CALGARY,
AB, May 8, 2023 /CNW/ -
FIRST QUARTER HIGHLIGHTS
- Revenue for the first quarter of 2023 was $484.1 million, a 46 percent increase from the
first quarter of 2022 revenue of $332.7
million.
- Revenue by geographic area:
-
- Canada - $140.1 million, 29 percent of total;
- United States - $274.6 million, 57 percent of total; and
- International - $69.4 million, 14
percent of total.
- Canadian drilling recorded 3,800 operating days in the first
quarter of 2023, compared to 3,728 operating days in the first
quarter of 2022, an increase of two percent. Canadian well
servicing recorded 13,776 operating hours in the first quarter of
2023, a 22 percent increase from 11,260 operating hours in the
first quarter of 2022.
- United States drilling
recorded 4,617 operating days in the first quarter of 2023, a 25
percent increase from 3,688 operating days in the first quarter of
2022. United States well servicing
recorded 27,917 operating hours in the first quarter of 2023, a six
percent decrease from 29,689 operating hours in the first quarter
of 2022.
- International drilling recorded 1,104 operating days in the
first quarter of 2023, a 26 percent increase from 873 operating
days recorded in first quarter of 2022.
- Adjusted EBITDA for the first quarter of 2023 was $127.3 million, an 82 percent increase from
Adjusted EBITDA of $70.0 million for
the first quarter of 2022.
- Funds flow from operations for the first quarter of 2023
increased 54 percent to $118.3
million from $76.7 million in
first quarter of the prior year.
- Net capital purchases for the quarter were $49.7 million, consisting of $8.3 million in upgrade capital and $41.6 million in maintenance capital, offset by
sale proceeds of $0.2 million.
Capital expenditures for 2023 are targeted to be approximately
$157.0 million, primarily related to
maintenance expenditures and selective growth projects. In
addition, the Company may consider other upgrade or growth projects
in response to customer demand and appropriate contract terms.
- General and administrative expense increased 33 percent and
totaled $14.5 million in the first
quarter of 2023, compared with $10.9
million in the first quarter of 2022.
- Long-term debt including current and non-current portions, net
of cash, was reduced by $29.1 million
since December 31, 2022. Our debt
reduction for 2023 is targeted to be approximately $200.0 million. Our target debt reduction for the
period beginning 2023 to the end of 2025 is approximately
$600.0 million. If industry
conditions change, this target could be increased or
decreased.
OVERVIEW
Revenue for the three months ended March 31, 2023 was
$484.1 million, an increase of 46
percent from revenue for the three months ended March 31, 2022 of $332.7
million. Adjusted EBITDA totaled $127.3 million ($0.69 per common share) in the first quarter of
2023, 82 percent higher than Adjusted EBITDA of $70.0 million ($0.43 per common share) in the first quarter of
2022.
Net income attributable to common shareholders for the
three months ended March 31,
2023 was $4.2 million
($0.02 per common share), compared
with net income attributable to common shareholders of $6.6 million ($0.04 per common share) for the three months
ended March 31, 2022.
Funds flow from operations increased 54 percent to $118.3 million ($0.64 per common share) in the first quarter of
2023 compared with $76.7 million
($0.47 per common share) in the first
quarter of the prior year.
The outlook for oilfield services continues to be constructive
reflecting increased demand for oilfield services year-over-year
resulting in steady activity levels. Global inflationary concerns
have prompted central banks to tighten monetary policies.
Increasing interest rates, largely resulting from efforts to quell
rising inflation, have subsequently engendered uncertainty for
global economies regarding recession risk and contracting economic
growth. Furthermore, recent stress in the financial sector has
contributed to overall economic concerns. These factors continue to
impact global energy commodity prices and add uncertainty to the
macro-economic outlook over the short-term. However, despite these
short-term headwinds, demand for crude oil continues to improve
year-over-year. Furthermore, OPEC+ nations continue to moderate
supply and respond to market conditions with their most recent
production cut announced in April of 2023. Moderated crude oil
supply has supported commodity prices over the short-term.
Over the near term, there remains uncertainty regarding the
impacts of ongoing hostilities in Ukraine on the global economy, overall global
economic health and recessionary pressures in certain operating
environments. Furthermore, there are several other factors that may
impact the future demand for crude oil and natural gas, commodity
prices, and the demand for oilfield services.
The Company's operating days were higher in the first quarter of
2023 when compared with the first quarter of 2022 as
operations were positively impacted by improving industry
conditions, driving activity improvements year-over-year.
The average United States
dollar exchange rate was $1.35 for
the first three months of 2023 (2022 - $1.27) versus the Canadian dollar, an increase of
six percent, compared with the same period of 2022.
Working capital at March 31, 2023 was a deficit of
$678.1 million compared to a
deficit of $707.8 million at December
31, 2022. The deficit was largely due to its revolving
credit facility (the "Credit Facility") being classified as
current. The Company has a history with successfully negotiating
contractual terms and extending the maturity of the Credit
Facility. At the end of the first quarter 2023, the Company's
available liquidity, consisting of cash and available borrowings
under its $900.0 million revolving
credit facility (the "Credit Facility"), totaled
$97.9 million compared with
$67.2 million at December 31, 2022.
This news release
contains "forward-looking information and statements" within the
meaning of applicable securities legislation. For a full disclosure
of the forward-looking information and statements and the risks to
which they are subject, see the "Advisory Regarding Forward-Looking
Statements" later in this news release. This news release
contains references to Adjusted EBITDA and Adjusted EBITDA per
common share. These measures do not have any standardized meaning
prescribed by IFRS and accordingly, may not be comparable to
similar measures used by other companies. The non-GAAP measures
included in this news release should not be considered as an
alternative to, or more meaningful than, the IFRS measure from
which they are derived or to which they are compared. See "Non-GAAP
Measures" later in this news release.
|
FINANCIAL AND OPERATING HIGHLIGHTS
(Unaudited, in
thousands of Canadian dollars, except per common share data and
operating information)
|
Three months ended
March 31
|
2023
|
|
2022
|
|
% change
|
Revenue
|
484,052
|
|
332,676
|
|
46
|
Adjusted EBITDA
1
|
127,324
|
|
69,965
|
|
82
|
Adjusted EBITDA per
common share 1
|
|
|
|
|
|
Basic
|
$
0.69
|
|
$
0.43
|
|
60
|
Diluted
|
$
0.69
|
|
$
0.38
|
|
82
|
Net income attributable
to common shareholders
|
4,241
|
|
6,587
|
|
(36)
|
Net income attributable
to common shareholders per common share
|
|
|
|
|
|
Basic
|
$
0.02
|
|
$
0.04
|
|
(50)
|
Diluted
|
$
0.02
|
|
$
0.04
|
|
(50)
|
Cash provided by
operating activities
|
104,574
|
|
54,556
|
|
92
|
Funds flow from
operations
|
118,291
|
|
76,741
|
|
54
|
Funds flow from
operations per common share
|
|
|
|
|
|
Basic
|
$
0.64
|
|
$
0.47
|
|
36
|
Diluted
|
$
0.64
|
|
$
0.42
|
|
52
|
Long-term debt, net of
cash 2
|
513,685
|
|
1,378,699
|
|
(63)
|
Weighted average common
shares - basic (000s)
|
183,828
|
|
162,895
|
|
13
|
Weighted average common
shares - diluted (000s)
|
185,476
|
|
184,441
|
|
1
|
|
|
|
|
|
|
Drilling
|
2023
|
|
2022
|
|
% change
|
Number of marketed
rigs 3
|
|
|
|
|
|
Canada
4
|
114
|
|
123
|
|
(7)
|
United
States
|
86
|
|
90
|
|
(4)
|
International
5
|
32
|
|
34
|
|
(6)
|
Total
|
232
|
|
247
|
|
(6)
|
Operating days
6
|
|
|
|
|
|
Canada
4
|
3,800
|
|
3,728
|
|
2
|
United
States
|
4,617
|
|
3,688
|
|
25
|
International
5
|
1,104
|
|
873
|
|
26
|
Total
|
9,521
|
|
8,289
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
Well
Servicing
|
2023
|
|
2022
|
|
% change
|
Number of
rigs
|
|
|
|
|
|
Canada
|
47
|
|
52
|
|
(10)
|
United
States
|
47
|
|
48
|
|
(2)
|
Total
|
94
|
|
100
|
|
(6)
|
Operating
hours
|
|
|
|
|
|
Canada
|
13,776
|
|
11,260
|
|
22
|
United
States
|
27,917
|
|
29,689
|
|
(6)
|
Total
|
41,693
|
|
40,949
|
|
2
|
1.
Please refer to Adjusted EBITDA calculation in Non-GAAP
Measures.
|
2.
Change in long-term debt, net of cash was largely due to the
$900.0 million revolving credit facility being classified as
current.
|
3.
Total owned rigs: Canada - 131, United States - 117,
International - 43 (2022 total owned rigs: Canada - 137, United
States - 127, International - 46)
|
4.
Excludes coring rigs.
|
5.
Includes workover rigs.
|
6.
Defined as contract drilling days, between spud to rig
release.
|
FINANCIAL POSITION AND CAPITAL EXPENDITURES HIGHLIGHTS
As at ($
thousands)
|
March 31
2023
|
|
March 31
2022
|
|
December 31
2022
|
Working capital 1,
2
|
(678,115)
|
|
114,625
|
|
(707,800)
|
Cash
|
44,850
|
|
29,706
|
|
49,880
|
Long-term
debt
|
558,535
|
|
1,408,405
|
|
556,889
|
Long-term debt, net of
cash
|
513,685
|
|
1,378,699
|
|
507,009
|
Total long-term
financial liabilities
|
569,373
|
|
1,418,140
|
|
562,837
|
Total assets
|
3,144,424
|
|
2,963,853
|
|
3,183,904
|
Long-term debt to
long-term debt plus equity ratio
|
0.30
|
|
0.54
|
|
0.30
|
1 See Non-GAAP Measures
section.
|
2
Change in working capital (deficit), was largely due to its
revolving credit facility being classified as
current.
|
|
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Capital
expenditures
|
|
|
|
|
|
Upgrade/growth
|
8,256
|
|
8,091
|
|
2
|
Maintenance
|
41,623
|
|
23,860
|
|
74
|
Proceeds from
disposals of property and equipment
|
(155)
|
|
(42,747)
|
|
nm
|
Net capital
expenditures (proceeds)
|
49,724
|
|
(10,796)
|
|
nm
|
nm - calculation not
meaningful
|
REVENUE AND OILFIELD SERVICES EXPENSE
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Revenue
|
|
|
|
|
|
Canada
|
140,116
|
|
111,266
|
|
26
|
United
States
|
274,553
|
|
166,823
|
|
65
|
International
|
69,383
|
|
54,587
|
|
27
|
Total
revenue
|
484,052
|
|
332,676
|
|
46
|
Oilfield services
expense
|
342,199
|
|
251,821
|
|
36
|
Revenue for the three months ended March 31, 2023 totaled
$484.1 million, an increase of 46
percent from the first quarter of 2022 of $332.7 million.
The increase in total revenue during the first quarter of 2023
was primarily due to favourable industry conditions, rig rate
improvements, foreign exchange translation, and supportive oil
commodity prices.
CANADIAN OILFIELD SERVICES
The Company recorded revenue of $140.1
million in Canada for the
three months ended March 31, 2023, an increase of 26
percent from $111.3 million
recorded for the three months ended March 31, 2022. Canadian
revenues accounted for 29 percent of the Company's total revenue in
the first quarter of 2023 (2022 - 34 percent).
The financial results for the Company's Canadian operations for
the first quarter 2023 were positively impacted by revenue rate
increases from improved industry conditions.
For the three months ended March 31, 2023, the Company
recorded 3,800 drilling days compared to 3,728 drilling days for
the three months ended March 31, 2022, an increase of two
percent. Well servicing hours increased by 22 percent to 13,776
operating hours in the first quarter of 2023 compared with 11,260
operating hours in the corresponding period of 2022.
During the first quarter of 2023, the Company transferred nine
under-utilized drilling rigs into its Canadian operations reserve
fleet.
UNITED STATES OILFIELD
SERVICES
During the three months ended March 31, 2023, revenue of
$274.6 million was recorded by the
Company's United States
operations, an increase of 65 percent from the $166.8 million recorded in the corresponding
period of the prior year. The United
States operations accounted for 57 percent of the Company's
revenue in the first quarter of 2023 (2022 - 50 percent).
Drilling days increased by 25 percent to 4,617
drilling days in the first quarter of 2023 from 3,688 drilling days
in the first quarter of 2022. Well servicing hours
decreased by six percent in the first quarter of 2023 to
27,917 operating hours from 29,689 operating hours in the first
quarter of 2022.
Overall operating and financial results for the Company's
United States operations reflect
supportive industry conditions, increasing drilling activity and
rig revenue rates and steady well servicing rig utilization. The
financial results from the Company's United States operations were further
positively impacted on the currency translation, as the United States dollar strengthened relative
to the Canadian dollar in the first quarter of 2023.
During the first quarter of 2023, the Company transferred four
under-utilized drilling rigs into its United States reserve fleet and transferred
one drilling rig from the reserve fleet to the marketed fleet.
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of
$69.4 million in the first quarter of
2023, a 27 percent increase from the $54.6 million recorded in the corresponding
period of the prior year. The Company's international operations
contributed 14 percent of the Company's total revenue in the first
quarter of 2023 (2022 - 16 percent).
For the three months ended March 31, 2023, international
operating days totaled 1,104 operating days compared with 873 days
for the three months ended March 31, 2022, an increase of 26
percent.
Operating and financial results from international operations
reflect improving industry conditions, increasing drilling activity
and rig revenue rates. In addition, operational activity increased
year-over-year as a result of two drilling rigs in Oman commencing drilling programs in the
fourth quarter of 2022. The financial results from the Company's
international operations were further positively impacted on the
currency translation, as the United
States dollar strengthened relative to the Canadian dollar
for the first quarter of 2023, as international operations paid in
United States dollars were
positively impacted on the conversion.
During the first quarter of 2023, the Company transferred two
under-utilized drilling rigs into its international operations
reserve fleet.
DEPRECIATION
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Depreciation
|
77,855
|
|
69,980
|
|
11
|
Depreciation totaled $77.9 million
for the first quarter of 2023 compared to $70.0 million for the first quarter of 2022. The
increase in depreciation is the result of depreciating recently
upgraded property and equipment and a higher foreign exchange rate
on United States dollar
denominated property and equipment values.
GENERAL AND ADMINISTRATIVE
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
General and
administrative
|
14,529
|
|
10,890
|
|
33
|
% of revenue
|
3.0
|
|
3.3
|
|
|
General and administrative expenses increased 33 percent to
$14.5 million (3.0 percent of
revenue) for the first quarter of 2023 compared to $10.9 million (3.3 percent of revenue) for the
first quarter of 2022. General and administrative expenses
increased due to support of increased operational activity, annual
wage increases and higher foreign exchange rate on United State
dollar translation.
FOREIGN EXCHANGE LOSS (GAIN) AND OTHER
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Foreign exchange loss
(gain) and other
|
5,026
|
|
(1,345)
|
|
nm
|
nm - calculation not
meaningful
|
Included in this amount is the impact of foreign currency
fluctuations in the Company's subsidiaries that have functional
currencies other than the Canadian dollar.
INTEREST EXPENSE
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Interest
expense
|
34,398
|
|
25,184
|
|
37
|
Interest expense was incurred on the Company's $900.0 million Credit Facility, US $417.5 million unsecured Senior Notes ("Senior
Notes") and capital lease obligations.
Interest expense increased by $9.2
million in the first quarter of 2023 compared to the same
period in 2022 as a result of higher interest rates and higher
foreign exchange rate on United State dollar translation. As the
Company's financial position improves the interest rate on the
Company's Credit Facility will decrease.
INCOME TAX (RECOVERY)
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Current income tax
(recovery)
|
401
|
|
(1,670)
|
|
nm
|
Deferred income tax
(recovery)
|
1,360
|
|
(11,532)
|
|
nm
|
Total income tax
(recovery)
|
1,761
|
|
(13,202)
|
|
nm
|
Effective income tax
rate (%)
|
28.3
|
|
202.7
|
|
|
nm - calculation not
meaningful
|
The effective income tax rate for the three months
ended March 31, 2023 was 28.3 percent compared
with 202.7 percent for the three months ended March 31,
2022. The effective income tax rate in the first quarter of the
current year was lower than the effective income tax rate in the
first quarter of 2022 as the prior year was significantly impacted
by gains on the sale of capital assets in foreign
jurisdictions.
FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL
($ thousands, except
per common share amounts)
|
Three months ended
March 31
|
2023
|
|
2022
|
|
% change
|
Cash provided by
operating activities
|
104,574
|
|
54,556
|
|
92
|
Funds flow from
operations
|
118,291
|
|
76,741
|
|
54
|
Funds flow from
operations per common share
|
$
0.64
|
|
$
0.47
|
|
36
|
Working capital
1
|
(678,115)
|
|
(707,800)
|
|
4
|
1
Comparative figure as of December 31, 2022
|
For the three months ended March 31, 2023, the Company
generated funds flow from operations of $118.3 million ($0.64 per common share) an increase of 54
percent from $76.7 million
($0.47 per common share) for the
three months ended March 31, 2022. The increase in funds flow
from operations in 2023 compared to 2022 is largely due to the
increase in activity compared to the prior period.
As at March 31, 2023 the Company's working capital was a
deficit of $678.1 million, compared
to a deficit of $707.8
million at December 31, 2022. The deficit was
largely due to its the Credit Facility being classified as current.
The Company has a history with successfully negotiating contractual
terms and extending the maturity of the Credit Facility. The
Company expects funds generated by operations, combined with
current and future credit facilities, to fully support its current
operating and capital requirements. The existing bank facility
provides for total borrowings of $900.0
million of which $53.0 million
was undrawn and available at March 31, 2023 (December 31, 2022 - $17.3
million).
INVESTING ACTIVITIES
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Purchase of property
and equipment
|
(49,879)
|
|
(31,951)
|
|
56
|
Proceeds from disposals
of property and equipment
|
155
|
|
42,747
|
|
nm
|
Net change in non-cash
working capital
|
7,538
|
|
5,697
|
|
32
|
Cash provided by (used
in) investing activities
|
(42,186)
|
|
16,493
|
|
nm
|
nm - calculation not
meaningful
|
Net purchases of property and equipment for the first quarter of
2023 totaled $49.7 million (2022
- net proceeds of $10.8 million). The
purchase of property and equipment for the first three months of
2023 consists of $41.6 million in
maintenance capital and $8.3 million
in upgrade capital.
FINANCING ACTIVITIES
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
2022
|
|
% change
|
Proceeds from long-term
debt
|
8,262
|
|
1,900
|
|
nm
|
Repayments of long-term
debt
|
(43,905)
|
|
(41,934)
|
|
5
|
Lease obligation
principal repayments
|
(8,944)
|
|
(1,898)
|
|
nm
|
Purchase of common
shares held in trust
|
(535)
|
|
(375)
|
|
43
|
Issuance of common
shares under the share option plan
|
—
|
|
36
|
|
nm
|
Interest
paid
|
(22,769)
|
|
(12,453)
|
|
83
|
Cash used in financing
activities
|
(67,891)
|
|
(54,724)
|
|
24
|
nm - calculation not
meaningful
|
The Company's available bank facilities consist of a $900.0 million Credit Facility, of which
$53.0 million was available and
undrawn as of March 31, 2023. In
addition, the Company has available a US $50.0 million secured letter of credit facility,
of which US $5.4 million was
available as of March 31,
2023.
In the fourth quarter of 2022, the Company classified its Credit
Facility as current. The Company has a history with successfully
negotiating contractual terms and extending the maturity of the
Credit Facility.
The Company may at any time and from time to time acquire Senior
Notes for cancellation by means of open market repurchases or
negotiated transactions. The Company is limited in the acquisition
and cancellation of the Senior Notes up to $25.0 million under applicable covenants. Senior
Notes may be repurchased for redemption in excess of $25.0 million if certain criteria are met. No
such repurchases occurred during the first quarter of 2023.
Covenants
The following is a list of the Company's currently applicable
covenants and the calculations as at March
31, 2023:
|
Covenant
|
|
|
March 31,
2023
|
The Credit
Facility
|
|
|
|
|
Consolidated Total
Debt to Consolidated EBITDA 1
|
≤ 5.00
|
|
|
3.18
|
Consolidated EBITDA to
Consolidated Interest Expense1,2
|
≥ 2.50
|
|
|
3.43
|
Consolidated Senior
Debt to Consolidated EBITDA1,3
|
≤ 2.50
|
|
|
1.86
|
1 Please refer to Non-GAAP
Measures for Consolidated EBITDA definition.
|
2
Consolidated Interest Expense is defined as all interest expense
calculated on a twelve month rolling consolidated
basis.
|
3 Consolidated Senior Debt
is defined as Consolidated Total Debt minus Subordinated
Debt.
|
As at March 31, 2023 the Company was
in compliance with all covenants related to the Credit
Facility.
The Credit Facility
The Credit Facility agreement, available including amendments on
SEDAR, requires that the Company comply with certain covenants
including Consolidated Total Debt to Consolidated EBITDA ratio,
Consolidated EBITDA to Consolidated Interest Expense ratio and a
Consolidated Senior Debt to Consolidated EBITDA ratio as detailed
above.
The Credit Facility also contains certain covenants that place
restrictions on the Company's ability to repurchase or redeem
Senior Notes; to create, incur or assume additional indebtedness;
change the Company's primary business; enter into mergers or
amalgamations; and dispose of property. In the most recent
amendment and restatement of the credit agreement, dated
December 17, 2021, permitted
encumbrances are limited to $25.0
million.
The Senior Notes
The note indenture governing the Senior Notes, available on
SEDAR, contains certain restrictions and limitations on the
Company's ability to pay dividends; purchase and redeem shares and
subordinated debt of the Company; and make certain restricted
investments. These restrictions and limitations are tempered by the
existence of a number of exceptions to the general prohibitions,
including baskets allowing for restricted payments.
The note indenture also restricts the Company's ability to incur
additional indebtedness if the Fixed Charge Coverage Ratio
determined on a pro forma basis for the most recently ended four
fiscal quarter period for which internal financial statements are
available is not at least 2.0 to 1.0. As at March 31, 2023, the Company has not incurred
additional indebtedness that would require the Fixed Charge
Coverage Ratio to be calculated. As is the case with restricted
payments, there are a number of exceptions to this prohibition on
the incurrence of additional indebtedness, including the incurrence
of additional debt under credit facilities up to the greater of
$900.0 million or 22.5 percent of the
Company's consolidated tangible assets and of additional secured
debt subordinated to the credit facilities up to the greater of US
$125.0 million or four percent of the
Company's consolidated tangible assets.
NEW BUILDS AND MAJOR RETROFITS
As at March 31, 2023, the Company transferred nine, four
and two under-utilized drilling rigs to its Canadian, United States and international operations
reserve fleet respectively. Furthermore, one drilling rig was
transferred from the reserve fleet to the marketed fleet in
the United States. The Company is
currently directing capital expenditures primarily to maintenance
capital items and selective rig or fleet upgrades.
OUTLOOK
Industry Overview
The outlook for oilfield services continues to be constructive
despite volatile commodity prices and macro-economic headwinds.
Recessionary pressures, inflationary concerns, financial sector
stress, and the potential for slowing economies continue to weigh
on commodity prices. In addition, these factors continue to add
uncertainty to the outlook for crude oil demand. However, demand
for crude oil is generally expected to improve year-over-year.
Furthermore, OPEC+ nations continue to monitor the oil markets and
implement cuts to production to moderate supply. As a result,
global crude oil prices have recently improved, with the benchmark
price of West Texas Intermediate ("WTI") averaging US
$77/bbl in February, $73/bbl in March and increasing to average
$79/bbl in April.
We expect crude oil demand to remain relatively steady and
anticipate that moderated oil supply in a positive oil price
environment will continue to support steady oilfield services
activity and revenue rates over the course of the 2023. The Company
continues to expect North American oil and natural gas producers to
remain committed to prioritizing shareholder returns. However, the
Company also anticipates that producers will keep relatively steady
drilling programs to maintain or grow production in consideration
of well productivity declines and low drilled but uncompleted
("DUC") well inventory.
Over the short-term, there remains uncertainty regarding
macroeconomic conditions that may impact supply and demand for, and
pricing of, crude oil and natural gas and related oilfield
services. These factors include but are not limited to, recession
risk and global economic health, financial sector stress, the
impact of ongoing hostilities in Ukraine, and the future supply of Russian oil
and natural gas.
The Company remains committed to disciplined capital allocation
and debt retirement. The Company has targeted approximately
$200 million in debt reduction for
the 2023 year. In addition, from the period beginning 2023 to the
end of 2025, the Company has targeted debt reduction of
approximately $600 million. If
industry conditions change, this target could be increased or
decreased.
The Company has budgeted base capital expenditures for 2023 of
approximately $157.0 million, related
to maintenance expenditures and selective growth projects. The
Company may consider additional upgrade or growth projects in
response to customer demand and appropriate contract terms.
Canadian Activity
Canadian activity, representing 29 percent of total revenue in
the first quarter of 2023, improved in the first quarter due to
supportive industry conditions and winter drilling conditions. We
expect activity to decrease in the second quarter as operations
enter seasonal spring break-up and then improve in the third
quarter of the year. The Canadian market remains constructive as
Canadian producers, familiar with capital and egress constrained
environments, balanced capital programs in the current commodity
price environment.
As of May 5, 2023, of our 114
marketed Canadian drilling rigs, approximately 38 percent are
engaged under term contracts of various durations. Approximately 43
percent of our contracted rigs have a remaining term of six months
or longer, although they may be subject to early termination.
United States Activity
United States activity,
representing 57 percent of total revenue in the first quarter of
2023, declined modestly in the first quarter of 2023 compared to
the fourth quarter of 2022 as a result of suspended drilling
programs in California. Producers
operating in California are
currently working through drilling permit challenges that have
impacted drilling programs over the short-term.
The remaining areas the Company is active in continue to remain
steady and are expected to remain stable throughout the second
quarter of 2023. Furthermore, the Company currently has limited
exposure to natural gas directed drilling programs with no active
rigs working in the Haynesville or Marcellus basins.
As of May 5, 2023, of our 86
marketed United States drilling
rigs, approximately 73 percent are engaged under term contracts of
various durations. Approximately 30 percent of our contracted rigs
have a remaining term of six months or longer, although they may be
subject to early termination.
International Activity
International activity, representing 14 percent of total revenue
in the first quarter of 2023, remained steady for the first quarter
of 2023. International activity is expected to improve in the
second quarter of 2023 when a third Company rig in Oman is scheduled to commence drilling,
joining the two rigs which are currently active in Oman. The Company expects the two rigs active
in Bahrain and the two rigs active
in Kuwait to remain steady.
In the second quarter of 2023, the Company expects seven of the
eight Company marketed rigs in the Middle
East will be active and operating on long-term contracts.
Operations in Australia are
expected to improve in the second quarter of 2023 and over the
course of the 2023 year. Operations in Argentina, with two Company rigs active, are
also expected remain steady in the second quarter of 2023.
As of May 5, 2023, of our 32
marketed international drilling rigs, approximately 53 percent,
were engaged under term contracts of various durations.
Approximately 76 percent of our contracted rigs have a remaining
term of six months or longer, although they may be subject to early
termination.
RISKS AND UNCERTAINTIES
The Company is subject to several risks and uncertainties. A
discussion of certain risks faced by the Company may be found under
the "Risk Factors" section of the Company's Annual Information Form
("AIF") and the "Risks and Uncertainties" section of the
Company's Management's Discussion & Analysis ("MD&A") for
the year ended December 31, 2022,
which are available under the Company's SEDAR profile at
www.sedar.com [sedar.com].
Other than as described within this document, the Company's risk
factors and management of those risks have not changed
substantially from as disclosed in the AIF. Additional risks and
uncertainties not presently known by the Company, or that the
Company does not currently anticipate or deem material, may also
impair the Company's future business operations or financial
condition. If any of the events described in the risk factors in
this document or the Company's AIF actually occur, overall
business, operating results and the financial condition of the
Company could be materially adversely affected.
CONFERENCE CALL
A conference call will be held to discuss the Company's first
quarter 2023 results at 10:00 a.m.
MDT (12:00 p.m. EDT) on
Monday, May 8, 2023. The conference
call number is 1-416-764-8659 (in Toronto) or 1-888-664-6392 (outside
Toronto). The conference call
reservation number is: 53874848. A taped recording will be
available until May 15, 2023 by
dialing 1-416-764-8677 (in Toronto) or 1-888-390-0541 (outside
Toronto) and entering the
reservation number 874848#. A live webcast may be accessed through
the Company's web site at www.ensignenergy.com/presentations/.
Ensign Energy Services Inc. is an international oilfield
services contractor and is listed on the Toronto Stock
Exchange.
Ensign Energy Services Inc.
Consolidated Statements
of Financial Position
As at
|
|
March 31
2023
|
|
December 31
2022
|
(Unaudited - in
thousands of Canadian dollars)
|
|
|
|
|
Assets
|
|
|
|
|
Current
Assets
|
|
|
|
|
Cash
|
|
$
44,850
|
|
$
49,880
|
Accounts
receivable
|
|
356,343
|
|
359,933
|
Inventories, prepaid,
investments and other
|
|
56,839
|
|
60,758
|
Income taxes
receivable
|
|
42
|
|
40
|
Total current
assets
|
|
458,074
|
|
470,611
|
|
|
|
|
|
Property and
equipment
|
|
2,486,337
|
|
2,516,923
|
Deferred income
taxes
|
|
$
200,013
|
|
$
196,370
|
Total assets
|
|
$
3,144,424
|
|
$ 3,183,904
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts payable and
accruals
|
|
$
266,659
|
|
$
268,243
|
Share-based
compensation
|
|
11,748
|
|
11,735
|
Income taxes
payable
|
|
4,815
|
|
4,423
|
Current portion of
lease obligations
|
|
6,013
|
|
11,324
|
Current portion of
long-term debt
|
|
846,954
|
|
882,686
|
Total current
liabilities
|
|
1,136,189
|
|
1,178,411
|
|
|
|
|
|
Share-based
compensation
|
|
7,040
|
|
13,635
|
Long-term
debt
|
|
558,535
|
|
556,889
|
Lease
obligations
|
|
5,449
|
|
5,948
|
Income tax
payable
|
|
5,389
|
|
5,394
|
Deferred income
taxes
|
|
140,010
|
|
134,857
|
Total
liabilities
|
|
$
1,852,612
|
|
$ 1,895,134
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
Shareholders'
capital
|
|
$
268,748
|
|
$
267,790
|
Contributed
surplus
|
|
22,521
|
|
23,398
|
Accumulated other
comprehensive income
|
|
274,773
|
|
276,053
|
Retained
earnings
|
|
725,770
|
|
721,529
|
Total shareholders'
equity
|
|
1,291,812
|
|
1,288,770
|
Total liabilities and
shareholders' equity
|
|
$
3,144,424
|
|
$ 3,183,904
|
Ensign Energy Services Inc.
Consolidated Statements of
Income
|
|
Three months
ended
|
|
|
March 31
2023
|
|
March 31
2022
|
(Unaudited - in
thousands of Canadian dollars, except per common share
data)
|
|
|
|
|
Revenue
|
|
$
484,052
|
|
$ 332,676
|
Expenses
|
|
|
|
|
Oilfield
services
|
|
342,199
|
|
251,821
|
Depreciation
|
|
77,855
|
|
69,980
|
General and
administrative
|
|
14,529
|
|
10,890
|
Share-based
compensation
|
|
1,725
|
|
10,399
|
Foreign exchange loss
(gain) and other
|
|
5,026
|
|
(1,345)
|
Total
expenses
|
|
441,334
|
|
341,745
|
Income (loss) before
interest expense, accretion of deferred financing charges and
other
(gains) and income taxes
|
|
42,718
|
|
(9,069)
|
|
|
|
|
|
Gain on asset
sale
|
|
(108)
|
|
(29,942)
|
Interest
expense
|
|
34,398
|
|
25,184
|
Accretion of deferred
financing charges
|
|
2,200
|
|
2,202
|
Income (loss) before
income taxes
|
|
6,228
|
|
(6,513)
|
Income tax
(recovery)
|
|
|
|
|
Current income tax
(recovery)
|
|
401
|
|
(1,670)
|
Deferred income tax
(recovery)
|
|
1,360
|
|
(11,532)
|
Total income tax
(recovery)
|
|
1,761
|
|
(13,202)
|
Net
income
|
|
4,467
|
|
6,689
|
Net income
attributable to:
|
|
|
|
|
Common
shareholders
|
|
4,241
|
|
6,587
|
Non-controlling
interests
|
|
226
|
|
102
|
|
|
4,467
|
|
6,689
|
Net income
attributable to common shareholders per common share
|
|
|
|
|
Basic
|
|
$
0.02
|
|
$
0.04
|
Diluted
|
|
$
0.02
|
|
$
0.04
|
Ensign Energy Services Inc.
Consolidated Statements of
Cash Flows
|
|
Three months
ended
|
|
|
March 31
2023
|
|
March 31
2022
|
(Unaudited - in
thousands of Canadian dollars)
|
|
|
|
|
Cash provided by
(used in)
|
|
|
|
|
Operating
activities
|
|
|
|
|
Net income
|
|
$
4,467
|
|
$
6,689
|
Items not affecting
cash
|
|
|
|
|
Depreciation
|
|
77,855
|
|
69,980
|
Gain on asset
sale
|
|
(108)
|
|
(29,942)
|
Share-based
compensation, net of cash paid
|
|
(5,963)
|
|
10,399
|
Unrealized foreign
exchange and other loss
|
|
4,082
|
|
3,761
|
Accretion of deferred
financing charges
|
|
2,200
|
|
2,202
|
Interest
expense
|
|
34,398
|
|
25,184
|
Deferred income tax
expense (recovery)
|
|
1,360
|
|
(11,532)
|
Funds flow from
operations
|
|
118,291
|
|
76,741
|
Net change in non-cash
working capital
|
|
(13,717)
|
|
(22,185)
|
Cash provided by
operating activities
|
|
104,574
|
|
54,556
|
Investing
activities
|
|
|
|
|
Purchase of property
and equipment
|
|
(49,879)
|
|
(31,951)
|
Proceeds from disposals
of property and equipment
|
|
155
|
|
42,747
|
Net change in non-cash
working capital
|
|
7,538
|
|
5,697
|
Cash (used in)
provided by investing activities
|
|
(42,186)
|
|
16,493
|
Financing
activities
|
|
|
|
|
Proceeds from long-term
debt
|
|
8,262
|
|
1,900
|
Repayments of long-term
debt
|
|
(43,905)
|
|
(41,934)
|
Lease obligations
principal repayments
|
|
(8,944)
|
|
(1,898)
|
Purchase of common
shares held in trust
|
|
(535)
|
|
(375)
|
Issuance of common
share under the share option plan
|
|
—
|
|
36
|
Interest
paid
|
|
(22,769)
|
|
(12,453)
|
Cash used in
financing activities
|
|
(67,891)
|
|
(54,724)
|
Net (decrease)
increase in cash
|
|
(5,503)
|
|
16,325
|
Effects of foreign
exchange on cash
|
|
473
|
|
76
|
|
|
|
|
|
Cash
|
|
|
|
|
Beginning of
period
|
|
49,880
|
|
13,305
|
End of
period
|
|
$
44,850
|
|
$
29,706
|
Ensign Energy Services Inc.
Non-GAAP Measures
Adjusted EBITDA, Adjusted EBITDA per common share and
Consolidated EBITDA. These measures do not have any standardized
meaning prescribed by IFRS and accordingly, may not be comparable
to similar measures used by other companies.
Adjusted EBITDA is used by management and investors to analyze
the Company's profitability based on the Company's principal
business activities prior to how these activities are financed, how
assets are depreciated, amortized and how the results are taxed in
various jurisdictions. Additionally, in order to focus on the core
business alone, amounts are removed related to foreign exchange,
share-based compensation expense, the sale of assets and fair value
adjustments on financial assets and liabilities, as the Company
does not deem these to relate to its core drilling and well
services business. Adjusted EBITDA is not intended to represent net
income as calculated in accordance with IFRS.
ADJUSTED EBITDA
|
Three months ended
March 31
|
($
thousands)
|
2023
|
|
|
2022
|
Income (loss) before
income taxes
|
$
6,228
|
|
|
$
(6,513)
|
Add-back/(deduct):
|
|
|
|
|
Interest
expense
|
34,398
|
|
|
25,184
|
Accretion of
deferred financing charges
|
2,200
|
|
|
$
2,202
|
Depreciation
|
77,855
|
|
|
69,980
|
Gain on asset
sale
|
(108)
|
|
|
(29,942)
|
Share-based compensation
|
1,725
|
|
|
10,399
|
Foreign
exchange loss (gain) and other
|
5,026
|
|
|
(1,345)
|
Adjusted
EBITDA
|
$
127,324
|
|
|
$
69,965
|
Working Capital
Working capital is defined as current assets less current
liabilities as reported on the consolidated statements of financial
position.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS
Certain statements herein constitute forward-looking statements
or information (collectively referred to herein as "forward-looking
statements") within the meaning of applicable securities
legislation. Forward-looking statements generally can be identified
by the words "believe", "anticipate", "expect", "plan", "estimate",
"target", "continue", "could", "intend", "may", "potential",
"predict", "should", "will", "objective", "project", "forecast",
"goal", "guidance", "outlook", "effort", "seeks", "schedule" or
other expressions of a similar nature suggesting future outcome or
statements regarding an outlook.
Disclosure related to expected future commodity pricing or
trends, revenue rates, equipment utilization or operating activity
levels, operating costs, capital expenditures and other prospective
guidance provided herein, including, but not limited to,
information provided in the "Funds Flow from Operations and Working
Capital" section regarding the Company's expectation that funds
generated by operations combined with current and future credit
facilities will support current operating and capital requirements,
information provided in the "New Builds and Major Retrofits"
section, information provided in the "Financial Instruments"
section regarding Venezuela and
information provided in the "Outlook" section regarding the general
outlook for the remainder of 2023, are examples of forward-looking
statements.
These statements are not representations or guarantees of future
performance and are subject to certain risks and unforeseen
results. The reader should not place undue reliance on
forward-looking statements as there can be no assurance that the
plans, initiatives, projections, anticipations or expectations upon
which they are based will occur. The forward-looking statements are
based on current assumptions, expectations, estimates and
projections about the Company and the industries and environments
in which the Company operates, which speak only as of the date such
statements were made or as of the date of the report or document in
which they are contained. These assumptions include, among other
things: the fluctuation in commodity prices may pressure customers
to modify their capital programs; the status of current
negotiations with the Company's customers and vendors; customer
focus on safety performance; existing term contracts that may not
be renewed or are terminated prematurely; the Company's ability to
provide services on a timely basis and successfully bid on new
contracts; successful integration of acquisitions; the general
stability of the economic and political environments in the
jurisdictions where we operate, pandemics, and impacts of
geopolitical events such as the hostilities between Ukraine and the Russian Federation and the global community
responses thereto.
The forward-looking statements are subject to known and unknown
risks, uncertainties and other factors that could cause the actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risk factors
include, among others: general economic and business conditions
which will, among other things, impact demand for and market prices
of the Company's services and the ability of the Company's
customers to pay accounts receivable balances; volatility of and
assumptions regarding commodity prices; foreign exchange exposure;
fluctuations in currency and interest rates; inflation; economic
conditions in the countries and regions in which the Company
conducts business; political uncertainty and civil unrest; the
Company's ability to implement its business strategy; impact of
competition and industry conditions; risks associated with
long-term contracts; force majeure events; pandemics;
determinations by Organization of Petroleum Exporting Countries
("OPEC") and other countries (OPEC and various other
countries are referred to as "OPEC+") regarding production
levels; loss of key customers; litigation risks, including the
Company's defence of lawsuits; risks associated with contingent
liabilities and potential unknown liabilities; availability and
cost of labour and other equipment, supplies and services; business
interruption and casualty losses; the Company's ability to complete
its capital programs; operating hazards and other difficulties
inherent in the operation of the Company's oilfield services
equipment; availability and cost of financing and insurance; access
to credit facilities and debt capital markets; availability of
sufficient cash flow to service and repay our debts; impairment of
capital assets; the Company's ability to amend or comply with
covenants under the credit facility and other debt instruments;
actions by governmental authorities; impact of and changes to laws
and regulations impacting the Company and the Company's customers,
and the expenditures required to comply with them (including safety
and environmental laws and regulations and the impact of climate
change initiatives on capital and operating costs); safety
performance; environmental contamination; shifting interest to
alternative energy sources; environmental activism; the adequacy of
the Company's provision for taxes; tax challenges; the impact of,
and the Company's response to COVID-19 or other pandemics;
workforce and reliance on key management; technology; cybersecurity
risks; seasonality and weather; risks associated with acquisitions
and ability to successfully integrate acquisitions; risks
associated with internal controls over financial reporting; the
impact of the ongoing hostilities between Ukraine and the Russian Federation and the global community
responses thereto and other risks and uncertainties affecting the
Company's business, revenues and expenses.
In addition, the Company's operations and levels of demand for
its services have been, and at times in the future may be, affected
by political risks and developments, such as expropriation,
nationalization, or regime change, and by national, regional and
local laws and regulations such as changes in taxes, royalties and
other amounts payable to governments or governmental agencies,
environmental protection regulations, the global COVID-19 or other
pandemics, the potential reinstatement or removal of COVID-19
mitigation strategies and the impact thereof upon the Company, its
customers and its business, new pandemics, ongoing hostilities
between Ukraine and the
Russian Federation, related
potential future impact on the supply of oil and natural gas to
Europe by Russia and the impact of global community
responses to the ongoing conflict, and governmental energy
policies, laws, rules or regulations that limit, restrict or impede
exploration, development, production, transportation or consumption
of hydrocarbons and/or incentivize development, production,
transportation or consumption of alternative fuel or energy
sources.
Should one or more of these risks or uncertainties materialize,
or should any of the Company's assumptions prove incorrect, actual
results from operations may vary in material respects from those
expressed or implied by the forward-looking statements. The impact
of any one factor on a particular forward-looking statement is not
determinable with certainty as such factors are interdependent upon
other factors, and the Company's course of action would depend upon
its assessment of the future considering all information then
available. Unpredictable or unknown factors not discussed herein
could also have material adverse effects on forward-looking
statements.
For additional information refer to the "Risks and
Uncertainties" section herein and the "Risk Factors" section of the
Company's Annual Information Form for the year ended December 31, 2022 available on SEDAR at
www.sedar.com. Readers are cautioned that the lists of important
factors contained herein are not exhaustive. Unpredictable or
unknown factors not discussed herein could also have material
adverse effects on forward-looking statements.
The forward-looking statements contained herein are expressly
qualified in their entirety by this cautionary statement. The
forward-looking statements contained herein are made as of the date
hereof and the Company undertakes no obligation to update publicly
or revise any forward-looking statements or information, whether as
a result of new information, future events or otherwise, except as
required by law.
SOURCE Ensign Energy Services Inc.