CALGARY, AB, July 30, 2020
/CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the
"Company") announces the release of its operational and financial
results for the three and months ended June
30, 2020. The Financial Statements and Management Discussion
and Analysis ("MD&A") for the three and six months ended
June 30, 2020 are filed on SEDAR at
www.sedar.com.
Financial and Operational Highlights
|
|
Three months
ended
|
|
Six months
ended
|
$ thousands,
except shares, per share
amounts, and margins
|
|
June
30,
|
|
June
30,
|
|
2020
|
|
2019
|
Change
%
|
|
2020
|
|
2019
|
Change
%
|
FINANCIAL
RESULTS
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Contract
Drilling
|
|
1,318
|
|
3,388
|
(61%)
|
|
13,989
|
|
12,508
|
12%
|
Production
Services
|
|
2,648
|
|
15,358
|
(83%)
|
|
23,517
|
|
37,496
|
(37%)
|
|
|
3,966
|
|
18,746
|
(79%)
|
|
37,506
|
|
50,004
|
(25%)
|
Other
income
|
|
1,788
|
|
-
|
n/m(2)
|
|
1,788
|
|
-
|
n/m(2)
|
Adjusted
EBITDA(1)
|
|
(1,397)
|
|
115
|
n/m(2)
|
|
4,111
|
|
4,807
|
(14%)
|
Adjusted EBITDA
margin (%)(1)
|
|
(35%)
|
|
1%
|
|
|
11%
|
|
10%
|
|
Impairment of
assets
|
|
-
|
|
-
|
n/m(2)
|
|
(25,451)
|
|
-
|
n/m(2)
|
Net loss
|
|
(3,734)
|
|
(565)
|
n/m(2)
|
|
(22,911)
|
|
(612)
|
n/m(2)
|
Net loss margin
(%)(1)
|
|
(94%)
|
|
(3%)
|
(91%)
|
|
(61%)
|
|
(1%)
|
(60%)
|
Capital
expenditures
|
|
720
|
|
1,902
|
(62%)
|
|
3,525
|
|
3,196
|
10%
|
Per share
information:
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares
outstanding – basic and diluted
|
507,543,333
|
510,978,053
|
|
502,393,883
|
511,823,718
|
|
Adjusted
EBITDA(1) per share - basic and diluted
|
$
|
(0.00)
|
$
|
0.00
|
|
$
|
0.01
|
$
|
0.01
|
|
Net loss per share -
basic and diluted
|
$
|
(0.01)
|
$
|
(0.00)
|
|
$
|
(0.04)
|
$
|
(0.00)
|
|
|
|
|
|
|
|
|
|
|
|
|
$ thousands,
except ratios
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
FINANCIAL POSITION
AND LIQUIDITY
|
|
|
|
|
|
Working capital
(excluding debt)(1)
|
|
|
3,264
|
|
18,534
|
Working capital
(excluding debt) ratio(1)
|
|
|
1.7:1
|
|
3.3:1
|
Total
assets
|
|
|
|
|
196,565
|
|
243,398
|
Total long-term debt
(including current portion)
|
|
|
25,788
|
|
40,552
|
Shareholders'
equity
|
|
|
|
|
160,281
|
|
182,032
|
(1) Please refer to the
"Reconciliation of Non-IFRS Measures" section for further
information
|
(2) Not
meaningful
|
Working capital (excluding debt) for June
30, 2020 has decreased $15.3
million (82%) since December 31,
2019 driven by decreases in accounts receivable
($17.3 million (72%)) and prepaid
expenses and deposits ($1.5 million
(55%)) offset by a decrease in account payable ($3.4 million (42%)). Due to the seasonality of
the oilfield services business in Canada, working capital typically peaks in Q1
and drops in Q2 as accounts receivable are collected. Long-term
debt (including current portion) has decreased 36% from
December 31, 2019 driven by the
collection of accounts receivable combined with lower activity in
Q2 2020 compared to Q4 2019. Shareholders' equity has decreased
$21.8 million (12%) since
December 31, 2019 primarily due to
the net loss for the six months ended June
30, 2020 which included a charge for impairment of assets of
$25.5 million partially offset by an
unrealized gain on translation of foreign operations of
$1.5 million.
Highlights for the Three Months Ended June 30, 2020
- Demand for crude oil declined in Q2 2020 amid the global
economic downturn as a result of the COVID-19 health pandemic and
the measures put in place to slow the spread of the virus. During
the quarter, the Company's exploration and production ("E&P")
customers cut their capital expenditure programs leading to reduced
demand for the Company's services. The duration of the negative
impact from the COVID-19 health pandemic on the Company's
operations is unknown and will depend on future economic
developments, which cannot be predicted with confidence at this
time. Therefore, the Company continues to pursue cash saving
initiatives to preserve cash resources and maintain balance sheet
strength as well as to retain its most valuable asset – its key
employees. The Company has also enacted new safety protocols to
protect the health and safety of its employees so that the Company
can operate with confidence that its employees and customers are
taking the necessary precautions.
- During Q2 2020, the Governments of Alberta and Saskatchewan announced the Alberta Site
Rehabilitation Program ($1.0 billion)
and the Saskatchewan Accelerated Site Closure Program ($400 million) respectively. Both of these
programs provide grants to eligible oilfield service contractors to
perform well, pipeline, and oil and gas site closure and
reclamation work, creating jobs and supporting the environment.
CWC's Production Services segment is well positioned to provide
closure work on inactive wells and has already received
Alberta grant approvals on 217
inactive wells.
- Average Q2 2020 crude oil price, as measured by West Texas
Intermediate ("WTI"), of US$27.95/bbl
was 39% lower than the Q1 2020 average price of US$45.57/bbl (Q2 2019: US$59.89/bbl) and the price differential between
Canadian heavy crude oil, as represented by Western Canadian Select
("WCS"), and WTI maintained a differential in the range of
US$5.00/bbl to US$17.00/bbl during the second quarter of 2020.
Natural gas prices, as measured by AECO, remained relatively
unchanged from an average of $1.93/GJ
in Q1 2020 to $1.90/GJ in Q2 2020 (Q2
2019 $1.06/GJ).
- CWC's Canadian drilling rig utilization in Q2 2020 of 11% (Q2
2019: 11%) exceeded the Canadian Association of Oilwell Drilling
Contractors ("CAODC") industry average of 4%. Canadian activity
levels in Q2 2020 of 68 drilling rig operating days from seven
Canadian drilling rigs was consistent with Q2 2019 activity levels
of 72 drilling rig operating days. Average revenue per operating
day of $19,382 resulted in revenue of
$1.3 million (Q2 2019: $1.6 million) from the Canadian drilling
operations. As a result of the COVID-19 health pandemic and the
travel restrictions implemented between Canada and the U.S., CWC's two U.S. drilling
rigs, which operate with Canadian rig crews, did not see any
operating days in Q2 2020 (Q2 2019: 25 drilling rig operating days)
and, therefore, did not generate any revenue in the quarter (Q2
2019: $1.8 million). Service rig
utilization in Q2 2020 of 8% (Q2 2019: 39%) was driven by 4,037
operating hours which were 83% lower than the 23,129 operating
hours in Q2 2019; a result of the significant drop off in activity
levels due to COVID-19 and the corresponding steep drop in oil
prices.
- Revenue of $4.0 million, a
decrease of $14.8 million (79%)
compared to $18.8 million in Q2
2019.
- Other income of $1.8 million in
Q2 2020 consists of Government of Canada grants, which the Company received
under the Canada Emergency Wage
Subsidy ("CEWS").
- Adjusted EBITDA(1) of $(1.4
million), a decrease of $1.5
million compared to $0.1
million in Q2 2019. The COVID-19 health pandemic put an end
to CWC's 27 consecutive quarters of positive Adjusted
EBITDA(1) dating back to Q2 2013.
- Net loss of $3.7 million, an
increase of $3.1 million compared to
$0.6 million in Q2 2019.
- Total long-term debt (including current portion) of
$25.8 million is the lowest long-term
debt amount in 13 years of CWC's total 15 years of existence.
- During Q2 2020, 1,708,000 (Q2 2019: 623,000) common shares were
purchased under the Normal Course Issuer Bid ("NCIB") and 1,718,000
(Q2 2019: 744,000) common shares were cancelled and returned to
treasury.
(1) Please refer to the
"Reconciliation of Non-IFRS Measures" section for further
information
|
Highlights for the Six Months Ended June 30, 2020
- CWC's Canadian drilling rig utilization for the first six
months of 2020 of 32% (2019: 31%) exceeded the Canadian Association
of Oilwell Drilling Contractors ("CAODC") industry average of 19%.
Canadian activity levels for the first six months of 2020 decreased
9% to 412 drilling rig operating days from seven Canadian drilling
rigs (2019: 454 drilling rig operating days). Average revenue per
operating day of $22,277 resulted in
revenue of $9.2 million from the
Canadian drilling operations. U.S. drilling rig activity levels for
the first six months of 2020 were 144 drilling rig operating days
from two U.S. drilling rigs for a utilization of 40% (2019: 7%).
U.S. Contract Drilling revenue of $4.8
million represented 34% of CWC's total Contract Drilling
revenue in the first six months of 2020 with the average revenue
per operating day of US$25,139 from
U.S. operations. CWC's service rig utilization for the first six
months of 2020 of 32% (2019: 46%) was driven by 34,479 operating
hours which were 36% lower than the 54,004 operating hours in 2019;
a result of the significant drop off in activity levels due to
COVID-19 and the corresponding steep drop in oil prices.
- Revenue of $37.5 million, a
decrease of $12.5 million (25%)
compared to $50.0 million in the
first six months of 2019.
- Adjusted EBITDA(1) of $4.1
million, a decrease of $0.7
million (14%) compared to $4.8
million in the first six months of 2019.
- Net loss of $22.9 million, an
increase of $22.3 million compared to
$0.6 million in the first six months
of 2019. The increase in net loss is primarily due to a charge for
impairment of assets of $25.5 million
taken in Q1 2020.
- For the six months ended June 30,
2020, the Company purchased 5,382,500 (2019: 2,673,500)
common shares under the Normal Course Issuer Bid ("NCIB") and
5,482,000 (2019: 2,536,000) common shares were cancelled and
returned to treasury.
(1) Please refer to the
"Reconciliation of Non-IFRS Measures" section for further
information
|
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 Western Canadian Sedimentary Basin ("WCSB"),
including the Montney, Cardium,
Duvernay and other deep basin
horizons. The Company also operates in select United States basins including the Eagle Ford,
Denver-Julesburg ("DJ") and Bakken. One 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.
|
Three months
ended
|
OPERATING
HIGHLIGHTS
|
Jun. 30,
2020
|
Mar. 31,
2020
|
Dec. 31,
2019
|
Sep. 30,
2019
|
Jun. 30,
2019
|
Mar. 31,
2019
|
Dec. 31,
2018
|
Sep. 30,
2018
|
Drilling Rigs –
Canada
|
|
|
|
|
|
|
|
|
Total drilling rigs,
end of period
|
7
|
7
|
7
|
7
|
7
|
9
|
9
|
9
|
|
|
|
|
|
|
|
|
|
Revenue per operating
day (1)
|
$19,382
|
$22,849
|
$22,161
|
$20,685
|
$22,750
|
$23,895
|
$26,642
|
$21,263
|
Drilling rig operating
days
|
68
|
344
|
232
|
130
|
72
|
382
|
491
|
500
|
Drilling rig
utilization %(2)
|
11%
|
54%
|
36%
|
19%
|
11%
|
47%
|
59%
|
60%
|
CAODC industry average
utilization %
|
4%
|
35%
|
23%
|
23%
|
18%
|
29%
|
28%
|
30%
|
|
|
|
|
|
|
|
|
|
Wells
drilled
|
4
|
26
|
18
|
12
|
10
|
39
|
34
|
41
|
Average days per
well
|
17.1
|
13.2
|
12.9
|
10.9
|
8.0
|
9.8
|
14.4
|
12.2
|
Meters drilled
(thousands)
|
20.2
|
99.6
|
75.6
|
39.6
|
26.7
|
119.8
|
127.8
|
155.2
|
Meters drilled per
day
|
295
|
290
|
326
|
304
|
373
|
314
|
261
|
310
|
Average meters per
well
|
5,053
|
3,831
|
4,199
|
3,300
|
2,966
|
3,070
|
3,708
|
3,786
|
Drilling Rigs –
United States
|
|
|
|
|
|
|
|
|
Total drilling rigs,
end of period
|
2
|
2
|
2
|
2
|
2
|
-
|
-
|
-
|
Revenue per operating
day (US$)(1)
|
-
|
$25,139
|
$34,448(3)
|
$27,159
|
$54,188
(3)
|
-
|
-
|
-
|
Drilling rig operating
days
|
-
|
144
|
56
|
155
|
25
|
-
|
-
|
-
|
Drilling rig
utilization %(2)
|
-
|
79%
|
31%
|
84%
|
69%
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
Wells
drilled
|
-
|
10
|
5
|
16
|
1
|
-
|
-
|
-
|
Average days per
well
|
-
|
14.4
|
11.3
|
9.7
|
16.6
|
-
|
-
|
-
|
Meters drilled
(thousands)
|
-
|
40.5
|
14.5
|
50.7
|
2.9
|
-
|
-
|
-
|
Meters drilled per
day
|
-
|
282
|
258
|
327
|
177
|
-
|
-
|
-
|
Average meters per
well
|
-
|
4,053
|
2,942
|
978
|
2,939
|
-
|
-
|
-
|
(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
|
(2)
Drilling rig utilization is calculated based on operating days
(i.e. spud to rig release basis)
|
(3)
Revenue is enhanced by one-time recovery of mobilization
costs
|
Canadian Contract Drilling revenue of $1.3 million for Q2 2020 (Q2 2019: $1.6 million) was achieved with a utilization
rate of 11% (Q2 2019: 11%), compared to the CAODC industry average
of 4%. CWC completed 68 Canadian drilling rig operating days with
seven drilling rigs in Q2 2020, comparable to the 72 Canadian
drilling rig operating days in Q2 2019.
As a result of the COVID-19 health pandemic and the travel
restrictions implemented between Canada and the U.S., CWC's two U.S. drilling
rigs, which operate with Canadian rig crews, did not see any
operating days in Q2 2020 (Q2 2019: 25 drilling rig operating days)
and, therefore, did not generate any revenue in the quarter (Q2
2019: $1.8 million).
Production Services
With a fleet of 145 service rigs, CWC is the largest well
servicing company in Canada as
measured by active fleet and operating hours. CWC's service rig
fleet consists of 75 single, 56 double, and 14 slant rigs providing
services which include completions, maintenance, workovers and well
decommissioning with depth ratings from 1,500 to 5,000 metres. CWC
has chosen to park 63 of its service rigs and focus its sales and
operational efforts on the remaining 82 active service rigs due to
the reduction in the number of service rigs currently required to
service the WCSB.
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. On March 17, 2020, the
Company discontinued operations of its coil tubing division and
wrote down the value of the assets to their estimated disposal
value. The Company will look at monetizing the coil tubing assets
when market conditions in the oil and gas industry stabilize.
CWC's fleet of 12 swabbing rigs 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. The Company has chosen to park seven of its swabbing rigs
and focus its sales and operational efforts on the remaining five
active swabbing rigs.
|
Three months
ended
|
OPERATING
HIGHLIGHTS
|
Jun.
30,
2020
|
Mar.
31,
2020
|
Dec.
31,
2019
|
Sep.
30,
2019
|
Jun.
30,
2019
|
Mar.
31,
2019
|
Dec.
31,
2018
|
Sep.
30,
2018
|
Service
Rigs
|
|
|
|
|
|
|
|
|
Active service rigs,
end of period
|
82
|
83
|
84
|
84
|
92
|
93
|
92
|
102
|
Inactive service rigs,
end of period
|
63
|
62
|
62
|
64
|
56
|
55
|
56
|
46
|
Total service rigs,
end of period
|
145
|
145
|
146
|
148
|
148
|
148
|
148
|
148
|
|
|
|
|
|
|
|
|
|
Operating
hours
|
4,037
|
30,442
|
33,656
|
29,528
|
23,129
|
30,875
|
31,232
|
42,316
|
Revenue per
hour
|
$619
|
$666
|
$664
|
$644
|
$646
|
$671
|
$663
|
$628
|
Revenue per hour
excluding top volume customers
|
$653
|
$673
|
$682
|
$660
|
$687
|
$690
|
$696
|
$664
|
Service rig
utilization %(1)
|
8%
|
56%
|
62%
|
52%
|
39%
|
53%
|
51%
|
63%
|
|
|
|
|
|
|
|
|
|
Coil Tubing
Units
|
|
|
|
|
|
|
|
|
Active coil tubing
units, end of period
|
0
|
0
|
7
|
8
|
8
|
8
|
8
|
8
|
Inactive coil tubing
units, end of period
|
9
|
9
|
2
|
1
|
1
|
1
|
1
|
1
|
Total coil tubing
units, end of period
|
9
|
9
|
9
|
9
|
9
|
9
|
9
|
9
|
|
|
|
|
|
|
|
|
|
Operating
hours
|
-
|
486
|
448
|
318
|
301
|
1,730
|
1,647
|
898
|
Revenue per
hour
|
-
|
$545
|
$646
|
$730
|
$830
|
$555
|
$625
|
$731
|
Coil tubing unit
utilization %(1)
|
-
|
11%
|
10%
|
6%
|
6%
|
34%
|
31%
|
17%
|
|
|
|
|
|
|
|
|
|
Swabbing
Rigs
|
|
|
|
|
|
|
|
|
Active swabbing rigs,
end of period
|
5
|
5
|
5
|
5
|
8
|
8
|
8
|
9
|
Inactive swabbing
rigs, end of period
|
7
|
7
|
8
|
8
|
5
|
5
|
5
|
4
|
Total swabbing rigs,
end of period
|
12
|
12
|
13
|
13
|
13
|
13
|
13
|
13
|
|
|
|
|
|
|
|
|
|
Operating
hours
|
513
|
1,088
|
1,141
|
865
|
661
|
1,655
|
2,313
|
881
|
Revenue per
hour
|
$288
|
$300
|
$282
|
$284
|
$262
|
$288
|
$283
|
$273
|
Swabbing rig
utilization %(1)
|
16%
|
33%
|
35%
|
19%
|
13%
|
47%
|
41%
|
15%
|
(1) Effective September 1, 2019, the
CAODC changed its methodology on how it calculates service rig
utilization. Service rig, coil tubing unit and swabbing rig
utilization is now calculated based on 10 operating hours a day x
number of days per quarter x 5 days a week divided by 7 days in a
week to reflect maximum utilization available due to hours of
service restrictions on rig crews. Utilization percentages have
been retroactively updated to reflect this new CAODC methodology.
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. Coil
tubing units that were removed from service for greater than 90
days were excluded from the utilization calculation until their
first day back in field service
|
Production Services revenue of $2.7
million in Q2 2020, down $12.7
million (83%) compared to $15.4
million in Q2 2019. The revenue decrease in Q2 2020 was a
direct result of the rapid decrease in crude oil prices, which
started in March 2020, as the global
health solutions to slow the spread of the COVID-19 virus resulted
in a significant drop in demand for crude oil.
CWC's service rig utilization in Q2 2020 of 8% (Q2 2019: 39%)
was driven by 4,037 operating hours being 83% lower than the 23,129
operating hours in Q2 2019. In addition, the Q2 2020 average
revenue per hour of $619 was
$27 per hour (4%) lower than
the $646 per hour in Q2 2019 as a
result of customer discounts during the quarter. Q2 2020 average
revenue per hour of $653 excluding
the Company's top volume customers was $34 per hour (5%) lower than Q2 2019 average
revenue per hour of $687.
As a result of the lower customer demand, the Company
discontinued operations of its coil tubing division on
March 17, 2020 and wrote down the
value of these assets to their estimated disposal value. The
Company will look at monetizing the coil tubing assets when market
conditions in the oil and gas industry stabilize.
CWC swabbing rig utilization in Q2 2020 of 16% (Q2 2019: 13%)
with 513 operating hours was 22% lower than the 661 operating hours
in Q2 2019 as CWC had three less swabbing rigs active during the
quarter compared to the prior year due to lower customer demand
from continued low natural gas prices. Average revenue per hour for
swabbing rigs of $288 in Q2 2020 was
10% higher compared to $262 in Q2
2019.
Capital Expenditures
|
Three months
ended
|
|
|
Six months
ended
|
|
|
|
June
30,
|
Change
|
Change
|
June
30,
|
Change
|
Change
|
$
thousands
|
2020
|
2019
|
$
|
%
|
2020
|
2019
|
$
|
%
|
Capital
expenditures
|
|
|
|
|
|
|
|
|
Contract
drilling
|
308
|
1,164
|
(856)
|
(74%)
|
1,094
|
1,258
|
(164)
|
(13%)
|
Production
services
|
412
|
692
|
(280)
|
(40%)
|
2,405
|
1,877
|
528
|
28%
|
Other
equipment
|
-
|
46
|
(46)
|
(100%)
|
26
|
61
|
(35)
|
(57%)
|
|
720
|
1,902
|
(1,182)
|
(62%)
|
3,525
|
3,196
|
329
|
10%
|
|
|
|
|
|
|
|
|
|
Growth
capital
|
232
|
-
|
232
|
n/m(1)
|
1,017
|
-
|
1,017
|
n/m(1)
|
Maintenance and
infrastructure capital
|
488
|
1,902
|
(1,414)
|
(74%)
|
2,508
|
3,196
|
(688)
|
(22%)
|
Total capital
expenditures
|
720
|
1,902
|
(1,182)
|
(62%)
|
3,525
|
3,196
|
329
|
10%
|
Capital expenditures of $0.7
million in Q2 2020, a decrease of $1.2 million (62%) compared to $1.9 million in Q2 2019.
Capital expenditures of $3.5
million for the six months ended June
30, 2020, an increase of $0.3
million (10%) compared to $3.2
million in the same period of 2019.
The 2020 capital expenditure budget of $6.7 million was approved by the Board of
Directors on December 12, 2019
comprised of maintenance and infrastructure capital related to
recertifications, additions and upgrades to field equipment for the
drilling rig and service rig divisions as well as information
technology infrastructure and growth capital to upgrade one of the
drilling rigs. Given the current economic environment as a
result of the COVID-19 health pandemic, the Company has reduced its
2020 capital expenditure budget by $1.9
million (28%) to $4.9 million.
As $3.5 million of the 2020 capital
expenditure budget has been incurred in the first six months of
2020, the Company is effectively suspending any further capital
expenditures, other than those in progress, for the remainder of
2020.
Outlook
In March 2020, the World Health
Organization declared a global health pandemic due to COVID-19. In
response to the COVID-19 outbreak, governments around the world
implemented measures to control the spread of the virus during Q2
2020 including closure of non-essential businesses, restricting
travel and encouraging its citizens to stay-at-home. These
government actions contributed to a significant deterioration in
the global economy including a material decline in the demand for
crude oil, which resulted in a significant decrease in oil prices.
The decline in oil prices negatively affected current and
forecasted drilling and production service activities in
Canada and the United States. In response to the decline
in oil prices, OPEC+ agreed to cut crude oil production by 9.7
million bbls/day for May and June
2020, reducing to 7.6 million bbls/day from July to
December 2020 and then to 5.6 million
bbls/day from January 2021 to
April 2022. In addition, the U.S.,
Canada and Brazil have cut crude oil production by 3.7
million bbls/day with other G20 oil producing nations contributing
1.3 million bbls/day. Together OPEC+ and the G20 oil producing
nations are expected to reduce crude oil production by 12.6 million
bbls/day for the remainder of 2020 for an global average crude oil
supply of 87.4 million bbls/day. The International Energy Agency
("IEA") forecasts that global crude oil demand will increase in Q3
2020 averaging 94.3 million bbls/day, thereby reducing the amount
of global crude oil currently in storage. As such crude oil prices
have rebounded from the low US$20/bbl
in April 2020 to the low US$40/bbl in July
2020 as governments around the world have started removing
economic restrictions related to COVID-19 and gradually re-opened
businesses. As consumer demand and business confidence increases
for the remainder of 2020 and 2021, so too will be the demand for
crude oil and a return to increased oilfield service activity in
Canada and the U.S.
In the meantime, CWC has made significant changes to its cost
structure including laying off employees, reducing compensation,
eliminating discretionary expenses and reducing capital
expenditures, to better match our cost structure to current
operating activity levels resulting in $10.7
million in annualized cash savings. The Company has reduced
its head count by 49% through departures and layoffs of its
employees and contractors and incurred $0.1
million in severance costs related to these layoffs in the
first half of 2020. CWC now has 316 employees as at June 30, 2020. In addition, CWC has applied for
and received $1.9 million in grants
from the Government of Canada CEWS program to date. With the recent
Government of Canada announcement
that the CEWS program will be extended to December 19, 2020, the Company believes that the
CEWS program will further enhance our ability to manage through the
current slowdown in oilfield services activity with an estimated
additional $2.3 million in
grants.
On April 17, 2020, the Government
of Canada announced a $1.7 billion funding package to the Government of
Alberta, Saskatchewan, British Columbia and the Alberta Orphan Well
Association for well decommissioning and reclamation of abandoned
and inactive wells. As the largest service rig company in
Canada, CWC will be a net
beneficiary of this funding as the Company pivots from workover and
maintenance work on producing wells to performing a greater
percentage of its work on well decommissioning in its Production
Services segment. Subsequent to June 30,
2020, CWC received grant approvals for 217 inactive wells
under the Alberta Site Rehabilitation Program and has been approved
as a vendor under the Saskatchewan Accelerated Site Closure
Program.
The Company continues to be in regular contact with its four
member banking syndicate and has received positive indications that
they will continue to support CWC through these turbulent
times.
Looking out to a medium and longer term, CWC is optimistic about
the future of the oil and gas industry in Canada. On March 31,
2020, the Government of Alberta announced they will be investing
$1.5 billion into the Keystone XL
pipeline and provide a $6.0 billion
loan guarantee to TC Energy to start construction of the pipeline
immediately, which is expected to be operational by 2023. This
pipeline will carry 830,000 bbls/day of crude oil to Gulf Coast
refineries. Along with the anticipated completion of Enbridge's
Line 3 pipeline in late 2020, which will carry 760,000 bbls/day to
Minnesota and eastern refineries
and the Trans Mountain expansion project carrying 890,000 bbls/day
by late 2022 to the west coast for oversea markets, Canada should have sufficient capacity to
resume growth in crude oil production. With the current reduction
in Canadian crude oil production of approximately 1.0 million
bbls/day as a result of lower global demand from the COVID-19
economic restrictions, Canada may
have inadvertently solved its issues of insufficient capacity on
its existing pipeline infrastructure until the three additional
pipelines are completed and operational. As such, CWC will remain
focused on its operational and financial performance in the
short-term, but recognize the need to pursue opportunities that
have inevitably been created in this heavily discounted market to
create medium and longer-term value for CWC's shareholders. With
the support of the Board of Directors, management continues to
actively pursue consolidation opportunities in North America. CWC cautions that there can be
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 and the United States with a complementary suite
of oilfield services including drilling rigs, service rigs,
swabbing rigs and coil tubing units. The Company's corporate office
is located in Calgary, Alberta,
with a U.S. office in Denver,
Colorado and operational locations in Nisku, Grande
Prairie, Slave Lake,
Sylvan 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 News Release 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 News Release 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, 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 and U.S. basins,
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
including the implications of the COVID-19 health pandemic on the
Company's business, operations and personnel. These factors and
risks include, but are not limited to, the risks associated with
the COVID-19 health pandemic and their implications on the demand
and supply in the drilling and oilfield services sector (i.e.
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), significant expansion measures to stop the
spread of COVID-19 further restricting or prohibiting the
operations of the Company's facilities and operations, actions to
ensure social distancing due to COVID-19, the Company's cash saving
initiatives, 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. 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 News Release 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
|
Six months
ended
|
$ thousands,
except shares, per share amounts and margins
|
June
30,
|
June
30,
|
2020
|
2019
|
2020
|
2019
|
NON-IFRS
MEASURES
|
|
|
|
|
Adjusted
EBITDA(1):
|
|
|
|
|
Net loss
|
(3,734)
|
(565)
|
(22,911)
|
(612)
|
Add:
|
|
|
|
|
Stock based
compensation
|
139
|
197
|
272
|
426
|
Finance
costs
|
780
|
658
|
1,464
|
1,390
|
Depreciation and
amortization
|
2,595
|
3,002
|
5,767
|
6,735
|
Impairment of
assets
|
-
|
-
|
25,451
|
-
|
Loss (gain) on sale of
equipment
|
(77)
|
(55)
|
974
|
(78)
|
Income tax
expense
|
(1,100)
|
(3,122)
|
(6,906)
|
(3,054)
|
Adjusted
EBITDA(1)
|
(1,397)
|
115
|
4,111
|
4,807
|
Adjusted EBITDA
per share – basic and diluted(1)
|
$
|
0.00
|
$
|
0.00
|
$
|
0.01
|
$
|
0.01
|
Adjusted EBITDA
margin (Adjusted EBITDA/Revenue)(1)
|
(35%)
|
1%
|
11%
|
10%
|
Weighted average
number of shares outstanding - basic and diluted
|
507,543,333
|
510,978,053
|
509,239,883
|
511,823,718
|
Gross
margin:
|
|
|
|
|
Revenue
|
3,966
|
18,746
|
37,506
|
50,004
|
Less: Direct operating
expenses
|
3,999
|
14,923
|
27,614
|
37,261
|
Gross
margin(2)
|
(33)
|
3,823
|
9,892
|
12,743
|
Gross margin
percentage(2)
|
(1%)
|
20%
|
26%
|
25%
|
$
thousands
|
June 30,
2020
|
December 31,
2019
|
Working capital
(excluding debt):
|
|
|
Current
assets
|
7,452
|
26,642
|
Less: Current
liabilities
|
(5,070)
|
(9,249)
|
Add: Current
portion of long-term debt
|
882
|
1,141
|
Working capital
(excluding debt)(3)
|
3,264
|
18,534
|
Net debt:
|
|
|
Long-term
debt
|
24,906
|
39,411
|
Less: Current
assets
|
(7,452)
|
(26,642)
|
Add: Current
liabilities
|
5,070
|
9,249
|
Net
debt(4)
|
22,524
|
22,018
|
(1)
Adjusted EBITDA (Earnings before interest and finance costs, income
tax expense, depreciation, amortization, gain or loss on disposal
of asset, impairment of assets, 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, 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
income (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 calculated based on long-term debt less current assets
plus current liabilities. 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.