CALGARY, Feb. 27, 2020 /CNW/ - Western Energy Services
Corp. ("Western" or the "Company") (TSX: WRG) announces the release
of its fourth quarter and year end 2019 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, 2019 and 2018 will be available on
SEDAR at www.sedar.com. Non-International Financial Reporting
Standards ("Non-IFRS") measures, such as Adjusted EBITDA, 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 2019 Operating Results:
- Fourth quarter revenue decreased by $17.3 million to $45.8
million in 2019 as compared to $63.1
million in 2018. In the contract drilling segment, revenue
totalled $30.9 million in the fourth
quarter of 2019, a decrease of $18.3
million (or 37%) as compared to $49.2
million in the fourth quarter of 2018. In the production
services segment, revenue totalled $15.0
million for the three months ended December 31, 2019, as compared to $14.0 million for the three months ended
December 31, 2018, an increase of
$1.0 million (or 7%). While contract
drilling day rates were higher in the
United States and activity was higher for well servicing in
Canada, lower contract drilling
and oilfield rental equipment activity in Canada impacted revenue as described
below:
-
- Drilling rig utilization – Operating Days ("Drilling Rig
Utilization") in Canada decreased
to 21% in the fourth quarter of 2019 compared to an average of 32%
in the same period of the prior year, reflecting a 1,100 basis
points ("bps") reduction. The decrease in activity was mainly
attributable to mandated crude oil production curtailments in
Alberta due to pipeline
constraints, coupled with continued market uncertainty and as a
result, customers reduced or cancelled their 2019 drilling
programs. Fourth quarter 2019 Drilling Rig Utilization of 21%
represented a discount of 200 bps to the Canadian Association of
Oilwell Drilling Contractors ("CAODC") industry average of
23%1, a decrease as compared to the fourth quarter of
2018 when Drilling Rig Utilization of 32% was 400 bps higher than
the industry average. The decrease in the Company's utilization as
compared to the industry average in 2019 was a function of a
smaller industry rig fleet, as older rigs continue to be
decommissioned and higher specification rigs continue to move out
of the Western Canadian Sedimentary Basin ("WCSB"). Western's
market share, represented by the Company's Operating Days as a
percentage of the CAODC's total Operating Days in the WCSB,
decreased to 8.2% in the fourth quarter of 2019, as compared to
9.6% in the fourth quarter of 2018. Revenue per Billable Day
decreased by 2% in the fourth quarter of 2019, as compared to the
same period in the prior year, due to changes in the average rig
mix and lower third party revenue as less fuel was purchased on
behalf of the Company's customers;
- In the United States, six of
the Company's eight drilling rigs worked during the quarter, two of
which were operating on term contracts. Drilling Rig Utilization
was 30% in the fourth quarter of 2019, compared to 71% in the
fourth quarter of 2018, reflecting a 44% decrease in Operating
Days. Revenue per Billable Day for the fourth quarter of 2019
improved by 12%, mainly due to a higher proportion of Operating
Days related to the Company's high specification Duvernay class rigs in the Williston Basin in North Dakota, compared to the rigs working in
the Permian Basin in Texas which
worked at lower average day rates, while operating at a
significantly lower cost; and
- In Canada, service rig
utilization was 32% in the fourth quarter of 2019 compared to 28%
in the same period of the prior year. The increase is due to
continued efforts by management to improve activity with existing
customers and broaden the Company's customer base, despite
continued market uncertainty and mandated crude oil production
curtailments in Alberta. Revenue
per Service Hour increased during the fourth quarter of 2019 by 2%,
as compared to the same period in the prior year, due to changes in
the average rig mix. Higher utilization and pricing, led to well
servicing revenue in the period increasing to $12.6 million, an improvement of $1.0 million (or 9%), as compared to the same
period in the prior year.
- Administrative expenses decreased by $0.6 million (or 12%) to $4.2 million in the fourth quarter of 2019, as
compared to $4.8 million in the
fourth quarter of 2018, mainly due to lower rent expense as a
result of the adoption of IFRS 16.
- The Company incurred a net loss of $52.2
million in the fourth quarter of 2019 ($0.56 per basic common share) as compared to a
net loss of $9.5 million in the same
period in 2018 ($0.10 per basic
common share). The change can mainly be attributed to a property
and equipment impairment loss of $54.0
million and a $2.3 million
decrease in Adjusted EBITDA, offset partially by $12.2 million increase in income tax recovery and
a $1.6 million decrease in
depreciation expense due to certain assets being fully depreciated
in the period.
- Fourth quarter Adjusted EBITDA decreased by $2.3 million (or 29%) to $5.6 million in 2019 as compared to $7.9 million in the fourth quarter of 2018. The
year over year change in Adjusted EBITDA is due to lower contract
drilling in Canada and
the United States, lower oilfield
rental equipment activity in Canada, $1.0
million of restructuring costs related to severance as the
Company continues to monitor and align its costs with lower
activity levels, offset partially by increased pricing in
the United States and higher well
servicing activity in Canada.
- As a result of continued market uncertainty and the related
outlook for current and future oilfield services activity and
pricing, the Company completed an impairment test for each of its
cash generating units ("CGU") as at December
31, 2019. Based on the results of these tests, it was
determined that property and equipment in the Company's contract
drilling and oilfield rentals CGUs was impaired by $49.0 million and $5.0
million respectively.
- Fourth quarter 2019 additions to property and equipment of
$2.9 million included $1.2 million related to expansion capital and
$1.7 million of maintenance capital.
In total, additions to property and equipment in the fourth quarter
of 2019 decreased by $3.2 million (or
52%) from the $6.1 million incurred
in the fourth quarter of 2018.
- Subsequent to December 31, 2019,
on January 6, 2020, the Company
announced a normal course issuer bid (the "Bid"), which has been
filed with and accepted by the Toronto Stock Exchange. Pursuant to
the Bid, Western may purchase for cancellation up to 5,200,000
common shares of the Company. The Bid commenced on January 14, 2020 and will terminate the earlier
of: (i) January 13, 2021; and (ii)
the date on which the maximum number of common shares are purchased
pursuant to the Bid. 1,571,000 common shares for a total cost of
approximately $0.5 million have been
repurchased since the commencement of the Bid.
2019 Operating Results:
- Revenue in 2019 decreased by $40.0
million (or 17%) to $196.4
million as compared to $236.4
million in 2018. In the contract drilling segment, revenue
totalled $140.8 million in 2019,
including US$1.3 million of shortfall
commitment revenue, and reflects a decrease of $43.1 million (or 23%) as compared to
$183.9 million in 2018. In the
production services segment, revenue totalled $55.9 million in 2019, as compared to
$52.7 million in 2018, an increase of
$3.2 million (or 6%). Activity was
higher for well servicing in Canada; whereas lower contract drilling and
oilfield rental equipment activity in Canada and lower activity in the United States impacted revenue as
described below:
-
- Drilling Rig Utilization in Canada for the year ended December 31, 2019 decreased to 22%, compared to
an average of 35% for the prior year, reflecting a 1,300 bps
reduction. The decrease in activity was mainly attributable to
mandated crude oil production curtailments in Alberta due to pipeline constraints, coupled
with heightened market uncertainty and as a result, customers
reduced or cancelled their 2019 drilling programs. Drilling Rig
Utilization of 22% in 2019 was consistent with the CAODC industry
average of 22%2, whereas in 2018, Drilling Rig
Utilization of 35% represented a 600 bps premium to the CAODC
industry average. The decrease in the Company's utilization premium
to the industry average in 2019 was a function of a smaller
industry rig fleet, as older rigs continue to be decommissioned and
higher specification rigs continue to move out of the WCSB.
Western's market share, represented by the Company's Operating Days
as a percentage of the CAODC's total Operating Days in the WCSB,
was 8.9% in 2019, as compared to 9.8% in 2018. Despite lower
activity, revenue per Billable Day in 2019 was consistent with the
prior year, due to rates on all rig classes remaining relatively
constant, coupled with changes in the average rig mix;
- In the United States, seven of
the Company's eight drilling rigs worked in 2019, three of which
were operating on term contracts. Additionally, US$1.3 million in shortfall commitment revenue
was recognized in 2019. During the fourth quarter of 2018, the
Company purchased one Cardium class drilling rig for its fleet in
the United States, which commenced
operations in the Permian basin. Additionally, a Duvernay class rig from the Canadian fleet was
deployed to the Permian Basin in the first quarter of 2019. As a
result of a larger and more geographically diversified rig fleet in
2019, Operating Days increased by 21%, as compared to 2018.
However, Drilling Rig Utilization decreased to 47% for the year
ended December 31, 2019, compared to
51% in the prior year due to activity slowing in the United States. While day rates on the
Company's high specification Duvernay class rigs remained constant in the
Williston Basin in North Dakota, revenue per Billable Day for the
year ended December 31, 2019
decreased by 3% as the rigs working in the Permian Basin in
Texas worked at lower average day
rates, while operating at a significantly lower cost and worked a
higher proportion of Operating Days in 2019 than 2018; and
- In Canada, service rig
utilization was 30% for the year ended December 31, 2019 compared to 25% in the prior
year. The increase is due to continued efforts by management to
improve activity with existing customers and broaden the Company's
customer base, despite customer programs being impacted by
continued market uncertainty, wet weather in certain areas and
mandated crude oil production curtailments in Alberta. While utilization improved, revenue
per Service Hour decreased in 2019 by 4%, compared to 2018 due to
pricing pressure in certain operating areas. Higher utilization,
offset partially by lower pricing, led to well servicing revenue in
the period increasing to $46.2
million, an improvement of $4.8
million (or 12%), as compared to the prior year.
- Administrative expenses in 2019 decreased by $2.2 million (or 12%) to $16.7 million, as compared to $18.9 million in 2018, mainly due to lower rent
expense as a result of the adoption of IFRS 16, coupled with lower
employee related costs due to lower headcount, offset partially by
severance costs described previously.
- The Company incurred a net loss of $81.0
million in 2019 ($0.88 per
basic common share) as compared to a net loss of $41.1 million in 2018 ($0.45 per basic common share). The change can be
attributed to:
-
- A $17.2 million increase in
income tax recovery due to an increased loss before income taxes in
the period due to the impairment of property and equipment and the
decrease in the Alberta corporate
tax rate substantively enacted in the second quarter of 2019;
- A $3.0 million decrease in
depreciation expense due to certain assets being fully depreciated
in the period;
- A $0.6 million decrease in stock
based compensation expense mainly due to the Company's lower share
price;
- A $0.4 million decrease in
finance costs, mainly due to $0.6
million of non-cash accretion expense recognized in the
prior year related to the early redemption of the Company's senior
notes; and
- A $0.3 million change in other
items, which include gains and losses on foreign exchange and asset
sales.
Offsetting the above mentioned items were the $54.0 million impairment loss on property and
equipment and the $7.4 million
decrease in Adjusted EBITDA.
Offsetting the above mentioned
items were the $54.0 million
impairment loss on property and equipment and the $7.4 million decrease in Adjusted EBITDA.
- Adjusted EBITDA for the year ended December 31, 2019 decreased by $7.4 million (or 23%) to $24.2 million as compared to $31.6 million for the year ended December 31, 2018. The year over year change is
mainly due to lower Adjusted EBITDA in Canadian contract drilling,
coupled with $1.9 million related to
restructuring costs related to severance as the Company continues
to monitor and adjust its costs based on lower activity levels,
lower rent expense as a result of the adoption of IFRS 16, and
$1.4 million in costs related to
establishing well servicing operations for Western Oilfield
Services in the United States,
which was offset partially by shortfall commitment revenue.
- As a result of continued market uncertainty and the related
outlook for current and future oilfield services activity and
pricing, the Company completed an impairment test for each of its
CGUs as at December 31, 2019. Based
on the results of these tests, it was determined that property and
equipment in the Company's contract drilling and oilfield rentals
CGUs were impaired by $49.0 million
and $5.0 million respectively.
- Year to date additions to property and equipment of
$8.0 million included $2.6 million of expansion capital and
$5.4 million of maintenance capital.
In total, additions to property and equipment for 2019 decreased by
$12.0 million (or 60%) from the
$20.0 million incurred in 2018. The
Company incurred expansion capital mainly related to drilling rig
upgrades, as well as required maintenance capital in 2019.
- On January 1, 2019, the Company
adopted IFRS 16, Leases, using the modified retrospective method.
The adoption of IFRS 16 resulted in an increase in long term debt
of $12.8 million, an increase in
property and equipment of $10.1
million, a decrease in provisions of $1.4 million, a decrease in the deferred tax
liability of $0.4 million, a decrease
in other assets of $0.1 million, and
a net decrease in retained earnings of $1.1
million. For the three months and year ended December 31, 2019, the impact of IFRS 16 on
Adjusted EBITDA was an increase of $0.8
million and $3.3 million
respectively, whereas the impact on net loss was less than
$0.1 million in each respective
period, as increased Adjusted EBITDA was offset by higher
depreciation expense and finance costs.
Selected Financial
Information
|
(stated in
thousands, except share and per share amounts)
|
|
Three months ended
December 31
|
Year ended
December 31
|
Financial
Highlights
|
2019
|
2018
|
Change
|
2019
|
2018
|
Change
|
Revenue
|
45,838
|
63,133
|
(27%)
|
196,408
|
236,410
|
(17%)
|
Adjusted
EBITDA(1)
|
5,584
|
7,916
|
(29%)
|
24,238
|
31,616
|
(23%)
|
Adjusted EBITDA as a
percentage of revenue
|
12%
|
13%
|
(8%)
|
12%
|
13%
|
(8%)
|
Cash flow from
operating activities
|
8,921
|
5,022
|
78%
|
31,718
|
33,231
|
(5%)
|
Additions to property
and equipment
|
2,942
|
6,102
|
(52%)
|
7,968
|
19,960
|
(60%)
|
Net loss
|
(52,249)
|
(9,530)
|
448%
|
(81,030)
|
(41,060)
|
97%
|
– basic net loss per
share
|
(0.56)
|
(0.10)
|
460%
|
(0.88)
|
(0.45)
|
96%
|
– diluted net loss per
share
|
(0.56)
|
(0.10)
|
460%
|
(0.88)
|
(0.45)
|
96%
|
Weighted average
number of shares
|
|
|
|
|
|
|
– basic
|
92,501,314
|
92,305,208
|
-
|
92,379,902
|
92,224,585
|
-
|
– diluted
|
92,501,314
|
92,305,208
|
-
|
92,379,902
|
92,224,585
|
-
|
Outstanding common
shares as at period end
|
92,501,314
|
92,305,542
|
-
|
92,501,314
|
92,305,542
|
-
|
(1) See
"Non-IFRS measures" included in this press release.
|
|
Three months ended
December 31
|
Year ended
December 31
|
Operating
Highlights(2)
|
2019
|
2018
|
Change
|
2019
|
2018
|
Change
|
Contract
Drilling
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
– Average active rig
count
|
11.4
|
18.1
|
(37%)
|
12.3
|
19.2
|
(36%)
|
– End of
period
|
49
|
50
|
(2%)
|
49
|
50
|
(2%)
|
Revenue per Billable
Day
|
22,023
|
22,474
|
(2%)
|
21,383
|
21,321
|
-
|
Revenue per Operating
Day
|
24,725
|
25,166
|
(2%)
|
23,854
|
23,644
|
1%
|
Operating
Days
|
932
|
1,487
|
(37%)
|
4,012
|
6,328
|
(37%)
|
Drilling rig
utilization – Billable Days
|
23%
|
36%
|
(36%)
|
25%
|
38%
|
(34%)
|
Drilling rig
utilization – Operating Days
|
21%
|
32%
|
(34%)
|
22%
|
35%
|
(37%)
|
CAODC industry
average utilization – Operating Days(3)
|
23%
|
28%
|
(18%)
|
22%
|
29%
|
(24%)
|
|
|
|
|
|
|
|
United States
Operations:
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
– Average active rig
count
|
2.9
|
4.9
|
(41%)
|
4.4
|
3.4
|
29%
|
– End of
period
|
8
|
7
|
14%
|
8
|
7
|
14%
|
Revenue per Billable
Day (US$)
|
21,979
|
19,602
|
12%
|
20,460(4)
|
21,109
|
(3%)
|
Revenue per Operating
Day (US$)
|
26,596
|
22,011
|
21%
|
24,150(4)
|
23,571
|
2%
|
Operating
Days
|
224
|
403
|
(44%)
|
1,352
|
1,121
|
21%
|
Drilling rig
utilization – Billable Days
|
37%
|
79%
|
(53%)
|
56%
|
57%
|
(2%)
|
Drilling rig
utilization – Operating Days
|
30%
|
71%
|
(58%)
|
47%
|
51%
|
(8%)
|
|
|
|
|
|
|
|
Production
Services
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
Well servicing rig
fleet:
|
|
|
|
|
|
|
– Average active rig
count
|
20.1
|
18.8
|
7%
|
19.1
|
16.5
|
16%
|
– End of
period
|
63
|
66
|
(5%)
|
63
|
66
|
(5%)
|
Revenue per Service
Hour
|
680
|
669
|
2%
|
661
|
686
|
(4%)
|
Service
Hours
|
18,494
|
17,247
|
7%
|
69,882
|
60,337
|
16%
|
Service rig
utilization
|
32%
|
28%
|
14%
|
30%
|
25%
|
20%
|
(1)
|
See "Non-IFRS
Measures" included in this press release.
|
(2)
|
See "Defined Terms"
included in this press release.
|
(3)
|
Source: The Canadian
Association of Oilwell Drilling Contractors ("CAODC") monthly
Contractor Summary. The CAODC industry average is based on
Operating Days divided by total available drilling days.
|
(4)
|
Excludes shortfall
commitment revenue from take or pay contracts of US$1.3 million for
the year ended December 31, 2019.
|
Financial Position
at (stated in thousands)
|
December 31,
2019
|
December 31,
2018
|
December 31,
2017
|
Working
capital
|
7,031
|
15,739
|
62,866
|
Property and
equipment
|
511,052
|
615,395
|
652,828
|
Total assets
|
550,537
|
667,295
|
760,504
|
Long term
debt
|
228,274
|
222,258
|
265,219
|
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. Stoneham's
division, Western Oilfield Services, provides well servicing
operations in the United States.
Financial and operating results for Horizon and Stoneham are included in Western's contract
drilling segment, while financial and operating results for Eagle,
Aero, and Western Oilfield Services are included in Western's
production services segment.
Western has a drilling rig fleet of 57 rigs specifically suited
for drilling complex horizontal wells. Western is currently
the fourth largest drilling contractor in Canada, based on the CAODC registered
rigs3, with a fleet of 49 rigs operating through
Horizon. Of the Canadian fleet, 23 are classified as Cardium class
rigs, 19 as Montney class rigs and
seven 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 eight drilling rigs operating
through Stoneham in the US,
including six Duvernay class rigs.
Western is also the fifth largest well servicing company in
Canada, based on the CAODC
registered rigs4, with a fleet of 63 rigs operating
through Eagle. Additionally, Western Oilfield Services has three
well servicing rigs operating in the Bakersfield area of California in the US. 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,
2019 and 2018 and for the years ended December 31, 2019 and 2018.
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
|
2019
|
2018
|
Change
|
2019
|
2018
|
Change
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
West Texas
Intermediate (US$/bbl)
|
56.96
|
58.82
|
(3%)
|
57.02
|
64.76
|
(12%)
|
Western Canadian
Select (CDN$/bbl)
|
54.29
|
36.01
|
51%
|
58.77
|
52.34
|
12%
|
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
2.42
|
1.58
|
53%
|
1.76
|
1.50
|
17%
|
|
|
|
|
|
|
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.32
|
1.32
|
-
|
1.33
|
1.30
|
2%
|
(1)
|
See "Abbreviations"
included in this press release.
|
(2)
|
Source: Sproule
December 31, 2019 Price Forecast, Historical Prices.
|
West Texas Intermediate ("WTI") on average declined for the
three months and year ended December 31,
2019 respectively, compared to the same periods in the prior
year. However, pricing on Western Canadian Select ("WCS") crude oil
increased by 51% in the fourth quarter of 2019 and by 12% year over
year respectively, compared to the same periods in the prior year,
due to improved price differentials as a result of the mandated
crude oil production curtailments implemented by the Government of
Alberta. Natural gas prices in
Canada increased for both the
three months and year ended December 31,
2019, as the 30 day spot AECO price increased by 53% and 17%
respectively, over the same periods of the prior year. The US
dollar to the Canadian dollar foreign exchange rate remained
constant quarter over quarter, though weakened for the year ended
December 31, 2019 which had a
slightly positive effect on the cash flows of Western's Canadian
customers, when selling US dollar denominated commodities.
In the United States, industry
activity has decreased in 2019, particularly in the fourth quarter.
As reported by Baker Hughes Company5, the number of
active drilling rigs in the United
States decreased year over year by approximately 26%.
Likewise, in Canada, market
conditions have deteriorated despite improved year to date prices
for Canadian crude oil and natural gas. The mandated crude oil
production curtailments implemented by the Government of
Alberta and continued industry
concerns over market access, increased regulation, and the
prevailing customer preference to return cash to shareholders, or
pay down debt, rather than grow production have resulted in a
decrease in industry activity in Canada. The CAODC6 reported that
for drilling in Canada, the total
number of Operating Days in the WCSB decreased by approximately 30%
in 2019 as compared to 2018, as a result of a 13% decrease in the
industry rig count year over year.
Outlook
Currently, 15 of Western's drilling rigs are operating. Three of
Western's 57 drilling rigs (or 5%) are under term take or pay
contracts, with two expected to expire in 2020 and one expected to
expire in 2021. These contracts each typically generate between 250
and 350 Billable Days per year.
Due to decreased activity levels, Western's capital budget for
2020 is expected to total approximately $8
million, with $1 million
allocated for expansion capital and $7
million for maintenance capital. Western believes the 2020
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 required adjustments to its capital program as
customer demand changes.
Mandated crude oil production cuts in Alberta and uncertainty surrounding takeaway
capacity related to the timing of construction on the Trans
Mountain pipeline expansion and the Keystone XL pipeline, as well
as the in service date of the Enbridge Line 3 pipeline replacement,
have resulted in 2020 capital budgets for Western's Canadian
customers decreasing year over year. As such, year over year
activity levels in Canada are
expected to be consistent with 2019 levels. Controlling fixed
costs and maintaining balance sheet flexibility are priorities for
the Company, as prices and demand for Western's services remain
below historical levels. Going forward, Western's variable
cost structure and a prudent capital budget will aid in preserving
balance sheet strength.
As at December 31, 2019, Western
had $12.3 million drawn on its
$60.0 million credit facilities,
consisting of its $50.0 million
syndicated first lien credit facility (the "Revolving Facility")
and its $10.0 million committed
operating facility (the "Operating Facility" and together the
"Credit Facilities"), which mature on December 17, 2021. Western currently has
$211.2 million outstanding on its
Second Lien Facility, which matures on January 31, 2023.
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, environmental
regulations, and the level of investment in Canada. Currently, the largest challenges
facing the oilfield service industry are limited take away
capacity, continued customer spending constraints relative to
historical levels, and the challenge of staffing field crews.
Western's rig fleet is well positioned to benefit from the recently
approved liquefied natural gas project in British Columbia. It is also Western's view
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
oilfield service environment.
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. The Non-IFRS measure used in this press release is
identified and defined as follows:
Adjusted EBITDA
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
is used by management and other stakeholders, including current and
potential investors, to analyze the Company's principal business
activities. Adjusted EBITDA provides an indication of the results
generated by the Company's principal operating segments, which
assists management in monitoring current and forecasting future
operations, as certain non-core items such as interest and finance
costs, taxes, depreciation and amortization, and other non-cash
items and one-time gains and losses are removed. The closest IFRS
measure would be net loss for consolidated results.
The following table provides a reconciliation of net loss, as
disclosed in the consolidated statements of operations and
comprehensive income, to Adjusted EBITDA:
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
(stated in
thousands)
|
2019
|
2018
|
2019
|
2018
|
Net
loss
|
(52,249)
|
(9,530)
|
(81,030)
|
(41,060)
|
Income tax
recovery
|
(15,786)
|
(3,641)
|
(30,772)
|
(13,634)
|
Loss before income
taxes
|
(68,035)
|
(13,171)
|
(111,802)
|
(54,694)
|
Add
(deduct):
|
|
|
|
|
Depreciation
|
14,848
|
16,431
|
63,167
|
66,181
|
Stock based
compensation
|
127
|
154
|
586
|
1,178
|
Finance
costs
|
4,645
|
4,603
|
18,697
|
19,050
|
Other items
|
(1)
|
(101)
|
(410)
|
(99)
|
Impairment of property
and equipment
|
54,000
|
-
|
54,000
|
-
|
Adjusted
EBITDA
|
5,584
|
7,916
|
24,238
|
31,616
|
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.
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");
- Pounds ("lbs");
- Thousand cubic feet ("mcf");
- Western Canadian Sedimentary Basin ("WCSB");
- Western Canadian Select ("WCS"); and
- West Texas Intermediate ("WTI").
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 words and phrases such as "may",
"will", "should", "could", "expect", "intend", "anticipate",
"believe", "estimate", "plan", "potential", "continue", "looking
to", or the negative of these terms or other comparable
terminology are generally intended to identify forward-looking
information. Such information represents the Company's internal
projections, estimates or beliefs concerning, among other things,
an outlook on the estimated amounts and timing of additions to
property and equipment, 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 Billable Days
typically generated from such contracts and expected expiration
dates of such contracts); the Company's expansion and maintenance
capital plans for 2020 and its ability to make changes thereto in
response to customer demands; the Company's liquidity needs
including the ability of current capital resources to cover
Western's financial obligations, working capital requirements and
the 2020 capital budget; expectations as to the increase in crude
oil transportation capacity through pipeline development;
expectations as to the benefits of the liquefied natural gas
expansion in British Columbia on
the Company and its rig fleet; the future deployment or retirement
of rigs and other existing assets; the potential impact of changes
to laws, governmental and environmental regulations; the
expectation of continued investment in the Canadian crude oil and
natural gas industry; the development of Alberta and British
Columbia resource plays; expectations relating to producer
spending and activity levels for oilfield services; the Company's
approach to management of its budget and operations; the Company's
ability to maintain a competitive advantage to enable it to manage
the current oilfield service environment; and the Company's ability
to find and maintain enough field crew members; and the amount and
timing of purchases of common shares under the Bid.
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; the Company's competitive advantage;
crude oil transport and pipeline approval and development; the
Company's ability to finance its operations; the effectiveness of
the Company's cost structure and capital budget; 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 and the
Company's competitive position therein; 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; the ability to
maintain a satisfactory safety record; 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 recent
improvements in commodity pricing may not continue, 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 discussed under the heading "Risk Factors" in
Western's annual information form for the year ended December 31, 2019 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.
1
|
Source: CAODC,
monthly Contractor Summary.
|
2
|
Source: CAODC,
monthly Contractor Summary.
|
3
|
Source: CAODC
Contractor Summary as at February 27, 2020.
|
4
|
Source: CAODC Fleet
List as at February 27, 2020.
|
5
|
Source: Baker Hughes
Company, 2019 Rig Count monthly press releases.
|
6
|
Source: CAODC,
monthly Contractor Summary.
|
SOURCE Western Energy Services Corp.