CALGARY,
Feb. 27, 2014 /CNW/ - Western Energy
Services Corp. ("Western" or the "Company") (TSX: WRG) is pleased
to release its fourth quarter and year end 2013 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 years ended
December 31, 2013 and 2012 will be
available on SEDAR at www.sedar.com. All amounts are
denominated in Canadian dollars (CDN$) unless otherwise
identified.
Fourth Quarter 2013 Highlights:
- Operating Revenue totalled $119.8
million, a $43.4 million
increase (or 57%) over the same period in the prior year due to the
increased size and scale of Western's production services segment
following the acquisition of IROC Energy Services Corp. ("IROC") on
April 22, 2013, as well as higher
utilization in the contract drilling segment in both Canada and the
United States, coupled with a larger average drilling rig
fleet in Canada. These
increases were partially offset by decreased day rates in
the United States, while day rates
in Canada recovered in the fourth
quarter of 2013 to remain unchanged, averaging approximately
$28,900 in both the fourth quarters
of 2013 and 2012;
- Utilization in the Canadian contract drilling segment improved
to 65% as compared to 55% in the same period of 2012 and the CAODC
industry average of 43%. In the
United States, contract drilling utilization increased to
87% as compared to 62% in the same period of the prior year due to
increased marketing efforts, the addition of the Company's first
1,500 hp AC ELR triple pad rig conversion to the United States fleet, and strong
operational performance;
- Total well servicing hours in Western's production services
segment increased significantly following the acquisition of IROC
in the second quarter, increasing by 1,093% as compared to the same
period in the prior year. Likewise, well servicing
utilization improved to 53% as compared to 45% in the same period
of the prior year;
- EBITDA totalled $43.5 million, a
$12.1 million increase (or 39%) over
the same period in the prior year. Included in EBITDA in the
fourth quarter of 2013 is approximately $2
million in one-time personnel costs, which were partially
offset by a $1.6 million increase in
capitalized overhead. In addition, prior year EBITDA included
$2.2 million of contracted shortfall
commitment revenue. Normalizing for these three items, EBITDA
increased $14.5 million (or 50%) from
the same period in the prior year;
- Capital expenditures totalled $27.5
million and include $23.3
million of expansion capital, $3.8
million of maintenance capital and $0.4 million for critical spares and mainly
relate to the drilling rig build program in the contract drilling
segment relating to the construction of three drilling rigs, one of
which was commissioned in the fourth quarter of 2013, with the
remaining two rigs commissioned in the first quarter of 2014.
- Additionally, Western is pleased to announce a $31 million increase to the 2014 capital budget,
which includes the construction of one 5,500m ELR AC triple
drilling rig and one 4,500m telescopic ELR double drilling
rig. With this capital announcement, coupled with Western's
previously announced capital budget of $52
million, and $21 million in
carry forward from Western's 2013 budget, Western's capital
spending in 2014 is expected to total approximately $104 million.
Full Year 2013 Highlights:
- Operating Revenue totalled $353.1
million, a $70.3 million
increase (or 25%) over the prior year due to increased revenue in
the production services segment subsequent to the acquisition of
IROC, improved utilization and an increased drilling rig fleet in
the contract drilling segment. These increases were partially
offset by lower pricing in the contract drilling segment in both
Canada and the United States, although pricing recovered
in Canada in the fourth quarter of
2013 to fourth quarter 2012 levels;
- Contract drilling utilization in Canada averaged 55% as compared to 54% in the
prior year and the CAODC industry average of 40%. In
the United States, contract
drilling utilization averaged 67% in 2013 as compared to 68% in
2012;
- Subsequent to the acquisition of IROC, total well servicing
hours in the production services segment significantly increased by
1,265% as compared to the prior year. Well servicing
utilization averaged 45% in 2013 as compared to 36% in 2012;
- EBITDA totalled $117.4 million, a
$8.5 million increase (or 8%) as
compared to the prior year. The increase in EBITDA is mainly due to
the increased contribution from the production services segment
following the acquisition of IROC coupled with improved utilization
and an increased drilling rig fleet in Canada. These increases were
significantly offset by lower average drilling day rates in both
Canada and the United States;
- Capital expenditures totalled $95.2
million and include $78.7
million of expansion capital, $10.3
million of maintenance capital and $6.2 million for critical spares, and mainly
relate to Western's drilling rig build program which commissioned
three drilling rigs in 2013 and an additional two rigs commissioned
in the first quarter of 2014.
| Selected Financial Information |
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| (stated in thousands, except share and per
share amounts) |
|
|
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| |
Three months ended December
31 |
|
|
Year ended December 31 |
| Financial Highlights |
2013 |
|
2012 |
|
Change |
|
|
2013 |
|
2012 |
|
Change |
| Revenue |
129,713 |
|
83,338 |
|
56% |
|
|
379,943 |
|
308,617 |
|
23% |
| Operating Revenue(1) |
119,831 |
|
76,455 |
|
57% |
|
|
353,124 |
|
282,856 |
|
25% |
| Gross Margin(1) |
52,980 |
|
37,360 |
|
42% |
|
|
147,559 |
|
131,063 |
|
13% |
| Gross Margin as a percentage of operating
revenue |
44% |
|
49% |
|
(10%) |
|
|
42% |
|
46% |
|
(9%) |
| EBITDA(1) |
43,543 |
|
31,381 |
|
39% |
|
|
117,423 |
|
108,931 |
|
8% |
| EBITDA as a percentage of operating revenue |
36% |
|
41% |
|
(12%) |
|
|
33% |
|
39% |
|
(15%) |
| Cash flow from operating activities |
36,869 |
|
11,021 |
|
235% |
|
|
114,358 |
|
104,916 |
|
9% |
| Capital expenditures |
27,529 |
|
20,328 |
|
35% |
|
|
95,234 |
|
127,231 |
|
(25%) |
| Net income |
15,797 |
|
13,092 |
|
21% |
|
|
35,246 |
|
45,178 |
|
(22%) |
| - basic net income per share |
0.22 |
|
0.22 |
|
- |
|
|
0.51 |
|
0.77 |
|
(34%) |
| - diluted net income per
share |
0.21 |
|
0.22 |
|
(5%) |
|
|
0.50 |
|
0.74 |
|
(32%) |
| Weighted average number of shares |
|
|
|
|
|
|
|
|
|
|
|
|
| - basic |
73,374,219 |
|
59,485,594 |
|
23% |
|
|
69,032,574 |
|
58,784,692 |
|
17% |
| - diluted |
73,654,868 |
|
60,800,390 |
|
21% |
|
|
69,873,460 |
|
60,860,359 |
|
15% |
| Outstanding common shares as at period end |
73,386,191 |
|
59,582,143 |
|
23% |
|
|
73,386,191 |
|
59,582,143 |
|
23% |
| Dividends declared |
5,504 |
|
4,469 |
|
23% |
|
|
20,983 |
|
8,924 |
|
135% |
| |
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| Financial Position at (stated in
thousands) |
|
|
|
December 31, 2013 |
|
December 31, 2012 |
|
|
Change |
| Working capital |
|
|
|
|
50,616 |
|
|
77,628 |
|
|
(35%) |
| Property and equipment |
|
|
|
|
783,225 |
|
|
568,157 |
|
|
38% |
| Total assets |
|
|
|
|
986,792 |
|
|
749,448 |
|
|
32% |
| Long term debt |
|
|
|
|
262,877 |
|
|
186,948 |
|
|
41% |
| |
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| |
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| |
Three months ended December 31 |
|
|
Year ended
December 31 |
| Operating Highlights |
2013 |
|
2012 |
|
Change |
|
|
2013 |
|
2012 |
|
Change |
| Contract Drilling |
|
|
|
|
|
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| Canadian Operations: |
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| Contract drilling rig fleet: |
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|
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|
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|
|
| - Average |
46 |
|
44 |
|
5% |
|
|
45 |
|
41 |
|
10% |
| - End of period |
47 |
|
44 |
|
7% |
|
|
47 |
|
44 |
|
7% |
| Operating revenue per operating day
(CDN$)(2) |
28,884 |
|
28,867(6) |
|
- |
|
|
27,513 |
|
29,102(6) |
|
(5%) |
| Drilling rig operating days(3) |
2,754 |
|
2,198 |
|
25% |
|
|
9,098 |
|
8,127 |
|
12% |
| Drilling rig utilization per revenue
day(4) |
72% |
|
62% |
|
16% |
|
|
61% |
|
60% |
|
2% |
| Drilling rig utilization rate per operating
day(3) |
65% |
|
55% |
|
18% |
|
|
55% |
|
54% |
|
2% |
| CAODC industry average utilization
rate(3) |
43% |
|
40% |
|
8% |
|
|
40% |
|
42% |
|
(5%) |
| |
|
|
|
|
|
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| United States Operations: |
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| Contract drilling rig fleet: |
|
|
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|
|
|
|
|
|
|
| - Average |
5 |
|
5 |
|
- |
|
|
5 |
|
5 |
|
- |
| - End of period |
5 |
|
5 |
|
- |
|
|
5 |
|
5 |
|
- |
| Operating revenue per operating day
(US$)(2) |
26,559 |
|
32,356 |
|
(18%) |
|
|
26,942 |
|
32,742 |
|
(18%) |
| Drilling rig operating days(3) |
402 |
|
286 |
|
41% |
|
|
1,228 |
|
1,238 |
|
(1%) |
| Drilling rig utilization per revenue
day(4) |
99% |
|
79% |
|
25% |
|
|
81% |
|
85% |
|
(5%) |
| Drilling rig utilization per operating
day(3) |
87% |
|
62% |
|
40% |
|
|
67% |
|
68% |
|
(1%) |
| |
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| Production Services |
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| Well servicing rig fleet: |
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|
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| - Average |
65 |
|
7 |
|
829% |
|
|
48 |
|
5 |
|
860% |
| - End of period |
65 |
|
8 |
|
713% |
|
|
65 |
|
8 |
|
713% |
| Operating revenue per service hour
(CDN$)(2) |
804 |
|
614 |
|
31% |
|
|
766 |
|
596 |
|
29% |
| Total service hours |
31,403 |
|
2,633 |
|
1,093% |
|
|
77,879 |
|
5,705 |
|
1,265% |
| Service rig utilization rate(5) |
53% |
|
45% |
|
18% |
|
|
45% |
|
36% |
|
25% |
| (1) |
See financial measures reconciliations. |
| (2) |
Operating revenue per operating day and per service hour are
calculated using operating revenue divided by operating days and
service hours, respectively. |
| (3) |
Drilling rig utilization rate per operating day and drilling
rig operating days are calculated on operating days only
(i.e. spud to rig release basis). |
| (4) |
Drilling rig utilization rate per revenue day is calculated
based on operating and move days. |
| (5) |
Service rig utilization rate calculated based on full
utilization of 10 hours per day, 365 days per year. |
| (6) |
Excludes $2.2 million of shortfall commitment revenue from
take-or-pay contracts. |
Outlook
Western's operations are focused on three core
business lines: contract drilling, well servicing and oilfield
equipment rental services. Western currently has a drilling
rig fleet of 54 rigs, with an average age of approximately six
years. Western is the sixth largest drilling contractor in
Canada with a fleet of 49 rigs
operating through Horizon Drilling. Additionally, Western has
five ELR triple drilling rigs deployed in the United States operating through Stoneham
Drilling Corporation. Western is also the seventh largest
well servicing company in Canada
with a fleet of 65 rigs operating through Eagle Well
Servicing. Western's well servicing fleet is one of the
newest in the Western Canadian Sedimentary Basin, with an average
age of approximately four years. Western's oilfield equipment
rental division operates through Aero Rental Services ("Aero"),
which provides oilfield rental equipment to meet our customer's
needs in drilling and various completion processes such as
fracturing, coil tubing and steam assisted gravity drainage
("SAGD") operations for oil and gas producers and oilfield service
companies.
Western's drilling rig fleet is specifically
suited for the current market which is focused on drilling
horizontal wells of increased complexity. In total, 94% of
Western's fleet are ELR drilling rigs with depth ratings greater
than 3,000 meters and all of Western's rigs are capable of drilling
resource based horizontal wells. Approximately 41% of
Western's fleet is currently under long term take-or-pay contracts,
an increase from the third quarter of 2013 when approximately one
third of the fleet was under long term contracts. The
increase is due to improved demand for high quality deep drilling
rigs such as Western's. The average remaining term on these
contracts is approximately 2.2 years, which provides a base level
of revenue. These contracts typically generate 250 operating
days per year in Canada, as 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 approved capital spending for 2014
totals approximately $104 million,
which is comprised of $21 million of
carry forward capital from 2013, $52
million relating to Western's previously announced 2014
budget and the additional $31 million
announced today for the construction of one 5,500m ELR AC triple
drilling rig and one 4,500m telescopic ELR double drilling
rig. In total, Western's 2014 capital plan includes
approximately $62 million in
expansion capital and $42 million in
maintenance capital, including $10
million for critical spare equipment. The $21 million of carry forward from Western's 2013
capital program is mainly related to the completion in January 2014 of one telescopic Efficient Long
Reach double drilling rig in Canada, as well as the completion of two
additional 1,500 hp AC pad conversions in the United States. Western believes the
2014 capital budget provides a prudent use of cash resources and
ensures that it has the flexibility to execute on strategic
opportunities as they arise. This budget demonstrates the
Company's commitment to maintaining Western's premier drilling and
service rig fleet while expanding Western's strategic presence in
the oilfield rental equipment market. Western will continue
to evaluate and expand its operations in a prudent manner and make
any required adjustments to its capital program as these
opportunities unfold in 2014.
During 2013, the price for light crude oil
improved with the Edmonton Par
price increasing 8% year over year, however the price for heavy
crude oil, such as the Western Canadian Select price, increased by
only 1% year over year. Natural gas prices have also
improved; although they remain low by historical standards, the
AECO 30-day spot rate increased on average by 29% in 2013 as
compared to 2012. The increased commodity price environment
and improving economic conditions in North America led to increased oilfield
services activity in the fourth quarter of 2013, which has further
improved through the first two months of 2014. Western
believes oilfield services activity in 2014 and beyond will improve
providing additional drilling rig build opportunities at attractive
rates that meet our return on investment criteria. Activity
is expected to continue improving as liquefied natural gas projects
gain approval, crude oil transportation capacity increases through
rail and pipeline development, drilling activity increases in the
Duvernay and Montney resource plays in Alberta and northeast British Columbia, and as foreign investment
continues to flow into Canada. Currently, the largest
challenges facing the oilfield services industry are producer
spending constraints, pricing differentials on Canadian crude oil,
historically low natural gas prices, and the challenge to attract
and retain skilled labour. The Company believes Western's
modern drilling and well servicing rig fleet and corporate culture
will provide a distinct advantage in retaining and attracting
qualified individuals. Western is of the view, that its
modern fleet, strong customer base and solid reputation provide a
competitive advantage which will enable the Company to continue its
growth strategy and higher than industry average utilization.
Quarterly Dividend
On February 27,
2014, Western's Board of Directors declared a quarterly
dividend of $0.075 per share, which
will be paid on April 14, 2014, to
shareholders of record at the close of business on March 31, 2014. The dividends are eligible
dividends for Canadian income tax purposes. On a prospective
basis, the declaration of dividends will be determined on a
quarter-by-quarter basis by the Board of Directors.
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 which are derived from information reported in the
consolidated statements of operations and comprehensive income 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.
Operating Revenue
Management believes that in addition to revenue,
Operating Revenue is a useful supplemental measure as it provides
an indication of the revenue generated by Western's principal
operating activities, excluding third party charges.
The following table provides a reconciliation of
revenue under IFRS as disclosed in the consolidated statements of
operations and comprehensive income to Operating Revenue:
| |
|
|
|
|
|
|
|
|
|
| |
|
Three months ended December 31 |
|
|
Year ended December 31 |
| (stated in thousands) |
|
2013 |
|
2012 |
|
|
2013 |
|
2012 |
| Operating Revenue |
|
|
|
|
|
|
|
|
|
| |
Drilling |
|
90,754 |
|
74,840 |
|
|
284,469 |
|
279,456 |
| |
Production services |
|
29,275 |
|
1,615 |
|
|
69,004 |
|
3,400 |
| |
Less: inter-company eliminations |
|
(198) |
|
- |
|
|
(349) |
|
- |
| |
|
119,831 |
|
76,455 |
|
|
353,124 |
|
282,856 |
| Third party charges |
|
9,882 |
|
6,883 |
|
|
26,819 |
|
25,761 |
| Revenue |
|
129,713 |
|
83,338 |
|
|
379,943 |
|
308,617 |
| |
|
|
|
|
|
|
|
|
|
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 before interest and finance costs, taxes,
depreciation and amortization, other non-cash items and one-time
gains and losses ("EBITDA") is a useful supplemental measure as it
provides an indication of the results generated by the Company's
principal operating segments similar to Gross Margin but also
factors in the cash administrative expenses incurred in the
period.
Operating Earnings
Management believes that in addition to net
income, Operating Earnings is a useful supplemental measure as it
provides an indication of the results generated by the Company's
principal operating segments similar to 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 consolidated statements of
operations and comprehensive income to Gross Margin, EBITDA and
Operating Earnings:
| |
|
|
|
|
|
|
|
|
| |
|
Three months ended December 31 |
|
Year ended December 31 |
| (stated in thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| |
|
|
|
|
|
|
|
|
| Gross Margin |
|
52,980 |
|
37,360 |
|
147,559 |
|
131,063 |
| Add (subtract): |
|
|
|
|
|
|
|
|
| |
Administrative expenses |
|
(10,195) |
|
(6,572) |
|
(33,163) |
|
(24,409) |
| |
Depreciation - administrative |
|
345 |
|
365 |
|
1,431 |
|
971 |
| |
Stock based compensation - administrative |
|
413 |
|
228 |
|
1,596 |
|
1,306 |
| EBITDA |
|
43,543 |
|
31,381 |
|
117,423 |
|
108,931 |
| |
Depreciation - operating |
|
(15,916) |
|
(9,067) |
|
(47,701) |
|
(31,890) |
| |
Depreciation - administrative |
|
(345) |
|
(365) |
|
(1,431) |
|
(971) |
| Operating Earnings |
|
27,282 |
|
21,949 |
|
68,291 |
|
76,070 |
| |
Stock based compensation - operating |
|
(252) |
|
(153) |
|
(895) |
|
(537) |
| |
Stock based compensation - administrative |
|
(413) |
|
(228) |
|
(1,596) |
|
(1,306) |
| |
Finance costs |
|
(5,155) |
|
(3,237) |
|
(17,058) |
|
(12,437) |
| |
Other items |
|
(363) |
|
(583) |
|
(496) |
|
(756) |
| |
Income taxes |
|
(5,302) |
|
(4,656) |
|
(13,000) |
|
(15,856) |
| Net income |
|
15,797 |
|
13,092 |
|
35,246 |
|
45,178 |
| |
|
|
|
|
|
|
|
|
2013 Fourth Quarter and Year End 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
February 28, 2014.
The conference call dial-in number is
1-888-231-8191.
A live webcast of the conference call will be
accessible on Western's website at www.wesc.ca by selecting
"Investors", then "Webcasts". Shortly after the
live webcast, an archived version will be available for
approximately 14 days.
The archived recording of the conference call
will also be available approximately one hour after the completion
of the call until March 14, 2014 by
dialing 1-855-859-2056 or 416-849-0833, passcode 57856591.
Forward-Looking Statements and Information
This press release contains certain statements
or disclosures relating to Western that are based on the
expectations of Western as well as assumptions made by and
information currently available to Western which may constitute
forward-looking information under applicable securities laws.
All such statements and disclosures, other than those of historical
fact, which address activities, events, outcomes, results or
developments that Western anticipates or expects may, or will occur
in the future (in whole or part) should be considered
forward-looking information. In some cases forward-looking
information can be identified by terms such as "forecast",
"future," "may", "will", "expect", "anticipate,", "believe",
"potential", "enable", "plan", "continue", "contemplate", "pro
forma", or other comparable terminology.
In particular, forward-looking information in
this press release includes, but is not limited to, statements
relating to future dividends; the demand for the Company's services
and equipment; the terms of existing and future drilling contracts
in Canada and the US; the
Company's expansion and maintenance capital plans for 2014;
expectations as to the increase in crude oil transportation
capacity through rail and pipeline development; expectations as to
the necessary approvals for liquefied natural gas projects; the
expectation of an increase in oilfield services activity in general
and in drilling activity in the Duvernay and Montney resource plays in particular; and the
Company's expected sources of funding to support such capital
plans; the Company's expected utilization for its drilling and well
servicing divisions; industry activity levels and pricing, and
commodity pricing.
The material assumptions in making the
forward-looking statements in this press release include, but are
not limited to, assumptions relating to, demand levels and pricing
for oilfield services; fluctuations in the price and demand for oil
and natural gas; commodity pricing; general economic and financial
market conditions; the Company's ability to finance its operations;
the effects of seasonal and weather conditions on operations and
facilities; changes in laws or regulations; currency exchange
fluctuations and the ability of the Company to attract and retain
skilled labour and qualified management and other unforeseen
conditions which could impact the use of services supplied by
Western and Western's ability to respond to such conditions.
Although Western believes that the expectations
and assumptions on which such forward-looking statements and
information are based 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
industry, economic, market and business conditions, including, but
not limited to, the risk that oilfield services activity will not
improve in 2014 as anticipated Readers are cautioned that the
foregoing list of risks, uncertainties and assumptions are not
exhaustive. Additional information on these and other risk
factors that could affect Western's operations and financial
results are included in Western's annual information form which may
be accessed through the SEDAR website at www.sedar.com. The
forward-looking statements and information contained in this press
release are made as of the date hereof and Western does not
undertake any obligation to update publicly or revise any
forward-looking statements and information, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
SOURCE Western Energy Services Corp.