
compensation, decreased by 5% in the second quarter of 2017 as
compared to the first quarter of 2017, as employer paid statutory
source deductions decreased as employees began reaching their
annual limits. Second quarter 2017 administrative expenses
increased by $0.8 million (or 18%) to
$5.5 million, as compared to
$4.7 million in the second quarter of
2016 due to higher employee related costs, offset partially by the
realization of a full period of cost control measures undertaken in
the prior year.
- The Company incurred a net loss of $16.6
million in the second quarter of 2017 ($0.23 per basic common share) as compared to a
net loss of $24.2 million in the same
period in 2016 ($0.33 per basic
common share). The change can be attributed to the following:
-
- A prior period loss on asset decommissioning of $5.2 million in the contract drilling
segment;
- A $2.1 million increase in
Adjusted EBITDA due to higher utilization in both the contract
drilling and production services segments, coupled with improved
pricing in Canada;
- A $1.0 million decrease in
depreciation expense due to lower capital spending and certain
equipment being fully depreciated in the second half of 2016 and
the first half of 2017; and
- A $0.4 million decrease in
finance costs mainly due to the Company reducing its available
Credit Facilities in 2016 from $195.0
million to $60.0 million, resulting in lower standby
fees.
- Offsetting the above mentioned items is a $2.1 million decrease in income tax recovery due
to improved earnings before taxes.
- Second quarter 2017 capital expenditures of $3.4 million included $1.7
million of expansion capital and $1.7
million of maintenance capital. In total, capital spending
in the second quarter of 2017 increased by $3.0 million from the $0.4
million incurred in the second quarter of 2016. The Company
incurred expansion capital mainly related to drilling rig upgrades
in the second quarter of 2017, as well as necessary maintenance
capital related to the higher activity in the period.
Year to Date 2017 Operating Results:
- Operating Revenue for the six month period ended June 30, 2017 benefited from improved commodity
prices and higher customer spending which resulted in a
corresponding increase in demand for Western's services. For the
six months ended June 30, 2017,
Operating Revenue increased by $64.0
million (or 144%) to $108.6
million as compared to $44.6
million for the six months ended June
30, 2016. In the contract drilling segment, Operating
Revenue totalled $82.0 million for
the six months ended June 30, 2017,
an increase of $52.3 million (or
176%), as compared to $29.7 million
in the same period of the prior year and included $6.4 million in shortfall commitment revenue in
2017, as compared to $1.8 million in
2016; while in the production services segment, Operating Revenue
totalled $26.7 million, an increase
of $11.8 million (or 79%) as compared
to $14.9 million in the same period
of the prior year. Higher utilization in the first half of 2017, as
compared to the same period of the prior year, offset by lower
pricing, impacted Operating Revenue in the contract drilling and
production services segments as described below:
-
- Drilling Rig Utilization in Canada of 36% for the six month period ended
June 30, 2017, compared to 11% for
the six month period ended June 30,
2016, reflecting a 2,500 bps increase. Drilling Rig
Utilization of 36% in 2017 represents a 700 bps premium to the
CAODC industry average, whereas in the first six months of 2016,
Drilling Rig Utilization of 11% represented a 300 bps discount to
the CAODC industry average. The increase in the Company's
utilization premium in 2017 is attributable to:
-
- the quality of Western's drilling rig fleet;
- the ability of the Company's rig crews;
- the efforts by the Company's marketing group to reposition rigs
for existing and new customers; and
- a number of Western's customers increasing their capital
budgets for 2017, as compared to 2016 when customer spending was
limited.
- These factors, combined with improved commodity prices,
resulted in higher demand for the Company's drilling rigs.
Additionally, Western continued to increase its market share in
2017. Western's 51 drilling rigs in Canada represent approximately 8% of the rigs
registered with the CAODC, however Western's total operating days
in 2017, represented 10% of the total industry Operating Days
reported by the CAODC. Operating Revenue per Billable Day in the
current period, decreased by 9% as compared to the same period in
the prior year. However, pricing began to improve in the second
quarter of 2017, trending higher as incremental projects were
awarded, resulting in an increase of 1% over the first quarter of
2017 which was aided by seasonal revenue due to cold weather during
the winter drilling season.
- In the United States, four of
the Company's five drilling rigs operated during the period, two of
which were working on long term contracts, resulting in Drilling
Rig Utilization of 42% for the six months ended June 30, 2017, as compared to 18% in the same
period of the prior year. Operating Revenue per Billable Day in
the United States decreased by 24%
in the first six months of 2017 due to changes in the mix of rigs
working on spot rates versus long term contracts, as compared to
the same period of the prior year when the Company had one rig
working on a long term legacy contract; and
- Well servicing utilization of 26% for the six months ended
June 30, 2017 compared to 14% in the
same period of the prior year. Continued improvements in commodity
prices helped improve activity year over year. Well servicing
hourly rates decreased by 1% for the six months ended June 30, 2017, as compared to the six months
ended June 30, 2016. However, pricing
has begun to improve as activity increases resulting in improved
year over year pricing in the second quarter of 2017. Improved
utilization and constant pricing led to a $9.5 million (or 83%) increase in well servicing
Operating Revenue in the period.
- Adjusted EBITDA for the six months ended June 30, 2017 increased by $17.3 million to $18.7
million in 2017 as compared to $1.4
million for the six months ended June
30, 2016. The year over year increase in Adjusted EBITDA is
due to higher activity across all divisions, a $4.6 million increase in shortfall commitment
revenue in 2017, and the Company's ability to safely and
efficiently reactivate equipment and crews without incurring
significant costs, including rigs that had been idle for an
extended period of time. These factors were partially offset by
lower average pricing in both the contract drilling and production
services segments.
- Administrative expenses, excluding depreciation and stock based
compensation, for the six month period ended June 30, 2017 increased by $1.2 million (or 12%) to $11.4 million as compared to $10.2 million in the same period of the prior
year. The increase in administrative expenses is due to higher
employee related costs, offset partially by the realization of a
full period of cost control measures undertaken in the prior
year.
- The Company incurred a net loss of $21.0
million for the six months ended June
30, 2016 ($0.28 per basic
common share) as compared to a net loss of $30.5 million for the same period in 2016
($0.41 per basic common share). The
decrease in net loss can be attributed to the following:
-
- A $17.3 million increase in
Adjusted EBITDA due to higher utilization in both the contract
drilling and production services segments, and increased shortfall
commitment revenue;
- A prior period loss on asset decommissioning of $5.2 million in the contract drilling segment;
and
- A $0.5 million decrease in
finance costs mainly due to the Company reducing its available
Credit Facilities in 2016 from $195.0
million to $60.0 million.
- Offsetting the above mentioned items are the following:
-
- An increase of $7.9 million in
depreciation expense due to the Company changing from unit of
production to straight line depreciation for drilling and well
servicing rigs effective April 1,
2016;
- A $3.6 million increase in other
items, as the first quarter of 2016 included foreign exchange gains
of $2.5 million, while the first
quarter of 2017 included $1.6 million
in transaction costs related to the unsuccessful acquisition of
Savanna Energy Services Corp. ("Savanna"); and
- A $3.1 million decrease in income
tax recovery due to improved earnings before taxes.
- Year to date capital expenditures of $5.9 million included $2.3
million of expansion capital and $3.6
million of maintenance capital. In total, capital spending
for the six months ended June 30,
2017 increased by $4.6 million
from the $1.3 million incurred in the
same period of 2016. The Company incurred expansion capital mainly
related to drilling rig upgrades in the first half of 2017, which
have contributed to the increase in cash flow from operating
activities year to date, as well as necessary maintenance capital
related to the higher activity in the period.
Selected Financial
Information
|
(stated in
thousands, except share and per share amounts)
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
Financial
Highlights
|
2017
|
2016
|
Change
|
|
2017
|
2016
|
Change
|
Revenue
|
33,307
|
12,890
|
158%
|
|
117,529
|
46,827
|
151%
|
Operating
Revenue(1)
|
30,469
|
12,393
|
146%
|
|
108,622
|
44,593
|
144%
|
Gross
Margin(1)
|
5,667
|
2,703
|
110%
|
|
30,125
|
11,570
|
160%
|
Gross Margin as a
percentage of Operating Revenue
|
19%
|
22%
|
(14%)
|
|
28%
|
26%
|
8%
|
Adjusted
EBITDA(1)
|
121
|
(1,990)
|
(106%)
|
|
18,746
|
1,374
|
1,264%
|
Adjusted EBITDA as a
percentage of Operating Revenue
|
-
|
(16%)
|
(100%)
|
|
17%
|
3%
|
467%
|
Cash flow from
operating activities
|
20,659
|
8,444
|
145%
|
|
23,832
|
17,049
|
40%
|
Capital
expenditures
|
3,435
|
423
|
712%
|
|
5,871
|
1,344
|
337%
|
Net loss
|
(16,628)
|
(24,172)
|
(31%)
|
|
(20,993)
|
(30,491)
|
(31%)
|
|
-basic net loss per
share
|
(0.23)
|
(0.33)
|
(30%)
|
|
(0.28)
|
(0.41)
|
(32%)
|
|
-diluted net loss per
share
|
(0.23)
|
(0.33)
|
(30%)
|
|
(0.28)
|
(0.41)
|
(32%)
|
Weighted average
number of shares
|
|
|
|
|
|
|
|
|
-basic
|
73,797,866
|
73,648,192
|
-
|
|
73,796,911
|
73,647,241
|
-
|
|
-diluted
|
73,797,866
|
73,648,192
|
-
|
|
73,796,911
|
73,647,241
|
-
|
Outstanding common
shares as at period end
|
73,798,126
|
73,648,484
|
-
|
|
73,798,126
|
73,648,484
|
-
|
(1) See
"Non-IFRS measures" included in this press release.
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
Operating
Highlights(1)
|
2017
|
2016
|
Change
|
|
2017
|
2016
|
Change
|
Contract
Drilling
|
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
|
-Average active rig
count
|
10.3
|
1.8
|
472%
|
|
20.3
|
6.3
|
222%
|
|
-End of
period
|
51
|
51
|
-
|
|
51
|
51
|
-
|
Operating Revenue per
Billable Day
|
17,411
|
16,441(3)
|
6%
|
|
17,252(4)
|
19,001(3)
|
(9%)
|
Operating Revenue per
Operating Day
|
19,009
|
17,369(3)
|
9%
|
|
18,992(4)
|
21,260(3)
|
(11%)
|
Operating
Days
|
859
|
157
|
447%
|
|
3,345
|
1,018
|
229%
|
Drilling rig
utilization - Billable Days
|
20%
|
4%
|
400%
|
|
40%
|
12%
|
233%
|
Drilling rig
utilization - Operating Days
|
19%
|
3%
|
533%
|
|
36%
|
11%
|
227%
|
CAODC industry
average utilization(2)
|
18%
|
7%
|
157%
|
|
29%
|
14%
|
107%
|
|
|
|
|
|
|
|
|
United States
Operations:
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
|
-Average active rig
count
|
2.7
|
1.0
|
170%
|
|
2.5
|
1.0
|
150%
|
|
-End of
period
|
5
|
5
|
-
|
|
5
|
5
|
-
|
Operating Revenue per
Billable Day (US$)
|
19,545
|
24,568
|
(20%)
|
|
19,738
|
25,832
|
(24%)
|
Operating Revenue per
Operating Day (US$)
|
23,235
|
27,092
|
(14%)
|
|
23,573
|
29,240
|
(19%)
|
Operating
Days
|
208
|
83
|
151%
|
|
384
|
161
|
139%
|
Drilling rig
utilization - Billable Days
|
54%
|
20%
|
170%
|
|
51%
|
20%
|
155%
|
Drilling rig
utilization - Operating Days
|
46%
|
18%
|
156%
|
|
42%
|
18%
|
133%
|
|
|
|
|
|
|
|
|
Production
Services
|
|
|
|
|
|
|
|
Well servicing rig
fleet:
|
|
|
|
|
|
|
|
|
-Average active rig
count
|
9.4
|
7.0
|
34%
|
|
17.1
|
9.2
|
86%
|
|
-End of
period
|
66
|
66
|
-
|
|
66
|
66
|
-
|
Service Rig Operating
Revenue per Service Hour
|
652
|
589
|
11%
|
|
678
|
682
|
(1%)
|
Service
Hours
|
8,511
|
6,402
|
33%
|
|
30,968
|
16,788
|
84%
|
Service rig
utilization
|
14%
|
11%
|
27%
|
|
26%
|
14%
|
86%
|
(1)
|
See "Non-IFRS
measures" included in this press release.
|
(2)
|
Source: The
Canadian Association of Oilwell Drilling Contractors
("CAODC"). The CAODC industry average is based on Operating
Days divided by total available days.
|
(3)
|
Excludes shortfall
commitment revenue from take or pay contracts of $1.8 million for
the three and six months ended June 30, 2016.
|
(4)
|
Excludes shortfall
commitment revenue from take or pay contracts of $6.4 million for
the six months ended June 30, 2017.
|
|
|
|
|
Financial Position
at (stated in thousands)
|
June 30,
2017
|
December 31,
2016
|
June 30,
2016
|
Working
capital
|
51,730
|
51,118
|
60,278
|
Property and
equipment
|
677,465
|
708,567
|
735,765
|
Total
assets
|
758,278
|
793,525
|
814,757
|
Long term
debt
|
264,702
|
264,070
|
264,145
|
Western is an oilfield service company focused on three core
business lines: contract drilling, well servicing and oilfield
rental equipment services. Western provides contract drilling
services through its division, Horizon Drilling ("Horizon") in
Canada, and its wholly owned
subsidiary, Stoneham Drilling Corporation ("Stoneham") in
the United States ("US").
Western provides well servicing and oilfield rental equipment
services in Canada through its
wholly owned subsidiary Western Production Services Corp. ("Western
Production Services"). Western Production Services' division,
Eagle Well Servicing ("Eagle") provides well servicing operations,
while its division, Aero Rental Services ("Aero") provides oilfield
rental equipment services. Financial and operating results
for Horizon and Stoneham are
included in Western's contract drilling segment, while financial
and operating results for Eagle and Aero are included in Western's
production services segment.
Western has a drilling rig fleet of 56 rigs specifically suited
for drilling horizontal wells of increased complexity.
Western is currently the fifth largest drilling contractor in
Canada, based on the CAODC
registered rigs, with a fleet of 51 rigs operating through
Horizon. Of the Canadian fleet, 24 are classified as Cardium
class rigs, 19 as Montney class
rigs and eight as Duvernay class
rigs. As compared to the Cardium class rigs, the Montney class rigs have a larger hookload,
while the Duvernay class rigs have
the largest hookload allowing the rig to support more drill pipe
downhole. Additionally, Western has five Duvernay class triple drilling rigs deployed
in the United States operating
through Stoneham. Western is also the sixth largest well
servicing company in Canada with a
fleet of 66 rigs operating through Eagle. Western's oilfield
rental equipment division, which operates through Aero, provides
oilfield rental equipment for hydraulic fracturing services, well
completions and production work, coil tubing and drilling
services.
Crude oil and natural gas prices impact the cash flow of
Western's customers, which in turn impacts the demand for Western's
services. While commodity prices regressed in the latter part
of the second quarter of 2017, they still improved year over year
for the three and six months ended June
30, 2017. Overall performance of the Company for the
three and six months ended June 30,
2017 was impacted by low crude oil and natural gas prices,
which remain well below previous highs. West Texas
Intermediate ("WTI") on average declined by 7% in the second
quarter of 2017 as compared to the first quarter of 2017, however
was 6% higher compared to the same period in the prior year.
Additionally, in the second quarter of 2017, Western Canadian
Select on average remained constant as compared to the first
quarter of 2017, however improved by 21% as compared to the same
period of the prior year. Canadian natural gas prices, such
as AECO, improved quarter over quarter, increasing on average by 3%
from the first quarter of 2017 to the second quarter of 2017.
Further, AECO nearly doubled in the second quarter of 2017 as
compared to the same period of the prior year, increasing by
99%. The following table summarizes average crude oil and
natural gas prices, as well as average foreign exchange rates for
the three and six months ended June 30,
2017 and 2016.
|
|
|
|
Three months ended
June 30
|
Six months ended
June 30
|
|
2017
|
2016
|
Change
|
2017
|
2016
|
Change
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
West Texas
Intermediate (US$/bbl)
|
48.11
|
45.53
|
6%
|
49.87
|
39.69
|
26%
|
Western Canadian
Select (CDN$/bbl)
|
51.35
|
42.31
|
21%
|
50.85
|
34.49
|
47%
|
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
2.78
|
1.40
|
99%
|
2.74
|
1.61
|
70%
|
|
|
|
|
|
|
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.34
|
1.29
|
4%
|
1.33
|
1.33
|
-
|
(1)
|
See "Abbreviations"
included in this press release.
|
(2)
|
Source:
Bloomberg
|
Year over year improvement in commodity prices in 2017 has led
to a corresponding increase in the demand for oilfield services in
both Canada and the United
States. The CAODC reported that for drilling in Canada, the total number of Operating Days in
the Western Canadian Sedimentary Basin ("WCSB") increased
approximately 142% and 91% respectively, for the three and six
months ended June 30, 2017, as
compared to the same periods in the prior year. Similarly, as
reported by Baker Hughes Incorporated, the number of active
drilling rigs in the United States
increased approximately 112% and 67% respectively, for the three
and six months ended June 30, 2017,
as compared to the same periods in the prior year.
Outlook
Currently, 24 of Western's drilling rigs are operating.
Four of Western's 56 drilling rigs (or 7%) are under long
term take or pay contracts, with three expected to expire in 2018
and one expected to expire in 2020. These contracts each
typically generate between 250 and 350 Billable Days per year.
Western's revised capital budget for 2017 totals approximately
$20 million comprised of $8 million in expansion capital and $12 million in maintenance capital. The
revised capital budget reflect a net increase of $7 million from Western's previously announced
budget of $13 million. The
following table summarizes the changes in the 2017 capital
budget:
|
|
|
|
Capital
Expenditures
(stated in
millions)
|
2017 Budget
Announced
January 9, 2017
|
Incremental
Approved Capital
Expenditures
|
Revised
2017 Budget
|
Expansion
|
2
|
6
|
8
|
Maintenance
|
11
|
1
|
12
|
Total Capital
Expenditures
|
13
|
7
|
20
|
The majority of the increase in the capital budget relates to
expansion capital in the contract drilling segment related to
drilling rig upgrades that offer compelling economics.
Western believes the 2017 capital budget provides a prudent use of
cash resources and will allow it to maintain its premier drilling
and well servicing rig fleets, while remaining responsive to
customer requirements. Western will continue to manage its
operations in a disciplined manner and make any required
adjustments to its capital program as customer demand changes.
Since hitting 10 year lows in the first quarter of 2016,
commodity prices, while remaining well below previous highs, have
improved. As such, North American drilling rig counts have
begun to recover and the Company is expecting increased year over
year activity levels throughout 2017. However, improved
pricing for the Company's services has lagged the recovery in
activity and is expected to occur gradually as rates are typically
increased for rigs and drilling programs on an individual basis
rather than universally. Improving gross margin is a priority
for the Company and Western is working to implement higher rates
with each rig that is awarded work. Prices for Western's
services below historical levels will continue to impact Adjusted
EBITDA and cash flow from operating activities in the near
term. However, Western's variable cost structure and a
prudent capital budget will aid in preserving balance sheet
strength. In addition to $52.6
million in cash and cash equivalents, at June 30, 2017, Western has $60.0 million undrawn on its syndicated revolving
credit facility and its committed operating line (the "Credit
Facilities"), which do not mature until December 17, 2018. Additionally, Western
has no principal repayments due on the $265.0 million 7⅞% senior unsecured notes (the
"Senior Notes") until they mature on January
30, 2019.
Oilfield service activity in Canada will be impacted by the development of
resource plays in Alberta and
northeast British Columbia
including those related to increased crude oil transportation
capacity through pipeline development, increased environmental
regulations including the implementation of a carbon tax in
Alberta, and foreign investment
into Canada. Currently, the largest challenges facing the
oilfield service industry are continued customer spending
constraints as a result of lower commodity prices and the
increasing challenge of staffing field crews, particularly in the
well servicing division. Western's view is that its modern
drilling and well servicing rig fleets, reputation, and disciplined
cash management provide a competitive advantage which will enable
the Company to manage through the current slowdown in oilfield
service activity.
2017 Second Quarter Financial and Operating Results
Conference Call and Webcast
Western has scheduled a conference call and webcast to begin
promptly at 10:00 a.m. MDT
(12:00 p.m. EDT) on Thursday, July 27, 2017.
The conference call dial-in number is 1-888-231-8191.
A live webcast of the conference call will be accessible on
Western's website at www.wesc.ca by selecting "Investors",
then "Webcasts". Shortly after the live webcast, an
archived version will be available for approximately 14 days.
An archived recording of the conference call will also be
available approximately two hours after the completion of the call
until August 8, 2017 by dialing
1-855-859-2056, passcode 54606825.
Non-IFRS Measures
Western uses certain measures in this press release which do not
have any standardized meaning as prescribed by International
Financial Reporting Standards ("IFRS"). These measures, which
are derived from information reported in the condensed consolidated
financial statements, may not be comparable to similar measures
presented by other reporting issuers. These measures have
been described and presented in this press release in order to
provide shareholders and potential investors with additional
information regarding the Company. These Non-IFRS measures
are identified and defined as follows:
Operating Revenue
Management believes that in addition to revenue, Operating
Revenue is a useful supplemental measure as it provides an
indication of the revenue generated by Western's principal
operating activities, excluding flow through third party charges
such as rig fuel, which at the customer's request may be paid for
initially by Western, then recharged in its entirety to Western's
customers.
Gross Margin
Management believes that in addition to net income, Gross Margin
is a useful supplemental measure as it provides an indication of
the results generated by Western's principal operating activities
prior to considering administrative expenses, depreciation and
amortization, stock based compensation, how those activities are
financed, the impact of foreign exchange, how the results are
taxed, how funds are invested, and how non-cash items and one-time
gains and losses affect results.
The following table provides a reconciliation of revenue under
IFRS, as disclosed in the condensed consolidated statements of
operations and comprehensive income, to Operating Revenue and Gross
Margin:
|
|
|
|
Three months ended
June 30
|
Six months ended
June 30
|
(stated in
thousands)
|
2017
|
2016
|
2017
|
2016
|
Operating
Revenue
|
|
|
|
|
|
Drilling
|
22,807
|
7,388
|
82,043
|
29,712
|
|
Production
services
|
7,670
|
5,008
|
26,683
|
14,894
|
|
Less: inter-company
eliminations
|
(8)
|
(3)
|
(104)
|
(13)
|
|
30,469
|
12,393
|
108,622
|
44,593
|
Third party
charges
|
2,838
|
497
|
8,907
|
2,234
|
Revenue
|
33,307
|
12,890
|
117,529
|
46,827
|
Less: operating
expenses
|
(44,128)
|
(27,814)
|
(120,370)
|
(60,303)
|
Add:
|
|
|
|
|
|
Depreciation –
operating
|
16,412
|
17,329
|
32,793
|
24,640
|
|
Stock based
compensation – operating
|
76
|
298
|
173
|
406
|
Gross
Margin
|
5,667
|
2,703
|
30,125
|
11,570
|
Adjusted EBITDA
Management believes that in addition to net income, earnings
before interest and finance costs, taxes, depreciation and
amortization, other non-cash items and one-time gains and losses
("Adjusted EBITDA") is a useful supplemental measure as it provides
an indication of the results generated by the Company's principal
operating segments similar to Gross Margin but also factors in the
cash administrative expenses incurred in the period.
Operating Earnings
Management believes that in addition to net income, Operating
Earnings is a useful supplemental measure as it provides an
indication of the results generated by the Company's principal
operating segments similar to Adjusted EBITDA but also factors in
the depreciation expense incurred in the period.
The following table provides a reconciliation of net loss under
IFRS, as disclosed in the condensed consolidated statements of
operations and comprehensive income, to earnings before interest
and finance costs, taxes, depreciation and amortization ("EBITDA"),
Adjusted EBITDA and Operating Loss:
|
|
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
(stated in
thousands)
|
2017
|
2016
|
|
2017
|
2016
|
Net
loss
|
(16,628)
|
(24,172)
|
|
(20,993)
|
(30,491)
|
Add:
|
|
|
|
|
|
|
Finance
costs
|
5,419
|
5,798
|
|
10,831
|
11,336
|
|
Income tax
recovery
|
(6,154)
|
(8,234)
|
|
(7,642)
|
(10,729)
|
|
Depreciation –
operating
|
16,412
|
17,329
|
|
32,793
|
24,640
|
|
Depreciation –
administrative
|
307
|
406
|
|
629
|
826
|
EBITDA
|
(644)
|
(8,873)
|
|
15,618
|
(4,418)
|
Add:
|
|
|
|
|
|
|
Stock based
compensation – operating
|
76
|
298
|
|
173
|
406
|
|
Stock based
compensation – administrative
|
565
|
962
|
|
1,134
|
1,893
|
|
Loss on asset
decommissioning
|
-
|
5,225
|
|
-
|
5,225
|
Other
items
|
124
|
398
|
|
1,821
|
(1,732)
|
Adjusted
EBITDA
|
121
|
(1,990)
|
|
18,746
|
1,374
|
Subtract:
|
|
|
|
|
|
|
Depreciation –
operating
|
(16,412)
|
(17,329)
|
|
(32,793)
|
(24,640)
|
|
Depreciation –
administrative
|
(307)
|
(406)
|
|
(629)
|
(826)
|
Operating
Loss
|
(16,598)
|
(19,725)
|
|
(14,676)
|
(24,092)
|
Net Debt
The following table provides a reconciliation of long term debt
under IFRS, as disclosed in the condensed consolidated balance
sheets to Net Debt:
|
|
|
(stated in
thousands)
|
June 30,
2017
|
December 31,
2016
|
Long term
debt
|
264,702
|
264,070
|
Current portion of
long term debt
|
527
|
684
|
Less: cash and cash
equivalents
|
(52,649)
|
(44,597)
|
Net
Debt
|
212,580
|
220,157
|
Defined Terms:
Average active rig count (contract drilling): Calculated
as drilling rig utilization – Billable Days multiplied by the
average number of drilling rigs in the Company's fleet for the
quarter or year.
Average active rig count (production services):
Calculated as service rig utilization multiplied by the average
number of service rigs in the Company's fleet for the quarter or
year.
Billable Days: Defined as Operating Days plus rig
mobilization days.
Drilling rig utilization – Operating Days (or
"Drilling Rig Utilization"): Calculated based on
Operating Days divided by total available days.
Drilling rig utilization – Billable Days:
Calculated based on Billable Days divided by total available
days.
Operating Days: Defined as contract drilling days,
calculated on a spud to rig release basis.
Service Hours: Defined as well servicing hours
completed.
Service rig utilization: Calculated based on
Service Hours divided by available hours, being 10 hours per day,
per well servicing rig, 365 days per year in 2017 (2016: 366
days).
Contract Drilling Rig Classifications:
Cardium class rig: Defined as any contract drilling rig
which has a total hookload less than or equal to 399,999 lbs (or
177,999 daN).
Montney class rig:
Defined as any contract drilling rig which has a total hookload
between 400,000 lbs (or 178,000 daN) and 499,999 lbs (or 221,999
daN).
Duvernay class rig:
Defined as any contract drilling rig which has a total
hookload equal to or greater than 500,000 lbs (or 222,000 daN).
Abbreviations:
- Barrel ("bbl");
- Basis point ("bps"): A 1% change equals 100 basis points and a
0.01% change is equal to one basis point;
- Canadian Association of Oilwell Drilling Contractors
("CAODC");
- DecaNewton ("daN");
- International Financial Reporting Standards ("IFRS");
- Pounds ("lbs");
- Thousand cubic feet ("mcf");
- West Texas Intermediate ("WTI"); and
- Western Canadian Sedimentary Basin ("WCSB").
Forward-Looking Statements and Information
This press release contains certain statements or disclosures
relating to Western that are based on the expectations of Western
as well as assumptions made by and information currently available
to Western which may constitute forward-looking information under
applicable securities laws. All such statements and
disclosures, other than those of historical fact, which address
activities, events, outcomes, results or developments that Western
anticipates or expects may, or will occur in the future (in whole
or part) should be considered forward-looking information. In
some cases forward-looking information can be identified by terms
such as "forecast", "future", "may", "will", "expect",
"anticipate", "believe", "potential", "enable", "plan", "continue",
"contemplate", "pro forma", or other comparable terminology.
In particular, forward-looking information in this press release
includes, but is not limited to, statements relating to commodity
pricing; the future demand for and utilization of the Company's
services and equipment; the pricing for the Company's services and
equipment; the terms of existing and future drilling contracts in
Canada and the US and the revenue
resulting therefrom (including the number of Operating Days
typically generated from the Company's contracts); the Company's
expansion and maintenance capital plans for 2017; the Company's
liquidity needs including the ability of current capital resources
to cover Western's financial obligations and the 2017 capital
budget; the Company's expected sources of funding to support such
capital plans and the Company's ability to adjust capital spending
for the remainder of 2017 if market conditions, including customer
demand changes; the expected benefits from cost control measures;
the use and availability of the Company's Credit Facilities; the
Company's ability to maintain certain covenants under its Credit
Facility; the future declaration of dividends; expectations as to
the increase in crude oil transportation capacity through pipeline
development; the potential impact of changes to environmental laws
and regulations and the implementation of a carbon tax in
Alberta; the expectation of
continued foreign investment into the Canadian crude oil and
natural gas industry; expectations relating to producer spending,
and the Company's ability to find and maintain enough field crew
members and the Company's change to its depreciation
assumptions.
The material assumptions in making the forward-looking
statements in this press release include, but are not limited to,
assumptions relating to, demand levels and pricing for oilfield
services; fluctuations in the price and demand for crude oil and
natural gas; the continued low levels of and pressures on commodity
pricing; the continued business relationship between the Company
and its significant customers; general economic and financial
market conditions; crude oil transport and pipeline approval and
development; the Company's ability to finance its operations,
including but not limited to the ability to refinance its Senior
Notes; the effects of seasonal and weather conditions on operations
and facilities; the competitive environment to which the various
business segments are, or may be, exposed in all aspects of their
business; the ability of the Company's various business segments to
access equipment (including spare parts and new technologies);
changes in laws or regulations; currency exchange fluctuations; the
ability of the Company to attract and retain skilled labour and
qualified management; the ability to retain and attract significant
customers; and other unforeseen conditions which could impact the
use of services supplied by Western including Western's ability to
respond to such conditions.
Although Western believes that the expectations and assumptions
on which such forward-looking statements and information are based
on are reasonable, undue reliance should not be placed on the
forward-looking statements and information as Western cannot give
any assurance that they will prove to be correct. Since
forward-looking statements and information 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 risk that
the demand for oilfield services will not continue to improve for
the remainder of 2017 and that commodity prices will remain low,
and other general industry, economic, market and business
conditions. Readers are cautioned that the foregoing list of
risks, uncertainties and assumptions are not exhaustive.
Additional information on these and other risk factors that could
affect Western's operations and financial results are included in
Western's annual information form which may be accessed through the
SEDAR website at www.sedar.com. The forward-looking
statements and information contained in this press release are made
as of the date hereof and Western does not undertake any obligation
to update publicly or revise any forward-looking statements and
information, whether as a result of new information, future events
or otherwise, unless so required by applicable securities laws.
SOURCE Western Energy Services Corp.