CALGARY, AB, Oct. 26, 2020 /CNW/ - Western Energy
Services Corp. ("Western" or the "Company") (TSX: WRG) announces
the release of its third quarter 2020 financial and operating
results. Additional information relating to the Company,
including the Company's financial statements and management's
discussion and analysis as at and for the three and nine months
ended September 30, 2020 and 2019
will be available on SEDAR at www.sedar.com.
Non-International Financial Reporting Standards ("Non-IFRS")
measures, such as Adjusted EBITDA, and abbreviations and
definitions for standard industry terms are included later in this
press release. All amounts are denominated in Canadian
dollars (CDN$) unless otherwise identified.
Third Quarter 2020 Operating Results:
- Third quarter revenue decreased by $33.7
million (or 71%) to $13.4
million in 2020 as compared to $47.1
million in the third quarter of 2019. In the contract
drilling segment, revenue totalled $5.4
million in the third quarter of 2020, a decrease of
$27.4 million (or 83%) as compared to
$32.8 million in the third quarter of
2019. In the production services segment, revenue totalled
$8.1 million for the three months
ended September 30, 2020, as compared
to $14.3 million for the three months
ended September 30, 2019, a decrease
of $6.2 million (or 43%). The
ongoing COVID-19 pandemic significantly impacted revenue in the
contract drilling and production services segments as described
below:
-
- The COVID-19 pandemic had a significant impact on customer
demand and drilling rig utilization – Operating Days ("Drilling Rig
Utilization") in Canada averaged
5% in the third quarter of 2020, compared to a Drilling Rig
Utilization average of 22% in the same period of the prior
year. The decrease in activity in the third quarter of 2020
was mainly attributable to the significant decrease in demand, as a
result of the COVID-19 pandemic, which resulted in heightened
market uncertainty and customers reducing and cancelling their 2020
drilling programs. The Canadian Association of Oilwell
Drilling Contractors ("CAODC") industry average of
9%1 for the third quarter of 2020
represented a decrease of 1,400 basis points ("bps") compared to
the CAODC industry average of 23% in the third quarter of 2019,
mainly due to lower demand as a result of the COVID-19
pandemic. Western's market share, represented by the
Company's Operating Days as a percentage of the CAODC's total
Operating Days in the Western Canadian Sedimentary Basin ("WCSB"),
decreased to 5.3% for the third quarter of 2020, as compared to
8.8% in the same period of 2019. Revenue per Billable Day
decreased by 2% in the third quarter of 2020, as compared to 2019,
due to changes in the average rig mix;
- In the United States ("US"),
the demand destruction as a result of the COVID-19 pandemic had a
significant impact on Drilling Rig Utilization which totalled 1%,
as one rig worked part of the third quarter of 2020, compared to
50% Drilling Rig Utilization in the third quarter of 2019,
reflecting a 98% decrease in Operating Days. Revenue per
Billable Day for the third quarter of 2020 decreased by 42% to
US$11,179, as compared to the same
period of the prior year, as current market rates weakened in the
period; and
- In Canada, service rig
utilization was 19% in the third quarter of 2020 compared to 33% in
the same period of the prior year, mainly due to the demand
destruction caused by the COVID-19 pandemic. Revenue per
Service Hour in the third quarter of 2020 improved by 4%, as
compared to the third quarter of 2019. Lower utilization led
to well servicing revenue totalling $7.2
million in the third quarter of 2020, a decrease of
$4.9 million (or 40%), as compared to
the same period in the prior year.
- Administrative expenses decreased by $1.9 million (or 49%) to $2.0 million in the third quarter of 2020, as
compared to $3.9 million in the third
quarter of 2019, mainly due to lower employee related costs as a
result of temporary headcount reductions, as well as the
Canada Emergency Wage Subsidy
("CEWS") from the Government of Canada in the third quarter of 2020 due to the
COVID-19 pandemic.
- The Company incurred a net loss of $10.5
million in the third quarter of 2020 ($0.12 per basic common share) as compared to a
net loss of $11.6 million in the same
period in 2019 ($0.13 per basic
common share). The change can mainly be attributed to a
$3.7 million decrease in depreciation
expense due to certain assets being fully depreciated in the
period, as well as the impact of asset impairments in previous
quarters, a $0.2 million decrease in
finance costs, a $0.1 million
decrease in income tax recovery and a $0.1
million change in other items mainly related to foreign
exchange gains, offset partially by a $2.7
million decrease in Adjusted EBITDA.
- Third quarter Adjusted EBITDA decreased by $2.7 million (or 54%) to $2.3 million in 2020 as compared to $5.0 million in the third quarter of 2020.
The year over year change in Adjusted EBITDA is due to lower
contract drilling activity in Canada and the
United States, and lower oilfield rental equipment and well
servicing activity in Canada,
offset partially by the CEWS of $2.9
million and temporary headcount reductions.
- Third quarter 2020 additions to property and equipment of
$0.2 million relates to maintenance
capital. In total, additions to property and equipment in the
third quarter of 2020 decreased by $0.9
million (or 87%) from the $1.1
million incurred in the third quarter of 2019.
- On August 7, 2020, the Company
entered into a US$1.75 million
promissory loan through the US paycheck protection program
("PPP"). The promissory loan has an interest rate of 1% per
annum and matures on July 23,
2025. A portion of the PPP loan may be forgiven subject to
certain conditions, if the proceeds are used for US payroll and
other specific operating costs prior to January 1, 2021, as outlined by US Treasury
guidelines. Management estimates that a portion of the
promissory note will be forgiven if all conditions are met.
- Subsequent to September 30, 2020,
on October 17, 2020 the Company's
7,099,547 outstanding warrants expired unexercised.
1 Source:
CAODC, monthly Contractor Summary.
|
Year to Date 2020 Operating Results:
- Revenue for the nine months ended September 30, 2020 decreased by $74.6 million to $76.0
million (or 50%) in 2020 as compared to $150.6 million in the nine months ended
September 30, 2019. In the
contract drilling segment, revenue totalled $46.7 million for the nine months ended
September 30, 2020, a decrease of
$63.2 million (or 57%) as compared to
$109.9 million in the same period of
2019 and included US$5.0 million of
shortfall commitment revenue. In the production services
segment, revenue totalled $29.5
million for the nine months ended September 30, 2020, as compared to $40.9 million for the nine months ended
September 30, 2019, a decrease of
$11.4 million (or 28%). While
contract drilling day rates were steady in the United States and Canada, activity was lower in all divisions,
which impacted revenue as described below:
-
- Drilling Rig Utilization in Canada for the nine months ended September 30, 2020 decreased to 10% compared to
an average of 23% for the nine months ended September 30, 2019. The decrease in
activity in 2020 was mainly attributable to the significant
decrease in crude oil prices in the latter part of the first
quarter, as a result of the COVID-19 pandemic, which resulted in
heightened market uncertainty and customers reducing and cancelling
their 2020 drilling programs. Drilling Rig Utilization of 10%
in 2020 represented a discount of 600 bps to the CAODC industry
average of 16%2, a decrease as compared to
Drilling Rig Utilization of 23% in 2019, which was 100 bps higher
than the industry average. The decrease in the Company's
utilization as compared to the industry average in 2020 was due to
the COVID-19 pandemic decreasing demand and customers cancelling
their drilling programs. 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 6.3% in the nine
months ended September 30, 2020, as
compared to 9.1% in the same period of 2019;
- In the United States, three of
the Company's eight drilling rigs worked during 2020, one of which
operated on a term contract. Drilling Rig Utilization
decreased to 7% in 2020, compared to 53% in 2019, reflecting an 86%
decrease in Operating Days. Revenue per Billable Day for the
nine months ended September 30, 2020
was consistent with the same period of the prior year, mainly due
to changes in the average rig mix as the higher day rates on the
Company's high specification AC 1500 HP class rigs in the
Williston Basin in North Dakota were offset by the rigs working
in the Permian Basin in Texas,
which worked at lower average day rates, while operating at a
significantly lower cost. Additionally, US$5.0 million of shortfall commitment revenue
was recognized in the nine months ended September 30, 2020, compared to US$1.3 million in the same period of 2019;
and
- In Canada, service rig
utilization was 22% for the nine months ended September 30, 2020 compared to 30% in the same
period of the prior year. The decrease is due to continued
market uncertainty including historic low commodity prices and
demand destruction due to the COVID-19 pandemic in 2020.
Revenue per Service Hour improved during the nine months ended
September 30, 2020 by 6%, as compared
to the same period in the prior year, due to changes in customer
mix. Lower utilization, offset partially by higher pricing,
led to well servicing revenue in the period decreasing by
$7.5 million (or 22%) to $26.1 million, as compared to $33.6 million in the same period in the prior
year.
- Administrative expenses decreased by $4.6 million (or 37%) to $7.9 million for the nine month period ended
September 30, 2020, as compared to
$12.5 million in the same period of
the prior year, mainly due to lower employee related costs as a
result of temporary headcount reductions, as well as the CEWS from
the Government of Canada.
- As a result of continued market uncertainty, low commodity
prices, unprecedented demand destruction due to the COVID-19
pandemic 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
March 31, 2020. Based on the
results of the test, it was determined that property and equipment
in the Company's contract drilling and oilfield rentals CGUs was
impaired by $9.5 million and
$2.0 million respectively in the
first quarter of 2020. There was no impairment recognized in
the Company's well servicing CGU in the first quarter of
2020. There was no impairment recognized during the second or
third quarters of 2020.
- The Company incurred a net loss of $33.9
million for the nine months ended September 30, 2020 ($0.37 per basic common share) as compared to a
net loss of $28.8 million in the same
period in 2019 ($0.31 per basic
common share). The change can mainly be attributed to the
$11.5 million impairment loss, a
$4.0 million decrease in Adjusted
EBITDA, and a $3.2 million decrease
in income tax recovery, offset partially by a $11.4 million decrease in depreciation expense
due to certain assets being fully depreciated in the period as well
as the impact of asset impairments in previous quarters, a
$1.6 million change in other items
mainly due to foreign exchange gains, and a $0.5 million decrease in finance costs.
- Adjusted EBITDA for the nine months ended September 30, 2020 decreased by $4.0 million (or 21%) to $14.7 million as compared to $18.7 million in the same period of the prior
year. The year over year change in Adjusted EBITDA is due to
lower contract drilling activity in Canada and the
United States, and lower well servicing and oilfield rental
equipment activity in Canada,
offset partially by US$5.0 million of
shortfall commitment revenue, lower administrative expenses and the
CEWS of $4.5 million.
- Year to date additions to property and equipment in 2020 of
$1.0 million included $0.2 million related to expansion capital and
$0.8 million of maintenance
capital. In total, additions to property and equipment for
the nine months ended September 30,
2020 decreased by $4.0 million
(or 80%) from the $5.0 million
incurred in 2019.
- On January 6, 2020, the Company
announced a normal course issuer bid (the "Bid"), which was 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. Since the commencement of the
Bid, for the nine months ended September 30,
2020, 1,584,000 common shares for a total cost of
$0.5 million have been
repurchased. Effective May 21,
2020, Western suspended further purchases under its share
repurchase program. Western may recommence purchases under
its program or otherwise modify its share purchase plans in the
future at any time without prior notice.
2 Source:
CAODC, monthly Contractor Summary.
|
Selected Financial
Information
|
(stated in
thousands, except share and per share amounts)
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
Financial
Highlights
|
2020
|
2019
|
Change
|
|
2020
|
2019
|
Change
|
Revenue
|
13,438
|
47,067
|
(71%)
|
|
76,005
|
150,570
|
(50%)
|
Adjusted
EBITDA(1)
|
2,270
|
4,968
|
(54%)
|
|
14,668
|
18,654
|
(21%)
|
Adjusted EBITDA as a
percentage of revenue
|
17%
|
11%
|
55%
|
|
19%
|
12%
|
58%
|
Cash flow from
operating activities
|
(1,560)
|
(592)
|
164%
|
|
25,712
|
22,797
|
13%
|
Additions to property
and equipment
|
150
|
1,143
|
(87%)
|
|
983
|
5,026
|
(80%)
|
Net loss
|
(10,486)
|
(11,575)
|
(9%)
|
|
(33,858)
|
(28,781)
|
18%
|
– basic net loss per
share
|
(0.12)
|
(0.13)
|
(8%)
|
|
(0.37)
|
(0.31)
|
19%
|
– diluted net loss per
share
|
(0.12)
|
(0.13)
|
(8%)
|
|
(0.37)
|
(0.31)
|
19%
|
Weighted average
number of shares
|
|
|
|
|
|
|
|
– basic
|
91,040,679
|
92,402,039
|
(1%)
|
|
91,283,205
|
92,338,987
|
(1%)
|
– diluted
|
91,040,679
|
92,402,039
|
(1%)
|
|
91,283,205
|
92,338,987
|
(1%)
|
Outstanding common
shares as at period end
|
91,165,112
|
92,501,314
|
(1%)
|
|
91,165,112
|
92,501,314
|
(1%)
|
(1) See
"Non-IFRS measures" included in this press release.
|
|
|
|
|
|
|
|
|
|
Three months ended September 30
|
|
Nine months ended
September 30
|
Operating
Highlights(2)
|
2020
|
2019
|
Change
|
|
2020
|
2019
|
Change
|
Contract
Drilling
|
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
– Average active rig
count
|
2.6
|
12.1
|
(79%)
|
|
5.8
|
12.6
|
(54%)
|
– End of
period
|
49
|
49
|
-
|
|
49
|
49
|
-
|
Revenue per Billable
Day
|
19,196
|
19,547
|
(2%)
|
|
21,727
|
21,188
|
3%
|
Revenue per Operating
Day
|
21,723
|
21,571
|
1%
|
|
24,648
|
23,590
|
4%
|
Operating
Days
|
208
|
1,005
|
(79%)
|
|
1,389
|
3,080
|
(55%)
|
Drilling rig
utilization – Billable Days
|
5%
|
25%
|
(80%)
|
|
12%
|
26%
|
(54%)
|
Drilling rig
utilization – Operating Days
|
5%
|
22%
|
(77%)
|
|
10%
|
23%
|
(57%)
|
CAODC industry
average utilization – Operating Days(3)
|
9%
|
23%
|
(61%)
|
|
16%
|
22%
|
(27%)
|
|
|
|
|
|
|
|
|
United States
Operations:
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
– Average active rig
count
|
0.2
|
4.7
|
(96%)
|
|
0.7
|
4.9
|
(86%)
|
– End of
period
|
8
|
8
|
-
|
|
8
|
8
|
-
|
Revenue per Billable
Day (US$)
|
11,179(4)
|
19,436
|
(42%)
|
|
19,864(4)
|
20,151(5)
|
(1%)
|
Revenue per Operating
Day (US$)
|
20,224(4)
|
22,926
|
(12%)
|
|
24,312(4)
|
23,666(5)
|
3%
|
Operating
Days
|
9
|
368
|
(98%)
|
|
158
|
1,129
|
(86%)
|
Drilling rig
utilization – Billable Days
|
2%
|
59%
|
(97%)
|
|
9%
|
62%
|
(85%)
|
Drilling rig
utilization – Operating Days
|
1%
|
50%
|
(98%)
|
|
7%
|
53%
|
(87%)
|
|
|
|
|
|
|
|
|
Production
Services
|
|
|
|
|
|
|
|
Canadian
Operations:
Well servicing rig
fleet:
|
|
|
|
|
|
|
|
– Average active rig
count
|
11.8
|
20.9
|
(44%)
|
|
13.7
|
18.8
|
(27%)
|
– End of
period
|
63
|
63
|
-
|
|
63
|
63
|
-
|
Revenue per Service
Hour
|
656
|
631
|
4%
|
|
696
|
654
|
6%
|
Service
Hours
|
10,893
|
19,244
|
(43%)
|
|
37,427
|
51,388
|
(27%)
|
Service rig
utilization
|
19%
|
33%
|
(42%)
|
|
22%
|
30%
|
(27%)
|
(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$0.3 million and
US$5.0 million respectively, for the three and nine months ended
September 30, 2020.
|
(5)
|
Excludes shortfall
commitment revenue from take of pay contracts of US$1.3 million for
the nine months ended September 30, 2019.
|
Financial Position
at (stated in thousands)
|
September 30,
2020
|
|
December 31,
2019
|
September 30,
2019
|
Working
capital
|
5,603
|
|
7,031
|
13,762
|
Property and
equipment
|
466,370
|
|
511,052
|
578,834
|
Total assets
|
488,470
|
|
550,537
|
617,943
|
Long term
debt
|
226,719
|
|
228,274
|
232,722
|
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
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 fourth 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 operates three well servicing rigs 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 and nine months ended September 30, 2020 and 2019.
|
Three months ended
September 30
|
Nine months ended September 30
|
|
2020
|
2019
|
Change
|
2020
|
2019
|
Change
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
West Texas
Intermediate (US$/bbl)
|
40.93
|
56.47
|
(28%)
|
38.31
|
57.04
|
(33%)
|
Western Canadian
Select (CDN$/bbl)
|
42.41
|
58.38
|
(27%)
|
32.98
|
60.26
|
(45%)
|
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
2.21
|
0.98
|
126%
|
2.05
|
1.53
|
34%
|
|
|
|
|
|
|
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.33
|
1.32
|
1%
|
1.35
|
1.33
|
2%
|
(1) See
"Abbreviations" included in this press release.
(2) Source:
Sproule September 30, 2020 Price Forecast, Historical
Prices.
|
West Texas Intermediate ("WTI") on average declined by 28% and
33% for the three and nine months ended September 30, 2020 respectively, compared to the
same periods in the prior year. Similarly, pricing on Western
Canadian Select ("WCS") crude oil decreased by 27% and 45% for the
three and nine months ended September 30,
2020 respectively, compared to the same periods in the prior
year. Crude oil prices in 2020 for both Canada and the US were impacted by the ongoing
COVID-19 pandemic. Crude oil prices reached historical lows
during the nine months ended September 30,
2020, which significantly impacted the demand for the
Company's services. Natural gas prices in Canada strengthened in 2020, as the 30 day
spot AECO price improved by 126% and 34% respectively, for the
three and nine months ended September 30,
2020, compared to the same periods of the prior year.
The US dollar to the Canadian dollar foreign exchange rate
strengthened in both the three and nine months ended September 30, 2020, compared to the same periods
of the prior year, which had a slightly positive effect on the cash
flows of Western's Canadian customers, when selling US dollar
denominated commodities.
3 Source:
CAODC Contractor Summary as at October 26, 2020.
|
4 Source:
CAODC Fleet List as at October 26, 2020.
|
In the United States, industry
activity decreased in 2020. As reported by Baker Hughes
Company5, the number of active drilling rigs
in the United States decreased by
approximately 69% to 266 rigs at September
30, 2020, as compared to the same period in the prior
year. The unprecedented low demand as a result of the
COVID-19 pandemic has had a significant impact on industry activity
in both the US and in Canada. Prior to the COVID-19 pandemic,
there were also 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 in Canada and the
US. The number of active rigs in the WCSB decreased to
historical lows in the second quarter of 2020 with only 16 active
rigs in mid-June and improved to only 71 active rigs at
September 30, 2020, compared to 147
active rigs at September 30,
2019. The CAODC6 reported that for
drilling in Canada, the total
number of Operating Days in the WCSB decreased by approximately 34%
and 65% respectively, for the three and nine months ended
September 30, 2020 as compared to the
same periods in the prior year.
Outlook
Currently, 11 of Western's drilling rigs and 21 of Western's
well servicing rigs are operating. With the ten
drilling rigs currently working in Canada, Western's Canadian market share has
improved to approximately 12% of total rigs working. One of
Western's 57 drilling rigs is under a term take or pay contract,
which is expected to expire in 2021. These contracts each
typically generate between 250 and 350 Billable Days per year.
Due to decreased activity levels as a result of the
unprecedented demand destruction and low commodity price
environment associated with the COVID-19 pandemic, Western's
capital budget for 2020 remains unchanged and is expected to total
approximately $2 million, mainly
related to maintenance capital. Western believes the 2020
capital budget provides a prudent use of cash resources to manage
its balance sheet. Western will continue to manage its
operations in a disciplined manner and make required adjustments to
its capital program as customer demand changes.
The significant decrease in crude oil prices in 2020 resulting
from the COVID-19 pandemic and international price war has caused
increased uncertainty in global markets. Low crude oil demand
associated with the COVID-19 pandemic continues to have a
significant impact on Western's customers. The precise
duration and extent of the adverse impacts of the current
macroeconomic environment and the COVID-19 pandemic on Western's
customers, operations, business and global economic activity
remains highly uncertain at this time. Additionally,
continued uncertainty surrounding takeaway capacity related to the
timing of completion of the construction on the Trans Mountain
pipeline expansion and the delays associated with the Keystone XL
pipeline, as well as the in service date of the Enbridge Line 3
pipeline replacement, has resulted in 2020 capital budgets for
Western's Canadian customers decreasing considerably year over
year. As such, activity levels in Canada and the
United States are expected to be significantly lower for the
remainder of 2020, compared to 2019 levels. Controlling fixed
costs, maintaining balance sheet flexibility and managing through
the unprecedented market downturn are priorities for the Company,
as prices and demand for Western's services remain below historical
levels. Since the beginning of the year, Western temporarily
reduced its salaried workforce, reduced cash compensation for the
remaining employees, reduced planned capital expenditures, and
continues to identify opportunities to further streamline its
support structure. Going forward, Western's variable cost
structure, and prudent capital budget, will aid in preserving its
balance sheet.
As at September 30, 2020, Western
had $11.0 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
$209.6 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. In the
short term, the largest challenges facing the oilfield service
industry are ongoing liquidity concerns as a result of the reduced
customer spending caused by the demand destruction from the
COVID-19 pandemic and limited take away capacity. In the
medium term, Western's rig fleet is well positioned to benefit from
the LNG Canada liquefied natural gas project now under construction
in British Columbia. It remains 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 challenging
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 condensed 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:
5 Source:
Baker Hughes Company, 2020 Rig Count monthly press
releases.
|
6 Source:
CAODC, monthly Contractor Summary.
|
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 condensed consolidated statements of operations
and comprehensive income, to Adjusted EBITDA:
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
(stated in
thousands)
|
2020
|
2019
|
|
2020
|
2019
|
Net
loss
|
(10,486)
|
(11,575)
|
|
(33,858)
|
(28,781)
|
Income tax
recovery
|
(3,547)
|
(3,657)
|
|
(11,781)
|
(14,986)
|
Loss before income
taxes
|
(14,033)
|
(15,232)
|
|
(45,639)
|
(43,767)
|
Add
(deduct):
|
|
|
|
|
|
Depreciation
|
11,811
|
15,471
|
|
36,954
|
48,319
|
Stock based
compensation
|
84
|
145
|
|
319
|
459
|
Finance
costs
|
4,430
|
4,676
|
|
13,582
|
14,052
|
Other
items
|
(22)
|
(92)
|
|
(2,048)
|
(409)
|
Impairment of
property and equipment
|
-
|
-
|
|
11,500
|
-
|
Adjusted
EBITDA
|
2,270
|
4,968
|
|
14,668
|
18,654
|
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:
- Alternating current ("AC");
- 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");
- Horsepower ("HP");
- 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 the Company's services and
equipment, in particular, in light of the low commodity price
environment associated with the international price war and the
COVID-19 pandemic; 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; the potential forgiveness of a portion of
the Company's PPP loan; expectations as to the increase in crude
oil transportation capacity through pipeline development;
expectations as to the benefits of the LNG Canada natural gas
project 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; the Company's ability to
find and maintain enough field crew members; and the possibility of
the Company recommencing 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:
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);
assumptions with respect to global economic conditions and the
accuracy of the Company's market outlook expectations for 2020 and
in the future; the Company's expectations regarding the impacts,
direct and indirect, of the COVID-19 pandemic on our business,
customers, business partners, employees, supply chain, other
stakeholders and the overall economy; 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
the low commodity price environment will be sustained for an
indefinite period, the impact of the COVID-19 pandemic and the
resulting effects on economic conditions, restrictions imposed by
public health authorities or governments, fiscal and monetary
responses by governments and financial institutions and disruptions
to global supply chains 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.
SOURCE Western Energy Services Corp.