CALGARY, Feb. 28, 2019 /CNW/ - (TSXV: CWC) CWC Energy
Services Corp. ("CWC" or the "Company") announces the release of
its operational and financial results for the three months and year
ended December 31, 2018. The
Financial Statements and Management Discussion and Analysis
("MD&A") for the three months and year ended December 31, 2018 are filed on SEDAR at
www.sedar.com.
Financial and Operational Highlights
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|
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Three months
ended
December
31,
|
Year
ended
December
31,
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$ thousands,
except shares, per share
amounts, margins and ratios
|
2018
|
2017
|
%
Change
|
2018
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2017
|
2016
|
FINANCIAL
RESULTS
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Revenue
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Contract
Drilling
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13,081
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10,914
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20%
|
38,223
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35,222
|
15,903
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Production
Services
|
22,397
|
26,506
|
(16%)
|
106,539
|
76,993
|
57,219
|
|
35,478
|
37,420
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(5%)
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144,762
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112,215
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73,122
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Adjusted EBITDA
(1)
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4,978
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6,630
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(25%)
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18,489
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16,063
|
8,220
|
Adjusted EBITDA
margin (%) (1)
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14%
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18%
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13%
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14%
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11%
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Funds from
operations
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4,978
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5,081
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(2%)
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18,489
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14,514
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8,220
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Net income (loss) and
comprehensive income
(loss)
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(157)
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8,544
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n/m
(2)
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(1,702)
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4,861
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(6,746)
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Net income (loss) and
comprehensive income
(loss) margin (%)
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(0%)
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23%
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n/m
(2)
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(1%)
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4%
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(9%)
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Per share
information
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Weighted average
number of shares
outstanding – basic
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518,513,776
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418,913,266
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520,576,582
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399,008,915
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349,836,144
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Weighted average
number of shares
outstanding – diluted
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518,513,776
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423,221,202
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520,576,582
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403,359,537
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349,836,144
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Adjusted EBITDA
(2) per share – basic and
diluted
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$0.01
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$0.02
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|
$0.04
|
$0.04
|
$0.02
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Net income (loss) per
share - basic and diluted
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($0.00)
|
$0.02
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($0.00)
|
$0.01
|
($0.02)
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$ thousands,
except ratios
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December 31,
2018
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December 31,
2017
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December 31,
2016
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FINANCIAL POSITION
AND LIQUIDITY
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Working capital
(excluding debt) (1)
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19,028
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19,543
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9,142
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Working capital
(excluding debt) ratio (1)
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3.4:1
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2.6:1
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2.2:1
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Total
assets
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252,665
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264,354
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210,750
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Total long-term debt
(including current portion)
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44,896
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49,810
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33,142
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Shareholders'
equity
|
184,231
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186,519
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155,482
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(1)
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Please refer to the
"Reconciliation of Non-IFRS Measures" section for further
information.
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(2)
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Not
meaningful.
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Working capital (excluding debt) is similar to December 31, 2017 due to similar operating days
and hours between CWC's Contract Drilling and Production Services
segments. Long-term debt (including current portion) has decreased
$4.9 million (10%) from December 31, 2017 as positive funds from
operations were used to fund capital expenditures, purchase shares
under the Normal Course Issuer Bid ("NCIB") and to repay debt.
Highlights for the Three Months Ended December 31, 2018
- Average Q4 2018 crude oil pricing, as measured by WTI, of
US$59.34/bbl was 15% lower than Q3
2018 average price of US$69.51/bbl
(Q4 2017: US$55.28/bbl) and finished
the year on December 31, 2018 at
US$45.41/bbl. However, the price
differential between Canadian heavy crude oil, as represented by
WCS, and WTI widened at times during Q4 2018 to unprecedented
levels of over US$50/bbl compared to
the historical normalized range of US$10/bbl to US$15/bbl. These significant WTI-WCS
differential resulted in the Government of Alberta announcement on December 2, 2018 mandating a 325,000 bbls/day
crude oil production curtailment on Alberta oil companies producing more than
10,000 bbls/day. Natural gas prices, as measured by AECO,
increased 29% from an average of $1.19/GJ in Q3 2018 to $1.53/GJ in Q4 2018 (Q4 2017: $1.67/GJ), but continues to remain very low in
historically terms.
- CWC's drilling rig utilization in Q4 2018 of 59% (Q4 2017: 56%)
exceeded Canadian Association of Oilwell Drilling Contractors
("CAODC") industry average of 28%. Activity levels increased 6% to
491 drilling rig operating days in Q4 2018 compared to 463 drilling
rig operating days in Q4 2017, further demonstrating the
desirability and demand by exploration and production ("E&P")
customers for CWC's telescopic double drilling rigs. CWC's service
rig utilization in Q4 2018 of 37% (Q4 2017: 46%) was driven by
31,232 operating hours being 24% lower than the 40,879 operating
hours in Q4 2017. The significant drop in Q4 2018 activity
level for our production-oriented service rigs was a direct result
of the significant WTI-WCS differentials reaching over US$50/bbl and the uncertainties our E&P
customers faced regarding the Government of Alberta production curtailments thereby
causing them to shorten or delay their workover and maintenance
work on producing wells.
- Revenue of $35.5 million, a
decrease of $1.9 million (5%)
compared to $37.4 million in Q4
2017. The decrease in Q4 2018 is a direct result of the
significant WTI-WCS differential and the uncertainties our E&P
customers faced regarding Alberta's production curtailments resulting in
reduced activity levels in November and December 2018 for our Production Services segment
partially offset by an increase in activity level in our Contract
Drilling segment.
- Adjusted EBITDA (1) of $5.0
million, a decrease of $1.7
million (25%) compared to $6.6
million in Q4 2017. The decrease in Q4 2018 is a direct
result of the significant WTI-WCS differential and the
uncertainties our E&P customers faced regarding Alberta's production curtailments resulting in
reduced activity levels in November and December 2018 for our Production Services segment
partially offset by an increase in activity level in our Contract
Drilling segment.
- Net loss of $0.2 million, a
decrease of $8.7 million compared to
a net income of $8.5 million in Q4
2017. The decrease in net income in Q4 2018 is primarily due to a
gain on acquisition of $9.1 million,
related to the C&J Energy Production Services-Canada Ltd.
("C&J Canada") acquisition in Q4 2017.
- During Q4 2018, 7,828,000 (Q4 2017: 405,000) common shares were
purchased, cancelled and returned to treasury under CWC's Normal
Course Issuer Bid ("NCIB").
Highlights for the Year Ended December
31, 2018
- CWC's drilling rig utilization in 2018 of 49% (2017: 51%)
exceeded the CAODC industry average of 29%. Activity levels in 2018
have decreased 3% compared to 2017 due to significant wet weather
conditions in key operating areas in Q3 2018 which resulted in lost
activity days. For the year ended December 31, 2018 operating days of 1,622 (2017:
1,672 operating days) is the second most active since the
acquisition of Ironhand Drilling Inc. in May
2014. CWC's service rig utilization in 2018 of 42% (2017:
45%). Activity levels in 2018 set new Company records by increasing
28% to 156,358 operating hours (2017: 122,243). The increase
resulted from the additional service rigs acquired from C&J
Canada in November 2017.
- Revenue of $144.8 million, an
increase of $32.5 million (29%)
compared to $112.2 million in 2017.
The increase is primarily a result of the addition of the service
rig assets of C&J Canada.
- Adjusted EBITDA (1) of $18.5
million, an increase of $2.4
million (15%) compared to $16.1
million in 2017. The increase in Adjusted EBITDA is
consistent with the increased activity ($4.5
million) from Production services due to the C&J Canada
acquisition, offset by a decrease in Adjusted EBITDA in Contract
drilling ($0.4 million) and corporate
expense of ($1.7 million).
- Net loss of $1.7 million, a
decrease of $6.5 million compared to
a net income of $4.9 million in 2017.
The decrease in net income in 2018 is primarily due to a gain on
acquisition of $9.1 million, related
to the C&J Canada acquisition in 2017.
- At the request of the Company, the Bank Loan was reduced from
$100 million to $75 million to reduce borrowing costs and standby
charges.
- On June 29, 2018 the Company
obtained a new five year credit facility (the "Mortgage Loan") in
the principal amount of $12.8
million. The Mortgage Loan is secured by, among other
things, a collateral mortgage from the Company in favour of the
bank over properties located in Sylvan
Lake, Brooks and
Slave Lake Alberta. These new
borrowing arrangements significantly reduce the Company's overall
borrowing costs by reducing standby charges on the syndicated
credit facilities (the "Bank Loan") and realizing a lower interest
rate on the term Bank Loan. The Mortgage Loan has been amortized
over 22 years with blended monthly principal and interest
payments. On July 27, 2018 the
Company entered into an interest rate swap to effectively fix the
interest rate at 4.00% until June 28,
2023. As of December 31, 2018,
the mark-to-market value of the interest rate swap resulted in a
net loss of $0.2 million.
- On April 10, 2018, the Company
renewed its NCIB with an Automatic Securities Purchase Plan
("ASPP") with Raymond James Ltd., which expires on April 9, 2019. During 2018, the Company purchased
11,421,000 (2017: 3,493,500) common shares under its NCIB which
were cancelled and returned to treasury. The 11,421,000 common
shares purchased under the NCIB represented 47% of the 24,366,081
shares traded on the TSX Venture Exchange ("TSXV") in 2018.
(1)
|
Please refer to the
"Reconciliation of Non-IFRS Measures" section for further
information.
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Operational Overview
Contract Drilling
CWC Ironhand Drilling, the Company's Contract Drilling segment,
has a fleet of nine telescopic double drilling rigs with depth
ratings from 3,200 to 5,000 metres, eight of nine rigs have top
drives and three have pad rig walking systems. All of the drilling
rigs are well suited for the most active depths for horizontal
drilling in the WCSB, including the Montney, Cardium, Duvernay and other deep basin horizons.
Part of the Company's strategic initiatives is to continue to
increase the capabilities of its existing fleet to meet the growing
demands of E&P customers for deeper depths at a cost effective
price while providing a sufficient internal rate of return for
CWC's shareholders.
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Three months
ended
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OPERATING
HIGHLIGHTS
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Dec. 31,
2018
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Sep. 30,
2018
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Jun. 30,
2018
|
Mar. 31,
2018
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Dec. 31,
2017
|
Sep. 30,
2017
|
Jun. 30,
2017
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Mar. 31,
2017
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Drilling
Rigs
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Active drilling rigs,
end of period
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9
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9
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9
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9
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9
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9
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9
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9
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Inactive drilling
rigs, end of period
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-
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-
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-
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-
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-
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-
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-
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-
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Total drilling rigs,
end of period
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9
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9
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9
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9
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9
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9
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9
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9
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Revenue per operating
day (1)
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$26,642
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$21,263
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$21,227
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$23,485
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$23,572
|
$19,424
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$19,575
|
$20,942
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Drilling rig operating
days
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491
|
500
|
133
|
498
|
463
|
522
|
155
|
532
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Drilling rig
utilization % (2)
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59%
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60%
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16%
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61%
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56%
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63%
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19%
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66%
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CAODC industry average
utilization %
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28%
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30%
|
17%
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52%
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28%
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29%
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17%
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40%
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|
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Wells
drilled
|
34
|
41
|
11
|
45
|
30
|
29
|
17
|
41
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Average days per
well
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14.4
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12.2
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12.1
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11.1
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15.0
|
18.0
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9.1
|
13.0
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Meters drilled
(thousands)
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127.8
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155.2
|
41.0
|
161.7
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128.1
|
112.2
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45.6
|
151.8
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Meters drilled per
day
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261
|
310
|
309
|
325
|
277
|
215
|
294
|
285
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Average meters per
well
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3,708
|
3,786
|
3,724
|
3,593
|
4,270
|
3,869
|
2,684
|
3,702
|
(1)
|
Revenue per operating
day is calculated based on operating days (i.e. spud to rig release
basis). New or inactive drilling rigs are added based on the first
day of field service.
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(2)
|
Drilling rig
utilization is calculated based on operating days (i.e. spud to rig
release basis) in accordance with the methodology prescribed by the
CAODC.
|
Contract Drilling revenue of $13.1
million for Q4 2018 (Q4 2017: $10.9
million) was achieved with a utilization rate of 59% (Q4
2017: 56%), compared to the CAODC industry average of 28%.
CWC achieved 491 drilling rig operating days in Q4 2018, a 6%
increase from 463 drilling rig operating days in Q4 2017. The Q4
2018 average revenue per operating day of $26,642 was an increase from $23,572 in Q4 2017 and included a one-time
contract payout amount of $0.7
million.
For the year ended December 31,
2018, Contract Drilling revenue of $38.2 million was 9% higher than the $35.2 million achieved in 2017. CWC's utilization
rate in 2018 of 49% continues to significantly exceed the CAODC
industry average of 29% and is slightly lower than the 51% for the
year ended December 31, 2017. CWC had
1,622 drilling rig operating days in 2018, a 3% decrease from the
1,672 drilling operating days in 2017. The reduction in operating
days were due to significant wet weather conditions in key
operating areas in Q3 2018 (57 days of lost activity compared to 31
days in Q3 2017 out of a possible 828 total days).
Production Services
With a fleet of 148 service rigs, CWC is the largest well
servicing company in Canada as
measured by operating hours. CWC's service rig fleet consists of 77
single, 57 double, and 14 slant rigs providing services which
include completions, maintenance, workovers and abandonments with
depth ratings from 1,500 to 5,000 metres. CWC has chosen to park 56
of its service rigs and focus its sales and operational efforts on
the remaining 92 active service rigs due to the tight labour market
for field employees and the inability to crew these service
rigs.
CWC's fleet of nine coil tubing units consist of six Class I and
three Class II coil tubing units having depth ratings from 1,500 to
3,200 metres. The Company continues to focus its sales and
operational efforts on servicing Steam-assisted gravity drainage
("SAGD") wells that are shallower in depth and more appropriate for
coil tubing operations.
CWC's fleet of 13 swabbing rigs were acquired as part of the
C&J Canada acquisition and operate under the trade name CWC
Swabtech. The swabbing rigs are used to remove liquids from
the wellbore and allow reservoir pressures to push the commodity up
the tubing casing. The Company has chosen to park five of its
swabbing rigs and focus its sales and operational efforts on the
remaining eight active swabbing rigs.
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Three months
ended
|
OPERATING
HIGHLIGHTS
|
Dec.
31,
2018
|
Sep.
30,
2018
|
Jun.
30,
2018
|
Mar.
31,
2018
|
Dec.
31,
2017
|
Sep.
30,
2017
|
Jun.
30,
2017
|
Mar.
31,
2017
|
Service
Rigs
|
|
|
|
|
|
|
|
|
Active service rigs,
end of period
|
92
|
102
|
107
|
108
|
111
|
66
|
66
|
66
|
Inactive service rigs,
end of period
|
56
|
46
|
41
|
41
|
38
|
8
|
8
|
8
|
Total service rigs,
end of period
|
148
|
148
|
148
|
149
|
149
|
74
|
74
|
74
|
|
|
|
|
|
|
|
|
|
Operating
hours
|
31,232
|
42,316
|
28,831
|
53,979
|
40,879
|
28,320
|
20,047
|
32,997
|
Revenue per
hour
|
$663
|
$628
|
$642
|
$637
|
$606
|
$559
|
$551
|
$584
|
Revenue per hour
excluding top
volume customers
|
$696
|
$664
|
$677
|
$681
|
$645
|
$610
|
$608
|
$641
|
Service rig
utilization % (1)
|
37%
|
45%
|
60%
|
56%
|
46%
|
47%
|
33%
|
56%
|
|
|
|
|
|
|
|
|
|
Coil Tubing
Units
|
|
|
|
|
|
|
|
|
Active coil tubing
units, end of period
|
8
|
8
|
8
|
8
|
9
|
9
|
9
|
9
|
Inactive coil tubing
units, end of period
|
1
|
1
|
1
|
1
|
1
|
1
|
1
|
1
|
Total coil tubing
units, end of period
|
9
|
9
|
9
|
9
|
10
|
10
|
10
|
10
|
|
|
|
|
|
|
|
|
|
Operating
hours
|
1,647
|
898
|
1,212
|
3,007
|
1,978
|
1,783
|
1,557
|
4,243
|
Revenue per
hour
|
$625
|
$731
|
$762
|
$724
|
$725
|
$688
|
$657
|
$491
|
Coil tubing unit
utilization % (2)
|
22%
|
12%
|
17%
|
39%
|
24%
|
22%
|
19%
|
52%
|
|
|
|
|
|
|
|
|
|
Swabbing
Rigs
|
|
|
|
|
|
|
|
|
Active swabbing rigs,
end of period
|
8
|
9
|
8
|
8
|
9
|
-
|
-
|
-
|
Inactive swabbing
rigs, end of period
|
5
|
4
|
5
|
5
|
4
|
-
|
-
|
-
|
Total swabbing rigs,
end of period
|
13
|
13
|
13
|
13
|
13
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Operating
hours
|
2,313
|
881
|
958
|
2,258
|
1,063
|
-
|
-
|
-
|
Revenue per
hour
|
$283
|
$273
|
$265
|
$310
|
$286
|
-
|
-
|
-
|
Swabbing rig
utilization % (1)
|
30%
|
11%
|
13%
|
31%
|
19%
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
(1)
|
Service and swabbing
rig utilization is calculated based on 10 hours a day, 365 days a
year. New service and swabbing rigs are added based on the first
day of field service. Service and swabbing rigs requiring their
24,000 hour recertification, refurbishment or have been otherwise
removed from service for greater than 90 days are excluded from the
utilization calculation until their first day back in field
service.
|
(2)
|
Coil tubing unit
utilization is calculated based on 10 hours a day, 365 days a year.
New coil tubing units are added based on the first day of field
service. Coil tubing units that have been removed from service for
greater than 90 days are excluded from the utilization calculation
until their first day back in field service.
|
Production Services revenue was $22.4
million in Q4 2018, down $4.1
million (16%) compared to $26.5
million in Q4 2017. The decrease in Q4 2018 is a direct
result of the significant WTI-WCS differential reaching over
US$50/bbl and the uncertainties our
E&P customers faced regarding the Government of Alberta's production curtailments resulting in
reduced activity levels in November and December 2018.
CWC's service rig utilization in Q4 2018 of 37% (Q4 2017: 46%)
was driven by 31,232 operating hours being 24% lower than the
40,879 operating hours in Q4 2017. The Q4 2018 average revenue per
hour of $663 increased $57 per hour (9%) over the $606 in Q4 2017. Furthermore, Q4 2018 average
revenue per hour excluding the top volume customers of $696 was $51 per
hour (8%) higher than Q4 2017 average revenue per hour of
$645 demonstrating CWC's ability to
pass on higher labour and fuel costs to all of its E&P
customers.
CWC's coil tubing utilization in Q4 2018 of 22% (Q4 2017: 24%)
with 1,647 operating hours was 17% lower than the 1,978 operating
hours in Q4 2017. Average revenue per hour for coil tubing services
of $625 in Q4 2018 is 14% lower than
$725 in Q4 2017. Both lower
utilization and pricing reflects the continuing challenge of low
natural gas prices and unprecedented widening of the WTI-WCS
differential in SAGD operating areas causing delays in allocation
and commitment of capital by our E&P customers in Q4 2018.
CWC swabbing rig utilization in Q4 2018 of 30% (Q4 2017: 19%)
with 2,313 operating hours was 118% higher than the 1,063 operating
hours in Q4 2017. Average revenue per hour for swabbing rigs of
$283 in Q4 2018 is 1% lower than
$286 in Q4 2017. The higher activity
level is a result of having a full three months with the swabbing
assets in Q4 2018 compared to only two months in Q4 2017 as a
result of the C&J Canada acquisition in November 2017.
For the year ended December 31,
2018, Production Services revenue of $106.5 million was 38% higher than the
$77.0 million achieved in 2017
primarily as a result of a 28% increase in service rig operating
hours from 122,243 in 2017 to a new Company record of 156,358
operating hours in 2018 driven by the additional service rigs from
the C&J Canada acquisition, as well as an increase in average
service rig revenue per hour of 10% in 2018 compared to 2017.
Service rig utilization decreased to 42% in 2018 compared to 45% in
2017. The increase in Production Services revenue was
partially offset by coil tubing operating hours decreasing 29% in
2018 to 6,764 operating hours (2017: 9,561 operating hours)
resulting in coil tubing utilization in 2018 of 23% (2017: 29%).
The decrease in coil tubing activity level in 2018 is a result of
low natural gas prices and unprecedented widening of WTI-WCS
differentials in SAGD operating areas causing delays in
allocation and commitment of capital by our E&P
customers. These lower activity levels were partially offset
by an increase in average coil tubing revenue per hour of 17% in
2018.
Capital Expenditures
|
|
|
|
|
|
Three months
ended
|
|
Year
ended
|
|
|
December
31,
|
|
December
31,
|
|
$
thousands
|
2018
|
2017
|
Change
$
|
Change
%
|
2018
|
2017
|
Change
$
|
Change
%
|
Contract
drilling
|
414
|
1,176
|
(762)
|
(65%)
|
7,116
|
3,964
|
3,152
|
80%
|
Production
services
|
1,569
|
37,730
|
(36,161)
|
(96%)
|
4,609
|
40,559
|
(35,950)
|
(89%)
|
Corporate
|
-
|
-
|
-
|
-%
|
28
|
9
|
19
|
211%
|
Total capital
expenditures
|
1,983
|
38,906
|
(36,923)
|
(95%)
|
11,753
|
44,532
|
(32,779)
|
(74%)
|
|
|
|
|
|
|
|
|
|
Growth
capital
|
-
|
37,605
|
(37,605)
|
(100%)
|
5,859
|
39,340
|
(33,481)
|
(85%)
|
Maintenance and
infrastructure capital
|
1,983
|
1,301
|
682
|
52%
|
5,894
|
5,192
|
702
|
14%
|
Total capital
expenditures
|
1,983
|
38,906
|
(36,923)
|
(95%)
|
11,753
|
44,532
|
(32,779)
|
(74%)
|
Capital expenditures of $2.0
million in Q4 2018, a decrease of $36.9 million (95%) compared to $38.9 million in Q4 2017.
Capital expenditures were $11.8
million for the year ended December
31, 2018, a decrease of $32.8
million (74%) compared to $44.5
million in 2017.
For both the quarter and year ended December 31, 2018, the decrease in capital
expenditures was due to the purchase of the C&J Canada service
and swabbing rig assets in 2017 with no similar purchases in 2018.
For the year ended December 31, 2018,
growth capital of $5.9 million
consists primarily of customer driven upgrades to Drilling Rig #4
($4.3 million) that included a pad
rig walking system, increase drilling capacity, torque, pump
pressure and dual fuel engine capabilities while operating on a
smaller footprint. Drilling Rig #2 ($1.0 million) upgrades included a new mast,
rising cylinders, catwalk and top drive integration. These
upgrades are expected to increase these two drilling rigs' capacity
resulting in higher expected utilization in future quarters.
Drilling Rig #2 and #4's upgrades align with our strategic
initiatives and meet our E&P customers' demands for deeper
depths at cost effective prices while providing a sufficient
internal rate of return for CWC's shareholders. Maintenance and
infrastructure capital of $5.9
million consists primarily of recertification costs,
building upgrades and leased vehicles.
The 2019 capital expenditure budget of $5.4 million was approved by the Board of
Directors on January 16, 2019
comprised entirely of maintenance and infrastructure capital
related to recertification's, additions and upgrades to field
equipment for the drilling rigs, service rigs, swabbing rigs and
coil tubing divisions as well as information technology
infrastructure.
Outlook
The aforementioned widening of WTI-WCS differential resulted in
production curtailment being imposed upon industry along with
continued low AECO pricing, has created the backdrop of a
decreasing crude oil price and a depressed natural gas price. As a
result, the Petroleum Services Association of Canada ("PSAC") on January 29, 2019 updated its 2019 forecast of
number of wells drilled to 5,600 wells; a decrease of 1,000 wells
or 15% from their original 2019 forecast. Recognizing the
oversupply of crude oil on the market, on December 7, 2018 OPEC agreed to a cut global oil
production by 1.2 million barrels, which has helped the price of
WTI recover and stabilize to approximately US$55/bbl in February 2019.
CWC has sustainably positioned itself by providing its E&P
customers with the highest quality service from the highest quality
people at reasonable prices. However, uncertainties around
the proposed Government of Canada's Bill C-69 legislation on the creation
of the Canadian Energy Regulator and the Impact Assessment Act,
which may impact the ability to develop new pipelines, as well as
Bill C-48 banning tanker traffic for crude oil on British Columbia's north coast, will continue
to negatively affect investment capital and growth in Canada's oil and gas industry in the near
term. However, investment capital and growth are showing signs of
returning as evident by the positive final investment decisions
made in October 2018 by proponents of
a liquefied natural gas process facility (LNG Canada) in northeast
British Columbia and final
investment decisions to be made in 2019 on the Goldboro LNG in
Nova Scotia. In addition, the
Government of Alberta announced a
decrease in their production curtailment by 75,000 bbls/day in
February 2019, which has resulted in
CWC's E&P customers being allowed to increase their production
and in turn gradually increasing CWC's activity levels for its
Production Services segment back to more normalized levels.
While CWC remains focused on its operational and financial
performance, it also recognizes the need to pursue opportunities
that create long-term shareholder value. With the support of the
Board of Directors, management continues to actively pursue
opportunities to achieve higher utilization and EBITDA margins on
its existing fleet, including working for new customers in
the United States, while also
evaluating opportunities to consolidate the North American drilling
and well servicing industry. CWC cautions that there are no
guarantees that strategic opportunities will result in a
transaction, or if a transaction is undertaken, as to its terms or
timing.
About CWC Energy Services Corp.
CWC Energy Services Corp. is a premier contract drilling and
well servicing company operating in the WCSB with a complementary
suite of oilfield services including drilling rigs, service rigs
and coil tubing units. The Company's corporate office is located in
Calgary, Alberta, with operational
locations in Nisku, Grande Prairie, Slave Lake, Drayton
Valley, Lloydminster,
Provost and Brooks, Alberta. The Company's shares trade on
the TSX Venture Exchange under the symbol "CWC".
Forward-Looking Information
This MD&A contains certain forward-looking information
and statements within the meaning of applicable Canadian securities
legislation. Certain statements contained in this MD&A,
including most of those contained in the section titled "Outlook"
and including statements which may contain such words as
"anticipate", "could", "continue", "should", "seek", "may",
"intend", "likely", "plan", "estimate", "believe", "expect",
"will", "objective", "ongoing", "project" and similar expressions
are intended to identify forward-looking information or statements.
In particular, this MD&A contains forward-looking statements
including management's assessment of future plans and operations,
planned levels of capital expenditures, expectations as to activity
levels, expectations on the sustainability of future cash flow and
earnings and the ability to pay dividends, expectations with
respect to crude oil and natural gas prices, activity levels in
various areas, expectations regarding the level and type of
drilling and production and related drilling and well services
activity in the WCSB, expectations regarding entering into long
term drilling contracts and expanding its customer base, and
expectations regarding the business, operations, revenue and debt
levels of the Company in addition to general economic conditions.
Although the Company believes that the expectations and assumptions
on which such forward-looking information and statements are based
are reasonable, undue reliance should not be placed on the
forward-looking information and statements because the Company can
give no assurances that they will prove to be correct. Since
forward-looking information and statements 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 risks associated with
the drilling and oilfield services sector (ie. demand, pricing and
terms for oilfield drilling and services; current and expected oil
and gas prices; exploration and development costs and delays;
reserves discovery and decline rates; pipeline and transportation
capacity; weather, health, safety and environmental risks),
integration of acquisitions, competition, and uncertainties
resulting from potential delays or changes in plans with respect to
acquisitions, development projects or capital expenditures and
changes in legislation, including but not limited to tax laws,
royalties and environmental regulations, stock market volatility
and the inability to access sufficient capital from external and
internal sources and the inability to pay dividends. Accordingly,
readers should not place undue reliance on the forward-looking
statements. Readers are cautioned that the foregoing list of
factors is not exhaustive. Additional information on these and
other factors that could affect the Company's financial results are
included in reports on file with applicable securities regulatory
authorities and may be accessed through SEDAR at www.sedar.com. The
forward-looking information and statements contained in this
MD&A are made as of the date hereof and the Company undertakes
no obligation to update publicly or revise any forward-looking
information or statements, whether as a result of new information,
future events or otherwise, unless so required by applicable
securities laws. Any forward-looking statements made previously may
be inaccurate now.
Reconciliation of Non-IFRS Measures
|
|
|
|
Three months
ended
|
Year
ended
|
|
December
31,
|
December
31,
|
$ thousands except
share and per share amounts
|
2018
|
2017
|
2018
|
2017
|
2016
|
NON-IFRS
MEASURES
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA:
|
|
|
|
|
|
Net income (loss) and
comprehensive income (loss)
|
(157)
|
8,544
|
(1,702)
|
4,861
|
(7,468)
|
Add:
|
|
|
|
|
|
Depreciation
|
3,853
|
4,811
|
16,441
|
17,103
|
14,248
|
Finance
costs
|
857
|
606
|
2,756
|
2,054
|
2,515
|
Transaction
costs
|
-
|
1,549
|
-
|
1,549
|
-
|
Deferred income tax
expense (recovery)
|
140
|
(142)
|
(150)
|
(1,285)
|
(2,414)
|
Stock based
compensation
|
339
|
278
|
1,102
|
869
|
945
|
Gain on
acquisition
|
-
|
(9,128)
|
-
|
(9,128)
|
-
|
(Gain) Loss on sale of
equipment
|
(54)
|
112
|
42
|
40
|
394
|
Adjusted
EBITDA (1)
|
4,978
|
6,630
|
18,489
|
16,063
|
8,220
|
Adjusted EBITDA
per share – basic and diluted(1)
|
$0.01
|
$0.02
|
$0.04
|
$0.04
|
$0.02
|
Adjusted EBITDA
margin (Adjusted
EBITDA/Revenue) (1)
|
14%
|
18%
|
13%
|
14%
|
11%
|
Weighted average
number of shares
outstanding –
basic
|
518,513,776
|
418,913,266
|
520,576,582
|
399,008,915
|
349,836,144
|
Weighted average
number of shares
outstanding -
diluted
|
518,513,776
|
423,221,202
|
520,576,582
|
403,359,537
|
349,836,144
|
|
|
|
|
|
|
Funds from
operations:
|
|
|
|
|
|
Cash flows from
operating activities
|
5,773
|
(2,116)
|
19,417
|
4,260
|
8,788
|
Add (deduct): Change
in non-cash working capital
|
(795)
|
7,197
|
(928)
|
10,254
|
(568)
|
Funds from
operations
|
4,978
|
5,081
|
18,849
|
14,514
|
8,220
|
|
|
|
|
|
|
Gross
margin:
|
|
|
|
|
|
Revenue
|
35,479
|
37,420
|
144,762
|
112,215
|
73,122
|
Less: Direct operating
expenses
|
25,788
|
26,620
|
107,984
|
82,361
|
53,209
|
Gross margin
(2)
|
9,691
|
10,800
|
36,778
|
29,854
|
19,913
|
Gross margin
percentage (2)
|
27%
|
29%
|
25%
|
27%
|
27%
|
|
|
|
|
$
thousands
|
December 31,
2018
|
December 31,
2017
|
December 31,
2016
|
|
|
|
|
Working capital
(excluding debt):
|
|
|
|
Current
assets
|
26,893
|
31,745
|
16,501
|
Less: Current
liabilities
|
(8,793)
|
(12,378)
|
(7,535)
|
Add: Current
portion of long-term debt
|
928
|
176
|
176
|
Working capital
(excluding debt) (3)
|
19,028
|
19,543
|
9,142
|
Working capital
(excluding debt) ratio (3)
|
3.4:1
|
2.6:1
|
2.2:1
|
|
|
|
|
Net debt:
|
|
|
|
Long-term
debt
|
43,968
|
49,634
|
32,966
|
Less: Current
assets
|
(26,893)
|
(31,745)
|
(16,501)
|
Add: Current
liabilities
|
8,793
|
12,378
|
7,535
|
Net debt
(4)
|
25,868
|
30,267
|
24,000
|
(1)
|
Adjusted EBITDA
(Earnings before interest and finance costs, income tax expense,
depreciation, amortization, gain or loss on disposal of asset,
goodwill impairment, stock based compensation and other one-time
gains and losses) is not a recognized measure under IFRS.
Management believes that in addition to net income, Adjusted EBITDA
is a useful supplemental measure as it provides an indication of
the Company's ability to generate cash flow in order to fund
working capital, service debt, pay current income taxes, pay
dividends, repurchase common shares under the Normal Course Issuer
Bid, and fund capital programs. Investors should be cautioned,
however, that Adjusted EBITDA should not be construed as an
alternative to net income (loss) determined in accordance with IFRS
as an indicator of the Company's performance. CWC's method of
calculating Adjusted EBITDA may differ from other entities and
accordingly, Adjusted EBITDA may not be comparable to measures used
by other entities. Adjusted EBITDA margin is calculated as Adjusted
EBITDA divided by revenue and provides a measure of the percentage
of Adjusted EBITDA per dollar of revenue. Adjusted EBITDA per share
is calculated by dividing Adjusted EBITDA by the weighted average
number of shares outstanding as used for calculation of earnings
per share.
|
(2)
|
Gross margin is
calculated from the statement of comprehensive loss as revenue less
direct operating costs and is used to assist management and
investors in assessing the Company's financial results from
operations excluding fixed overhead costs. Gross margin percentage
is calculated as gross margin divided by revenue. The Company
believes the relationship between revenue and costs expressed by
the gross margin percentage is a useful measure when compared over
different financial periods as it demonstrates the trending
relationship between revenue, costs and margins. Gross margin and
gross margin percentage are non-IFRS measures and do not have any
standardized meaning prescribed by IFRS and may not be comparable
to similar measures provided by other companies.
|
(3)
|
Working capital
(excluding debt) is calculated based on current assets less current
liabilities excluding the current portion of long-term debt.
Working capital (excluding debt) is used to assist management and
investors in assessing the Company's liquidity. Working capital
(excluding debt) does not have any meaning prescribed under IFRS
and may not be comparable to similar measures provided by other
companies. Working capital (excluding debt) ratio is calculated as
current assets divided by the difference of current liabilities
less the current portion of long term debt.
|
(4)
|
Net debt is not a
recognized measure under IFRS and does not have any standardized
meaning prescribed by IFRS and may not be comparable to similar
measures provided by other companies. Management believes net debt
is a useful indicator of a company's debt position.
|
SOURCE CWC Energy Services Corp.