Western Energy Services Corp. Releases Third Quarter 2012 Financial
Results and Declares Quarterly Dividend
CALGARY,
Oct. 31, 2012 /CNW/ - Western Energy
Services Corp. ("Western" or the "Company") (TSX: WRG) is pleased
to release its third quarter 2012 financial and operating
results. Additional information relating to the Company,
including the Company's financial statements and management's
discussion and analysis as at and for the three and nine months
ended September 30, 2012 and 2011
will be available on SEDAR at www.sedar.com. All amounts are
denominated in Canadian dollars (CDN$) unless otherwise
identified.
Highlights:
- Revenue totalled $69.6 million in
the third quarter of 2012, an $11.2
million decrease (or 14%) over the same period in the prior
year as a result of lower utilization in Canada. The slowdown in oilfield service
activity was aided by wet weather and uncertain economic conditions
which resulted in some producers reducing or delaying capital
programs. Lower revenue in the contract drilling segment was
partially offset by $1.0 million in
well servicing revenue;
- Third quarter EBITDA decreased by $6.5
million (or 21%) to $23.9
million in 2012 (34% of revenue) as compared to $30.4 million in 2011 (38% of revenue).
Similar to revenue, the decrease in EBITDA is mainly due to lower
utilization in the Canadian contract drilling segment;
- Net income decreased by $16.6
million to $8.3 million in the
third quarter of 2012 ($0.14 per
basic common share) as compared to $24.9
million in the same period in the prior year ($0.43 per basic common share). The decrease
is mainly due to the $10.7 million
gain on the sale of StimSol Canada Inc. in the third quarter of the
prior year. After normalizing for this transaction, net
income decreased by $5.9
million. The normalized decrease is mainly due to the
$6.5 million decrease in EBITDA and
increased finance costs of $1.8
million, as a result of Western's January 2012 senior unsecured notes issuance,
offset by lower income taxes of $2.9
million;
- In Canada, during the third
quarter, utilization per operating day in the contract drilling
segment decreased by 26% as compared to the same period in the
prior year. Despite a decrease in activity, the Company's
average utilization of 53% in the third quarter was 33% higher than
the CAODC industry average of 40%;
- In the United States,
utilization per operating day in the contract drilling segment
averaged 60% in the third quarter of 2012 as compared to 65% in the
same period of the prior year. While operating days in
the United States increased by 9%
in the quarter, utilization decreased due to an increased rig fleet
as Western moved two drilling rigs into the United States in the third quarter of
2011;
- Operating results in Western's well servicing segment improved
in the third quarter, with service hours increasing by 113% to
1,799, reflecting a utilization rate of 39%, as compared to the
second quarter of 2012 when utilization averaged 22%.
Additionally, utilization improved every month during the quarter,
with September averaging 48%.
Selected Financial
Information |
(stated in
thousands, except share and per share amounts)
|
|
Three months ended
September 30 |
|
Nine months ended
September 30 |
Financial Highlights |
2012 |
2011 |
Change |
|
2012 |
2011 |
|
Change |
Revenue |
69,573 |
80,786 |
(14%) |
|
225,279 |
161,219 |
|
40% |
Gross Margin(1) |
29,382 |
35,005 |
(16%) |
|
93,703 |
67,667 |
|
38% |
Gross Margin as a percentage of
revenue |
42% |
43% |
(2%) |
|
42% |
42% |
|
0% |
EBITDA(1) |
23,944 |
30,392 |
(21%) |
|
77,550 |
57,851 |
|
34% |
EBITDA as a percentage of
revenue |
34% |
38% |
(11%) |
|
34% |
36% |
|
(6%) |
Cash flow from operating
activities |
9,248 |
3,391 |
173% |
|
93,895 |
34,031 |
|
176% |
Capital expenditures |
30,898 |
24,927 |
24% |
|
106,903 |
54,533 |
|
96% |
Net income |
8,251 |
24,893 |
(67%) |
|
32,086 |
40,432 |
|
(21%) |
-basic net
income per share |
0.14 |
0.43 |
(67%) |
|
0.55 |
0.82 |
(2) |
(33%) |
-diluted net
income per share |
0.14 |
0.41 |
(66%) |
|
0.53 |
0.79 |
(2) |
(33%) |
Weighted average number of
shares |
|
|
|
|
|
|
|
|
-basic |
58,581,133 |
58,533,287 |
0% |
|
58,549,352 |
49,256,925 |
(2) |
19% |
-diluted |
60,700,338 |
60,618,480 |
0% |
|
60,816,945 |
51,294,610 |
(2) |
19% |
Outstanding common shares as at
period end |
59,427,143 |
58,533,287 |
2% |
|
59,427,143 |
58,533,287 |
|
2% |
Dividends declared |
4,457 |
- |
100% |
|
4,457 |
- |
|
100% |
(1) See financial measures
reconciliations.
(2) Prior year amounts adjusted to
reflect the 20:1 share consolidation completed on June 22, 2011.
|
|
|
|
|
|
|
Financial Position at (stated in
thousands) |
Sept 30, 2012 |
Sept 30, 2011 |
Change |
Dec 31, 2011 |
Change |
Working capital |
62,753 |
36,363 |
73% |
39,874 |
57% |
Property and equipment |
558,248 |
448,203 |
25% |
473,930 |
18% |
Total assets |
727,113 |
584,823 |
24% |
619,645 |
17% |
Long term debt |
176,739 |
108,057 |
64% |
108,039 |
64% |
|
|
|
|
|
|
|
|
|
|
Three months ended Sept
30 |
Nine months ended Sept 30 |
Operating Highlights |
2012 |
2011 |
|
Change |
|
2012 |
2011 |
|
Change |
Contract Drilling |
|
|
|
|
|
|
|
|
|
Canadian Operations: |
|
|
|
|
|
|
|
|
|
Contract drilling rig fleet: |
|
|
|
|
|
|
|
|
|
-Average |
42 |
39 |
|
8% |
|
41 |
30 |
|
37% |
-End of period |
43 |
37 |
|
16% |
|
43 |
37 |
|
16% |
Drilling revenue per operating day (CDN$) |
28,952 |
28,016 |
|
3% |
|
32,327 |
28,215 |
|
15% |
Drilling rig operating days(1) |
2,055 |
2,567 |
|
(20%) |
|
5,928 |
5,368 |
|
10% |
Drilling rig utilization per revenue
day(2) |
58% |
79% |
|
(27%) |
|
59% |
72% |
|
(18%) |
Drilling rig utilization rate per operating
day(1) |
53% |
72% |
|
(26%) |
|
53% |
66% |
|
(20%) |
CAODC industry average utilization
rate(1) |
40% |
57% |
|
(30%) |
|
42% |
50% |
|
(16%) |
|
|
|
|
|
|
|
|
|
|
United States Operations: |
|
|
|
|
|
|
|
|
|
Contract drilling rig fleet: |
|
|
|
|
|
|
|
|
|
-Average |
5 |
4 |
(3) |
25% |
|
5 |
4 |
(3) |
25% |
-End of period |
5 |
5 |
|
0% |
|
5 |
5 |
|
0% |
Drilling revenue per operating day (US$) |
33,009 |
35,801 |
|
(8%) |
|
33,405 |
36,145 |
|
(8%) |
Drilling rig operating days(1) |
275 |
252 |
|
9% |
|
952 |
274 |
|
247% |
Drilling rig utilization per revenue
day(2) |
73% |
88% |
(3) |
(17%) |
|
87% |
85% |
(3) |
2% |
Drilling rig utilization per operating
day(1) |
60% |
65% |
(3) |
(8%) |
|
69% |
61% |
(3) |
13% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well Servicing |
|
|
|
|
|
|
|
|
|
Well servicing rig fleet: |
|
|
|
|
|
|
|
|
|
-Average |
5 |
- |
|
100% |
|
4 |
- |
|
100% |
-End of period |
5 |
- |
|
100% |
|
5 |
- |
|
100% |
Revenue per service hour (CDN$) |
582 |
- |
|
100% |
|
581 |
- |
|
100% |
Total service hours |
1,799 |
- |
|
100% |
|
3,072 |
- |
|
100% |
Service rig utilization rate(4) |
39% |
- |
|
100% |
|
31% |
- |
|
100% |
(1) Drilling rig utilization rate per operating day and
drilling rig operating days are calculated on a spud to rig release
basis. |
(2) Drilling rig utilization
rate per revenue day is calculated based on operating and move
days. |
(3) Calculated from the date of
acquisition of the United States operations (June 10, 2011).
|
(4) Service rig utilization
rate calculated based on full utilization being 10 hour days, 365
days per year. |
Outlook
Western currently has a drilling rig fleet of 48
rigs, with an additional 3 telescopic ELR double drilling rigs
under construction. Western is the sixth largest drilling
contractor in Canada with a fleet
of 43 rigs. Currently, Western has five drilling rigs
deployed in the United
States. Additionally, as at the end of October,
Western has six well servicing rigs operating in the Lloydminster area, with an additional four
under construction.
Western's drilling rig fleet is specifically
suited for the current market which is focused on drilling wells of
increased complexity. In total, approximately 96% of
Western's fleet are ELR rigs with depth ratings greater than 3,000
meters and all of Western's rigs are capable of drilling resource
base horizontal wells. Approximately one third of Western's
fleet is currently under long term take-or-pay contracts with an
average remaining contract life of approximately 14 months, which
provide a base level of revenue. These contracts typically
generate 250 operating days per year in Canada, as the annual spring breakup restricts
activity during the second quarter, while in the United States these contracts typically
range from 330 to 365 revenue generating days per year.
Western's 2012 capital budget is expected to
total approximately $155 million,
which includes approximately $95
million in expansion capital and $60
million in maintenance capital. Western anticipates
approximately $10 million of the 2012
capital budget will carry forward into 2013. Expansion
capital in the contract drilling segment aggregates to
approximately $80 million and mainly
relates to Western's drilling rig build program which includes the
construction of 8 telescopic ELR double drilling rigs in 2012, 5 of
which have already been commissioned. Of the remaining three
drilling rigs currently under construction, one is expected to be
completed in both the fourth quarter of 2012 and the first quarter
of 2013. The final rig under construction will be the
Company's first ELR pad double drilling rig and is expected to be
commissioned in the third quarter of 2013 under a long term
contract with an existing customer. Expansion capital in the
well servicing segment relates to the construction of five new
internally guyed single service rigs, one of which has already been
commissioned in the fourth quarter. The remaining four well
servicing rigs are anticipated to be completed in the fourth
quarter of 2012 and early in the first quarter of 2013.
Maintenance capital in 2012 is higher than
management's expectation of sustaining maintenance capital as it
includes various onetime items relating to previous acquisitions
and rotational equipment required to maximize operating days.
Included in maintenance capital are various items such as critical
spares, drill pipe, replacement parts and infrastructure
upgrades.
In 2012, the price for natural gas has remained
soft, with the AECO 30-day spot rate on average decreasing by
approximately 42%. While the year over year average WTI crude
oil price has remained relatively constant, increased pricing
differentials in Canada have
resulted in a 7% year over year decrease in the average Edmonton
Par price. The lower commodity price environment for crude
oil and natural gas, coupled with the uncertain economic
environment, due in part to the European debt crisis, is expected
to result in lower drilling activity in the fourth quarter of 2012
as compared to the same period of the prior year. As such,
the Company expects lower utilization in 2012 as compared to the
prior year, when industry utilization reached a five-year
high. The decrease in industry activity is expected to result
in only modest pricing pressure on day rates on the deeper rigs in
the industry's fleet. Notwithstanding the softening commodity
price environment, Western continues to believe that additional rig
build opportunities in both the contract drilling and well
servicing segments will be available. Currently, the largest
challenges facing the drilling industry are reduced producer
spending, pricing differentials on Canadian crude oil, low natural
gas prices, a strengthening Canadian dollar and the challenge to
attract and retain skilled labour. The Company believes
Western's modern drilling rig fleet, which has an average life of
less than six years, and corporate culture will provide a distinct
advantage in retaining and attracting qualified individuals.
Western is of the view, that its modern ELR rig fleet, strong
customer base and solid reputation will provide a competitive
advantage which will enable the Company to maintain its growth
strategy and higher than industry utilization through a period of
lower commodity prices and drilling activity.
Quarterly Dividend
On October 31,
2012, Western's Board of Directors declared a quarterly
dividend of $0.075 per share, which
will be paid on January 11, 2013, to
shareholders of record at the close of business on December 31, 2012. The dividends are
eligible dividends for Canadian income tax purposes. We
believe that this sustainable dividend policy balances rewarding
our shareholders with a significant dividend payment and the
ability to continue to execute our aggressive growth plans.
Financial Measures Reconciliations
Western uses certain measures in this press
release which do not have any standardized meaning as prescribed by
International Financial Reporting Standards ("IFRS"). These
measures may not be comparable to similar measures presented by
other reporting issuers. These measures have been described
and presented in this press release in order to provide
shareholders and potential investors with additional information
regarding the Company.
Gross Margin
Management believes that in addition to net
income, Gross Margin is a useful supplemental measure as it
provides an indication of the results generated by Western's
principal operating activities prior to considering administrative
expenses, depreciation and amortization, how those activities are
financed, the impact of foreign exchange, how the results are
taxed, how funds are invested, and how non-cash items and one-time
gains and losses affect results.
EBITDA
Management believes that in addition to net
income, earnings from continuing operations before interest and
finance costs, taxes, depreciation and amortization, other non-cash
items and one-time gains and losses ("EBITDA") as derived from
information reported in the condensed consolidated statements of
operations and comprehensive income is a useful supplemental
measure as it provides an indication of the results generated by
the Company's principal operating segments similar to Gross Margin
but also factors in the cash administrative expenses incurred in
the period.
Operating Earnings
Management believes that in addition to net
income, Operating Earnings is a useful supplemental measure as it
provides an indication of the results generated by the Company's
principal operating segments similar to EBITDA but also factors in
the depreciation expense charged in the period.
The following table provides a reconciliation of net income
under IFRS as disclosed in the condensed consolidated statements of
operations and comprehensive income to Gross Margin, EBITDA and
Operating Earnings:
|
|
|
|
|
|
|
|
Three months ended
Sept 30 |
Nine months ended Sept
30 |
(stated in thousands) |
2012 |
2011 |
2012 |
2011 |
|
|
|
|
|
Gross Margin |
29,382 |
35,005 |
93,703 |
67,667 |
Add (subtract): |
|
|
|
|
Administrative expenses |
(5,965) |
(5,093) |
(17,837) |
(10,727) |
Depreciation - administrative |
234 |
144 |
606 |
281 |
Stock based compensation -
administrative |
293 |
336 |
1,078 |
630 |
EBITDA |
23,944 |
30,392 |
77,550 |
57,851 |
Depreciation - operating |
(8,218) |
(7,792) |
(22,823) |
(15,529) |
Depreciation - administrative |
(234) |
(144) |
(606) |
(281) |
Operating Earnings |
15,492 |
22,456 |
54,121 |
42,041 |
Stock based compensation - operating |
(126) |
(66) |
(384) |
(182) |
Stock based compensation -
administrative |
(293) |
(336) |
(1,078) |
(630) |
Finance costs |
(3,169) |
(1,333) |
(9,200) |
(2,404) |
Other items |
(477) |
(799) |
(173) |
(2,149) |
Income taxes |
(3,176) |
(6,053) |
(11,200) |
(7,717) |
Income from discontinued operations |
- |
11,004 |
- |
11,473 |
Net income |
8,251 |
24,893 |
32,086 |
40,432 |
2012 Third Quarter Results Conference Call
and Webcast
Western has scheduled a conference call and
webcast to begin promptly at 12:00 p.m.
MST (2:00 p.m. EST) on
November 1, 2012.
The conference call dial-in number is
1-888-231-8191.
A live webcast of the conference call will be
accessible on Western's website at www.wesc.ca by selecting
"Investor Relations", then "Webcasts". Shortly
after the live webcast, an archived version will be available for
approximately 14 days.
An archived recording of the conference call
will also be available approximately one hour after the completion
of the call until November 15, 2012
by dialing 1-855-859-2056 or 1-416-849-0833, passcode 43103249.
Forward-Looking Statements and Information
This News Release contains forward-looking
statements and forward-looking information within the meaning of
applicable securities laws. All statements other than
statements of historical fact contained in this News Release may be
forward-looking statements and forward-looking information.
In particular, forward-looking information in this News Release
include, but are not limited to under the heading "Outlook" the
statements "Western's 2012 capital budget is expected to total
approximately $155 million, which
includes approximately $95 million in
expansion capital and $60 million in
maintenance capital. Western anticipates approximately
$10 million of the 2012 capital
budget will carry forward into 2013. Expansion capital in the
contract drilling segment aggregates to approximately $80 million and mainly relates to Western's
drilling rig build program which includes the construction of eight
telescopic ELR double drilling rigs in 2012, five of which have
already been commissioned. Of the remaining three drilling
rigs currently under construction, one is expected to be completed
in both the fourth quarter of 2012 and the first quarter of
2013. The final rig under construction will be the Company's
first pad rig and is expected to be commissioned in the third
quarter of 2013 under a long term contract with an existing
customer. Expansion capital in the well servicing segment
relates to the construction of five new internally guyed single
service rigs, one of which has already been commissioned in the
fourth quarter of 2012. The remaining four well servicing
rigs are anticipated to be completed in the fourth quarter of 2012
and early in the first quarter of 2013." and the statements "The
lower commodity price environment for crude oil and natural gas,
coupled with the uncertain economic environment, due in part to the
European debt crisis, is expected to result in lower drilling
activity in the fourth quarter of 2012 as compared to the same
period of the prior year. As such, the Company expects lower
utilization in 2012 as compared to the prior year, when industry
utilization reached a five-year high. The decrease in
industry activity is expected to result in only modest pricing
pressure on day rates on the deeper rigs in the industry's
fleet. Notwithstanding the softening commodity price
environment, Western continues to believe that additional rig build
opportunities in both the contract drilling and well servicing
segments will be available.", and "Western is of the view, that its
modern ELR rig fleet, strong customer base and solid reputation
will provide a competitive advantage which will enable the Company
to maintain its growth strategy and higher than industry
utilization through a period of lower commodity prices and drilling
activity." These forward-looking statements and information
are based on certain key expectations and assumptions made by
Western, including the assumption that notwithstanding an
expectation of lower utilization for its services such lowered
expectations will not be severe enough to affect Western's ability
to complete its currently planned expansion capital program nor
will it change Western's ongoing growth strategy. Although
Western believes that the expectations and assumptions on which
such forward-looking statements and information are based are
reasonable, undue reliance should not be placed on the
forward-looking statements and information as Western cannot give
any assurance that they will prove to be correct. Since
forward-looking statements and information address future events
and conditions, by their very nature they involve inherent risks
and uncertainties. Actual results could differ materially
from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, general
economic, market and business conditions. Readers are
cautioned that the foregoing list of risks and uncertainties is not
exhaustive. Additional information on these and other risk
factors that could affect Western's operations and financial
results are included in Western's annual information form and the
other disclosure documents filed by Western with securities
regulatory authorities which may be accessed through the SEDAR
website at www.sedar.com. The forward-looking statements and
information contained in this News Release are made as of the date
hereof and Western does not undertake any obligation to update
publicly or revise and forward-looking statements and information,
whether as a result of new information, future events or otherwise,
unless so required by applicable securities laws.
SOURCE Western Energy Services Corp.