Enseco Energy Services Corp. ("Enseco" or "the Corp.") (TSX VENTURE:ENS)
announces its consolidated financial results for the three months and year ended
March 31, 2008.
HIGHLIGHTS
- Established a U.S. operations centre in Minot, North Dakota in early April
2008 and moved four production testing vessels and one swabbing unit into the
region for a large independent customer.
- Raised $5 million through a private placement completed in late April 2008
which provides Enseco with the necessary financial flexibility to execute its
operating plan for the current fiscal year.
- Continued the commercialization of the Company's open hole logging technology
during the three months ended March 31, 2008 and it is expected that Enseco's
open hole division will be performing work on commercial terms for its customers
during the three months ended September 30, 2008.
- Eliminated significant fixed and structural cost from the Company's operations
during fiscal 2008 which positions Enseco very favourably for the recovery in
activity levels expected in fiscal 2009.
Established Bakken Operations Centre in North Dakota
Subsequent to March 31, 2008, Enseco expanded its geographic presence into the
United States by establishing an operations centre in North Dakota. The Company
initially moved three production testing units into the area for a large
established customer in April of 2008. Since that time Enseco has moved an
additional testing unit into this market as well as a swabbing rig. Enseco has
begun providing services to a number of different customers in the region.
Enseco is also in discussions with customers to possibly expand its service
offering in this area to include Wireline and Directional Drilling services. In
early April 2008, the United States Geological Service ("USGS") announced that
it was revising its estimate of technically recoverable oil from the North
Dakota and Montana Bakken formation to a range of 3.0 to 4.3 billion barrels,
which is 25 times more than its previous 1995 estimate. With this revised
estimate and recent record prices for crude oil, Enseco believes that activity
levels in this region will continue to be robust and the Company will focus its
efforts on expanding its presence in North Dakota.
Completion of $5 million Private Placement
On April 24, 2008, Enseco announced the closing of a private placement equity
financing of 11,120,000 Common Shares at a price of $0.45 per Common Share, for
gross proceeds of $5 million. The financing significantly strengthened the
Company's balance sheet and will allow Enseco to proceed with its fiscal 2009
operating plan and associated capital expenditures.
Commercialization of Open Hole Logging Technology
During the first calendar quarter of 2008, Enseco announced that it had
commercialized its Open Hole Wireline Logging tools. The "Quad Stack" of tools
has been tested in various environments in the Western Canadian Sedimentary
Basin and these tests along with the original tests that were conducted at
Callisto Test Pits in the UK and the Catoosa Test Wells in Oklahoma have been
extremely encouraging. The log responses from the tool have been very positive
and Enseco expects to deploy the tools at customer locations during the three
months ended September 30, 2008.
Elimination of Significant Structural and Fixed Cost from Operations
Management recognized in 2007 that the 2008 winter drilling season would be a
challenging period and one that would require focus and discipline in order to
mitigate the significant negative financial impact from the slowdown in
activity. With this in mind, Management proactively implemented Company wide
wage reductions and other cost reduction measures in order to better align
Enseco's cost structure with expected activity levels. Through these initiatives
the Company is poised to profit favorably for the anticipated recovery in
activity levels expected in 2009.
Financial Highlights
($000's except per share data)
Three Months Three Months Year Year
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2008 2007 2008 2007
-------------- -------------- ----------- ------------
Revenue $ 10,101 $ 11,304 $ 26,026 $ 29,250
Operating loss (1) (168) (173) (11,573) (4,188)
EBITDA (1) 1,081 1,506 (5,814) 431
Cashflow (1) 965 1,478 (5,984) 1,473
Net loss (156) (93) (30,937) (3,626)
Per Share Data
EBITDA (1) $ 0.03 $ 0.11 $ (0.20) $ 0.02
Cashflow (1) $ 0.03 $ 0.06 $ (0.20) $ 0.06
Net loss $ 0.00 $ 0.00 $ (1.05) $ (0.26)
March 31 March 31
2008 2007
(audited) (audited) % change
-------------- ----------- ------------
Financial Position
Total assets $ 56,514 $ 83,332 (33)%
Long-term debt (excluding
current portion) 11,371 6,272 81%
Working capital (2) (1,144) (665) (175)%
Shareholders' equity 25,090 50,917 (51)%
(1) Operating loss is loss before impairment loss on intangible assets,
impairment loss on goodwill, gain (loss) on sale of equipment, accretion of
convertible debentures and income taxes. EBITDA means earnings before interest,
taxes, depreciation and amortization and is equal to earnings before income
taxes plus interest on long-term debt plus other interest expense plus
depreciation plus amortization plus accretion of convertible debentures plus
impairment loss on intangible assets, plus impairment loss on goodwill. Cashflow
means cash flows provided by operations before changes in non-cash working
capital items. Operating loss, EBITDA and cashflow are not recognized measures
under Canadian generally accepted accounting principles ("GAAP"). Management
believes that in addition to net earnings, operating loss, EBITDA and cashflow
are useful supplemental measures as they provide an indication of the results
generated by Enseco's primary business activities prior to consideration of how
those activities are financed, amortized or how the results are taxed in various
jurisdictions as well as the cash generated by Enseco's primary business
activities. Readers should be cautioned, however, that operating loss, EBITDA
and cashflow should not be construed as an alternative to net earnings
determined in accordance with GAAP as an indicator of Enseco's performance.
Enseco's method of calculating operating loss, EBITDA and cashflow may differ
from other organizations and, accordingly, these figures may not be comparable
to those disclosed by other organizations.
(2) Working capital equals current assets minus current liabilities.
In January of 2008, the oilfield service sector in Canada was fairly pessimistic
with respect to winter natural gas drilling activity. Industry sentiment in
Western Canada commenced the year with the lingering impact of issues that had
originally surfaced in 2007 such as, the impact of low natural gas commodity
prices, a weak U.S. dollar and the negative economic impact from Alberta's
royalty review slated for implementation in 2009. A number of these factors
began to impact the Canadian market in 2006 and led to declining equipment
activity and customer pricing for the past six quarters. Enseco also noted a
marked increase in competition as a larger fleet of service equipment competed
for less available work than in the same period in 2007. These circumstances
resulted in increased pricing pressure with the expected corresponding decrease
in operating margins. Towards the end of March however, the underlying
fundamentals improved. The Canadian dollar stabilized at close to parity with
the U.S. dollar, natural gas prices have strengthened significantly and Alberta
has announced plans to deal with some of the unintended consequences from the
royalty review undertaken in the fall of 2007.
The results for the year ended March 31, 2008 reflect the impact of the issues
described above and although there has been a noticeable positive shift in
sentiment it did not arrive in time to positively impact the results for the
three months ended March 31, 2008. The losses incurred during the year ended
March 31, 2008 are reflected in the Corp.'s financial condition. The working
capital deficit increased to $1.1 million at March 31, 2008 as compared to $0.7
million at March 31, 2007. As well, Shareholders' Equity decreased to $25.1
million at March 31, 2008 as compared to $50.9 million at March 31, 2007. The
primary driver for the significant decrease in Shareholders' Equity was the $7.1
million charge taken for impairment on intangible assets and the $12.4 million
charge taken for impairment on goodwill. As mentioned above, the Company's
working capital position was improved by the completion of a private placement
of 11,120,000 common shares at a price of $0.45 per common share generating
gross proceeds of $5.0 million, which closed on April 24, 2008. The Company
incurred total costs of approximately $350 thousand in conjunction with the
closing of this transaction, primarily related to agent's fees, legal expenses
and listing fees.
Summary
The decrease in revenues for the three months ended March 31, 2008 was due to
additional revenue from the wireline and directional drilling divisions being
offset by decreases in revenue in both the testing and swabbing divisions, the
wireline and directional drilling divisions were recent additions for the three
months ended March 31, 2007 and therefore did not contribute significantly to
the results achieved in the prior year period. The decrease in revenues for the
year ended March 31, 2008 as compared to March 31, 2007 was due to decreased
customer demand and pricing for Enseco's services primarily due to the variety
of regulatory and economic challenges described above.
Testing
The revenue reported from Enseco's Testing division decreased by 40% to $3.2
million for the three months ended March 31, 2008 as compared to $5.3 million
for the three months ended March 31, 2007, and decreased 48% to $8.0 million for
the year ended March 31, 2008 as compared to $15.3 million for the corresponding
period in 2007. Revenue decreased for the three months and year ended March 31,
2008 as compared to the three months and year ended March 31, 2007 due to
decreased customer demand which resulted in decreased utilization and pricing.
For the three months and year ended March 31, 2008 the Testing division achieved
average utilization rates of 30% and 20% respectively, as compared to 56% and
43% for the three months and year ended March 31, 2007. During the three months
and year ended March 31, 2008 the Testing division operated a weighted average
of 37 testing units. This compared to a weighted average of 33 units and 30
units operated during the three months and year ended March 31, 2007. The
average day rate achieved by the testing division decreased by 1% and 15% and
for the three months and year ended March 31, 2008 as compared to the same
periods in the prior year.
Swabbing
The revenue reported from Enseco's Swabbing division decreased by 30% to $3.2
million for the three months ended March 31, 2008 as compared to $4.6 million
for the three months ended March 31, 2007, and decreased 31% to $8.7 million for
the year ended March 31, 2008 as compared to $12.6 million for the same period
in 2007. Revenue decreased for the three months and year ended March 31, 2008 as
compared to the three months and year ended March 31, 2007 due to decreased
customer demand which resulted in decreased utilization and pricing. For the
three months and year ended March 31, 2008 average utilization of the swabbing
units was 52%, and 35% respectively, as compared to 77% and 70% for the three
months and year ended March 31, 2007. This division operated an average of 21
units and 20 units during the three months and year ended March 31, 2008 as
compared to an average of 20 units and 18 units during the three months and year
ended March 31, 2007. The average day rate achieved by the Swabbing division
decreased by 4% and 11% for the three months and year ended March 31, 2008 as
compared to March 31, 2007.
Wireline
The revenue reported from Enseco's Wireline division was $3.0 million and $7.7
million for the three months and year ended March 31, 2008 as compared to $1.2
million for the three months and year ended March 31, 2007. Enseco's Wireline
division commenced operations in March 2007 with the acquisition of Expro and
the delivery of two additional cased hole wireline trucks in 2007. For the three
months and year ended March 31, 2008 average utilization of the wireline units
was 30% and 22%, respectively. This division operated an average of 12 units
during the three months and year ended March 31, 2008.
Directional Drilling
Enseco's Directional division reported revenue of $0.7 million and $1.6 million
for the three months and year ended March 31, 2008, as compared to $0.2 million
for the three months and year ended March 31, 2007. This division commenced
operations in January of 2007. Average utilization of the directional drilling
kits was 25% and 14% for the three months and year ended March 31, 2008. This
division operated an average of 4 directional kits during the three months and
year ended March 31, 2008.
Consolidated
Operating loss decreased 3% to $168 thousand and increased 176% to $11.6 million
for the three months and year ended March 31, 2008 respectively, as compared to
$173 thousand and $4.2 million for the three months and year ended March 31,
2007. The increased operating loss for the year ended March 31, 2008 as compared
to year ended March 31, 2007 is due to decreased revenue and the increased size
of the operations of Enseco as described above. The decreased operating loss for
the three months ended March 31, 2008 as compared to the same period in 2007
relates primarily to the fact that amortization expense was $nil in the three
months ended March 31, 2008, as compared to $773 thousand for the same period in
the prior year. Amortization was not recorded from June 30, 2007 forward as the
Company incurred a first quarter impairment charge on all of its intangible
assets resulting in no amortization charges in the future.
The Corp. recorded net losses of $156 thousand and $30.9 million for the three
months and year ended March 31, 2008 as compared to $93 thousand and $3.6
million for the three months and year ended March 31, 2007. During the three
months and year ended March 31, 2008, income tax recovery was $nil (2007 -
$1,287) due to a valuation allowance being recognized during the quarter and
year end which offset any potential future income tax recovery. Included in the
net loss for the year ended March 31, 2008 are losses of $7.1 million for
impairment on intangible assets and $12.4 million for impairment on goodwill.
Impairment tests were performed on intangible assets and goodwill at June 30,
2007.
OUTLOOK
Enseco is currently looking at the second half of 2008 as an opportunity for
higher seasonally adjusted service activity levels. In the late fall of 2007,
natural gas inventories began the winter heating season at record highs, which
led to early 2008 sentiment being negative, however, a cold winter in North
America has reduced natural gas storage levels to exit the March quarter near
the five-year average. These circumstances have provided a significant lift to
natural gas prices in the spot and forward markets. Stronger than expected oil
and natural gas prices in 2008 should positively impact customer cash flows and
provide incentive to drill and service oil and natural gas wells. In addition,
the Alberta government announced a plan to address some of the unintended
consequences of the proposed January 1, 2009 royalty structure by offering
certain deep drilling incentives. The well license trends in Canada are
marginally lower year-over-year and Enseco continues to expect that the second
calendar quarter of 2008 will be challenging due to the normal decrease in
activity levels associated with spring breakup. In the newly established North
Dakota operating region, Enseco has experienced very steady utilizations as well
as strong customer demand for its services. Enseco expects to continue to add
equipment to this area, as well as to expand its service offerings in line with
customer demand.
Currently, United States natural gas storage levels are at or near the five-year
average and uncertainty over liquefied natural gas imports have caused economic
fundamentals for drilling in 2008 to have improved substantially from six months
ago. Enseco expects this to translate into higher demand for natural gas related
oilfield services in the late third and fourth quarter. Many of the forward
indicators for 2008 have improved for the WCSB as the winter drilling season
finished on a positive note. However, a sustained period of higher natural gas
prices is required to instill producer confidence and to meaningfully increase
drilling activity. We expect many customers to revisit their drilling programs
in the coming months and adjust their 2008 budgets with an upward bias.
Enseco remains positive about the long-term underlying fundamentals for North
American natural gas and oil service opportunities in the WCSB and North Dakota.
Enseco expects that factors such as lower initial well production, increasing
decline rates of natural gas wells in the WCSB and increasing natural gas
consumption in North America will support increased natural gas prices in the
future and with the increased natural gas prices increased oil and gas service
work in the WCSB and North Dakota.
Enseco is an emerging supplier of energy related services operating throughout
the Western Canadian Sedimentary Basin and select markets in the United States,
with operational centres in Red Deer, Whitecourt, Edmonton, Beaverlodge, Grande
Prairie, Fort St. John and Minot, North Dakota, as well as corporate and sales
offices located in Calgary. Enseco is led by an experienced management team
currently offering well swabbing, production testing, cased hole logging,
perforating and propellant stimulation services and directional drilling
services with a focus on continued value creation through accretive acquisitions
and organic growth.
This press release contains forward-looking statements subject to various risk
factors and uncertainties, which may cause the actual results, performances or
achievements of Enseco to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, fluctuations in the
market for oil and gas and related products and services, political and economic
conditions, the demand for services provided by Enseco, industry competition and
Enseco's ability to attract and retain both customers and key personnel.