CALGARY, AB, Aug. 10, 2020 /CNW/ -
SECOND QUARTER HIGHLIGHTS
- Revenue for the second quarter of 2020 was $194.8 million, a 48 percent decrease from the
second quarter of 2019 revenue of $377.5
million.
- Revenue by geographic area:
-
- Canada - $17.0 million, nine percent of total;
- United States - $128.6 million, 66 percent of total; and
- International - $49.2 million, 25
percent of total.
- Canadian drilling recorded 377 operating days in the second
quarter of 2020, a 71 percent decrease from 1,317 operating days in
the second quarter of 2019. Canadian well servicing recorded 3,595
operating hours in the second quarter of 2020, a 66 percent
decrease from 10,700 operating hours in the second quarter of
2019.
- United States drilling
recorded 2,214 operating days in the second quarter of 2020, a 66
percent decrease from 6,451 operating days in the second quarter of
2019. United States well servicing
recorded 19,363 operating hours in the second quarter of 2020, a 33
percent decrease from 28,960 operating hours in the second quarter
of 2019.
- International drilling recorded 704 operating days in the
second quarter of 2020, a 41 percent decrease from 1,195 operating
days recorded in second quarter of 2019.
- Adjusted EBITDA for the second quarter of 2020 was $58.1 million, a 43 percent decrease from
Adjusted EBITDA of $101.8 million for
the second quarter of 2019.
- Funds flow from operations for the second quarter of 2020
decreased 66 percent to $26.3 million
from $76.8 million in the second
quarter of the prior year.
- During the second quarter of 2020, the Company received a
$3.7 million Canada Emergency Wage Subsidy ("CEWS")
from the Government of Canada and
a $1.4 million wage subsidy from the
Government of Australia. The wage
subsidies received partially offset the decrease in Adjusted EBITDA
and net loss attributable to common shareholders.
- During the second quarter of 2020, the Company recognized US
$3.3 million of idle but contracted
rig revenue and US $13.2 million of
contract cancellation fees in the United
States. As the Company moves through the balance of 2020 and
into 2021 the amount of contract cancellation fees and idle but
contracted revenue will reduce quarter-over-quarter.
- Net capital proceeds for the second quarter of 2020 were
$3.7 million consisting $13.3 million in maintenance capital, offset by
proceeds of $17.0 million from
disposals. Planned capital expenditures for the 2020 year remain at
$50.0 million, of which approximately
$40.0 million will be maintenance
capital.
- General and administrative expense decreased 33 percent
year-over-year and nine percent quarter-over-quarter.
- Over the second quarter of 2020, US $57.0 million face value of Senior Notes were
repurchased by the Company in the open market for cancellation,
recognizing a gain of $52.0 million.
Subsequent to June 30, 2020, the
Company repurchased US $5.0 million
face value of Senior Notes, in the open market, for cancellation. A
gain on repurchase of $4.0 million
(US $2.9 million) will be recognized
in the third quarter of 2020.
- Total debt for the second quarter of 2020 decreased
year-over-year by $107.3 million to
$1,555.3 million as of June 30, 2020 from $1,662.6 million as at June 30, 2019. The decrease in aggregate debt was
partially offset by $30.1 million due
to foreign currency exchange fluctuations.
- The Company's available liquidity consisting of cash and
available borrowings under its revolving credit facility was
$225.7 million at June 30, 2020.
OVERVIEW
Revenue for the second quarter of 2020 was $194.8 million, a decrease of 48 percent from
revenue for the second quarter of 2019 of $377.5 million. Revenue for the six months ended
June 30, 2020 was $578.6 million, a decrease of 30 percent from
revenue for the six months ended June 30,
2019 of $822.5 million.
Adjusted EBITDA totaled $58.1
million ($0.36 per common
share) in the second quarter of 2020, 43 percent lower than
Adjusted EBITDA of $101.8 million
($0.64 per common share) in the
second quarter of 2019. For the first six months of 2020, Adjusted
EBITDA totaled $149.3 million
($0.92 per common share), 32 percent
lower than Adjusted EBITDA of $219.1
million ($1.39 per common
share) in the first six months of 2019.
Net loss attributable to common shareholders for the second
quarter of 2020 was $17.1 million
($0.10 per common share) compared to
a net loss attributable to common shareholders of $30.2 million ($0.20 per common share) for the second quarter of
2019. Net loss attributable to common shareholders for the six
months ended June 30, 2020 was
$46.3 million ($0.28 per common share), compared to net loss
attributable to common shareholders of $53.5
million ($0.34 per common
share) for the six months ended June 30,
2019.
During the second quarter of 2020, the Company received a
$3.7 million Canada Emergency Wage Subsidy
("CEWS") from the Government of Canada and a $1.4
million wage subsidy from the Government of Australia. For three and six month ending
June 30, 2020, the wage subsidies
received partially offset the decrease in Adjusted EBITDA and net
loss attributable to common shareholders.
Funds flow from operations decreased 66 percent to $26.3 million ($0.16 per common share) in the second quarter of
2020 compared to $76.8 million
($0.49 per common share) in the
second quarter of the prior year. Funds flow from operations
decreased 44 percent to $110.8
million ($0.68 per common
share) in the first six months of 2020 compared to $197.2 million ($1.25 per common share) in the first six months
of the prior year.
On March 11, 2020, the World
Health Organization ("WHO") declared the novel coronavirus
("COVID-19") a global pandemic due to the sustained risk of
worldwide spread of the virus. Governments and health authorities
around the world implemented a wide variety of measures to combat
the spread of the virus, including travel restrictions, business
closures, social distancing, public gathering restrictions,
stay-at-home orders and event cancellations. The impact of these
measures led to a significant slow-down in global economic activity
that subsequently reduced the demand for crude oil and natural gas.
The significant reduction in demand contributed to a steep and
rapid decline in global crude oil and natural gas prices.
Furthermore, the demand decline further challenged commodity prices
already reeling from a market share and an oil price war between
certain crude oil producing nations that led to further supply in
the market.
Over the course of the second quarter, stay-at-home related
restrictions started to ease globally, increasing the demand for
crude oil and natural gas. Furthermore, OPEC+ nations curtailed
crude oil supply in addition to producer led production
curtailments over the second quarter. Supply and production
curtailments in combination with demand recovery have materially
improved crude oil commodity prices. While commodity prices are
down year-over-year and there continues to be a strong supply of
crude oil in the market, industry fundamentals improved somewhat
over the course of the quarter.
Early in March 2020, in response
to the COVID-19 pandemic, the Company implemented rigorous measures
across its global operations to enhance the safety of its
operations, the health of its employees and the continuity of its
business. These measures include, but are not limited to, remote
work where possible, fitness for work screening for employees,
contractors and any third parties on site, restricted travel
policies and aggressive hygiene practices and disinfecting
protocols in accordance with WHO and local jurisdiction guidelines.
Across the Company's global operations, these proactive measures
have facilitated the safe continuity and reliability of its
operations in the field and an orderly transition to remote work
for our office employees. Furthermore, the Company has implemented
regional Emergency Response Groups to respond to any incidents.
These measures continue to be in place as the Company monitors
local government recommendations and public health guidelines,
prioritizing the health and safety of its workforce.
The Company's operating days were lower in the second quarter of
2020 when compared to the same period in 2019 as customers quickly
responded to the steep declines in commodity prices and an
uncertain industry outlook by curtailing capital expenditures and
drilling programs. The strengthening year-over-year of the United States dollar against the Canadian
dollar partially offset the decrease in the financial results on
translation to Canadian dollars. The average United States dollar exchange rate was
$1.36 for the first half year of 2020
(2019 - $1.33) versus the Canadian
dollar, an increase of two percent, compared to the first half year
of 2019.
Working capital at June 30, 2020 was a surplus of
$131.8 million, compared to a surplus
of $127.0 million at December 31, 2019. The Company's available
liquidity consisting of cash and available borrowings under its
$900.0 million revolving credit
facility (the "Credit Facility") was $225.7 million at June 30, 2020.
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
June 30
|
|
Six months ended June
30
|
2020
|
2019
|
% change
|
2020
|
2019
|
% change
|
Revenue
1
|
$
|
194,759
|
$
|
377,496
|
(48)
|
$
|
578,620
|
$
|
822,516
|
(30)
|
Adjusted EBITDA
1,2
|
|
58,060
|
|
101,827
|
(43)
|
|
149,307
|
|
219,120
|
(32)
|
Adjusted EBITDA per
common share 1,2
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$0.36
|
|
$0.64
|
(44)
|
|
$0.92
|
|
$1.39
|
(34)
|
Diluted
|
|
$0.36
|
|
$0.64
|
(44)
|
|
$0.92
|
|
$1.39
|
(34)
|
Net loss attributable
to common shareholders
|
|
(17,077)
|
|
(31,173)
|
45
|
|
(46,327)
|
|
(53,521)
|
13
|
Net loss per common
share
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$(0.10)
|
|
$(0.20)
|
50
|
|
$(0.28)
|
|
$(0.34)
|
18
|
Diluted
|
|
$(0.10)
|
|
$(0.20)
|
50
|
|
$(0.28)
|
|
$(0.34)
|
18
|
Cash provided by
operating activities 1
|
|
127,432
|
|
81,620
|
56
|
|
190,164
|
|
167,598
|
13
|
Funds flow from
operations 1
|
|
26,338
|
|
76,779
|
(66)
|
|
110,833
|
|
197,198
|
(44)
|
Funds flow from
operations per common share 1
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$0.16
|
|
$0.49
|
(67)
|
|
$0.68
|
|
$1.25
|
(46)
|
Diluted
|
|
$0.16
|
|
$0.49
|
(67)
|
|
$0.68
|
|
$1.25
|
(46)
|
Total long term
debt
|
|
1,555,274
|
|
1,662,628
|
(6)
|
|
1,555,274
|
|
1,662,628
|
(6)
|
Weighted average
common shares - basic (000s)
|
|
162,729
|
|
158,229
|
3
|
|
162,728
|
|
157,656
|
3
|
Weighted average
common shares - diluted (000s)
|
|
162,791
|
|
158,290
|
3
|
|
162,857
|
|
157,716
|
3
|
Drilling
|
|
2020
|
|
2019
|
% change
|
|
2020
|
|
2019
|
% change
|
Number of marketed
rigs 3
|
|
|
|
|
|
|
|
|
|
|
Canada
4
|
|
101
|
|
118
|
(14)
|
|
101
|
|
118
|
(14)
|
United
States
|
|
122
|
|
134
|
(9)
|
|
122
|
|
134
|
(9)
|
International
5
|
|
43
|
|
42
|
2
|
|
43
|
|
42
|
2
|
Total
|
|
266
|
|
294
|
(10)
|
|
266
|
|
294
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
Operating days
6
|
|
|
|
|
|
|
|
|
|
|
Canada
4
|
|
377
|
|
1,317
|
(71)
|
|
3,479
|
|
4,378
|
(21)
|
United
States
|
|
2,214
|
|
6,451
|
(66)
|
|
7,355
|
|
13,108
|
(44)
|
International
5
|
|
704
|
|
1,195
|
(41)
|
|
2,142
|
|
2,524
|
(15)
|
Total
|
|
3,295
|
|
8,963
|
(63)
|
|
12,976
|
|
20,010
|
(35)
|
Well
Servicing
|
|
2020
|
|
2019
|
% change
|
|
2020
|
|
2019
|
% change
|
Number of
rigs
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
52
|
|
55
|
(5)
|
|
52
|
|
55
|
(5)
|
United
States
|
|
47
|
|
47
|
—
|
|
47
|
|
47
|
—
|
Total
|
|
99
|
|
102
|
(3)
|
|
99
|
|
102
|
(3)
|
Operating
hours
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
3,595
|
|
10,700
|
(66)
|
|
15,827
|
|
23,498
|
(33)
|
United
States
|
|
19,363
|
|
28,960
|
(33)
|
|
50,570
|
|
57,325
|
(12)
|
Total
|
|
22,958
|
|
39,660
|
(42)
|
|
66,397
|
|
80,823
|
(18)
|
|
|
1.
|
Comparative
revenue, Adjusted EBITDA, Adjusted EBITDA per common share, cash
provided by operating activities, funds flow from operations and
funds flow from operations per common share have been revised to
conform with current year's presentation.
|
2.
|
Refer to Adjusted
EBITDA calculation in Non-GAAP Measures
|
3.
|
Total owned rigs:
Canada - 118, United States - 138, International - 48 (2019 Total
owned rigs: Canada - 135, United States - 152, International -
47)
|
4.
|
Excludes coring
rigs.
|
5.
|
Includes workover
rigs and excludes former joint venture drilling
rigs.
|
6.
|
Defined as
contract drilling days, between spud to rig release.
|
FINANCIAL POSITION AND CAPITAL EXPENDITURES
HIGHLIGHTS
As at ($
thousands)
|
June 30
2020
|
June 30
2019
|
December
31 2019
|
Working
capital1
|
131,761
|
182,813
|
126,987
|
Cash
|
102,655
|
39,705
|
28,408
|
Long-term
debt
|
1,555,274
|
1,662,628
|
1,581,529
|
Total long-term
financial liabilities
|
1,564,652
|
1,681,252
|
1,591,047
|
Total
assets
|
3,387,104
|
3,717,247
|
3,470,601
|
Long-term debt to
long-term debt plus equity ratio
|
0.52
|
0.51
|
0.52
|
|
|
|
|
1 See Non-GAAP Measures
section.
|
|
|
|
|
Three months ended
June 30
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
2020
|
2019
|
% change
|
Capital
expenditures
|
|
|
|
|
|
|
Upgrade/growth
|
48
|
25,105
|
nm
|
10,013
|
53,650
|
(81)
|
Maintenance
|
13,191
|
6,807
|
94
|
29,658
|
19,628
|
51
|
Proceeds
from disposals or property and equipment
|
(16,985)
|
(27,898)
|
(39)
|
(21,150)
|
(29,620)
|
(29)
|
Net capital
expenditures
|
(3,746)
|
4,014
|
nm
|
18,521
|
43,658
|
(58)
|
|
|
|
|
|
|
|
nm - calculation
not meaningful
|
|
|
|
|
|
|
REVENUE AND OILFIELD SERVICES EXPENSE
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Revenue
1
|
|
|
|
|
|
|
|
Canada
|
17,012
|
50,598
|
(66)
|
|
114,149
|
157,020
|
(27)
|
United
States
|
128,591
|
261,186
|
(51)
|
|
343,138
|
534,544
|
(36)
|
International
|
49,156
|
65,712
|
(25)
|
|
121,333
|
130,952
|
(7)
|
Total
revenue
|
194,759
|
377,496
|
(48)
|
|
578,620
|
822,516
|
(30)
|
Oilfield services
expense 1
|
129,955
|
266,253
|
(51)
|
|
412,777
|
581,940
|
(29)
|
|
|
|
|
|
|
|
|
1. Comparative revenue and
oilfield services expense have been revised to conform with current
year's presentation.
|
Revenue for the three months ended June 30, 2020 totaled
$194.8 million, a decrease of 48
percent from the second quarter of 2019 of $377.5 million. Revenue for the six months ended
June 30, 2020 totaled $578.6
million, a 30 percent decrease from the six months ended
June 30, 2019.
The decrease in total revenue during the first half of 2020 was
primarily due to the oil price and market share war between certain
crude oil producing nations followed by the significant adverse
impact of the COVID-19 pandemic on the oil and natural gas
industry. The fallout from the pandemic has led to a drop in demand
for crude oil and natural gas, further challenging an already
over-supplied commodity market. The steep declines in demand and
continued oversupply have resulted in a significant activity
slowdown for oilfield services, particularly in the United States and Canadian operating
regions.
The financial results from the Company's United States and international operations
were positively impacted on currency translation, as the United States dollar strengthened relative
to the Canadian dollar in the first six months of 2020.
CANADIAN OILFIELD SERVICES
Revenue decreased 66 percent to $17.0
million for the three months ended June 30, 2020 from
$50.6 million for the three months
ended June 30, 2019. The Company recorded revenue of
$114.1 million in Canada for the six months ended June 30,
2020, a decrease of 27 percent from $157.0
million recorded for the six months ended June 30,
2019. Canadian revenues accounted for nine percent of the Company's
total revenue in the second quarter of 2020 (2019 - 14 percent) and
20 percent (2019 - 19 percent) for the six months ended
June 30, 2020.
The Company's Canadian drilling operations recorded 377
operating days in the second quarter of 2020, compared to 1,317
operating days for the second quarter of 2019, a decrease of 71
percent. For the six months ended June 30, 2020, the Company
recorded 3,479 operating days compared to 4,378 drilling days for
the six months ended June 30, 2019, a decrease of 21 percent.
Canadian well servicing hours decreased by 66 percent to 3,595
operating hours in the second quarter of 2020 compared to 10,700
operating hours in the corresponding period of 2019. For the six
months ended June 30, 2020, well servicing hours decreased by
33 percent to 15,827 operating hours compared with 23,498 operating
hours for the six months ended June 30, 2019.
The financial results for the Company's Canadian operations
decreased during the first half of 2020 primarily due to the oil
price war and the impact of the COVID-19 pandemic on the global oil
and natural gas industry as described above.
UNITED STATES OILFIELD
SERVICES
The Company's United States
operations recorded revenue of $128.6 million in the second
quarter of 2020, a decrease of 51 percent from the $261.2 million recorded in the corresponding
period of the prior year. During the six months ended June 30,
2020, revenue of $343.1 million was
recorded, a decrease of 36 percent from the $534.5 million recorded in the corresponding
period of the prior year. The Company's United States operations accounted for 66
percent of the Company's revenue in the second quarter of 2020
(2019 - 69 percent) and 59 percent of the Company's revenue in the
first six months of 2020 (2019 - 65 percent). In the United States, the Company recognized US
$3.3 million of idle but contracted
rig revenue and US $13.2 million of
contract cancellation fees in the second quarter of 2020 (2019 - $
nil). The Company recognized US $4.1
million of idle but contracted rig revenue and US
$13.2 million of contract
cancellation fees in the first half of 2020 (2019 - $ nil).
Drilling rig operating days decreased to 2,214 operating days in
the second quarter of 2020 from 6,451 operating days in the second
quarter of 2019, and to 7,355 operating days in first six months of
2020 from 13,108 operating days in the first six months of 2019.
Well servicing activity, expressed in operating hours, decreased by
33 percent in the second quarter of 2020 to 19,363 operating hours
from 28,960 operating hours in the second quarter of 2019. For the
six months ended June 30, 2020 well servicing activity
decreased 12 percent to 50,570 operating hours from 57,325
operating hours in the first six months of 2019.
Overall operating results for the Company's United States operations were also negatively
impacted by the oil price war and the significant impact of the
global COVID-19 pandemic, resulting in a decrease in global oil
demand and oversupply of oil and natural gas.
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of
$49.2 million in the second quarter
of 2020, a 25 percent decrease from the $65.7 million recorded in the corresponding
period of the prior year. International revenues for the six months
ended June 30, 2020, decreased seven percent to $121.3 million from $131.0
million recorded in the six months ended June 30, 2019.
The Company's international operations contributed 25 percent of
the total revenue in the second quarter of 2020 (2019 - 17 percent)
and 21 percent of the Company's revenue in the first six months of
2020 (2019 - 16 percent). During the second quarter of 2020 in
International, the Company recognized US $7.1 million of standby without crew revenue
(2019 -$ nil).
International operating days for the three months ended
June 30, 2020, totaled 704 operating days compared to 1,195
operating days in the same period of 2019, a decrease of 41
percent. For the six months ended June 30, 2020, international
operating days totaled 2,142 operating days compared to 2,524
operating days for the six months ended June 30, 2019, a
decrease of 15 percent.
Overall international operating results were also negatively
impacted by the oil price war and the significant impact of the
global COVID-19 pandemic, resulting in a decrease in global oil
demand and oversupply of oil and natural gas.
JOINT VENTURE
Amounts below are presented at 100 percent of the value included
in the statement of operations and comprehensive (loss) income for
Trinidad Drilling International ("TDI"). As of June 30, 2020, the Company owned 60 percent of
the shares of TDI and each of the parties has equal voting rights.
The Company considers the investment to be a financial asset and
fair values the investment through profit or loss recognizing
changes in fair value of the investment in the consolidated
statement of loss (income) as a loss (gain) from investments in
joint venture.
Subsequent to the quarter, the Company completed the acquisition
of Halliburton's 40 percent ownership interest of the TDI joint
venture. The 40 percent ownership interest, inclusive of working
capital in TDI joint venture, was purchased for US $33.4 million with cash on hand. With this
acquisition, the Company now owns 100 percent of the TDI joint
venture.
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Revenue
|
18,801
|
13,179
|
43
|
|
35,656
|
23,383
|
52
|
Net income
|
(211)
|
3,868
|
nm
|
|
(2,975)
|
1,161
|
nm
|
Drilling operating
days
|
266
|
82
|
nm
|
|
487
|
205
|
nm
|
|
|
|
|
|
|
|
|
nm - calculation
not meaningful
|
|
|
|
|
For the three months ended June 30,
2020, TDI recorded revenue of $18.8
million (2019 - $13.2
million). For the three months ended June 30, 2020, TDI operating days totaled
266 (2019 - 82). For the six months ended June 30, 2020, TDI recorded revenue of
$35.7 million (2019 - $23.4 million). For the first half year of 2020,
TDI operating days totaled 487 (2019 - 205). The increase in
revenue and operating days is the result of operations having
commenced in Kuwait in the latter
half of 2019 under long term contracts.
DEPRECIATION
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Depreciation
|
92,165
|
89,030
|
4
|
|
181,950
|
177,197
|
3
|
Depreciation expense totaled $92.2
million for the second quarter of 2020 compared with
$89.0 million for the second quarter
of 2019, an increase of four percent. Depreciation expense for the
six months ended June 30, 2020
increased by three percent, to $182.0
million compared with $177.2
million in six months of 2019. The increase to depreciation
expense was the result of depreciating newly acquired property and
equipment and a higher foreign exchange rate on United States dollar denominated property and
equipment values.
GENERAL AND ADMINISTRATIVE
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
|
2019
|
|
% change
|
|
2020
|
|
2019
|
|
% change
|
General and
administrative
|
10,741
|
|
15,978
|
|
(33)
|
|
22,545
|
|
30,015
|
|
(25)
|
% of
revenue
|
5.5
|
|
4.2
|
|
|
|
3.9
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses decreased 33 percent to
$10.7 million (5.5 percent of
revenue) for the second quarter of 2020 compared to $16.0 million (4.2 percent of revenue) for the
second quarter of 2019. For the six months ended June 30,
2020, general and administrative expense totaled $22.5 million (3.9 percent of revenue) compared
to $30.0 million (3.6 percent of
revenue) for the six months ended June 30,
2019. General and administrative expenses decreased as a
result of cost saving initiatives, the wage subsidy received from
the Government of Canada and
organizational restructuring. The decrease was offset by
$0.5 million in accounts receivable
write-offs recorded in the second quarter of 2020 (2019 -$
nil).
In light of the current operating environment, the Company took
further steps to reduce overhead costs by reducing the salaries of
employees. The Company's named executive officers salaries were
reduced by 40 percent for the Chairman, 20 percent for the
President and Chief Operating Officer and 12.5 percent for the
other named executive officers, all effective April 1, 2020.
In addition, the annual base cash and equity retainers for
independent members of the Board of Directors have been reduced,
also effective April 1, 2020, by 20 and 40 percent
respectively. Such reductions reflect the Company's belief in the
importance of continued cost control in light of the current
oilfield services industry outlook. The Company has and will
continue to consider additional means of reducing overhead and
operating costs.
RESTRUCTURING
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Restructuring
|
6,509
|
915
|
nm
|
|
7,386
|
9,397
|
(21)
|
|
|
|
|
|
|
|
nm - calculation
not meaningful
|
|
|
|
|
|
Restructuring expense totaled $6.5
million for the second quarter of 2020 (2019 - $0.9 million). For the six months ended
June 30, 2020, restructuring costs
was $7.4 million (2019 - $9.4 million). Restructuring expense consists of
costs relating to the organizational restructuring of the Company
due to the significant decline in activity. Additional costs are
expected to be incurred in subsequent quarters as the Company
continues to adjust to the current operating environment.
FOREIGN EXCHANGE AND OTHER (GAIN) LOSS
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Foreign exchange and
other (gain) loss
|
(4,426)
|
(2,627)
|
68
|
|
4,660
|
7,733
|
(40)
|
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.
GAIN ON REPURCHASE OF UNSECURED SENIOR NOTES
|
Three months ended
June 30
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Gain on repurchase of
unsecured Senior Notes
|
(52,023)
|
(650)
|
nm
|
|
(63,517)
|
(650)
|
nm
|
|
nm - calculation
not meaningful
|
For the three months ended June 30,
2020, the Company repurchased US $57.0 million (2019 - US $18.5 million) of face value Senior Notes, in the
open market, for cancellation and recorded a gain on repurchase of
$52.0 million (US $37.1 million) (2019 - $0.7 million).
For six months ended June 30,
2020, the Company repurchased US $74.8 million (2019 - US $18.5 million) of face value Senior Notes, in the
open market, for cancellation and recorded a gain on repurchase of
$63.5 million (US $45.3 million) (2019 - $0.7 million).
Subsequent to June 30, 2020, the
Company repurchased US $5.0 million
face value of Senior Notes, in the open market, for cancellation. A
gain on repurchase of $4.0 million
(US $2.9 million) will be recognized
in the third quarter of 2020.
LOSS (GAIN) ON ASSET SALE
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Loss (gain) on asset
sale
|
3,437
|
(9,824)
|
nm
|
|
3,437
|
(9,824)
|
nm
|
|
|
|
|
|
|
|
|
nm - calculation
not meaningful
|
During the second quarter of 2020, the Company finalized the
sale of the land and building that was classified on its balance
sheet as an asset held for sale. The net proceeds received were
$15.4 million, resulting in a loss of
$3.4 million (2019 - gain of
$9.8 million) before taxes.
FINANCING CHARGES
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Interest
expense
|
26,976
|
33,712
|
(20)
|
|
58,846
|
67,820
|
(13)
|
Accretion of deferred
financing charges
|
2,971
|
6,297
|
(53)
|
|
5,943
|
8,535
|
(30)
|
Financing
charges
|
29,947
|
40,009
|
(25)
|
|
64,789
|
76,355
|
(15)
|
Financing charges were incurred on the Company's Credit
Facility, the United States dollar
denominated unsecured Senior Notes ("Senior Notes"),
$37.0 million of subordinate
convertible debentures (the "Convertible Debentures") and
capital lease obligations. Included in interest expense is the
amortization of deferred financing costs associated with
refinancing the Company's debt, which totaled $3.0 million and $5.9
million respectively for the three and six months ended
June 30, 2020 (2019 - $6.3 million and $8.5
million respectively). Included within interest expense are
$1.2 million and $2.1 million respectively for the three and six
months ended June 30, 2020 (2019 -
$0.3 million and $0.3 million respectively) of accrued interest
relating to the Senior Notes, paid in cash as part of the
repurchase of the Senior Notes.
Financing charges decreased by $10.2
million for the second quarter of 2020 compared to the
second quarter of 2019 and decreased by $11.6 million for the first six months of 2020
compared to the same period of 2019. The decrease is the result of
a decrease in overall borrowing level. Offsetting the decrease is
the negative translational impact of the
United States dollar denominated debt.
The Company's blended interest rate on its outstanding debt for
the 2020 year will be approximately seven percent. The current
capital structure consisting of the Credit Facility and the Senior
Notes allows the Company to utilize funds flow generated to reduce
debt in the near term with greater flexibility than a more
non-callable weighted capital structure.
INCOME TAXES (RECOVERY)
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Current tax
(recovery)
|
(11)
|
460
|
nm
|
|
449
|
901
|
(50)
|
Deferred tax
(recovery)
|
(7,431)
|
9,242
|
nm
|
|
(10,855)
|
(2,451)
|
nm
|
Total income tax
(recovery)
|
(7,442)
|
9,702
|
nm
|
|
(10,406)
|
(1,550)
|
nm
|
Effective income tax
rate (%)
|
30.3
|
44.1
|
(31)
|
|
18.7
|
2.8
|
nm
|
|
|
|
|
|
|
|
|
nm - calculation
not meaningful
|
The effective income tax rate for the three months ended
June 30, 2020 was 30.3 percent compared to 44.1 percent for
the three months ended June 30, 2019. The effective income tax
rate for the six months ended June 30, 2020 was 18.7 percent
compared to 2.8 percent for the six months ended June 30,
2019. The effective tax rate in the first six months of the current
year was higher than the effective tax rate in the first six months
of 2019 due to the impact of the of the accelerated provincial
income tax rate reduction in Alberta,
Canada (announced in the prior year), capital gains on
Senior Notes and the impact of foreign tax rates.
FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL
($ thousands,
except per common share data)
|
Three months ended
June 30
|
|
Six months ended June
30
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Cash provided by
operating activities 1
|
127,432
|
81,620
|
56
|
|
190,164
|
167,598
|
13
|
Funds flow from
operations 1
|
26,338
|
76,779
|
(66)
|
|
110,833
|
197,198
|
(44)
|
Funds flow from
operations per common share 1
|
$0.16
|
$0.49
|
(67)
|
|
$0.68
|
$1.25
|
(46)
|
Working capital
2
|
131,761
|
126,987
|
4
|
|
131,761
|
126,987
|
4
|
1
|
Comparative cash
provided by operating activities, funds flow from operations and
funds flow from operations per common share have been revised to
conform with current year's presentation.
|
2
|
Comparative figure
as at December 31, 2019
|
During the three months ended June 30, 2020, the Company
generated funds flow from operations of $26.3 million ($0.16 per common share) compared to funds flow
from operations of $76.8 million
($0.49 per common share) for the
three months ended June 30, 2019, a decrease of 66 percent.
For the six months ended June 30, 2020, the Company generated
funds flow from operations of $110.8
million ($0.68 per common
share) a decrease of 44 percent from $197.2
million ($1.25 per common
share) for the six months ended June 30, 2019. The decrease in
funds flow from operations for three and six months ended
June 30, 2020 compared to the same
periods of 2019 is due to decrease in activity as a result of the
oil and natural gas industry's current business environment.
At June 30, 2020, the Company's working capital was a
surplus of $131.8 million, compared
to a working capital surplus of $127.0
million at December 31, 2019. The Company currently
expects funds generated by operations, combined with current and
future credit facilities to fully support the Company's current
operating and capital requirements. The Company's Credit Facility
provides for total borrowings of $900.0
million, of which $123.0
million was undrawn and available at June 30, 2020.
INVESTING ACTIVITIES
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Purchase of property
and equipment
|
(13,239)
|
(31,912)
|
(59)
|
|
(39,671)
|
(73,278)
|
(46)
|
Proceeds from
disposals of property and equipment
|
16,985
|
27,898
|
(39)
|
|
21,150
|
29,620
|
(29)
|
Acquisition of
minority interest
|
—
|
—
|
nm
|
|
—
|
(49,214)
|
nm
|
Net change in
non-cash working capital
|
(3,504)
|
(5,426)
|
(35)
|
|
4,249
|
11,000
|
(61)
|
Cash provided by
(used in) investing activities
|
242
|
(9,440)
|
nm
|
|
(14,272)
|
(81,872)
|
(83)
|
|
|
|
|
|
|
|
|
nm - calculation not
meaningful
|
Net proceeds of property and equipment for the second quarter of
2020 totaled $3.7 million (2019
- net purchases $4.0 million). Net purchases of property
and equipment during the first six months of 2020 totaled
$18.5 million (2019 - $43.7 million). The purchase of property and
equipment consists of $29.7 million
in maintenance capital and $10.0
million in upgrade capital.
FINANCING ACTIVITIES
|
Three months ended
June 30
|
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Proceeds from
long-term debt
|
41,163
|
998,265
|
(96)
|
|
94,289
|
2,224,231
|
(96)
|
Repayments of
long-term debt
|
(50,005)
|
(1,099,564)
|
(95)
|
|
(105,477)
|
(2,252,107)
|
(95)
|
Lease obligation
principal repayments
|
(2,957)
|
(2,357)
|
25
|
|
(5,627)
|
(3,616)
|
56
|
Interest
paid
|
(49,177)
|
(34,661)
|
nm
|
|
(61,144)
|
(81,729)
|
(85)
|
Purchase of common
shares held in trust
|
667
|
553
|
21
|
|
(556)
|
(523)
|
6
|
Cash
dividends
|
(9,787)
|
(11,588)
|
(16)
|
|
(19,574)
|
(30,437)
|
(36)
|
Net change in
non-cash working capital
|
—
|
(2,380)
|
nm
|
|
—
|
18,299
|
nm
|
Cash used in
financing activities
|
(70,096)
|
(151,732)
|
(54)
|
|
(98,089)
|
(125,882)
|
(22)
|
|
|
|
|
|
|
|
|
nm - calculation not
meaningful
|
The Company's available bank facilities consist of a
$900.0 million Credit Facility, which
matures November 26, 2021, of
which $123.0 million was available and undrawn as of
June 30, 2020. In addition, the
Company also has available US $50.0
million secured letter of credit facility, of which US
$19.7 million was available as at
June 30, 2020.
The Company may at any time and from time-to-time acquire
additional Senior Notes for cancellation by means of open market
purchases, negotiated transactions or otherwise. As previously
noted, the Company has purchased US $74.8
million of face value Senior Notes, in the open market, for
cancellation during the first six months of 2020. The Company
repurchased a further US $5.0 million
of face value Senior Notes in open market, for cancellation
subsequent to June 30, 2020.
Covenants
The following is a list of the Company's currently applicable
covenants and the calculations as at June
30, 2020:
|
Covenant
|
June 30,
2020
|
The Credit
Facility
|
|
|
Consolidated Total
Debt to Consolidated EBITDA1
|
≤ 5.00
|
4.18
|
Consolidated EBITDA to
Consolidated Interest Expense1,2
|
≥ 2.50
|
2.93
|
Consolidated Senior
Debt to Consolidated EBITDA1,3
|
≤ 2.50
|
1.98
|
1
|
Please refer to
Non-GAAP Measures for Consolidated EBITDA
definition.
|
2
|
Consolidated
Interest Expense is defined as all interest expense calculated on
twelve month rolling consolidated basis excluding amortized finance
cost and interest expense on capital building lease.
|
3
|
Consolidated
Senior Debt is defined as Consolidated Total Debt minus
Subordinated Debt.
|
As at June 30, 2020 the
Company was in compliance with all covenants related to the Credit
Facility.
The Credit facility
The Credit Facility agreement, available on SEDAR, requires that
the Company comply with certain covenants including Consolidated
Total Debt to Consolidated EBITDA, Consolidated Senior Debt to
Consolidated EBITDA and Consolidated EBITDA to Consolidated
Interest Expense as detailed above.
The Credit Facility contains certain covenants that place
restrictions on the Company's ability to create, incur or assume
additional indebtedness; change the Company's primary business;
enter into mergers or amalgamations; and to dispose of
property.
Subject to market conditions during the remainder of 2020, it is
likely that the Company will be required to enter into discussion
with its Credit Facility syndicate to amend covenants under its
Credit Facility, which otherwise may be susceptible to breach in
the latter half of 2020.
The Senior Notes
The indenture governing the Senior Notes, which is available on
SEDAR, contains certain restrictions and exemptions on the
Company's ability to pay dividends, purchase and redeem shares and
subordinated debt of the Company, and make certain restricted
investments. Limitations on these restrictions are tempered by the
existence of a number of exceptions to the general prohibition,
including baskets allowing for restricted payments.
The indenture also restricts the 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 June 30,
2020, 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
indebtedness, including the incurrence of 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 4.0 percent of the Company's
consolidated tangible assets.
NEW BUILDS AND MAJOR RETROFITS
As at June 30, 2020, the Company did not have changes to
its rig fleet. The Company is currently directing capital
expenditures to primarily maintenance capital items.
OUTLOOK
Industry Overview
The outlook for the oil field service industry remains uncertain
as the macroeconomic environment for the oil and natural gas
industry remains fluid. The global COVID-19 pandemic and associated
mitigation strategies significantly impacted energy demand,
contributing to a commodity oversupply and storage build-up in the
short term. The imbalance between crude oil and natural gas supply
and demand resulted in deteriorating commodity prices exiting the
first quarter and into the second quarter of 2020 with the
benchmark price of West Texas Intermediate ("WTI") averaging
US $16 /bbl in April 2020.
As global economies started to lift lock-down restrictions
related to COVID-19, demand for crude oil and natural gas has
steadily improved. In addition, many energy producers reduced crude
oil and natural gas production along with OPEC+ nations. Global
demand recovery coupled with reduced production and supply,
resulted in meaningful improvements in crude oil commodity prices
over the latter half of the second quarter 2020, with WTI averaging
approximately US $28/bbl in May, US
$38/bbl in June and currently
averaging around US $40/bbl.
Oil and natural gas producers have continued to adjust to the
improving commodity price environment by selectivity restoring
curtailed production while remaining committed to reducing planned
capital expenditures. Furthermore, OPEC+ recently decreased supply
curtailments, increasing global crude oil supply. While industry
fundamentals have improved, the current environment has led to
significant and downward pressure on the demand for the Company's
services over the short term, resulting in decreased utilization
across the Company's global fleet over the second quarter.
In the short term, we expect continued uncertainty with the
macroeconomic conditions including the pathway of the COVID-19
pandemic, the degree and impact of COVID-19 mitigation strategies
on demand for crude oil and natural gas, commodity prices and the
demand for the oil field services. The Company has responded to the
current operating environment with strict and opportunistic capital
allocation and significant cost reductions. The Company's expected
capital expenditures for 2020 remain at $50.0 million.
Subsequent to the second quarter, the Company acquired the
remaining 40 percent ownership in the joint venture operating under
the name Trinidad Drilling International ("TDI") for US
$33.4 million with cash on hand. TDI
owns and operates five drilling rigs located in Kuwait (two rigs), Mexico (two rigs) and Bahrain (one rig). The Company views this as a
strategic and opportunistic transaction, given the asset value,
exposure to key basins and contracted revenue with active and
long-term contracts in Kuwait and
Bahrain. The Company expects very
minimal integration and modest synergies in our Middle East operations.
The Company remains committed to debt retirement, balance sheet
and liquidity preservation and capital efficiency. Furthermore, the
Company continues to monitor the current macroeconomic environment
and will continue to take additional steps to mitigate the negative
impacts of these events to be well positioned to take advantage of
opportunities when they may occur.
Canadian Activity
Canadian activity, representing nine percent of our business,
decreased significantly over the second quarter due to seasonal
spring break-up, exacerbated by COVID-19 related industry impacts.
We expect activity to improve modestly with the commodity price
improvement into the latter half of the year as we exit spring
break-up and enter the winter drilling season.
Of our 101 marketed Canadian drilling rigs, approximately 13
percent are engaged under term contracts of various terms.
Approximately 62 percent of our contracted rigs have a remaining
term of six months or longer, although they may be subject to early
terminations.
United States Activity
United States activity,
representing 66 percent of our business, steadily and
significantly decreased over the second quarter as operators
reduced their drilling programs in response to the current
operating environment. As declines have slowed exiting the second
quarter, we expect activity to remain flat at current levels into
the third quarter.
Of 122 marketed United States
drilling rigs, approximately 24 percent are engaged under term
contracts of various terms. Approximately 41 percent of our
contracted rigs have a remaining term of six months or longer,
although they may be subject to early terminations.
International Activity
International activity, representing 25 percent of our business,
decreased over the second quarter and has stabilized entering the
third quarter. Latin American operations decreased over the quarter
with Venezuela operations
completely ceasing. Our operations in Argentina are expected to generally remain
flat at current levels into the third quarter. Australian
operations modestly decreased over the quarter and are expected to
modestly improve into the third quarter. In the Middle East, the Company's operations in
Oman decreased to zero operating
rigs over the quarter as our three active rigs rolled off contract.
However, our operations in Bahrain
and Kuwait remain steady under
long-term contracts. With the Company's recent acquisition of the
remaining 40 percent interest in the TDI joint venture, we expect
to realize increased earnings and modest synergies from our
Bahrain and Kuwait operations.
Of 48 marketed international drilling rigs, including the former
five joint venture drilling rigs now wholly owned, approximately 28
percent are engaged under term contracts of various terms.
Approximately 85 percent of our contracted rigs have a remaining
term of six months or longer, although they may be subject to early
terminations.
RISK AND UNCERTAINTIES
This document contains forward-looking statements based upon
current expectations that involve a number of business risks and
uncertainties. The factors that could cause results to differ
materially include, but are not limited to, the impact of the
COVID-19 virus, political, economic and market conditions, crude
oil and natural gas prices, foreign currency fluctuations, weather
conditions, the Company's defense of lawsuits and the ability of
oil and gas companies to pay accounts receivable balances and raise
capital or other unforeseen conditions which could ongoing impact
on the use of the services supplied by the Company. For a more
detailed description of the risk factors and uncertainties that
face the Company and the industry in which it operates, refer to
the "Risks and Uncertainties" section of our current Management's
Discussion & Analysis and the section titled "Risk Factors" in
our current Annual Information Form.
CONFERENCE CALL
A conference call will be held to discuss the Company's second
quarter 2020 results at 10:00 a.m.
MDT (12:00 p.m. EDT) on
Monday, August 10, 2020. The
conference call number is 1-647-427-7450 (in Toronto) or 1-888-231-8191 (outside
Toronto). A taped recording will
be available until August 17, 2020 by
dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside
Toronto) and entering the
reservation number 6694628. A live broadcast 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
under the trading symbol ESI.
Ensign Energy Services Inc.
Consolidated Statements
of Financial Position
As at
|
|
June 30
2020
|
|
|
December 31
2019
|
(Unaudited - in
thousands of Canadian dollars)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
|
$
|
102,655
|
|
$
|
28,408
|
Accounts
receivable
|
|
151,035
|
|
|
272,254
|
Inventories, prepaid
and other
|
|
50,524
|
|
|
47,292
|
Asset held for
sale
|
|
—
|
|
|
18,806
|
Income taxes
receivable
|
|
1,614
|
|
|
1,515
|
Total current
assets
|
|
305,828
|
|
|
368,275
|
Property and
equipment
|
|
2,812,411
|
|
|
2,855,223
|
Deferred income
taxes
|
|
139,742
|
|
|
121,748
|
Investment in joint
ventures
|
|
129,123
|
|
|
125,355
|
Total
assets
|
$
|
3,387,104
|
|
$
|
3,470,601
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts payable and
accruals
|
$
|
160,284
|
|
$
|
216,719
|
Cash dividends
payable
|
|
—
|
|
|
9,787
|
Share-based
compensation
|
|
237
|
|
|
297
|
Income taxes
payable
|
|
4,420
|
|
|
4,489
|
Current portion of
lease obligation
|
|
9,126
|
|
|
9,996
|
Total current
liabilities
|
|
174,067
|
|
|
241,288
|
|
|
|
|
|
|
Share-based
compensation
|
|
3,015
|
|
|
6,325
|
Long-term
debt
|
|
1,555,274
|
|
|
1,581,529
|
Lease
obligations
|
|
9,378
|
|
|
9,518
|
Deferred income
taxes
|
|
178,598
|
|
|
163,781
|
Non-controlling
interest
|
|
5,290
|
|
|
5,138
|
Total
liabilities
|
|
1,925,622
|
|
|
2,007,579
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
Shareholders'
capital
|
|
230,767
|
|
|
230,100
|
Contributed
surplus
|
|
23,441
|
|
|
23,966
|
Equity component of
convertible debenture
|
|
3,193
|
|
|
3,193
|
Accumulated other
comprehensive income
|
|
298,203
|
|
|
243,771
|
Retained
earnings
|
|
905,878
|
|
|
961,992
|
Total shareholders'
equity
|
|
1,461,482
|
|
|
1,463,022
|
Total liabilities and
shareholders' equity
|
$
|
3,387,104
|
|
$
|
3,470,601
|
Ensign Energy Services Inc.
Consolidated Statements
of Loss
|
Three months
ended
|
|
Six months
ended
|
|
|
June 30
2020
|
|
June 30
2019
|
|
|
June 30
2020
|
|
June 30
2019
|
(Unaudited - in
thousands of Canadian dollars,
except per common share data)
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
194,759
|
$
|
377,496
|
|
$
|
578,620
|
$
|
822,516
|
Expenses
|
|
|
|
|
|
|
|
|
|
Oilfield
services
|
|
129,955
|
|
266,253
|
|
|
412,777
|
|
581,940
|
Depreciation
|
|
92,165
|
|
89,030
|
|
|
181,950
|
|
177,197
|
General and
administrative
|
|
10,741
|
|
15,978
|
|
|
22,545
|
|
30,015
|
Restructuring
|
|
6,509
|
|
915
|
|
|
7,386
|
|
9,397
|
Share-based
compensation
|
|
2,879
|
|
1,260
|
|
|
(1,621)
|
|
2,887
|
Foreign exchange and
other (gain) loss
|
|
(4,426)
|
|
(2,627)
|
|
|
4,660
|
|
7,733
|
Total
expenses
|
|
237,823
|
|
370,809
|
|
|
627,697
|
|
809,169
|
(Loss) income
before financing charges and other
(gains) losses and income taxes
|
|
(43,064)
|
|
6,687
|
|
|
(49,077)
|
|
13,347
|
|
|
|
|
|
|
|
|
|
|
Loss (gain) from
investment in joint ventures
|
|
127
|
|
(2,307)
|
|
|
1,785
|
|
(295)
|
Gain on repurchase of
unsecured Senior Notes
|
|
(52,023)
|
|
(650)
|
|
|
(63,517)
|
|
(650)
|
(Loss) gain on asset
sale
|
|
3,437
|
|
(9,824)
|
|
|
3,437
|
|
(9,824)
|
Financing
charges
|
|
29,947
|
|
40,009
|
|
|
64,789
|
|
76,355
|
Loss before income
taxes
|
|
(24,552)
|
|
(20,541)
|
|
|
(55,571)
|
|
(52,239)
|
Income tax
(recovery)
|
|
|
|
|
|
|
|
|
|
Current income tax
(recovery)
|
|
(11)
|
|
460
|
|
|
449
|
|
901
|
Deferred income tax
(recovery)
|
|
(7,431)
|
|
9,242
|
|
|
(10,855)
|
|
(2,451)
|
Total income tax
(recovery)
|
|
(7,442)
|
|
9,702
|
|
|
(10,406)
|
|
(1,550)
|
Net loss from
continuing operations
|
$
|
(17,110)
|
$
|
(30,243)
|
|
$
|
(45,165)
|
$
|
(50,689)
|
|
|
|
|
|
|
|
|
|
|
Loss from
discontinued operations
|
$
|
(127)
|
$
|
(1,468)
|
|
$
|
(1,254)
|
$
|
(3,231)
|
Net loss
|
$
|
(17,237)
|
$
|
(31,711)
|
|
$
|
(46,419)
|
$
|
(53,920)
|
Net loss
attributable to:
|
|
|
|
|
|
|
|
|
|
Common
shareholders
|
|
(17,077)
|
|
(31,173)
|
|
|
(46,327)
|
|
(53,521)
|
Non-controlling
interests
|
|
(160)
|
|
(538)
|
|
|
(92)
|
|
(399)
|
|
|
(17,237)
|
|
(31,711)
|
|
|
(46,419)
|
|
(53,920)
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to common shareholders
per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.10)
|
$
|
(0.20)
|
|
$
|
(0.28)
|
$
|
(0.34)
|
Diluted
|
$
|
(0.10)
|
$
|
(0.20)
|
|
$
|
(0.28)
|
$
|
(0.34)
|
Ensign Energy Services Inc.
Consolidated Statements
of Cash Flows
|
Three months
ended
|
|
Six months
ended
|
|
|
June 30
2020
|
|
June 30
2019
|
|
|
June 30
2020
|
|
June 30
2019
|
(Unaudited - in
thousands of Canadian dollars)
|
|
|
|
|
|
|
|
|
|
Cash provided by
(used in)
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(17,237)
|
$
|
(31,711)
|
|
$
|
(46,419)
|
$
|
(53,920)
|
Items not affecting
cash
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
92,165
|
|
89,030
|
|
|
181,950
|
|
177,197
|
Loss (gain) from
investment in joint ventures
|
|
127
|
|
(2,307)
|
|
|
1,785
|
|
(296)
|
Loss (gain) on asset
sale
|
|
3,437
|
|
(9,824)
|
|
|
3,437
|
|
(9,824)
|
Gain on purchase of
unsecured Senior Notes
|
|
(52,023)
|
|
(650)
|
|
|
(63,517)
|
|
(650)
|
Share-based
compensation
|
|
2,879
|
|
1,260
|
|
|
(1,621)
|
|
2,887
|
Unrealized foreign exchange and other
|
|
(25,526)
|
|
(18,270)
|
|
|
(18,716)
|
|
7,900
|
Accretion of deferred
financing charges
|
|
2,971
|
|
6,297
|
|
|
5,943
|
|
8,535
|
Interest
expense
|
|
26,976
|
|
33,712
|
|
|
58,846
|
|
67,820
|
Deferred income
tax
|
|
(7,431)
|
|
9,242
|
|
|
(10,855)
|
|
(2,451)
|
Funds flow from
operations
|
|
26,338
|
|
76,779
|
|
|
110,833
|
|
197,198
|
Net change in
non-cash working capital
|
|
101,094
|
|
4,841
|
|
|
79,331
|
|
(29,600)
|
Cash provided by
operating activities
|
|
127,432
|
|
81,620
|
|
|
190,164
|
|
167,598
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
Purchase of property
and equipment
|
|
(13,239)
|
|
(31,912)
|
|
|
(39,671)
|
|
(73,278)
|
Proceeds from
disposals of property and equipment
|
|
16,985
|
|
27,898
|
|
|
21,150
|
|
29,620
|
Acquisition of
minority interest
|
|
—
|
|
—
|
|
|
—
|
|
(49,214)
|
Net change in
non-cash working capital
|
|
(3,504)
|
|
(5,426)
|
|
|
4,249
|
|
11,000
|
Cash (used in)
provided by investing activities
|
|
242
|
|
(9,440)
|
|
|
(14,272)
|
|
(81,872)
|
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
Proceeds from
long-term debt
|
|
41,163
|
|
998,265
|
|
|
94,289
|
|
2,224,231
|
Repayments of
long-term debt
|
|
(50,005)
|
|
(1,099,564)
|
|
|
(105,477)
|
|
(2,252,107)
|
Lease obligation
principal repayments
|
|
(2,957)
|
|
(2,357)
|
|
|
(5,627)
|
|
(3,616)
|
Interest
paid
|
|
(49,177)
|
|
(34,661)
|
|
|
(61,144)
|
|
(81,729)
|
Purchase of common
shares held in trust
|
|
667
|
|
553
|
|
|
(556)
|
|
(523)
|
Cash
dividends
|
|
(9,787)
|
|
(11,588)
|
|
|
(19,574)
|
|
(30,437)
|
Net change in
non-cash working capital
|
|
—
|
|
(2,380)
|
|
|
—
|
|
18,299
|
Cash used in
financing activities
|
|
(70,096)
|
|
(151,732)
|
|
|
(98,089)
|
|
(125,882)
|
|
|
|
|
|
|
|
|
|
|
Net increase
(decrease) in cash
|
|
57,578
|
|
(79,552)
|
|
|
77,803
|
|
(40,156)
|
|
|
|
|
|
|
|
|
|
|
Effects of foreign
exchange on cash
|
|
(3,483)
|
|
(3,544)
|
|
|
(3,556)
|
|
(4,962)
|
Cash – beginning
of period
|
|
48,560
|
|
122,801
|
|
|
28,408
|
|
84,823
|
Cash – end of
period
|
$
|
102,655
|
$
|
39,705
|
|
$
|
102,655
|
$
|
39,705
|
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. The non-GAAP measures
included in this press 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.
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 and 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 payment expense, impairment expenses, the
sale of assets, restructuring costs, gain on repurchase of
unsecured Senior Notes 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 also takes into account the Company's portion of the
principal activities of the joint venture arrangements by removing
the loss (gain) from investments in joint ventures and including
adjusted EBITDA from investments in joint ventures. Adjusted EBITDA
is not intended to represent net loss as calculated in accordance
with IFRS.
ADJUSTED
EBITDA
|
|
|
|
Three months ended
June 30
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
2020
|
2019
|
Loss before income
taxes 1
|
(24,552)
|
(20,541)
|
(55,571)
|
(52,239)
|
Add-back/(deduct):
|
|
|
|
|
Financing charges
|
29,947
|
40,009
|
64,789
|
76,355
|
Depreciation
|
92,165
|
89,030
|
181,950
|
177,197
|
Restructuring
|
6,509
|
915
|
7,386
|
9,397
|
Loss
(gain) from investment in joint ventures
|
127
|
(2,307)
|
1,785
|
(295)
|
Share-based compensation
|
2,879
|
1,260
|
(1,621)
|
2,887
|
Loss
(gain) on asset sale
|
3,437
|
(9,824)
|
3,437
|
(9,824)
|
Gain on
repurchase of unsecured Senior Notes 2
|
(52,023)
|
(650)
|
(63,517)
|
(650)
|
Foreign
exchange and other (gain) loss
|
(4,426)
|
(2,627)
|
4,660
|
7,733
|
Adjusted
EBITDA from investment in joint ventures
|
3,997
|
6,562
|
6,009
|
8,559
|
Adjusted
EBITDA
|
58,060
|
101,827
|
149,307
|
219,120
|
1
|
Comparative loss
before income taxes have been revised to conform with current
year's presentation.
|
2
|
See "Financing
Charges" section for definition of Senior Notes.
|
Adjusted EBITDA from investment in joint ventures is used by
management and investors to analyze the results generated by the
Company's joint venture operations prior to how these activities
are financed, how assets are depreciated and amortized and how the
results are taxed in various jurisdictions. Additionally, in order
to focus on its core drilling and well services business, amounts
related to foreign exchange, dividend expense, dividend re-class,
impairment adjustments to property and equipment, as well as
preferred share valuation and the sale of assets are removed.
Lastly, amounts recorded for the revaluation on the investment of
the TDI joint venture are removed as these are non-cash items and
unrelated to the operations of the business. Adjusted EBITDA from
investments in joint ventures is not intended to represent net loss
as calculated in accordance with IFRS.
Adjusted EBITDA from investment in joint ventures is calculated
below:
|
Three months ended
June 30
|
Six months ended June
30
|
($
thousands)
|
2020
|
2019
|
2020
|
2019
|
(Loss) gain from
investment in joint ventures
|
(127)
|
2,307
|
(1,785)
|
295
|
Add-back/(deduct):
|
|
|
|
|
TDI fair
value adjustment
|
—
|
650
|
—
|
650
|
Depreciation
|
3,755
|
3,226
|
7,185
|
6,655
|
Foreign
exchange and other loss (gain)
|
138
|
(19)
|
240
|
(24)
|
Financing charge
|
11
|
380
|
21
|
694
|
Income
taxes
|
155
|
18
|
283
|
142
|
Preferred shares valuation
|
—
|
—
|
—
|
147
|
Adjusted EBITDA from
investment in joint ventures
|
3,997
|
6,562
|
6,009
|
8,559
|
Consolidated EBITDA
Consolidated EBITDA, as defined in the Company's Credit Facility
agreement, is used in determining the Company's compliance with its
covenants. The Consolidated EBITDA is substantially similar to
Adjusted EBITDA, except that Adjusted EBITDA from the TDI joint
venture is only included into Consolidated EBITDA for the purpose
of the Company's Credit Facility when Adjusted EBITDA earned in the
TDI joint venture is distributed up to the Company. Consolidated
EBITDA is calculated on a rolling twelve-month basis.
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 in this document 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 throughout this MD&A, 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 regarding the new build program for 2020,
information provided in the "Financial Instruments" section
regarding Venezuela and
information provided in the "Outlook" section regarding the general
outlook for 2020, constitute forward-looking statements. These
statements are not representations or guarantees of future
performance and are subject to certain risks. 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
expectations, estimates and projections about the Company and the
industries 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. They 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 crude oil and natural gas commodity
prices; fluctuations in currency and interest rates; 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; the Company's defence of lawsuits; availability and
cost of labour and other equipment, supplies and services; 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; timing and success of integrating the
business and operations of acquired companies; actions by
governmental authorities; government regulations 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); the adequacy of the
Company's provision for taxes; the Company's response to the global
COVID-19 pandemic; and other circumstances affecting the Company's
business, revenues and expenses.
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 and environmental
protection regulations. Should one or more of these risks or
uncertainties materialize, or should any of the Company's
assumptions prove incorrect, actual results 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.
For additional information refer to the "Risk and Uncertainties"
section of this MD&A. Readers are cautioned that the lists of
important factors contained herein are not exhaustive.
Unpredictable or unknown factors not discussed in this MD&A
could also have material adverse effects on forward-looking
statements.
Although the Company believes the expectations conveyed by the
forward-looking statements are reasonable based on information
available to it on the date such forward-looking statements are
made, no assurances can be given as to future results, levels of
activity and achievements. Except as required by law, the Company
assumes no obligation to update forward-looking statements should
circumstances or its projections, anticipations, estimates or
opinions change.
SOURCE Ensign Energy Services Inc.