CALGARY, Feb. 21, 2018 /CNW/ - Western Energy Services
Corp. ("Western" or the "Company") (TSX: WRG) announces the release
of its fourth quarter and year end 2017 financial and operating
results. Additional information relating to the Company,
including the Company's financial statements and management's
discussion and analysis as at and for the years ended December 31, 2017 and 2016 will be available on
SEDAR at www.sedar.com. Non-International Financial Reporting
Standards ("Non-IFRS") measures and abbreviations for standard
industry terms are included in this press release. All
amounts are denominated in Canadian dollars (CDN$) unless otherwise
identified.
Fourth Quarter 2017 Operating Results:
- Operating Revenue in the fourth quarter of 2017 benefited from
the improved economic conditions and resulted in higher customer
spending and a corresponding increase in demand for Western's
services. Fourth quarter Operating Revenue increased by
$17.7 million (or 42%) to
$59.3 million in 2017 as compared to
$41.6 million in the same period of
the prior year. In the contract drilling segment, Operating
Revenue totalled $45.9 million in the
fourth quarter of 2017 as compared to $29.0
million in the fourth quarter of 2016, an increase of
$16.9 million (or 58%); while in the
production services segment, Operating Revenue totalled
$13.4 million for the three months
ended December 31, 2017 as compared
to $12.7 million in the same period
of the prior year, an increase of $0.7
million (or 5%). Higher utilization in the contract
drilling segment in the fourth quarter of 2017, and improved
pricing in Canada, positively
impacted Operating Revenue in the contract drilling and production
services segments as described below:
-
- Drilling rig utilization – Operating Days ("Drilling Rig
Utilization") in Canada averaged
38% in the fourth quarter of 2017 compared to an average of 28% in
the fourth quarter of 2016, reflecting a 1,000 basis points ("bps")
increase. Fourth quarter 2017 Drilling Rig Utilization
represented a premium of 1,000 bps to the Canadian Association of
Oilwell Drilling Contractors ("CAODC") industry average of 28%,
whereas in the fourth quarter of 2016, Drilling Rig Utilization of
28% represented a 300 bps premium to the industry average.
The increase in the Company's utilization premium to the industry
average in the fourth quarter of 2017 is attributable to:
-
- the quality of Western's drilling rig fleet, which meets
current customer demands;
- the ability of the Company's rig crews;
- the efforts by the Company's marketing group to reposition rigs
for existing and new customers; and
- a number of Western's customers increasing their capital
budgets in 2017, as compared to 2016 when customer spending was
limited.
These factors, combined with
improved market conditions, resulted in higher demand for the
Company's drilling rigs and a 13%
improvement in Operating Revenue per Billable Day in the
fourth quarter of 2017, as compared to the same period in the prior
year;
-
- In the United States, five of
the Company's six drilling rigs operated during the quarter, two of
which were working on long term contracts, resulting in Drilling
Rig Utilization of 63% in the fourth quarter of 2017, as compared
to 29% in the same period of the prior year. In the fourth
quarter of 2017, Operating Revenue per Billable Day in the United States decreased by 11% as compared
to the fourth quarter of 2016 mainly due to changes in the mix of
rigs working on spot rates versus long term contracts, as compared
to the same period of the prior year when the Company had one rig
working on a long term legacy contract for much of the quarter at a
favorable day rate; and
- Well servicing utilization of 26% in the fourth quarter of 2017
compared to 27% in the same period of the prior year.
Improved market conditions resulted in an 11% increase in hourly
rates during the fourth quarter of 2017, as compared to the same
period in the prior year, mainly due to increased demand for fully
crewed rigs, which resulted in higher hourly rates in 2017.
Lower utilization was offset by improved pricing, which led to a
$0.8 million (or 8%) increase in well
servicing Operating Revenue in the period.
- Fourth quarter Adjusted EBITDA improved by $6.6 million (or 187%) to $10.1 million in 2017 as compared to $3.5 million in the fourth quarter of 2016.
The year over year change in Adjusted EBITDA is due to increased
activity in the contract drilling segment and improved pricing in
Canada, which was partially offset
by lower pricing in the United
States and decreased well servicing activity.
- Administrative expenses, excluding depreciation and stock based
compensation, increased by $0.8
million (or 16%) to $5.8
million, as compared to $5.0
million in the fourth quarter of 2016, mainly due to higher
employee related costs.
- The Company incurred a net loss of $5.0
million in the fourth quarter of 2017 ($0.06 per basic common share) as compared to a
net loss of $14.5 million in the same
period in 2016 ($0.20 per basic
common share). The change can be attributed to the
following:
-
- A $6.6 million increase in
Adjusted EBITDA due to higher utilization in the contract drilling
segment and improved pricing for contract drilling and well
servicing in Canada, partially
offset by lower contract drilling pricing in the United States and decreased well servicing
activity;
- A $1.6 million increase in income
tax recoveries mainly due to the decrease in the federal corporate
tax rates in the United States
from 35.0% to 21.0%, which was signed into law in December 2017;
- A $0.6 million increased gain in
other items, which mainly consist of gains and losses on foreign
exchange and asset sales;
- A $0.4 million decrease in
depreciation expense mainly due to certain equipment being fully
depreciated over the last four quarters; and
- A $0.2 million decrease in stock
based compensation expense as fewer unvested stock options and
restricted share units were outstanding in the quarter.
- Fourth quarter 2017 capital expenditures of $5.9 million included $3.0
million of expansion capital and $2.9
million of maintenance capital. In total, capital
spending in the fourth quarter of 2017 increased by $3.2 million from the $2.7
million incurred in the fourth quarter of 2016. The
Company incurred expansion capital mainly related to drilling rig
upgrades and the purchase of oilfield rental equipment in the
fourth quarter of 2017, as well as necessary maintenance capital
related to the higher activity in the period.
2017 Operating Results:
- Operating Revenue in 2017 benefited from improved market
conditions and higher customer spending which resulted in a
corresponding increase in demand for Western's services. In
2017, Operating Revenue increased by $102.1
million (or 87%) to $219.0
million as compared to $116.9
million in 2016. In the contract drilling segment,
Operating Revenue totalled $166.7
million in 2017, an increase of $87.8
million (or 111%), as compared to $78.9 million in 2016, and included $6.4 million in shortfall commitment revenue in
2017, as compared to $1.8 million in
shortfall commitment revenue in 2016; while in the production
services segment, Operating Revenue totalled $52.5 million, an increase of $14.4 million (or 38%) as compared to
$38.1 million in 2016. Higher
utilization in all divisions and higher pricing in Canada in 2017 as compared to 2016, impacted
Operating Revenue in the contract drilling and production services
segments as described below:
-
- Drilling Rig Utilization in Canada of 37% for the year ended December 31, 2017, compared to 17% for the prior
year, reflects a 2,000 bps increase. Drilling Rig Utilization
of 37% in 2017 represents an 800 bps premium to the CAODC industry
average, whereas in 2016, Drilling Rig Utilization of 17% was on
par with the CAODC industry average of 17%. The increase in
the Company's utilization premium in 2017 is attributable to:
-
- the quality of Western's drilling rig fleet which meets current
customer demands;
- the ability of the Company's rig crews;
- the efforts by the Company's marketing group to reposition rigs
for existing and new customers; and
- a number of Western's customers increasing their capital
budgets in 2017, as compared to 2016 when customer spending was
limited.
These factors, combined with
improved market conditions, resulted in higher demand for the
Company's drilling rigs in 2017. Additionally, Western
continued to increase its market share in 2017. Western's 50
drilling rigs in Canada represent
approximately 8% of the rigs registered with the CAODC, however
Western's total operating days in 2017, represented 10% of the
total industry Operating Days reported by the CAODC. The
factors noted above led to improved Operating Revenue per Billable
Day in 2017 particularly in the latter part of the year, resulting
in a 3% year over year improvement as compared to 2016.
-
- In the United States, five of
the Company's six drilling rigs operated during the period, two of
which were working on long term contracts, resulting in Drilling
Rig Utilization of 52% for the year ended December 31, 2017, as compared to 24% in the
prior year. Operating Revenue per Billable Day in
the United States decreased by 12%
for the year ended December 31, 2017,
due to changes in the mix of rigs working on spot rates versus long
term contracts, as compared to the prior year when the Company had
one rig working on a long term legacy contract for much of the year
at a favorable day rate; and
- Well servicing utilization of 26% for the year ended
December 31, 2017 compared to 20% in
the prior year. Continued improvements in the economic
environment helped increase activity year over year.
Additionally, well servicing hourly rates increased by 5% in 2017,
as compared to 2016, as activity continued to improve throughout
2017. Improved utilization and pricing led to a $12.0 million (or 39%) year over year increase in
well servicing Operating Revenue.
- Adjusted EBITDA increased by $29.9
million (or 518%) to $35.7
million in 2017 as compared to $5.8
million in 2016. The year over year increase in
Adjusted EBITDA is due to higher activity across all divisions, a
$4.6 million increase in shortfall
commitment revenue in 2017, and the Company's ability to safely and
efficiently reactivate equipment and crews without incurring
significant costs, including rigs that had been idle for an
extended period of time. These factors were aided by improved
pricing in Canada, which was
partially offset by lower pricing in the
United States.
- Administrative expenses in 2017, excluding depreciation and
stock based compensation, increased by $2.6
million (or 13%) to $22.6
million as compared to $20.0
million in 2016. The increase in administrative
expenses is mainly due to higher employee related costs, coupled
with one time professional fees incurred in the period.
- The Company incurred a net loss of $37.4
million for the year ended December
31, 2017 ($0.48 per basic
common share) as compared to a net loss of $62.0 million for the year ended December 31, 2016 ($0.84 per basic common share). The decrease
in net loss can be attributed to the following:
-
- A $29.9 million increase in
Adjusted EBITDA due to higher utilization in both the contract
drilling and production services segments, improved contract
drilling and well servicing pricing in Canada, and increased shortfall commitment
revenue;
- A prior period loss on asset decommissioning of $5.2 million in the contract drilling
segment;
- A $1.8 million decrease in stock
based compensation expense as fewer of the Company's unvested stock
options and restricted share units were outstanding in the period;
and
- A $0.6 million decrease in
finance costs mainly due to the Company reducing its available
Credit Facilities in 2016, resulting in lower standby fees.
Offsetting the above mentioned
items are the following:
-
- An increase of $7.0 million in
depreciation expense due to the Company changing from unit of
production to straight line depreciation for drilling and well
servicing rigs effective April 1,
2016;
- A $2.9 million increase in other
items which totaled a loss of $1.4
million in 2017, as compared to a gain of $1.5 million in 2016, and include $1.6 million in transaction costs related to the
unsuccessful acquisition of Savanna Energy Services Corp.
("Savanna") in 2017, as well as gains and losses on foreign
exchange and asset sales; and
- A $3.4 million decrease in income
tax recovery due to improved earnings before taxes, offset by the
decrease in the United States
federal corporate tax rates from 35.0% to 21.0%, which was signed
into law in December 2017.
- Capital expenditures of $18.1
million for the year ended December
31, 2017 included $9.4 million
of expansion capital and $8.7 million
of maintenance capital. In total, capital spending for 2017
increased by $13.4 million from the
$4.7 million incurred in 2016.
The Company incurred expansion capital mainly related to drilling
rig upgrades in 2017, which have contributed to the increase in
cash flow from operating activities in the year, as well as
necessary maintenance capital related to the higher activity in the
period.
- On October 17, 2017 the Company
closed the following financing transactions:
-
- A lending agreement with Alberta Investment Management
Corporation ("AIMCo") providing for a $215.0
million second lien secured term loan facility (the "Second
Lien Facility"). The Second Lien Facility was available in a
single draw which was made subsequent to December 31, 2017, and was used to repay a
portion of the Company's outstanding 7⅞% senior unsecured notes
(the "Senior Notes"). Interest is payable semi-annually, at a
rate of 7.25% per annum, on January 1
and July 1 each year.
Amortization payments equal to 1% of the principal amount are
payable annually in quarterly installments beginning on
July 1, 2018, with the balance due on
January 31, 2023. In
conjunction with the Second Lien Facility, Western issued to AIMCo
approximately 7.1 million warrants to purchase common shares of
Western, at an exercise price of $1.77 per common share, which expire on
October 17, 2020;
- A private placement with AIMCo of 9.1 million common shares of
Western at a price of $1.25 per
common share, for aggregate gross proceeds of $11.4 million;
- A bought deal offering of common shares of Western with a
syndicate of underwriters where the underwriters purchased 9.1
million common shares of Western at a price of $1.25 per common share, for aggregate gross
proceeds of $11.4 million; and
- Completed a number of amendments to its Credit Facilities,
including the following:
-
- Extended the maturity of its syndicated revolving credit
facility (the "Revolving Facility") and its committed operating
facility (the "Operating Facility" and together the "Credit
Facilities") to December 17,
2020;
- Increased the limit of the Revolving Facility from $50.0 million to $70.0
million, while the $10.0
million Operating Facility limit remained unchanged;
- The interest coverage and current ratio covenants were
permanently removed;
- A debt service coverage ratio was added, which is calculated
based on EBITDA, as defined in the Credit Facilities agreement,
divided by the sum of interest expense and scheduled long term debt
principal repayments. This covenant will only be tested when
the outstanding principal under the Credit Facilities exceeds
$40.0 million or the net book value
of property and equipment is less than $400.0 million. If applicable, the debt
service coverage ratio must meet or exceed 1.0 as at and prior to
March 31, 2018, 1.25 as at
June 30, 2018, 1.5 as at September 30, 2018 and December 31, 2018, and 2.0 thereafter; and
- The Revolving Facility continues to include an accordion
feature, whereby an incremental $50.0
million of borrowing would be available, subject to the
approval of the lenders.
- Subsequent to December 31, 2017,
on January 31, 2018 the Company
completed the one time draw of $215.0
million on its Second Lien Facility. The proceeds from
the Second Lien Facility draw, along with cash on hand and funds
available under the Credit Facilities were used to redeem the
Senior Notes at their par value of $265.0
million on February 1,
2018.
Selected Financial
Information
|
(stated in
thousands, except share and per share amounts)
|
|
Three months ended December 31
|
Year ended December 31
|
Financial
Highlights
|
2017
|
2016
|
Change
|
2017
|
2016
|
Change
|
Revenue
|
66,515
|
45,126
|
47%
|
238,175
|
124,438
|
91%
|
Operating
Revenue(1)
|
59,255
|
41,649
|
42%
|
218,988
|
116,907
|
87%
|
Gross
Margin(1)
|
15,886
|
8,507
|
87%
|
58,310
|
25,762
|
126%
|
Gross Margin as a
percentage of Operating Revenue
|
27%
|
20%
|
35%
|
27%
|
22%
|
23%
|
Adjusted
EBITDA(1)
|
10,067
|
3,506
|
187%
|
35,695
|
5,775
|
518%
|
Adjusted EBITDA as a
percentage of Operating Revenue
|
17%
|
8%
|
113%
|
16%
|
5%
|
220%
|
Cash flow from
operating activities
|
(800)
|
(1,327)
|
(40%)
|
24,641
|
16,631
|
48%
|
Capital
expenditures
|
5,912
|
2,724
|
117%
|
18,132
|
4,719
|
284%
|
Net loss
|
(4,974)
|
(14,509)
|
(66%)
|
(37,445)
|
(61,973)
|
(40%)
|
|
-basic net loss per
share
|
(0.06)
|
(0.20)
|
(70%)
|
(0.48)
|
(0.84)
|
(43%)
|
|
-diluted net loss per
share
|
(0.06)
|
(0.20)
|
(70%)
|
(0.48)
|
(0.84)
|
(43%)
|
Weighted average
number of shares
|
|
|
|
|
|
|
|
-basic
|
88,812,216
|
73,795,896
|
20%
|
77,601,827
|
73,703,437
|
5%
|
|
-diluted
|
88,812,216
|
73,795,896
|
20%
|
77,601,827
|
73,703,437
|
5%
|
Outstanding common
shares as at period end
|
92,175,598
|
73,795,944
|
25%
|
92,175,598
|
73,795,944
|
25%
|
(1) See
"Non-IFRS measures" included in this press release.
|
|
Three months ended
December 31
|
Year ended
December 31
|
Operating
Highlights(1)
|
2017
|
2016
|
Change
|
2017
|
2016
|
Change
|
Contract
Drilling
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
-Average active rig
count
|
21.6
|
16.2
|
33%
|
20.6
|
10.0
|
106%
|
|
-End of
period
|
50
|
51
|
(2%)
|
50
|
51
|
(2%)
|
Operating Revenue per
Billable Day
|
18,807
|
16,657
|
13%
|
17,558(3)
|
16,984(4)
|
3%
|
Operating Revenue per
Operating Day
|
21,100
|
18,811
|
12%
|
19,446(3)
|
19,058(4)
|
2%
|
Operating
Days
|
1,774
|
1,317
|
35%
|
6,801
|
3,276
|
108%
|
Drilling rig
utilization - Billable Days
|
43%
|
32%
|
34%
|
41%
|
20%
|
105%
|
Drilling rig
utilization - Operating Days
|
38%
|
28%
|
36%
|
37%
|
17%
|
118%
|
CAODC industry
average utilization(2)
|
28%
|
25%
|
12%
|
29%
|
17%
|
71%
|
|
|
|
|
|
|
|
United States
Operations:
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
-Average active rig
count
|
4.0
|
1.7
|
135%
|
3.1
|
1.4
|
121%
|
|
-End of
period
|
6
|
5
|
20%
|
6
|
5
|
20%
|
Operating Revenue per
Billable Day (US$)
|
18,038
|
20,197
|
(11%)
|
19,198
|
21,805
|
(12%)
|
Operating Revenue per
Operating Day (US$)
|
21,265
|
23,440
|
(9%)
|
22,338
|
25,166
|
(11%)
|
Operating
Days
|
313
|
134
|
134%
|
969
|
440
|
120%
|
Drilling rig
utilization - Billable Days
|
75%
|
34%
|
121%
|
61%
|
28%
|
118%
|
Drilling rig
utilization - Operating Days
|
63%
|
29%
|
117%
|
52%
|
24%
|
117%
|
|
|
|
|
|
|
|
Production
Services
|
|
|
|
|
|
|
Well servicing rig
fleet:
|
|
|
|
|
|
|
|
-Average active rig
count
|
17.0
|
17.6
|
(3%)
|
17.2
|
12.9
|
33%
|
|
-End of
period
|
66
|
66
|
-
|
66
|
66
|
-
|
Service rig Operating
Revenue per Service Hour
|
708
|
638
|
11%
|
673
|
643
|
5%
|
Service
Hours
|
15,650
|
16,182
|
(3%)
|
62,946
|
47,305
|
33%
|
Service rig
utilization
|
26%
|
27%
|
(4%)
|
26%
|
20%
|
30%
|
(1)
|
See "Non-IFRS
measures" included in this press release.
|
(2)
|
Source: The
Canadian Association of Oilwell Drilling Contractors ("CAODC"). The
CAODC industry average is based on Operating Days divided by total
available days.
|
(3)
|
Excludes shortfall
commitment revenue from take or pay contracts of $6.4 million for
the year ended December 31, 2017.
|
(4)
|
Excludes shortfall
commitment revenue from take or pay contracts of $1.8 million for
the year ended December 31, 2016.
|
|
|
|
|
Financial Position
at (stated in thousands)
|
December 31,
2017
|
December 31,
2016
|
Change
|
Working
capital
|
62,866
|
51,118
|
23%
|
Property and
equipment
|
652,828
|
708,567
|
(8%)
|
Total
assets
|
760,504
|
793,525
|
(4%)
|
Long term
debt
|
265,219
|
264,070
|
-
|
Western is an oilfield service company focused on three core
business lines: contract drilling, well servicing and oilfield
rental equipment services. Western provides contract drilling
services through its division, Horizon Drilling ("Horizon") in
Canada, and its wholly owned
subsidiary, Stoneham Drilling Corporation ("Stoneham") in
the United States ("US").
Western provides well servicing and oilfield rental equipment
services in Canada through its
wholly owned subsidiary Western Production Services Corp. ("Western
Production Services"). Western Production Services' division,
Eagle Well Servicing ("Eagle") provides well servicing operations,
while its division, Aero Rental Services ("Aero") provides oilfield
rental equipment services. Financial and operating results
for Horizon and Stoneham are
included in Western's contract drilling segment, while financial
and operating results for Eagle and Aero are included in Western's
production services segment.
Western has a drilling rig fleet of 56 rigs specifically suited
for drilling horizontal wells of increased complexity.
Western is currently the fifth largest drilling contractor in
Canada, based on the CAODC
registered rigs, with a fleet of 50 rigs operating through
Horizon. Of the Canadian fleet, 23 are classified as Cardium
class rigs, 19 as Montney class
rigs and eight as Duvernay class
rigs. As compared to the Cardium class rigs, the Montney class rigs have a larger hookload,
while the Duvernay class rigs have
the largest hookload allowing the rig to support more drill pipe
downhole. Additionally, Western has six drilling rigs
operating through Stoneham,
including five Duvernay class
triple drilling rigs. Western is also the fifth largest well
servicing company in Canada with a
fleet of 66 rigs operating through Eagle. Western's oilfield
rental equipment division, which operates through Aero, provides
oilfield rental equipment for hydraulic fracturing services, well
completions and production work, coil tubing and drilling
services.
Crude oil and natural gas prices impact the cash flow of
Western's customers, which in turn impacts the demand for Western's
services. The following table summarizes average crude oil
and natural gas prices, as well as average foreign exchange rates
for the three months ended December 31,
2017 and 2016 and for the years ended December 31, 2017 and 2016.
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
|
2017
|
2016
|
Change
|
2017
|
2016
|
Change
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
West Texas
Intermediate (US$/bbl)
|
55.28
|
49.16
|
12%
|
50.81
|
43.37
|
17%
|
Western Canadian
Select (CDN$/bbl)
|
49.10
|
45.84
|
7%
|
49.49
|
39.27
|
26%
|
Natural
Gas
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
1.67
|
3.11
|
(46%)
|
2.23
|
2.18
|
2%
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.27
|
1.33
|
(5%)
|
1.30
|
1.32
|
(2%)
|
(1)
|
See "Abbreviations"
included in this press release.
|
(2)
|
Source:
Bloomberg
|
West Texas Intermediate ("WTI") on average improved in the
fourth quarter of 2017 as compared to the third quarter of 2017,
increasing by 15%, and was 12% higher compared to the same period
in the prior year. For Western's Canadian customers, the
impact of the weaker US dollar when translating WTI into Canadian
dollars, resulted in only a 7% increase for the three months ended
December 31, 2017, as compared to the
same period in the prior year. Canadian heavy crude pricing
improved in the fourth quarter of 2017, as Western Canadian Select
("WCS") on average increased by 4% as compared to the third quarter
of 2017, and by 7% as compared to the same period of the prior
year. The prices for condensate and natural gas liquids
("NGL") in Canada also improved in
the fourth quarter of 2017, as compared to the same period in the
prior year. For the year ended December 31, 2017, WTI was 17% higher than the
prior year, WCS on average increased by 26% in 2017 as compared to
2016, and the price for condensate and NGLs in Canada also improved year over year.
When translating WTI into the Canadian dollar equivalent for the
year ended December 31, 2017, the
weaker US dollar resulted in a 15% increase as compared to the year
ended December 31, 2016.
Canadian natural gas prices, such as AECO, declined quarter over
quarter, decreasing on average by 1% from the third quarter of 2017
to the fourth quarter of 2017 and decreasing by 46% compared to the
fourth quarter of 2016. Additionally, for the year ending
December 31, 2017, AECO increased by
2% as compared to 2016.
Improved market conditions in 2017, particularly the improved
crude oil and condensate prices, has led to a corresponding
increase in the demand for oilfield services in both Canada and the United States. The CAODC
reported that for drilling in Canada, the total number of Operating Days in
the Western Canadian Sedimentary Basin ("WCSB") increased
approximately 54% in 2017 as compared to 2016. Similarly, as
reported by Baker Hughes, a GE Company, the average number of
active drilling rigs in the United
States increased approximately 71% in 2017 as compared to
2016.
Outlook
Currently, 37 of Western's drilling rigs are operating.
Four of Western's 56 drilling rigs (or 7%) are under long term take
or pay contracts, with one expected to expire in 2018, two expected
to expire in 2019 and one expected to expire in 2020. These
contracts each typically generate between 250 and 350 Billable Days
per year.
Western's capital budget for 2018 remains unchanged and is
expected to total $20 million,
including capital spending carry forward for 2017 of approximately
$2 million, with $8 million allocated for expansion capital and
$12 million for maintenance
capital. Western believes the 2018 capital budget provides a
prudent use of cash resources and will allow it to maintain its
premier drilling and well servicing rig fleets, while remaining
responsive to customer requirements. Western will continue to
manage its operations in a disciplined manner and make any required
adjustments to its capital program as customer demand
changes.
Since hitting 10 year lows in the first quarter of 2016, crude
oil prices, while remaining well below previous highs, have
improved. As such, North American drilling rig counts
recovered in 2017 and the Company is expecting stable year over
year activity levels in 2018. Improving gross margin
continues to be a priority for the Company and, as has been
demonstrated over the last three quarters, Western is working to
implement higher rates with each rig that is awarded work.
Prices for Western's services remain below historical levels and
will continue to impact Adjusted EBITDA and cash flow from
operating activities in the near term. However, Western's
variable cost structure and a prudent capital budget will aid in
preserving balance sheet strength. As at December 31, 2017, in addition to $48.8 million in cash and cash equivalents,
Western had $80.0 million of
available credit under its Credit Facilities, which do not mature
until December 17, 2020.
Western repaid the $265.0 million in
outstanding Senior Notes at par in the first quarter of 2018 with
proceeds from the $215.0 million
Second Lien Facility, along with cash on hand and funds available
under the Credit Facilities. Completing these financing
transactions has lowered Western's total debt and leverage metrics,
decreased Western's effective interest rates and extended the
maturity on all of Western's long term debt. Additionally,
Western will save approximately $5.3
million annually in cash interest expense, due to the
decreased total debt level and lower interest rate on the Second
Lien Facility, as compared to the Senior Notes.
Oilfield service activity in Canada will be affected by the development of
resource plays in Alberta and
northeast British Columbia which
will be impacted by pipeline construction, increased environmental
regulations including the implementation of a carbon tax in
Alberta, and decreased foreign
investment into Canada. Currently, the largest challenges
facing the oilfield service industry are continued customer
spending constraints as a result of lower commodity prices and the
increasing challenge of staffing field crews, particularly in the
well servicing division. Western's view is that its modern
drilling and well servicing rig fleets, reputation, and disciplined
cash management provide a competitive advantage which will enable
the Company to manage through the current slowdown in oilfield
service activity.
2017 Fourth Quarter and Year End Financial and Operating
Results Conference Call and Webcast
Western has scheduled a conference call and webcast to begin
promptly at 9:00 a.m. MT
(11:00 a.m. ET) on Thursday, February 22, 2018.
The conference call dial-in number is 1-888-231-8191.
A live webcast of the conference call will be accessible on
Western's website at www.wesc.ca by selecting "Investors",
then "Webcasts". Shortly after the live webcast, an
archived version will be available for approximately 14 days.
An archived recording of the conference call will also be
available approximately two hours after the completion of the call
until March 8, 2018 by dialing
1-855-859-2056, passcode 6578818.
Non-IFRS Measures
Western uses certain measures in this press release which do not
have any standardized meaning as prescribed by International
Financial Reporting Standards ("IFRS"). These measures, which
are derived from information reported in the consolidated financial
statements, may not be comparable to similar measures presented by
other reporting issuers. These measures have been described
and presented in this press release in order to provide
shareholders and potential investors with additional information
regarding the Company. These Non-IFRS measures are identified
and defined as follows:
Operating Revenue
Management believes that in addition to revenue, Operating
Revenue is a useful supplemental measure as it provides an
indication of the revenue generated by Western's principal
operating activities, excluding flow through third party charges
such as rig fuel, which at the customer's request may be paid for
initially by Western, then recharged in its entirety to Western's
customers.
Gross Margin
Management believes that in addition to net income, Gross Margin
is a useful supplemental measure as it provides an indication of
the results generated by Western's principal operating activities
prior to considering administrative expenses, depreciation and
amortization, stock based compensation, how those activities are
financed, the impact of foreign exchange, how the results are
taxed, how funds are invested, and how non-cash items and one-time
gains and losses affect results.
The following table provides a reconciliation of revenue under
IFRS, as disclosed in the consolidated statements of operations and
comprehensive income, to Operating Revenue and Gross Margin:
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
(stated in
thousands)
|
2017
|
2016
|
2017
|
2016
|
Operating
Revenue
|
|
|
|
|
|
Drilling
|
45,906
|
28,965
|
166,660
|
78,887
|
|
Production
services
|
13,362
|
12,710
|
52,456
|
38,064
|
|
Less: inter-company
eliminations
|
(13)
|
(26)
|
(128)
|
(44)
|
|
59,255
|
41,649
|
218,988
|
116,907
|
Third party
charges
|
7,260
|
3,477
|
19,187
|
7,531
|
Revenue
|
66,515
|
45,126
|
238,175
|
124,438
|
Less: operating
expenses
|
(66,933)
|
(53,308)
|
(245,352)
|
(157,212)
|
Add:
|
|
|
|
|
|
Depreciation –
operating
|
16,238
|
16,551
|
65,227
|
57,903
|
|
Stock based
compensation – operating
|
66
|
138
|
260
|
633
|
Gross
Margin
|
15,886
|
8,507
|
58,310
|
25,762
|
Adjusted EBITDA
Management believes that in addition to net income, earnings
before interest and finance costs, taxes, depreciation and
amortization, other non-cash items and one-time gains and losses
("Adjusted EBITDA") is a useful supplemental measure as it provides
an indication of the results generated by the Company's principal
operating segments similar to Gross Margin but also factors in the
cash administrative expenses incurred in the period.
Operating Earnings
Management believes that in addition to net income, Operating
Earnings is a useful supplemental measure as it provides an
indication of the results generated by the Company's principal
operating segments similar to Adjusted EBITDA but also factors in
the depreciation expense incurred in the period.
The following table provides a reconciliation of net loss under
IFRS, as disclosed in the consolidated statements of operations and
comprehensive income, to earnings before interest and finance
costs, taxes, depreciation and amortization ("EBITDA"), Adjusted
EBITDA and Operating Loss:
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
(stated in
thousands)
|
2017
|
2016
|
2017
|
2016
|
Net
loss
|
(4,974)
|
(14,509)
|
(37,445)
|
(61,973)
|
Add:
|
|
|
|
|
|
Finance
costs
|
5,598
|
5,478
|
21,950
|
22,522
|
|
Income tax
recovery
|
(6,842)
|
(5,183)
|
(18,555)
|
(21,955)
|
|
Depreciation –
operating
|
16,238
|
16,551
|
65,227
|
57,903
|
|
Depreciation –
administrative
|
284
|
365
|
1,213
|
1,569
|
EBITDA
|
10,304
|
2,702
|
32,390
|
(1,934)
|
Add:
|
|
|
|
|
|
Stock based
compensation – operating
|
66
|
138
|
260
|
633
|
|
Stock based
compensation – administrative
|
397
|
484
|
1,689
|
3,135
|
|
Loss on asset
decommissioning
|
-
|
265
|
-
|
5,490
|
|
Other
items
|
(700)
|
(83)
|
1,356
|
(1,549)
|
Adjusted
EBITDA
|
10,067
|
3,506
|
35,695
|
5,775
|
Subtract:
|
|
|
|
|
|
Depreciation –
operating
|
(16,238)
|
(16,551)
|
(65,227)
|
(57,903)
|
|
Depreciation –
administrative
|
(284)
|
(365)
|
(1,213)
|
(1,569)
|
Operating
Loss
|
(6,455)
|
(13,410)
|
(30,745)
|
(53,697)
|
Net Debt
The following table provides a reconciliation of long term debt
under IFRS, as disclosed in the consolidated balance sheets to Net
Debt:
(stated in
thousands)
|
December 31,
2017
|
December 31,
2016
|
Long term
debt
|
265,219
|
264,070
|
Current portion of
long term debt
|
475
|
684
|
Less: cash and cash
equivalents
|
(48,825)
|
(44,597)
|
Net
Debt
|
216,869
|
220,157
|
Defined Terms:
Average active rig count (contract drilling): Calculated
as drilling rig utilization – Billable Days multiplied by the
average number of drilling rigs in the Company's fleet for the
period.
Average active rig count (production services):
Calculated as service rig utilization multiplied by the average
number of service rigs in the Company's fleet for the period.
Billable Days: Defined as Operating Days plus rig
mobilization days.
Drilling rig utilization – Operating Days (or
"Drilling Rig Utilization"): Calculated based on
Operating Days divided by total available days.
Drilling rig utilization – Billable Days:
Calculated based on Billable Days divided by total available
days.
Operating Days: Defined as contract drilling days,
calculated on a spud to rig release basis.
Service Hours: Defined as well servicing hours
completed.
Service rig utilization: Calculated based on Service
Hours divided by available hours, being 10 hours per day, per well
servicing rig, 365 days per year in 2017 (2016: 366 days).
Contract Drilling Rig Classifications:
Cardium class rig: Defined as any contract drilling rig
which has a total hookload less than or equal to 399,999 lbs (or
177,999 daN).
Montney class rig:
Defined as any contract drilling rig which has a total hookload
between 400,000 lbs (or 178,000 daN) and 499,999 lbs (or 221,999
daN).
Duvernay class rig:
Defined as any contract drilling rig which has a total hookload
equal to or greater than 500,000 lbs (or 222,000 daN).
Abbreviations:
- Barrel ("bbl");
- Basis point ("bps"): A 1% change equals 100 basis points
and a 0.01% change is equal to one basis point;
- Canadian Association of Oilwell Drilling Contractors
("CAODC");
- DecaNewton ("daN");
- International Financial Reporting Standards ("IFRS");
- Natural Gas Liquids ("NGL");
- Pounds ("lbs");
- Thousand cubic feet ("mcf");
- West Texas Intermediate ("WTI"); and
- Western Canadian Sedimentary Basin ("WCSB").
Forward-Looking Statements and Information
This press
release contains certain statements or disclosures relating to
Western that are based on the expectations of Western as well as
assumptions made by and information currently available to Western
which may constitute forward-looking information under applicable
securities laws. All information and statements contained
herein that are not clearly historical in nature constitute
forward-looking information, and the words "may", "will", "should",
"could", "expect", "intend", "anticipate", "believe", "estimate",
"propose", "plan", "predict", "potential", "continue", or the
negative of these terms or other comparable terminology are
generally intended to identify forward-looking information.
Such information represents the Corporation's internal projections,
estimates or beliefs concerning, among other things, an outlook on
the estimated amounts and timing of capital expenditures,
anticipated future debt levels and revenues or other expectations,
beliefs, plans, objectives, assumptions, intentions or statements
about future events or performance. This information involves
known and unknown risks, uncertainties and other factors that may
cause actual results or events to differ materially from those
anticipated in such forward-looking information.
In particular, forward-looking information in this press release
includes, but is not limited to, statements relating to commodity
pricing; the future demand for and utilization of the Company's
services and equipment; the pricing for the Company's services and
equipment; the terms of existing and future drilling contracts in
Canada and the US and the revenue
resulting therefrom (including the number of Operating Days
typically generated from the Company's contracts); the Company's
expansion and maintenance capital plans for 2018; the Company's
liquidity needs including the ability of current capital resources
to cover Western's financial obligations and the 2018 capital
budget; the use and availability of the Company's Credit
Facilities; pricing for Western's services and impact on Adjusted
EBITDA; the Company's ability to maintain certain covenants under
its Credit Facilities; the future declaration of dividends;
expectations as to the increase in crude oil transportation
capacity through pipeline development; the potential impact of
changes to environmental laws and regulations and the
implementation of a carbon tax in Alberta; the expectation of continued foreign
investment into the Canadian crude oil and natural gas industry;
expectations relating to producer spending, and the Company's
ability to find and maintain enough field crew members and the
Company's change to its depreciation assumptions.
The material assumptions in making the forward-looking
statements in this press release include, but are not limited to,
assumptions relating to, demand levels and pricing for oilfield
services; demand for crude oil and natural gas and the price and
volatility of crude oil and natural gas; pressures on commodity
pricing; the continued business relationships between the Company
and its significant customers; crude oil transport and pipeline
approval and development; the Company's ability to finance its
operations; the effects of seasonal and weather conditions on
operations and facilities; the competitive environment to which the
various business segments are, or may be, exposed in all aspects of
their business; the ability of the Company's various business
segments to access equipment (including spare parts and new
technologies); changes in laws or regulations; currency exchange
fluctuations; the ability of the Company to attract and retain
skilled labour and qualified management; the ability to retain and
attract significant customers; and general business, economic and
market conditions.
Although Western believes that the expectations and assumptions
on which such forward-looking statements and information are based
on are reasonable, undue reliance should not be placed on the
forward-looking statements and information as Western cannot give
any assurance that they will prove to be correct. Since
forward-looking statements and information address future events
and conditions, by their very nature they involve inherent risks
and uncertainties. Actual results could differ materially
from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, the risk that
the demand for oilfield services will not continue to improve for
the remainder of 2018 and that commodity prices will remain low,
and other general industry, economic, market and business
conditions. Readers are cautioned that the foregoing list of
risks, uncertainties and assumptions are not exhaustive.
Additional information on these and other risk factors that could
affect Western's operations and financial results are included in
Western's annual information form which may be accessed through the
SEDAR website at www.sedar.com. The forward-looking
statements and information contained in this press release are made
as of the date hereof and Western does not undertake any obligation
to update publicly or revise any forward-looking statements and
information, whether as a result of new information, future events
or otherwise, unless so required by applicable securities laws.
SOURCE Western Energy Services Corp.