CALGARY,
AB, July 25, 2023 /CNW/ - Western Energy
Services Corp. ("Western" or the "Company") (TSX: WRG) announces
the release of its second quarter 2023 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,
2023 and for the three and six months ended June 30, 2023 and 2022 ("MD&A") will be
available on SEDAR+ at www.sedarplus.ca. Non-International
Financial Reporting Standards ("Non-IFRS") measures and ratios,
such as Adjusted EBITDA, Adjusted EBITDA as a percentage of
revenue, revenue per Operating Day, revenue per Service Hour and
Working Capital, 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 2023 Operating
Results:
- Second quarter revenue increased by $12.4 million or 40%, to $43.0 million in 2023, as compared to
$30.6 million in the second quarter
of 2022. Contract drilling revenue totalled $30.6 million in the second quarter of 2023, an
increase of $13.4 million or 78%,
compared to $17.2 million in the
second quarter of 2022. Production services revenue was
$12.4 million for the three months
ended June 30, 2023, a decrease of
$1.1 million or 8%, as compared to
$13.5 million in the same period of
the prior year. In the second quarter of 2023, revenue was
positively impacted by improved pricing in all divisions, rig
upgrades, as well as higher activity in contract drilling, however
activity was lower in production services due to lower commodity
prices, compared to the second quarter of 2022 as described
below:
-
- In Canada, Operating Days of
576 days in the second quarter of 2023 were 254 days (or 79%)
higher compared to 322 days in the second quarter of 2022,
resulting in drilling rig utilization of 19% in the second quarter
of 2023 compared to 10% in the same period of the prior year. This
compares to a 1% increase in the Canadian Association of Energy
Contractors ("CAOEC") industry Operating Days in the second quarter
of 2023, compared to the second quarter of 2022. The CAOEC industry
average utilization of 25%1 for the
second quarter of 2023 represented an increase of 200 bps compared
to the CAOEC industry average utilization of 23% in the second
quarter of 2022. Revenue per Operating Day averaged $33,218 in the second quarter of 2023, an
increase of 11% compared to the same period of the prior year,
mainly due to rig upgrades, market driven increased pricing, and
inflationary pressures on operating costs, including higher wages
and fuel charges that are passed through to the customer;
- In the United States ("US"),
drilling rig utilization averaged 37% in the second quarter of
2023, compared to 34% in the second quarter of 2022, with Operating
Days improving from 250 days in the second quarter of 2022 to 267
days in the second quarter of 2023. Average active industry rigs of
7192 in the second quarter of 2023 were
1% higher compared to the second quarter of 2022. Revenue per
Operating Day for the second quarter of 2023 averaged US$31,896, a 33% increase compared to
US$23,945 in the same period of the
prior year, mainly due to improved pricing 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 23% in the second quarter of 2023 was lower than 32%
in the same period of the prior year as industry activity
decreased, mainly due to the completion of the Federal site
rehabilitation program and customers reducing their capital
spending due to inflationary factors and lower commodity prices.
Revenue per Service Hour averaged $1,052 in the second quarter of 2023 and was 12%
higher than the second quarter of 2022, due to improved pricing and
inflationary pressures on operating costs, including higher wages
and fuel charges that are passed through to the customer.
- Administrative expenses increased by $0.8 million or 24%, to $4.2 million in the second quarter of 2023, as
compared to $3.4 million in the
second quarter of 2022, due to higher employee related costs along
with inflationary costs and higher legal fees.
- The Company incurred a net loss of $7.8
million in the second quarter of 2023 ($0.23 net loss per basic common share) as
compared to a net income of $35.4
million in the same period in 2022 ($1.81 net income per basic common share). The
change can mainly be attributed to the $49.4
million gain on debt forgiveness in connection with the
Company's restructuring transaction in May
2022, a $0.5 million increase
in stock based compensation expense and a $0.3 million increase in depreciation expense due
to property and equipment additions, which were partially offset by
a $4.3 million decrease in income tax
expense, a $1.6 million increase in
Adjusted EBITDA, and a $1.0 million
decrease in finance costs due to a lower total debt balance.
- Adjusted EBITDA of $4.1 million
in the second quarter of 2023 was $1.6
million, or 66%, higher compared to $2.5 million in the second quarter of 2022.
Adjusted EBITDA was higher due to improved contract drilling
activity in Canada and the US, as
well as higher pricing across all divisions, which was offset
partially by inflationary cost increases and $0.9 million lower receipts of COVID-19 related
government subsidies in 2023 compared to 2022.
- Second quarter additions to property and equipment of
$6.7 million in 2023 compared to
$14.0 million in the second quarter
of 2022, consisting of $2.4 million
of expansion capital related to the substantial completion of the
Company's rig upgrade program and $4.3
million of maintenance capital.
1 Source:
CAOEC, monthly Contractor Summary.
|
2 Source:
Baker Hughes Company, North America Rotary Rig Count.
|
Year to Date 2023 Operating
Results:
- During the six months ended June 30,
2023, the Company reduced its total debt by $8.3 million (or 7%), primarily through
repayments of its Credit Facilities.
- Western's drilling rig upgrade program, which was initiated in
2022, has been a success and has generated a substantial portion of
revenue in the first half of 2023. Since the upgrades have been
performed and the rigs recommissioned into service, each upgraded
drilling rig has been working for a customer. Additionally, the
upgraded rigs have generated day rates which contributed to higher
revenue for the six months ended June 30,
2023.
- Revenue for the six months ended June
30, 2023, increased by $41.1
million or 51%, to $122.2
million as compared to $81.1
million for the six months ended June
30, 2022. Contract drilling revenue totalled $88.7 million for the six months ended
June 30, 2023, an increase of
$40.5 million or 84%, compared to
$48.2 million in the same period of
the prior year. Production services revenue was $33.8 million for the six months ended
June 30, 2023, an increase of
$0.7 million or 2%, as compared to
$33.1 million in the same period of
the prior year. In the first half of 2023, revenue was positively
impacted by improved pricing in all divisions, rig upgrades, as
well as higher activity in contract drilling, compared to the first
half of 2022 as described below:
-
- In Canada, Operating Days of
1,859 days for the six months ended June 30,
2023 were 456 days (or 33%) higher, compared to 1,403 days
for the six months ended June 30,
2022, resulting in drilling rig utilization of 30% for the
first half of 2023 compared to 21% in the same period of the prior
year. This compares to a 6% increase in CAOEC Operating Days for
the six months ended June 30, 2023,
compared to the same period in the prior year. The CAOEC industry
average utilization of 35%3 for the six
months ended June 30, 2023
represented an increase of 400 bps compared to the CAOEC industry
average utilization of 31% for the six months ended June 30, 2022. Revenue per Operating Day averaged
$33,258 for the six months ended
June 30, 2023, an increase of 22%
compared to the same period of the prior year, mainly due to rig
upgrades, market driven increased pricing, and inflationary
pressures on operating costs, including higher wages and fuel
charges that are passed through to the customer;
- In the US, drilling rig utilization averaged 41% for the six
months ended June 30, 2023, compared
to 24% in the same period of 2022, with Operating Days improving
from 350 days in the first half of 2022 to 594 days in the first
half of 2023. Average active industry rigs of
7404 in the first six months of 2023
were 10% higher compared to the first six months of 2022. Revenue
per Operating Day for the six months ended June 30, 2023 averaged US$32,515, a 44% increase compared to
US$22,565 in the same period of the
prior year, mainly due to improved pricing 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 33% for the six months ended June 30, 2023 was lower than 40% in the same
period of the prior year as industry activity decreased, mainly due
to the completion of the Federal site rehabilitation program and
customers reducing their capital spending due to inflationary
factors and lower commodity prices. Revenue per Service Hour
averaged $1,039 for the six months
ended June 30, 2023 and was 15%
higher than the same period of the prior year, due to improved
pricing and inflationary pressures on operating costs, including
higher wages and fuel charges that are passed through to the
customer.
- Administrative expenses increased by $1.6 million or 24%, to $8.4 million for the six months ended
June 30, 2023, as compared to
$6.8 million in the same period of
2022, due to higher employee related costs along with inflationary
costs and higher legal fees.
- The Company generated a net loss of $3.4
million for the six months ended June
30, 2023 ($0.10 net loss per
basic common share) as compared to net income of $31.6 million in the same period in 2022
($2.40 net income per basic common
share). The change can mainly be attributed to the $49.4 million gain on debt forgiveness in
connection with the Company's restructuring transaction completed
in May 2022, a $10.4 million increase in Adjusted EBITDA, a
$2.7 million decrease in income tax
expense and a $2.6 million decrease
in finance costs due to the lower total debt balance, offset
partially by a $1.3 million increase
in stock based compensation expense and a $0.6 million increase in depreciation expense due
to property and equipment additions.
- Adjusted EBITDA of $23.3 million
for the six months ended June 30,
2023 was $10.4 million, or
81%, higher compared to $12.9 million
in the same period of 2022. Adjusted EBITDA was higher due to
improved contract drilling activity in Canada and the US, higher pricing across all
divisions, and US$0.6 million of
shortfall commitment revenue, which was offset partially by
one-time costs of $0.6 million
related to reactivating certain drilling rigs and inflationary cost
increases and $0.7 million lower
COVID-19 related government subsidies received in 2023 compared to
2022.
- Year to date 2023 additions to property and equipment of
$11.9 million compared to
$18.1 million in the same period of
2022, consisting of $5.1 million of
expansion capital related to the substantial completion of the
Company's rig upgrade program and $6.8
million of maintenance capital.
3 Source:
CAOEC, monthly Contractor Summary.
|
4 Source:
Baker Hughes Company, North America Rotary Rig Count.
|
Selected Financial
Information
|
|
(stated in
thousands, except share and per share amounts)
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
Financial
Highlights
|
2023
|
2022
|
Change
|
|
2023
|
2022
|
Change
|
|
Revenue
|
42,954
|
30,594
|
40 %
|
|
122,193
|
81,069
|
51 %
|
|
Adjusted
EBITDA(1)
|
4,140
|
2,498
|
66 %
|
|
23,336
|
12,889
|
81 %
|
|
Adjusted EBITDA as a
percentage of revenue(1)
|
10 %
|
8 %
|
25 %
|
|
19 %
|
16 %
|
19 %
|
|
Cash flow from
operating activities
|
25,373
|
8,724
|
191 %
|
|
31,818
|
15,185
|
110 %
|
|
Additions to property
and equipment
|
6,705
|
13,956
|
(52 %)
|
|
11,870
|
18,050
|
(34 %)
|
|
Net income
(loss)
|
(7,845)
|
35,431
|
(122 %)
|
|
(3,424)
|
31,597
|
(111 %)
|
|
– basic
and diluted net income (loss) per share(2)
|
(0.23)
|
1.81
|
(113 %)
|
|
(0.10)
|
2.40
|
(104 %)
|
|
Weighted average number
of shares(2)
|
|
|
|
|
|
|
|
|
–
basic
|
33,841,324
|
19,528,285
|
73 %
|
|
33,841,324
|
13,151,761
|
157 %
|
|
–
diluted
|
33,841,324
|
19,529,728
|
73 %
|
|
33,841,324
|
13,154,752
|
157 %
|
|
Outstanding common
shares as at period end(2)
|
33,841,324
|
33,838,852
|
-
|
|
33,841,324
|
33,838,852
|
-
|
|
(1) See "Non-IFRS
Measures and Ratios" included in this press release.
|
(2) On August 2, 2022,
the Company's issued and outstanding common shares were
consolidated at a ratio of one post-consolidation common share for
every 120 pre-consolidation common shares (the "Consolidation") as
further described in the Company's MD&A for the year ended
December 31, 2022 and consolidated financial statements. The
comparative 2022 balances and the weighted average number of shares
have been restated to reflect the Consolidation and the May 2022
rights offering.
|
|
Three months ended June 30
|
Six months ended
June 30
|
|
Operating
Highlights(3)
|
2023
|
2022
|
|
Change
|
|
2023
|
2022
|
|
Change
|
|
Contract
Drilling
|
|
|
|
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
|
|
|
– Average
active rig count
|
6.3
|
3.5
|
|
80 %
|
|
10.3
|
7.8
|
|
32 %
|
|
Operating
Days
|
576
|
322
|
|
79 %
|
|
1,859
|
1,403
|
|
33 %
|
|
Revenue per Operating
Day(4)
|
33,218
|
29,800
|
|
11 %
|
|
33,258
|
27,172
|
|
22 %
|
|
Drilling rig
utilization
|
19 %
|
10 %
|
|
90 %
|
|
30 %
|
21 %
|
|
43 %
|
|
CAOEC industry average
utilization – Operating Days(5)
|
25 %
|
23 %
|
|
9 %
|
|
35 %
|
31 %
|
|
13 %
|
|
Average meters drilled
per well
|
8,367
|
5,027
|
|
66 %
|
|
6,828
|
6,183
|
|
10 %
|
|
Average Operating Days
per well
|
16.1
|
12.3
|
|
31 %
|
|
14.0
|
12.6
|
|
11 %
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
Operations:
|
|
|
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
|
|
|
– Average
active rig count
|
2.9
|
2.7
|
|
7 %
|
|
3.3
|
1.9
|
|
74 %
|
|
Operating
Days
|
267
|
250
|
|
7 %
|
|
594
|
350
|
|
70 %
|
|
Revenue per Operating
Day (US$)(4)
|
31,896
|
23,945
|
|
22 %
|
|
32,515
|
22,565
|
|
44 %
|
|
Drilling rig
utilization
|
37 %
|
34 %
|
|
9 %
|
|
41 %
|
24 %
|
|
71 %
|
|
Average meters drilled
per well
|
3,272
|
3,964
|
|
(17 %)
|
|
3,395
|
3,455
|
|
(2 %)
|
|
Average Operating Days
per well
|
11.9
|
12.7
|
|
(6 %)
|
|
13.1
|
12.4
|
|
6 %
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
Services
|
|
|
|
|
|
|
|
|
|
|
Well servicing rig
fleet:
|
|
|
|
|
|
|
|
|
|
|
– Average
active rig count
|
15.1
|
19.9
|
|
(24 %)
|
|
21.6
|
25.5
|
|
(15 %)
|
|
Service
Hours
|
9,844
|
12,970
|
|
(24 %)
|
|
28,097
|
33,143
|
|
(15 %)
|
|
Revenue per Service
Hour(4)
|
1,052
|
943
|
|
12 %
|
|
1,039
|
902
|
|
15 %
|
|
Service rig
utilization
|
23 %
|
32 %
|
|
(28 %)
|
|
33 %
|
40 %
|
|
(18 %)
|
|
(3) See "Defined Terms"
included in this press release.
|
(4) See "Non-IFRS
Measures and Ratios" included in this press release.
|
(5) Source: The
CAOEC monthly Contractor Summary. The CAOEC industry average
is based on Operating Days divided by total available drilling
days.
|
Financial Position
at (stated in thousands)
|
June 30,
2023
|
|
December 31,
2022
|
June 30,
2022
|
Working
capital(6)
|
19,576
|
|
21,923
|
11,763
|
Total assets
|
456,746
|
|
475,708
|
458,196
|
Long term debt – non
current portion
|
118,109
|
|
126,527
|
121,776
|
(6) See "Non-IFRS
Measures and Ratios" included in this press release.
|
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, its
subsidiary, and its first nations relationships.
Contract Drilling
Western markets a fleet of 42 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
rigs5.
Western's marketed and owned contract drilling rig fleets are
comprised of the following:
|
As at June
30
|
|
2023
|
|
2022
|
Rig
class(1)
|
Canada
|
US
|
Total
|
|
Canada
|
US
|
Total
|
Cardium
|
11
|
1
|
12
|
|
11
|
2
|
13
|
Montney
|
18
|
1
|
19
|
|
19
|
-
|
19
|
Duvernay
|
5
|
6
|
11
|
|
7
|
6
|
13
|
Total marketed
drilling rigs(2)
|
34
|
8
|
42
|
|
37
|
8
|
45
|
Total owned drilling
rigs
|
48
|
8
|
56
|
|
49
|
8
|
57
|
(1) See "Contract
Drilling Rig Classifications" included in this press
release.
|
(2) Source: CAOEC
Contractor Summary as at July 25, 2023.
|
Production Services
Production services provides well servicing and oilfield
equipment rentals in Canada.
Western operates 65 well servicing rigs and is the third largest
well servicing company in Canada
based on CAOEC registered well servicing rigs6.
Western's well servicing rig fleet is comprised of the
following:
Owned well servicing
rigs
|
As at June
30
|
Mast
type
|
2023
|
2022
|
Single
|
30
|
30
|
Double
|
27
|
25
|
Slant
|
8
|
8
|
Total owned well
servicing rigs
|
65
|
63
|
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,
2023 and 2022.
|
Three months ended
June 30
|
Six months ended
June 30
|
|
|
2023
|
2022
|
Change
|
2023
|
2022
|
Change
|
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
|
West Texas Intermediate
(US$/bbl)
|
73.80
|
108.41
|
(32 %)
|
74.97
|
101.35
|
(26 %)
|
|
Western Canadian Select
(CDN$/bbl)
|
78.95
|
122.08
|
(35 %)
|
74.04
|
111.56
|
(34 %)
|
|
|
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
2.52
|
7.53
|
(67 %)
|
2.94
|
6.24
|
(53 %)
|
|
|
|
|
|
|
|
|
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.34
|
1.28
|
5 %
|
1.35
|
1.27
|
6 %
|
|
|
|
|
|
|
|
|
|
(1) See "Abbreviations" included in this press
release.
(2) Source: Sproule June 30, 2023, Price Forecast,
Historical Prices.
|
|
|
|
|
|
|
|
West Texas Intermediate on average decreased by 32% and 26%
respectively, for the three and six months ended June 30, 2023, compared to the same periods in
the prior year. Similarly, pricing on Western Canadian Select
crude oil decreased by 35% and 34% respectively, for the three and
six months ended June 30, 2023,
compared to the same periods in the prior year. In 2023,
crude oil prices decreased due to global economic concerns
including weakening demand for crude oil, the collapse of several
international financial institutions, the fear of a North American
recession and continued high interest rates implemented to manage
inflationary factors. Natural gas prices in Canada also declined in 2023 due to lower
demand, as well as weather related factors including warmer winter
seasons in both North America and
Europe, as the 30-day spot AECO
price decreased by 67% and 53% respectively, for the three and six
months ended June 30, 2023, compared
to the same periods of the prior year. Additionally, the US
dollar to the Canadian dollar foreign exchange rate for the three
and six months ended June 30, 2023,
strengthened by 5% and 6% respectively, compared to the same
periods of the prior year.
5 Source:
CAOEC Drilling Contractor Summary as at July 25, 2023.
|
6 Source:
CAOEC Well Servicing Fleet List as at July 25, 2023.
|
In the US, industry activity declined in the first half of
2023. As reported by Baker Hughes
Company7, the number of active drilling rigs
in the US decreased by approximately 10% to 674 rigs as at
June 30, 2023, as compared to 750
rigs at June 30, 2022 due to lower
commodity prices. In Canada,
there were 179 active rigs in the Western Canadian Sedimentary
Basin ("WCSB") at June 30, 2023,
compared to 177 active rigs as at June
30, 2022. The
CAOEC8 reported that for drilling in
Canada, the total number of
Operating Days in the WCSB for the three months ended June 30, 2023, were 1% higher than the same
period in the prior year. For the six months ended
June 30, 2023, the total number of
Operating Days in the WCSB in Canada were 6% higher than the same period of
the prior year. In addition to lower commodity prices, there
remains continued service industry concerns over the prevailing
customer preference to return cash to shareholders through share
buyback programs and dividends, or pay down debt, rather than grow
production through the drill bit thereby limiting industry drilling
activity.
Outlook
During the first half of 2023, crude oil prices were impacted in
the short term by the collapse of several international financial
institutions, the fear of a North American recession, concerns
surrounding demand for crude oil due to weak global economic data,
and continued uncertainty concerning the ongoing war in
Ukraine. Additionally, the April 2,
2023, announcement by Saudi
Arabia and other OPEC+ oil producers to cut oil production,
caused crude oil prices to rise. Events such as these
contribute to the volatility of commodity prices and the precise
duration and extent of the adverse impacts of the current
macroeconomic environment on Western's customers, operations,
business and global economic activity, remains uncertain at this
time. Additionally, the delayed timing of completion of
construction on the Trans Mountain pipeline expansion, now expected
to start filling with oil in late 2023 with full operation expected
in 2024, and the threatened shutdown and relocation of a portion of
the Enbridge Line 5 pipeline, have contributed to continued
uncertainty regarding takeaway capacity. Controlling fixed
costs, maintaining balance sheet strength and flexibility and
managing through a volatile market are priorities for the Company,
as prices and demand for Western's services continue to
improve.
As previously announced, Western's board of directors approved a
capital budget for 2023 of $30
million, comprised of $9
million of expansion capital and $21
million of maintenance capital. Western will continue
to manage its costs in a disciplined manner and make required
adjustments to its capital program as customer demand
changes. Currently, 13 of Western's drilling rigs and 20 of
Western's well servicing rigs are operating.
As at June 30, 2023, Western had
no amounts drawn on its $45.0 million
senior secured credit facilities (the "Credit Facilities") and
$10.6 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. As at June 30, 2023,
Western had $106.9 million
outstanding on its second lien term loan facility with Alberta
Investment Management Corporation (the "Second Lien Facility").
Energy 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. The January 2023 announcement that the government of
British Columbia and the Blueberry
River First Nations reached an agreement which provides a framework
for how resource development may continue within the Blueberry
River First Nations claim area, including the restoration and
future development of land, water and natural resources, has
facilitated an increase in 2023 drilling license approvals, which
should lead to higher demand for Montney and Duvernay class rigs. With Western's
recent drilling rig upgrade program substantially complete, the
Company is well positioned to be the contractor of choice to supply
drilling rigs in a tightening market. Western's upgraded
drilling rigs have all worked for customers since the upgrades were
completed. Western is also active with three fit for purpose
drilling rigs in the Clearwater
formation in northern Alberta. In the short term, the largest
challenges facing the energy 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 stabilize for an extended period and as customers strengthen
their balance sheets by reducing debt levels, 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, which is
expected to be operational by 2025. Western is an experienced
deep horizontal driller in Canada,
with an average well length of 6,828 meters drilled per well and an
average of 14.0 operating days to drill per well for the six months
ended June 30, 2023. It remains
Western's view that its upgraded drilling rigs and modern well
servicing rigs, reputation for quality and capacity of the
Company's rig fleet, and disciplined cash management provides
Western with a competitive advantage.
7 Source:
Baker Hughes Company, 2023 Rig Count monthly press
releases.
|
8 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 to provide shareholders and
potential investors with additional information regarding the
Company. The non-IFRS measures and ratios used in this press
release are identified and defined as follows:
Adjusted EBITDA and Adjusted EBITDA as a Percentage of
Revenue
Adjusted 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 non-GAAP financial
measure as it is used by management and other stakeholders,
including current and potential investors, to analyze the Company's
principal business activities prior to consideration of how
Western's activities are financed and the impact of foreign
exchange, income taxes and depreciation. 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 financial 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)
|
2023
|
2022
|
2023
|
2022
|
Net income (loss)
|
(7,845)
|
35,431
|
(3,424)
|
31,597
|
Income tax expense
(recovery)
|
(1,830)
|
2,441
|
(663)
|
2,022
|
Income (loss) before income
taxes
|
(9,675)
|
37,872
|
(4,087)
|
33,619
|
Add
(deduct):
|
|
|
|
|
Gain on debt
forgiveness
|
-
|
(49,357)
|
-
|
(49,357)
|
Depreciation
|
10,252
|
9,989
|
20,548
|
19,908
|
Stock based
compensation
|
762
|
308
|
1,638
|
340
|
Finance
costs
|
2,879
|
3,855
|
5,921
|
8,482
|
Other
items
|
(78)
|
(169)
|
(684)
|
(103)
|
Adjusted EBITDA
|
4,140
|
2,498
|
23,336
|
12,889
|
Revenue per Operating Day
This non-IFRS measure is calculated as total drilling revenue
for both Canada and the US
respectively, divided by Operating Days in Canada and the US respectively. This
calculation represents the average day rate by country charged to
Western's customers.
Revenue per Service Hour
This non-IFRS measure is calculated as total well servicing
revenue divided by total Service Hours. This calculation
represents the average hourly rate charged to Western's
customers.
Working Capital
This non-IFRS measure is calculated as current assets less
current liabilities as disclosed in the Company's condensed
consolidated financial statements.
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.
Average meters drilled per well: Defined as total meters
drilled divided by the number of wells completed in the period.
Average Operating Days per well: Defined as total
Operating Days divided by the number of wells completed in 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: the
business of Western; industry, market and economic conditions and
any anticipated effects on Western; commodity pricing; the future
demand for the Company's services and equipment, in particular, the
Company's expectations regarding improved activity in 2023;
Western's expectations regarding prevailing customer preferences;
the effect of inflation and commodity prices on customer spending;
the success of Western's drilling rig upgrade program; the
potential impact of the current conflict in Ukraine on crude oil prices; the
potential impact of a North American recession; the potential
impact of weak global economic data on the demand for crude
oil; the potential impact of the collapse of financial
institutions on crude oil prices; the Company's total capital
budget for 2023, including the allocation of such budget; Western's
plans for managing its capital program; the energy service industry
and global economic activity; expectations with respect to the
Trans Mountain pipeline expansion; the potential shutdown of
Enbridge Line 5; the impact of the Blueberry River First Nations
decision; the development of Alberta and British
Columbia resource plays; challenges facing the energy
service industry; expectations as to the benefits of the LNG Canada
natural gas project in British
Columbia on the Company and its rig fleet; expectations
relating to producer spending and activity levels for oilfield
services; and the Company's ability to maintain a competitive
advantage, including the factors and practices anticipated to
produce and sustain such advantage.
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 impact of
inflation; the continued business relationships between the Company
and its significant customers; crude oil transport, pipeline and
LNG export facility approval and development; that all required
regulatory and environmental approvals can be obtained on the
necessary terms and in a timely manner, as required by the Company;
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 2023 and in the future; the impact, direct
and indirect, of the COVID-19 pandemic and geopolitical 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; that any required commercial agreements
can be reached; 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,
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, industry, market, economic, and
environmental conditions in Canada, the US, Ukraine and globally; supply and demand for
oilfield services relating to contract drilling, well servicing and
oilfield rental equipment services; the proximity, capacity and
accessibility of crude oil and natural gas pipelines and processing
facilities; liabilities and risks inherent in oil and natural gas
operations, including environmental liabilities and risks; changes
to laws, regulations and policies; the ongoing geopolitical events
in Eastern Europe and the duration
and impact thereof; fluctuations in foreign exchange or interest
rates; 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; uncertainties
in weather and temperature affecting the duration of the service
periods and the activities that can be completed; 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, 2022,
which may be accessed through the SEDAR+ website at
www.sedarplus.ca.
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. Any forward-looking statements
contained herein are expressly qualified by this cautionary
statement.
SOURCE Western Energy Services Corp.