CALGARY,
AB, July 25, 2022 /CNW/ - Western Energy
Services Corp. ("Western" or the "Company") (TSX: WRG) announces
the release of its second quarter 2022 financial and operating
results. Additional information relating to the Company,
including the Company's financial statements and management's
discussion and analysis as at June 30,
2022 and for the three and six months ended June 30, 2022 and 2021 will be available on SEDAR
at www.sedar.com. Non-International Financial Reporting Standards
("Non-IFRS") measures and ratios, such as Adjusted EBITDA and
Adjusted EBITDA as a percentage of revenue, as well as
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.
Second Quarter 2022 Operating
Results:
- Second quarter revenue increased by $10.2 million or 50%, to $30.6 million in 2022 as compared to $20.4 million in the second quarter of
2021. Contract drilling revenue totalled $17.2 million in the second quarter of 2022, an
increase of $5.3 million or 44%,
compared to $11.9 million in the
second quarter of 2021. Production services revenue was
$13.5 million for the three months
ended June 30, 2022, as compared to
$8.6 million in the same period of
the prior year, an increase of $4.9
million or 57%. In the second quarter of 2022, revenue
was positively impacted by improved demand compared to 2021 as
described below:
-
- In Canada, drilling rig
utilization averaged 10% in the second quarter of 2022, compared to
9% in the second quarter of 2021. The increase in activity in
the second quarter of 2022 was mainly attributable to the higher
commodity prices resulting from the war in Ukraine, the COVID-19 vaccination rollouts and
the lifting of government restrictions which re-opened the economy,
compared to the second quarter of 2021 when the COVID-19 pandemic
reduced demand across the industry. The Canadian Association
of Energy Contractors ("CAOEC") industry average utilization of
23%1 for the second quarter of 2022
represented an increase of 800 basis points ("bps") compared to the
CAOEC industry average of 15% in the second quarter of 2021.
Western's market share, represented by the Company's Operating Days
as a percentage of the CAOEC's total Operating Days in the Western
Canadian Sedimentary Basin ("WCSB"), decreased to 3.3% for the
second quarter of 2022, as compared to 6.2% in the same period of
2021, as a result of limited capital spent on rig upgrades during
the economic downturn and wet weather in the areas the Company
operates. Revenue per Operating Day averaged $29,800 in the second quarter of 2022, an
increase of 34% compared to the same period of the prior year,
mainly due to improved market rates, as well as the 2021 CAOEC wage
increase that is passed through to the customer;
- In the United States ("US"),
drilling rig utilization averaged 34% in the second quarter of
2022, compared to 21% in the second quarter of 2021, with Operating
Days improving from 151 days in 2021 to 250 days in 2022.
Revenue per Operating Day for the second quarter of 2022 averaged
US$23,945, a 67% increase compared to
US$14,312 in the same period of the
prior year, mainly due to improved market conditions and changes in
rig mix, as there was more activity with the Company's higher spec
rigs which command higher day rates; and
- In Canada, service rig
utilization of 32% in the second quarter of 2022 was higher than
27% in the same period of the prior year, mainly due to improved
activity resulting from higher commodity prices. Revenue per
Service Hour averaged $943 in the
second quarter of 2022 and was 38% higher than the second quarter
of 2021, as a result of improved market conditions which led to
higher hourly rates, as well as increased labour and fuel charges
passed through to the customer. Higher pricing led to
production services revenue totaling $13.5
million in the second quarter of 2022, an increase of
$4.9 million or 57%, as compared to
the same period in the prior year.
- Administrative expenses increased by $1.1 million or 48%, to $3.4 million in the second quarter of 2022, as
compared to $2.3 million in the
second quarter of 2021, due to reduced COVID-19 government
subsidies.
- The Company incurred net income of $35.4
million in the second quarter of 2022 ($0.02 net income per basic common share) as
compared to a net loss of $12.9
million in the same period in 2021 ($0.14 net loss per basic common share). The
change can mainly be attributed to a $49.4
million gain on debt forgiveness related to the
Restructuring Transaction as described below, a $0.7 million decrease in finance costs due to the
lower total debt balance, a $0.5
million decrease in depreciation expense due to certain
assets being fully depreciated in the period, and a $0.3 million increase in Adjusted EBITDA, offset
partially by a $2.4 million increase
in income tax expense.
- Second quarter Adjusted EBITDA of $2.5
million in the second quarter of 2022 was $0.3 million, or 14%, higher compared to
$2.2 million in the second quarter of
2021. Adjusted EBITDA was higher due to improved activity in
Canada and the US, offset
partially by $2.6 million lower
COVID-19 related government subsidies received in 2022, as well as
approximately $1.1 million of
one-time startup costs associated with reactivating certain rigs in
the Company's rig fleet.
- Second quarter additions to property and equipment of
$14.0 million in 2022 compared to
$2.6 million incurred in the second
quarter of 2021 and consisted of $12.4
million of expansion capital and $1.6
million of maintenance capital, as the Company initiated its
rig upgrade program in 2022.
- On May 18, 2022, Western
completed a recapitalization and debt restructuring transaction to
restructure a portion of its outstanding debt and raise new capital
(the "Restructuring Transaction").
-
- As part of the Restructuring Transaction, on May 18, 2022, Western completed a rights offering
to holders of its common shares on April 19,
2022 to subscribe for additional common shares (the "Rights
Offering"), resulting in the issuance of an aggregate of
1,968,867,475 common shares in the capital of the Company at a
price of $0.016 per share for
aggregate gross proceeds of approximately $31.5 million. As the Rights Offering was
fully subscribed, Western did not utilize a standby commitment
whereby G2S2 Capital Inc. ("G2S2"), Armco Alberta Inc. ("Armco")
and MATCO Investments Ltd. ("Matco"), each a significant
shareholder of the Company, agreed to acquire any common shares not
subscribed for under the Rights Offering.
- $100.0 million of the principal
amount owing to Alberta Investment Management Corporation
("AIMCo"), the lender under Western's second lien term loan
facility (the "Second Lien Facility"), was converted into 2 billion
common shares at a conversion price of $0.05 per common share (the "Debt Exchange"),
resulting in AIMCo holding approximately 49.7% of the common shares
following closing of the Restructuring Transaction. In addition,
$10.0 million of the proceeds from
the Rights Offering was paid by Western to AIMCo to further reduce
the principal amount outstanding under the Second Lien Facility,
with the remaining $21.5 million of
the proceeds, net of expenses of the Restructuring Transaction,
being used primarily for upgrades to the Company's rig fleet, as
well as for general corporate purposes.
- Concurrent with the Debt Exchange and the repayment of
$10.0 million of the principal amount
of the Second Lien Facility, the Second Lien Facility was amended
to provide for an extension of the maturity of the remaining
principal amount of the Second Lien Facility from January 31, 2023 to May
18, 2026; and an increase in the interest rate from 7.25% to
8.5%.
- In addition, as part of the Restructuring Transaction, the
senior secured credit facilities (the "Credit Facilities") of the
Company were amended with effect as of May
18, 2022, including amendments to (a) extend the maturity of
the Credit Facilities from July 1,
2022 to May 18, 2025, (b)
reduce the amount available under the Credit Facilities from
$60.0 million to $45.0 million, and (c) revise certain financial
covenants.
- Concurrent with closing of the Restructuring Transaction, the
Company, AIMCo, G2S2, Armco, Matco and Ronald P. Mathison entered
into an investor rights agreement pursuant to which AIMCo was
granted the right to nominate two directors for election to
Western's board for so long as AIMCo's shareholding percentage of
the Company is 30% or greater. As a result, Western's
directors approved the appointment of two nominees designated by
AIMCo to the board of directors of the Company. AIMCo's
nominees, Trent Boehm and Colleen Cebuliak, joined the board of
directors of the Company effective May 24, 2022. The Company and
AIMCo also entered into a registration rights agreement pursuant to
which AIMCo was granted the right to cause the Company to file a
prospectus to facilitate the sale of its common shares in a public
offering, or to allow it to participate in a public offering of
common shares by the Company, in each case subject to certain
customary restrictions and limitations.
Details on the Restructuring Transaction are contained in Western's
short form prospectus dated April 11, 2022 and related documents
filed under Western's SEDAR profile on www.sedar.com.
- At the Company's annual and special meeting on June 29, 2022,
Western's shareholders approved the consolidation of the Company's
issued and outstanding common shares (the "Consolidation") at a
ratio, to be determined by Western's directors, between 75 and 120
pre‐consolidation common shares to one post‐consolidation common
share. On July 25, 2022, Western's board of directors
resolved to proceed with the Consolidation of the Company's common
shares at a ratio of one post-consolidation common share for every
120 pre-consolidation common shares. The Consolidation is expected
to be effective as of August 1, 2022. Subject to the receipt
of all required and final approvals, the Company's common shares
are expected to begin trading on the TSX, on a consolidated basis,
within two to three trading days following the receipt by the TSX
of all required documents upon completion of the
Consolidation. The Company will provide further information
regarding the share consolidation, including with respect to the
process for exchanging share certificates for post-consolidation
share certificates, in a separate news release closer to the
effective date. The Consolidation will reduce the number of
issued and outstanding common shares of the Company from
4,060,663,214 common shares to approximately 33,838,860 common
shares, and proportionate adjustments will be made to the Company's
outstanding restricted share units and options. The common shares
will continue to trade on the TSX under the trading symbol "WRG"
following the Consolidation.
Year to Date 2022 Operating
Results:
- Revenue for the six months ended June 30, 2022 increased by
$23.7 million or 41%, to $81.1 million as compared to $57.4 million
for the six months ended June 30, 2021. In the contract
drilling segment, revenue totalled $48.2 million for the six months
ended June 30, 2022, an increase of $16.0 million or 50%, compared
to $32.2 million in the same period in 2021. In the
production services segment, revenue totalled $33.1 million for the
six months ended June 30, 2022, as compared to $25.4 million in the
same period of the prior year, an increase of $7.7 million or
30%. While the ongoing COVID-19 pandemic continued to impact
the contract drilling and production services segments in 2022,
revenue was positively impacted by improved demand and pricing
compared to 2021 as described below:
-
- In Canada, drilling rig utilization averaged 21% for the six
months ended June 30, 2022, compared to 15% for the six months
ended June 30, 2021. The increase in activity in 2022 was
mainly attributable to the higher commodity prices resulting from
the war in Ukraine, the COVID-19 vaccination rollouts and the
lifting of government restrictions which re-opened the economy,
compared to the first half of 2021 when the COVID-19 pandemic
reduced demand across the industry. The CAOEC industry
average utilization of 31%2 for the six months ended
June 30, 2022 represented an increase of 1,000 bps compared to the
CAOEC industry average of 21% for the six months ended June 30,
2021. Western's market share, represented by the Company's
Operating Days as a percentage of the CAOEC's total Operating Days
in the WCSB, decreased to 5.4% for the first half of 2022, as
compared to 7.5% in first half of 2021, as a result of limited
capital spent on rig upgrades during the economic downturn and wet
weather in the second quarter of 2022. Revenue per Operating
Day averaged $27,172 for the six months ended June 30, 2022, an
increase of 29% compared to the same period of the prior year,
mainly due to improved market rates, as well as the 2021 CAOEC wage
increase that is passed through to the customer;
- In the US, drilling rig utilization averaged 24% for the six
months ended June 30, 2022, compared to 13% in the same period of
2021, with Operating Days improving from 189 days in 2021 to 350
days in 2022. Revenue per Operating Day for the six months
ended June 30, 2022 averaged US$22,565, a 57% increase compared to
US$14,366 for the six months ended June 30, 2021, mainly due to
improved market conditions; and
- In Canada, service rig utilization of 40% for the six months
ended June 30, 2022 was comparable to 39% for the six months ended
June 30, 2021, mainly due to field crew shortages across the
industry and very cold weather in the first quarter of 2022.
Revenue per Service Hour averaged $902 for the six months ended
June 30, 2022 and was 27% higher than the same period of 2021, as a
result of improved market conditions which led to higher hourly
rates, as well as increased labour and fuel charges passed through
to the customer. Higher pricing led to production services
revenue totalling $33.1 million for the six months ended June 30,
2022, an increase of $7.7 million or 30%, as compared to the same
period in the prior year.
- Administrative expenses increased by $1.4 million or 26%, to
$6.8 million for the six months ended June 30, 2022, as compared to
$5.4 million in the same period of 2021, due to lower receipts
related to government subsidy programs, as both the Canada
Emergency Wage Subsidy and Canada Emergency Rent Subsidy programs
ended in 2021 and were replaced with smaller government subsidy
programs.
- The Company incurred net income of $31.6 million for the six
months ended June 30, 2022 ($0.03 net income per basic common
share) as compared to a net loss of $19.4 million in the same
period in 2021 ($0.21 net loss per basic common share). The
change can mainly be attributed to a $49.4 million gain on debt
forgiveness related to the Restructuring Transaction described
previously, a $3.8 million increase in Adjusted EBITDA, a $1.4
million decrease in depreciation expense due to certain assets
being fully depreciated in the period, and a $0.6 million decrease
in finance costs, offset partially by a $4.1 million increase in
income tax expense.
- Adjusted EBITDA of $12.9 million for the six months ended June
30, 2022 was $3.8 million, or 42%, higher compared to $9.1 million
in the same period of 2021. Adjusted EBITDA was higher due to
improved activity and pricing in Canada and the US, offset
partially by $5.9 million lower COVID-19 related government
subsidies and $1.5 million in one-time startup costs associated
with reactivating certain rigs in the Company's rig fleet.
- Year to date 2022 additions to property and equipment of $18.1
million compared to $3.4 million incurred in the same period of
2021 and consisted of $14.9 million of expansion capital and $3.2
million of maintenance capital, as the Company initiated its rig
upgrade program in 2022.
Selected Financial
Information
|
(stated in
thousands, except share and per share amounts)
|
|
Three months ended June
30
|
Six
months ended June 30
|
Financial
Highlights
|
2022
|
2021
|
Change
|
2022
|
2021
|
Change
|
Revenue
|
30,594
|
20,386
|
50 %
|
81,069
|
57,355
|
41 %
|
Adjusted
EBITDA(1)
|
2,498
|
2,197
|
14 %
|
12,889
|
9,088
|
42 %
|
Adjusted EBITDA as a
percentage of revenue(1)
|
8 %
|
11 %
|
(27 %)
|
16 %
|
16 %
|
-
|
Cash flow from
operating activities
|
8,726
|
9,410
|
(7 %)
|
15,185
|
10,919
|
39 %
|
Additions to property
and equipment
|
13,956
|
2,555
|
446 %
|
18,050
|
3,428
|
427 %
|
Net income
(loss)
|
35,431
|
(12,940)
|
(374 %)
|
31,597
|
(19,394)
|
(263 %)
|
– basic
and diluted net income (loss) per share
|
0.02
|
(0.14)
|
(114 %)
|
0.03
|
(0.21)
|
(114 %)
|
Weighted average number
of shares
|
|
|
|
|
|
|
–
basic
|
1,967,191,380
|
91,200,629
|
2,057 %
|
1,034,644,702
|
91,192,715
|
1,035 %
|
–
diluted
|
1,967,364,527
|
91,200,629
|
2,057 %
|
1,035,003,665
|
91,192,715
|
1,035 %
|
Outstanding common
shares as at period end
|
4,060,662,344
|
91,201,609
|
4,352 %
|
4,060,662,344
|
91,201,609
|
4,352 %
|
(1) See "Non-IFRS measures" included in this press
release.
|
|
Three months ended
June 30
|
Six months ended
June 30
|
Operating
Highlights(2)
|
2022
|
2021
|
Change
|
2022
|
2021
|
Change
|
Contract
Drilling
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
– Average
active rig count
|
3.5
|
4.5
|
(22 %)
|
7.8
|
7.5
|
4 %
|
– End of
period
|
37(4)
|
49
|
(24 %)
|
37(4)
|
49
|
(24 %)
|
Operating
Days
|
322
|
407
|
(21 %)
|
1,403
|
1,360
|
3 %
|
Revenue per Operating
Day
|
29,800
|
22,218
|
34 %
|
27,172
|
21,057
|
29 %
|
Drilling rig
utilization
|
10 %
|
9 %
|
11 %
|
21 %
|
15 %
|
40 %
|
CAOEC industry average
utilization – Operating Days(3)
|
23 %
|
15 %
|
53 %
|
31 %
|
21 %
|
48 %
|
|
|
|
|
|
|
|
United States
Operations:
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
– Average
active rig count
|
2.7
|
1.7
|
59 %
|
1.9
|
1.0
|
90 %
|
– End of
period
|
8
|
8
|
-
|
8
|
8
|
-
|
Operating
Days
|
250
|
151
|
66 %
|
350
|
189
|
85 %
|
Revenue per Operating
Day (US$)
|
23,945
|
14,312
|
67 %
|
22,565
|
14,366
|
57 %
|
Drilling rig
utilization
|
34 %
|
21 %
|
62 %
|
24 %
|
13 %
|
85 %
|
|
|
|
|
|
|
|
Production
Services
|
|
|
|
|
|
|
Well servicing rig
fleet:
|
|
|
|
|
|
|
– Average
active rig count
|
19.9
|
16.7
|
19 %
|
25.5
|
24.3
|
5 %
|
– End of
period
|
63
|
63
|
-
|
63
|
63
|
-
|
Service
Hours
|
12,970
|
10,891
|
19 %
|
33,143
|
31,593
|
5 %
|
Revenue per Service
Hour
|
943
|
683
|
38 %
|
902
|
712
|
27 %
|
Service rig
utilization
|
32 %
|
27 %
|
19 %
|
40 %
|
39 %
|
3 %
|
(2) See "Defined Terms"
included in this press release.
|
(3) Source: The
CAOEC monthly Contractor Summary. The CAOEC industry average
is based on Operating Days divided by total available drilling
days.
|
(4) During the first
quarter of 2022, 12 drilling rigs were deregistered with the
CAOEC.
|
Financial Position at (stated in
thousands)
|
|
June 30,
2022
|
|
December 31, 2021
|
|
June 30, 2021
|
Working
capital
|
|
11,763
|
|
2,224
|
|
(504)
|
Total assets
|
|
458,196
|
|
456,003
|
|
460,443
|
Long term
debt
|
|
121,776
|
|
226,884
|
|
225,590
|
Business Overview
Western is an energy services company that provides contract
drilling services in Canada and in the US and production services
in Canada through its various divisions, subsidiaries, and first
nations joint venture.
Contract Drilling Services
Western operates a fleet of 45 drilling rigs specifically suited
for drilling complex horizontal wells across Canada and the US. Western is currently
the fourth largest drilling contractor in Canada, based on the CAOEC registered drilling
rigs3. In the first quarter of 2022,
Western deregistered 12 drilling rigs with the CAOEC, all of which
can be reactivated at a later date.
Production Services
Production Services provides well servicing and oilfield
equipment rentals in Canada.
Western operates 63 well servicing rigs and is the third largest
well servicing company in Canada
based on CAOEC registered well servicing rigs4.
During the fourth quarter of 2021, the Company sold three
well servicing rigs that operated in the
United States.
Western's contract drilling and well servicing rig fleets
comprise the following:
Six months ended
June 30
|
|
Drilling
rigs
|
|
Well servicing
rigs
|
|
2022
|
|
2021
|
|
|
2022
|
2021
|
Rig
class(1)
|
Canada
|
US
|
Total
|
|
Canada
|
US
|
Total
|
|
Mast
type
|
Total
|
Total
|
|
Cardium
|
11
|
2
|
13
|
|
23
|
2
|
25
|
|
Single
|
30
|
33
|
|
Montney
|
19
|
-
|
19
|
|
19
|
-
|
19
|
|
Double
|
25
|
25
|
|
Duvernay
|
7
|
6
|
13
|
|
7
|
6
|
13
|
|
Slant
|
8
|
8
|
|
Total
|
37
|
8
|
45
|
|
49
|
8
|
57
|
|
|
63
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See "Defined Terms"
included in this press release.
|
Business Environment
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 six months ended June 30,
2022 and 2021.
|
Three
months ended June 30
|
Six
months ended June 30
|
|
|
2022
|
2021
|
|
Change
|
2022
|
2021
|
Change
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
West Texas Intermediate
(US$/bbl)
|
108.41
|
66.03
|
64 %
|
101.35
|
61.94
|
64 %
|
Western Canadian Select
(CDN$/bbl)
|
122.08
|
66.98
|
82 %
|
111.56
|
62.20
|
79 %
|
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
7.53
|
3.18
|
137 %
|
6.24
|
3.21
|
94 %
|
|
|
|
|
|
|
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.28
|
1.23
|
4 %
|
1.27
|
1.25
|
2 %
|
(1) See "Abbreviations" included in this press
release.
(2) Source: Sproule June 30, 2022 Price Forecast,
Historical Prices.
|
|
|
|
|
|
|
West Texas Intermediate on average improved by 64% for both the
three and six months ended June 30,
2022 respectively, compared to the same periods in the prior
year. Similarly, pricing on Western Canadian Select crude oil
increased by 82% and 79% respectively, for the three and six months
ended June 30, 2022, compared to the
same periods in the prior year. In 2022, pricing increased
due to the war in Ukraine which
caused significant price volatility, as well as improved demand
combined with tight supplies of crude oil. Natural gas prices
in Canada also strengthened in
2022 due to the same factors, as the 30-day spot AECO price
improved by 137% and 94% for the three and six months ended
June 30, 2022, compared to the same
periods of the prior year. While commodity prices improved,
the US dollar to the Canadian dollar foreign exchange rate for the
three and six months ended June 30,
2022 strengthened by 4% and 2% respectively, compared to the
same periods of the prior year.
3 Source:
CAOEC Contractor Summary as at July 25, 2022.
4 Source: CAOEC Fleet List as at July 25,
2022.
|
In the United States, industry
activity improved in the second quarter of 2022. As reported
by Baker Hughes Company5, the number of
active drilling rigs in the United
States increased by approximately 58% to 750 rigs as at
June 30, 2022, as compared to 475
rigs at June 30, 2021. There
were 177 active rigs in the WCSB at June 30,
2022, compared to 139 active rigs as at June 30, 2021. The
CAOEC6 reported that for drilling in
Canada, the total number of
Operating Days in the WCSB increased by approximately 50% for the
three months ended June 30, 2022,
compared to the same period in the prior year. For the six
months ended June 30, 2022, the total
number of Operating Days in the WCSB were 42% higher than the same
period of the prior year. Despite improved commodity prices,
there remains continued service industry concerns over the
prevailing customer preference to return cash to shareholders, or
pay down debt, rather than grow production through the drill
bit.
Outlook
In the first half of 2022, crude oil prices reached their
highest levels since 2014, due to recovering demand as governments
eased COVID-19 restrictions, the Russian invasion of Ukraine and supply constraints.
Uncertainty still persists concerning the ongoing war in
Ukraine causing further volatility
in crude oil prices and tight supply. The precise duration
and extent of the adverse impacts of the current macroeconomic
environment, including the ongoing COVID-19 pandemic on Western's
customers, operations, business and global economic activity
remains highly uncertain at this time. Additionally, the
delayed timing of completion of construction on the Trans Mountain
pipeline expansion and the threatened shutdown of Enbridge Line 5,
have contributed to continued uncertainty regarding takeaway
capacity. However, activity levels in 2022 are expected to be
higher than 2021 levels as a result of increased capital spending
by Western's customers. Controlling fixed costs, maintaining
balance sheet strength and flexibility and managing through a
post-pandemic market are priorities for the Company, as prices and
demand for Western's services continue to improve.
Due to improved activity in the first half of 2022, as a result
of the successful COVID-19 vaccine rollout, the lifting of
government restrictions, and the closing of the Restructuring
Transaction, Western's Board of Directors approved a capital budget
for 2022 of $34 million and is
comprised of $23 million of expansion
capital and $11 million of
maintenance capital, with $29 million
allocated to the contract drilling segment and $5 million allocated to the production services
segment. Substantially all of the net proceeds from the
Rights Offering are being used to upgrade the Company's drilling
rig fleet which will drive further improvements in both utilization
and pricing through all industry cycles. Western will
continue to manage its costs in a disciplined manner and make
required adjustments to its capital program as customer demand
changes. Currently,17 of Western's drilling rigs and 20 of
Western's well servicing rigs are operating.
As at June 30, 2022, Western had
no amounts drawn on its $45.0 million
Credit Facilities. As described previously, subsequent to
December 31, 2021, the Company
amended the terms of its Credit Facilities, including extending the
maturity date and amending its financial covenants. Western
currently has $11.9 million
outstanding on its HSBC Bank Canada six-year committed term
non-revolving facility with the participation of Business
Development Canada (the "HSBC Facility"), which matures on
December 31, 2026. Western
currently has $107.7 million
outstanding on its Second Lien Facility. As previously
announced on May 18, 2022, the
Company closed its Rights Offering and Debt Restructuring
Transaction, resulting in reduced debt levels, as well as the
extension of the maturity date of the Second Lien Facility and the
Credit Facilities. The Debt Restructuring Transaction
resulted in a $100.0 million decrease
in the principal amount owing under the Second Lien Facility,
resulting from the Debt Exchange and the repayment of $10.0 million of the principal amount of the
Second Lien Facility using proceeds from the Rights Offering, which
will reduce the Company's finance costs on a go forward
basis. The remaining net proceeds from the Rights Offering
are being invested in capital upgrades on its drilling rig
fleet.
Oilfield service activity in Canada will be affected by the continued
development of resource plays in Alberta and northeast British Columbia which will be impacted by
continued pipeline construction, environmental regulations, and the
level of investment in Canada. In the short term, the largest
challenges facing the oilfield service industry are a lack of
qualified field personnel and the restrained growth in customer
drilling activity due to the continuing preference to return cash
to shareholders through share buybacks, increased dividends and
repayment of debt, rather than grow production. If commodity
prices remain high for an extended period and as customers
strengthen their balance sheets and satisfy shareholders, we expect
that drilling activity will continue to increase. 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
upgraded drilling rigs and modern well servicing rigs, reputation
for quality, and disciplined cash management provides Western with
a competitive advantage.
5 Source:
Baker Hughes Company, 2022 Rig Count monthly press releases.
6 Source: CAOEC, monthly Contractor Summary.
|
Non-IFRS Measures and Ratios
Western uses certain financial measures in this press release
which do not have any standardized meaning as prescribed by
International Financial Reporting Standards ("IFRS"). These
measures and ratios, 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 and ratios 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 and ratio 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 income (loss) for consolidated
results.
Adjusted EBITDA as a percentage of revenue is a non-IFRS
financial ratio which is calculated by dividing Adjusted EBITDA by
revenue for the relevant period. Adjusted EBITDA as a
percentage of revenue is a useful supplemental measure as it is
used by management and other stakeholders, including current and
potential investors, to analyze the profitability of the Company's
principal operating segments.
The following table provides a reconciliation of net income
(loss), as disclosed in the condensed consolidated statements of
operations and comprehensive income, to Adjusted EBITDA:
|
Three months ended
June 30
|
Six months ended
June 30
|
(stated in
thousands)
|
2022
|
2021
|
2022
|
2021
|
Net income
(loss)
|
35,431
|
(12,940)
|
31,597
|
(19,394)
|
Income tax expense
(recovery)
|
2,441
|
-
|
2,022
|
(2,062)
|
Income (loss) before
income taxes
|
37,872
|
(12,940)
|
33,619
|
(21,456)
|
Add
(deduct):
|
|
|
|
|
Gain on debt
forgiveness
|
(49,357)
|
-
|
(49,357)
|
-
|
Depreciation
|
9,989
|
10,480
|
19,908
|
21,286
|
Stock based
compensation
|
308
|
112
|
340
|
180
|
Finance
costs
|
3,855
|
4,525
|
8,482
|
9,093
|
Other
items
|
(169)
|
20
|
(103)
|
(15)
|
Adjusted
EBITDA
|
2,498
|
2,197
|
12,889
|
9,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined Terms:
Average active rig count (contract drilling): Calculated
as drilling rig utilization 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.
Drilling rig utilization: Calculated based on
Operating 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 as total
Service Hours divided by 217 hours per month per rig multiplied by
the average rig count for the period as defined by the CAOEC
industry standard.
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 Energy Contractors ("CAOEC");
- DecaNewton ("daN");
- International Financial Reporting Standards ("IFRS");
- Pounds ("lbs");
- Thousand cubic feet ("mcf"); and
- Western Canadian Sedimentary Basin ("WCSB").
Forward-Looking Statements and
Information
This press release contains certain forward-looking statements
and forward-looking information (collectively, "forward-looking
information") within the meaning of applicable Canadian securities
laws, as well as other information based on Western's current
expectations, estimates, projections and assumptions based on
information available as of the date hereof. 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", "predict",
"potential", "continue", or the negative of these terms or other
comparable terminology are generally intended to identify
forward-looking information. Such information represents the
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 forward-looking 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, the expectation of improved activity
levels in 2022 as a result of increased capital spending by
Western's customers; the potential impact of the ongoing COVID-19
pandemic on Western's customers, operations, business and global
economic activity; the potential impact of the current conflict in
Ukraine on commodity prices and
the demand for Western's services; the pricing for the Company's
services and equipment; the Company's expected total capital budget
for 2022, including the allocation of such budget; the Company's
liquidity needs including the ability of current capital resources
to cover Western's financial obligations; the use, availability and
sufficiency of the Company's Credit Facilities; the Company's
ability to maintain certain covenants under its Credit Facilities;
the repayment of the Company's debt; maturities of the Company's
contractual obligations with third parties; the Consolidation,
including the expected timing of completion, the consolidation
ratio, the timing of the common shares trading on the TSX on a
consolidated basis, and the anticipated benefits to the Company;
the use of proceeds from the Rights Offering; expectations as to
the benefits of the LNG Canada natural gas project in British Columbia on the Company and its rig
fleet; the potential impact of changes to laws, governmental and
environmental regulations, and the price on carbon emissions; 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
ability to maintain a competitive advantage; and the Company's
ability to find and maintain enough field crew members.
The material assumptions that could cause results or events to
differ from current expectations reflected in the forward-looking
information 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;
crude oil transport, pipeline and LNG export facility approval and
development; liquidity and 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); global
economic conditions and the accuracy of the Company's market
outlook expectations for 2022 and in the future; the impact, direct
and indirect, of the COVID-19 pandemic and geo-political events,
including the war in Ukraine on
Western's 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;
the conditional approval by the TSX of matters relating to the
Consolidation; that there are no unforeseen events preventing the
performance of contracts and general business, economic and market
conditions.
Although Western believes that the expectations and assumptions
on which such forward-looking information is based on are
reasonable, undue reliance should not be placed on the
forward-looking information as Western cannot give any assurance
that such will prove to be correct. By its nature,
forward-looking information is subject to 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 ongoing
impact of the COVID-19 pandemic and geo-political events, including
the war in Ukraine on global
demand and prices for oil and gas, including the impact on demand
for Western's services; volatility in market prices for crude oil
and natural gas and the effect of this volatility on the demand for
oilfield services generally; reduced exploration and development
activities by customers and the effect of such reduced activities
on Western's services and products; political, economic, and
environmental conditions in Canada, the United
States, Ukraine and
globally; supply and demand for oilfield services relating to
contract drilling, well servicing and oilfield rental equipment
services; changes to laws, regulations and policies; failure of
counterparties to perform or comply with their obligations under
contracts; regional competition and the increase in new or upgraded
rigs; the Company's ability to attract and retain skilled labour;
Western's ability to obtain debt or equity financing and to fund
capital operating and other expenditures and obligations; the
potential need to issue additional debt or equity and the potential
resulting dilution of shareholders; the Company's ability to comply
with the covenants under the Credit Facilities, HSBC Facility and
the Second Lien Facility and the restrictions on its operations and
activities if it is not compliant with such covenants; Western's
ability to protect itself from "cyber-attacks" which could
compromise its information systems and critical infrastructure;
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 headings "Risk
Factors" in Western's annual information form for the year ended
December 31, 2021, which may be
accessed through the SEDAR website at www.sedar.com. The
forward-looking statements and information contained in this news
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.