CALGARY, AB, Feb. 25, 2021 /CNW/ - Western Energy Services
Corp. ("Western" or the "Company") (TSX: WRG) announces the release
of its fourth quarter and year end 2020 financial and operating
results. Additional information relating to the Company,
including the Company's financial statements and management's
discussion and analysis ("MD&A") as at and for the year ended
December 31, 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 defined later in this press release. All
amounts are denominated in Canadian dollars (CDN$) unless otherwise
identified.
Fourth Quarter 2020 Operating Results:
- Fourth quarter revenue decreased by $18.1 million (or 40%) to $27.7 million in 2020 as compared to $45.8 million in the fourth quarter of 2019. In
the contract drilling segment, revenue totalled $15.3 million in the fourth quarter of 2020, a
decrease of $15.6 million (or 51%) as
compared to $30.9 million in the
fourth quarter of 2019. In the production services segment, revenue
totalled $12.5 million for the three
months ended December 31, 2020, as
compared to $15.0 million in the same
period of the prior year, a decrease of $2.5
million (or 16%). 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
15% in the fourth quarter of 2020, compared to a Drilling Rig
Utilization average of 21% in the same period of the prior year.
The decrease in activity in the fourth 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 16%1 for the
fourth quarter of 2020 represented a decrease of 700 basis points
("bps") compared to the CAODC industry average of 23% in the fourth
quarter of 2019, mainly due to lower demand as a result of the
COVID-19 pandemic. However, 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"),
improved to 9.0% for the fourth quarter of 2020, as compared to
8.2% in the same period of 2019. Revenue per Billable Day decreased
by 13% in the fourth quarter of 2020, as compared to 2019, as
current market rates weakened in the period;
- In the fourth quarter of 2020, Horizon used its modern drilling
rig fleet, specialized technology and high torque drill pipe, to
successfully drill the deepest lateral well in Saskatchewan's history. As part of multiple
geothermal wells drilled by Horizon for a Canadian customer's
geothermal power project, Horizon has drilled the first 90 degree
horizontal well targeting a geothermal formation, as well as the
deepest total vertical depth well in Saskatchewan. These milestones, achieved with
Western's industry partners, demonstrates Horizon's oilfield
expertise, modern equipment and experienced personnel. This
accomplishment highlights the ability to deliver on customer
specific requirements in all applications, including new and
emerging renewable energy and green initiatives;
- 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 6%,
as two rigs worked in the fourth quarter of 2020, compared to 30%
Drilling Rig Utilization in the fourth quarter of 2019, reflecting
an 81% decrease in Operating Days. Revenue per Billable Day for the
fourth quarter of 2020 decreased by 46% to US$11,829, as compared to the same period of the
prior year, as current spot market rates weakened in the period;
and
- In Canada, service rig
utilization was 27% in the fourth quarter of 2020 compared to 32%
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 fourth quarter of 2020 was steady, improving by 1%
compared to the fourth quarter of 2019. Lower utilization led to
well servicing revenue totalling $10.9
million in the fourth quarter of 2020, a decrease of
$1.7 million (or 13%), as compared to
the same period in the prior year.
- Administrative expenses decreased by $1.6 million (or 38%) to $2.6 million in the fourth quarter of 2020, as
compared to $4.2 million in the
fourth quarter of 2019, mainly due to lower employee related costs
as a result of temporary headcount reductions, a focus on cost
management, as well as the Canada
Emergency Wage Subsidy ("CEWS") from the Government of Canada due to the COVID-19 pandemic.
- The Company incurred a net loss of $7.4
million in the fourth quarter of 2020 ($0.08 per basic common share) as compared to a
net loss of $52.2 million in the same
period in 2019 ($0.56 per basic
common share). The change can mainly be attributed to the 2019
impairment of $54.0 million, a
$3.5 million decrease in depreciation
expense due to certain assets being fully depreciated in the
period, as well as the impact to depreciation of asset impairments
in previous quarters and a $0.3
million decrease in finance costs, offset partially by a
$13.0 million decrease in income tax
recovery.
- Fourth quarter Adjusted EBITDA in 2020 was consistent with the
same period of the prior year and totalled $5.6 million. Adjusted EBITDA was unchanged as
lower contract drilling activity in Canada and the
United States, and lower oilfield rental equipment and well
servicing activity in Canada, was
offset by the CEWS of $3.6 million
and temporary headcount reductions.
- Fourth quarter 2020 additions to property and equipment of
$1.8 million includes $0.3 million of expansion capital and
$1.5 million of maintenance capital.
In total, additions to property and equipment in the fourth quarter
of 2020 decreased by $1.1 million (or
39%) from the $2.9 million incurred
in the fourth quarter of 2019.
- 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
December 31, 2020. Based on the
results of the test, it was determined there was no impairment to
property and equipment in the Company's contract drilling, well
servicing or oilfield rental equipment CGUs.
- On December 31, 2020, the Company
announced an extension of the maturity of Western's syndicated
revolving first lien credit facility (the "Revolving Facility") and
its committed operating facility (the "Operating Facility" and
together the "Credit Facilities") from December 17, 2021 to July
1, 2022. The total commitments under the Revolving and
Operating Facilities are unchanged totaling $50.0 million and $10.0
million, respectively. Western and its lenders have agreed
to make some other changes to the Credit Facilities, including
adjustments to its financial covenants as described on page 14 of
the Company's December 31, 2020
annual MD&A under "Liquidity and Capital Resources". In
conjunction with the amended Credit Facility, Western has entered
into an agreement with HSBC Bank Canada ("HSBC") for a $12.5 million six–year committed term
non–revolving facility with the participation of BDC (the "HSBC
Facility") under BDC's Business Credit Availability Program
("BCAP"). The BCAP program was implemented to help small and medium
sized companies, directly impacted by the COVID–19 pandemic with
additional liquidity to cover operating costs. The HSBC Facility
bears interest at a floating rate and matures on December 31, 2026. The HSBC Facility was fully
funded on December 31, 2020. Western
used a portion of the proceeds to fund its January 2021 interest and principal payments
under its second lien secured term loan with Alberta Investment
Management Corporation ("AIMCo") and the remaining funds will be
used for future interest and principal payments to AIMCo.
1 Source: CAODC, monthly Contractor
Summary.
|
2020 Operating Results:
- Revenue in 2020 decreased by $92.7
million to $103.7 million (or
47%) compared to $196.4 million in
2019. In the contract drilling segment, revenue totalled
$62.0 million in 2020, a decrease of
$78.8 million (or 56%) as compared to
$140.8 million in 2019 and included
US$5.0 million of shortfall
commitment revenue. In the production services segment, revenue
totalled $42.1 million in 2020, as
compared to $55.9 million in 2019, a
decrease of $13.8 million (or 25%).
While contract drilling day rates were steady in Canada, activity was lower in all divisions
and contract drilling day rates decreased in the US, which impacted
revenue as described below:
-
- Drilling Rig Utilization in Canada for the year ended December 31, 2020 decreased to 12% compared to an
average of 22% for the prior year. 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 12% in 2020 represented a discount of
400 bps to the CAODC industry average of 16%2, a
decrease as compared to Drilling Rig Utilization of 22% in 2019,
which was consistent with 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. 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 7.0% for the year ended December 31, 2020, as compared to 8.9% in
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 47% in 2019, reflecting an 85% decrease in
Operating Days. Revenue per Billable Day for the year ended
December 31, 2020 was 12% lower than
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 2020, compared to US$1.3
million in 2019; and
- In Canada, service rig
utilization was 23% for the year ended December 31, 2020 compared to 30% in 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 in
2020 by 5%, as compared to 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
$9.2 million (or 20%) to $37.0 million, as compared to $46.2 million in the prior year.
- Administrative expenses in 2020 decreased by $6.2 million (or 37%) to $10.5 million, as compared to $16.7 million in 2019, mainly due to lower
employee related costs as a result of temporary headcount
reductions, the CEWS from the Government of Canada and overall cost control measures
implemented by management.
- 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 recognized impairments
of $9.5 million and $2.0 million respectively, in the Company's
contract drilling and oilfield equipment rentals CGUs in the first
quarter of 2020. As described previously, no impairment was
recognized during the second, third or fourth quarters of
2020.
- The Company incurred a net loss of $41.3
million in 2020 ($0.45 per
basic common share) as compared to a net loss of $81.0 million in 2019 ($0.88 per basic common share). The change can
mainly be attributed to the prior year impairment loss of
$54.0 million, the current year
impairment loss of $11.5 million, a
$3.9 million decrease in Adjusted
EBITDA, and a $16.2 million decrease
in income tax recovery, offset partially by a $14.9 million decrease in depreciation expense
due to certain assets being fully depreciated in the period as well
as the impact to depreciation of asset impairments in previous
quarters, a $1.6 million change in
other items mainly due to foreign exchange gains, and a
$0.7 million decrease in finance
costs.
- Adjusted EBITDA for the year ended December 31, 2020, decreased by $3.9 million (or 16%) to $20.3 million as compared to $24.2 million for the year ended December 31, 2019. 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 $8.2 million.
- Year to date additions to property and equipment in 2020 of
$2.8 million included $0.5 million related to expansion capital and
$2.3 million of maintenance capital.
In total, additions to property and equipment for the year ended
December 31, 2020 decreased by
$5.2 million (or 65%) from the
$8.0 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 could purchase for cancellation up to 5,200,000 common
shares of the Company. The Bid commenced on January 14, 2020 and terminated on January 13, 2021. For the year ended December 31, 2020, 1,584,000 common shares for a
total cost of $0.5 million were
repurchased under the Bid.
- On August 7, 2020, the Company
entered into a US$1.8 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 loan will be forgiven if all conditions
are met and has recognized US$0.2
million as at December 31,
2020 in operating expenses related to loan forgiveness.
- On October 17, 2020, the
Company's 7,099,547 outstanding warrants expired unexercised.
2 Source:
CAODC, monthly Contractor Summary.
|
Selected Financial
Information
|
|
|
(stated in
thousands, except share and per share amounts)
|
|
|
|
Three months ended
December 31
|
Year ended
December 31
|
Financial
Highlights
|
2020
|
2019
|
Change
|
2020
|
2019
|
Change
|
Revenue
|
27,679
|
45,838
|
(40%)
|
103,684
|
196,408
|
(47%)
|
Adjusted
EBITDA(1)
|
5,610
|
5,584
|
-
|
20,278
|
24,238
|
(16%)
|
Adjusted EBITDA as a
percentage of revenue
|
20%
|
12%
|
67%
|
20%
|
12%
|
67%
|
Cash flow from
operating activities
|
2,011
|
8,921
|
(77%)
|
27,723
|
31,718
|
(13%)
|
Additions to property
and equipment
|
1,805
|
2,942
|
(39%)
|
2,788
|
7,968
|
(65%)
|
Net loss
|
(7,443)
|
(52,249)
|
(86%)
|
(41,301)
|
(81,030)
|
(49%)
|
– basic
net loss per share
|
(0.08)
|
(0.56)
|
(86%)
|
(0.45)
|
(0.88)
|
(49%)
|
–
diluted net loss per share
|
(0.08)
|
(0.56)
|
(86%)
|
(0.45)
|
(0.88)
|
(49%)
|
Weighted average
number of shares
|
|
|
|
|
|
|
–
basic
|
91,165,112
|
92,501,314
|
(1%)
|
91,253,521
|
92,379,902
|
(1%)
|
–
diluted
|
91,165,112
|
92,501,314
|
(1%)
|
91,253,521
|
92,379,902
|
(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
December 31
|
Year ended
December 31
|
Operating
Highlights(2)
|
2020
|
2019
|
Change
|
2020
|
2019
|
Change
|
Contract
Drilling
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
–
Average active rig count
|
8.0
|
11.4
|
(30%)
|
6.3
|
12.3
|
(49%)
|
– End of
period
|
49
|
49
|
-
|
49
|
49
|
-
|
Revenue per Billable
Day
|
19,130
|
22,023
|
(13%)
|
20,900
|
21,383
|
(2%)
|
Revenue per Operating
Day
|
20,883
|
24,725
|
(16%)
|
23,417
|
23,854
|
(2%)
|
Operating
Days
|
675
|
932
|
(28%)
|
2,064
|
4,012
|
(49%)
|
Drilling rig
utilization – Billable Days
|
16%
|
23%
|
(30%)
|
13%
|
25%
|
(48%)
|
Drilling rig
utilization – Operating Days
|
15%
|
21%
|
(29%)
|
12%
|
22%
|
(45%)
|
CAODC industry
average utilization – Operating Days(3)
|
16%
|
23%
|
(30%)
|
16%
|
22%
|
(27%)
|
United States
Operations:
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
–
Average active rig count
|
0.6
|
2.9
|
(79%)
|
0.7
|
4.4
|
(84%)
|
– End of
period
|
8
|
8
|
-
|
8
|
8
|
-
|
Revenue per Billable
Day (US$)
|
11,829
|
21,979
|
(46%)
|
17,983(4)
|
20,460(5)
|
(12%)
|
Revenue per Operating
Day (US$)
|
16,273
|
26,596
|
(39%)
|
22,594(4)
|
24,150(5)
|
(6%)
|
Operating
Days
|
43
|
224
|
(81%)
|
201
|
1,352
|
(85%)
|
Drilling rig
utilization – Billable Days
|
8%
|
37%
|
(78%)
|
9%
|
56%
|
(84%)
|
Drilling rig
utilization – Operating Days
|
6%
|
30%
|
(80%)
|
7%
|
47%
|
(85%)
|
|
|
Production
Services
|
|
Canadian
Operations:
Well servicing rig
fleet:
|
|
|
|
|
|
|
–
Average active rig count
|
17.3
|
20.1
|
(14%)
|
14.6
|
19.1
|
(24%)
|
– End of
period
|
63
|
63
|
-
|
63
|
63
|
-
|
Revenue per Service
Hour
|
685
|
680
|
1%
|
693
|
661
|
5%
|
Service
Hours
|
15,924
|
18,494
|
(14%)
|
53,351
|
69,882
|
(24%)
|
Service rig
utilization
|
27%
|
32%
|
(16%)
|
23%
|
30%
|
(23%)
|
(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$5.0 million for
the year ended December 31, 2020.
|
(5)
|
Excludes shortfall
commitment revenue from take of pay contracts of US$1.3 million for
the year ended December 31, 2019.
|
Financial Position
at (stated in thousands)
|
December
31, 2020
|
December 31,
2019
|
December 31,
2018
|
Working
capital
|
15,997
|
7,031
|
15,739
|
Property and
equipment
|
452,040
|
511,052
|
615,395
|
Total
assets
|
495,625
|
550,537
|
667,295
|
Long term
debt
|
237,633
|
228,274
|
222,258
|
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 third 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, abandonment 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,
2020 and 2019 and for the years ended December 31, 2020 and 2019.
|
Three months ended
December 31
|
|
Year ended
December 31
|
|
2020
|
2019
|
Change
|
|
2020
|
2019
|
Change
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
|
West Texas
Intermediate (US$/bbl)
|
42.66
|
56.96
|
(25%)
|
|
39.40
|
57.02
|
(31%)
|
Western Canadian
Select (CDN$/bbl)
|
43.42
|
54.29
|
(20%)
|
|
35.59
|
58.77
|
(39%)
|
|
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
2.58
|
2.42
|
7%
|
|
2.18
|
1.76
|
24%
|
|
|
|
|
|
|
|
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.30
|
1.32
|
(2%)
|
|
1.34
|
1.33
|
1%
|
(1) See "Abbreviations"
included in this press release.
|
(2) Source: Sproule
December 31, 2020 Price Forecast, Historical Prices.
|
West Texas Intermediate ("WTI") on average declined by 25% and
31% for the three months and year ended December 31, 2020 respectively, compared to the
same periods in the prior year. Similarly, pricing on Western
Canadian Select ("WCS") crude oil decreased by 20% and 39% for the
three months and year ended December 31,
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 2020 which negatively impacted the demand for the Company's
services. However, natural gas prices in Canada strengthened in 2020, as the 30 day
spot AECO price improved by 7% and 24% respectively, for the three
months and year ended December 31,
2020, compared to the same periods of the prior year.
Additionally, the US dollar to the Canadian dollar foreign exchange
rate weakened in the fourth quarter of 2020, but for the full year
was stronger year over year, compared to the same periods of the
prior year, which impacted the cash flows of Western's Canadian
customers, when selling US dollar denominated commodities.
3 Source: CAODC Contractor Summary as
at February 25, 2021.
|
4 Source:
CAODC Fleet List as at February 25, 2021.
|
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 56% to 351 rigs at December
31, 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 in
2020. 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 67 active rigs at December
31, 2020, compared to 81 active rigs at December 31, 2019. The
CAODC6 reported that for drilling in Canada, the total number of Operating Days in
the WCSB decreased by approximately 34% in 2020 as compared to
2019.
Outlook
Currently, 16 of Western's drilling rigs and 37 of Western's
well servicing rigs are operating. With the 15 drilling rigs
currently working in Canada,
Western's Canadian market share has improved to approximately 9.4%
of total drilling 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 2021 is expected to total approximately
$6 million, which is expected to be
comprised of maintenance capital, of which $4 million is budgeted for the contract drilling
segment and $2 million is budgeted
for the production services segment. Western believes the
2021 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. Additionally,
uncertainty surrounding the timing of COVID-19 vaccine distribution
impacts demand in the near term. 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, the January 2021 executive order by the President of
the United States cancelling the
permit that had allowed construction of the Keystone XL pipeline,
the uncertain timing of completion of construction on the Trans
Mountain pipeline expansion, as well as uncertainty regarding the
in service date of the Enbridge Line 3 pipeline replacement have
all resulted in continued uncertainty regarding takeaway
capacity. However, activity levels in Canada and the
United States in 2021 are expected to be marginally higher
than 2020 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.
Western continues to identify further opportunities to
streamline its support structure and implement additional cost
control measures. Going forward, Western expects that its
variable cost structure, and prudent capital budget, will aid in
preserving its balance sheet.
As at December 31, 2020, Western
had $11.0 million drawn on its
$60.0 million Credit Facilities which
mature on July 1, 2022 and
$12.5 million drawn on its HSBC
Facility which matures December 31,
2026. Western currently has $209.1
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.
5 Source:
Baker Hughes Company, 2020 Rig Count monthly press
releases.
|
6 Source:
CAODC, monthly Contractor Summary.
|
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)
|
2020
|
2019
|
2020
|
2019
|
Net
loss
|
(7,443)
|
(52,249)
|
(41,301)
|
(81,030)
|
Income tax
recovery
|
(2,828)
|
(15,786)
|
(14,609)
|
(30,772)
|
Loss before income
taxes
|
(10,271)
|
(68,035)
|
(55,910)
|
(111,802)
|
Add
(deduct):
|
|
|
|
|
Depreciation
|
11,314
|
14,848
|
48,268
|
63,167
|
Stock based
compensation
|
130
|
127
|
449
|
586
|
Finance
costs
|
4,381
|
4,645
|
17,963
|
18,697
|
Other
items
|
56
|
(1)
|
(1,992)
|
(410)
|
Impairment of
property and equipment
|
-
|
54,000
|
11,500
|
54,000
|
Adjusted
EBITDA
|
5,610
|
5,584
|
20,278
|
24,238
|
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 potential impact of the ongoing COVID-19
pandemic on the oil and gas industry in Canada and the
United States; 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 maintenance capital plans
for 2021 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 2021 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; and the Company's ability
to find and maintain enough field crew members.
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, pipeline
and LNG export facility 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 2021 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, 2020 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.