Enseco Energy Services Corp. (TSX VENTURE:ENS) ("Enseco" or "the Company")
announces its consolidated financial results for the three and six months ended
September 30, 2008.
HIGHLIGHTS
- Revenue increased by 47% to $8.9 million and 48% to $13.2 million for the
three and six months ended September 30, 2008 as compared to $6.1 million and
$9.0 million for the three and six months ended September 30, 2007.
- The Company's U.S. Bakken Operations situated in North Dakota contributed $1.8
million and $3.0 million of revenue during the three and six months ended
September 30, 2008. Enseco moved a second Swabbing rig into North Dakota in
early November 2008 to meet increased customer demand for these services.
- The Company's Directional Drilling division has shown a 750% increase in
revenue for three and six months ended September 30, 2008 and produced operating
income of $394 thousand for the six months ended September 30, 2008 as compared
to an operating loss of $395 thousand for the same period in the prior year.
- Operating losses decreased by 29% to $1.7 million and 44% to $5.1 million for
the three and six months ended September 30, 2008 when compared to $2.4 million
and $9.0 million for the three and six months ended September 30, 2007, as cost
cutting measures and the increased contribution from the Company's US operations
begin to have a significant impact on results.
- Reached full commercialization with open hole tools in late September 2008
- Expanded geographic presence by opening an operations centre in Midale,
Saskatchewan
Revenues grew by 47% to $8.9 million and 48% to $13.2 million - quarter and year
to date September 30, 2008
Enseco has shown a significant year over year improvement in revenue by posting
a 47% increase during the current quarter over the same period in the prior year
and a year to date increase of 48%. The key drivers of this growth were the
Company's U.S. Bakken Operations which contributed $1.8 million of revenue in
the quarter and $3.0 million year to date, and the Company's Directional
Drilling division which increased revenue to $1.5 million in the quarter and
$2.2 million year to date.
U.S. Bakken Operations contributed $1.8 million of Revenue in the quarter and
$3.0 million Year to Date
During the September quarter, the Company's U.S. Bakken Operations contributed
$1.8 million and $3.0 million of revenue to Enseco's consolidated results for
the three and six months ended September 30, 2008, and accounted for 20% and 23%
of total revenue in each respective period. In early April of 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 and now has a total
of six production testing units in the area, as well as two swabbing rigs. To
date Enseco has seen strong demand for its services and believes that the
activity in this region will continue to accelerate. Enseco expects to move
additional equipment into the US throughout 2008 and 2009.
Direction Drilling Division revenue increased 750% for the quarter and year to
date - September 30, 2008
The Company's Directional Drilling division has shown a 750% increase in
revenues to $1.5 million and $2.2 million for three and six months ended
September 30, 2008, as compared to revenues of $179 thousand and $254 thousand
for the three and six months ended September 30, 2007. This division also
produced operating income of $387 thousand and $394 thousand for the three and
six months ended September 30, 2008 as compared to an operating loss of $206
thousand and $395 thousand for the same periods in the prior year. The
Directional Drilling division has gained significant traction in the current
year due to its emphasis on exceptional customer service and its high level of
operating performance which has led to significant repeat business from its
existing client base.
Reduced Operating Loss by 29% to $1.7 million for the quarter and 44% to $5.1
million year to date
Increased revenues from both U.S. operations and Directional Drilling were key
factors in producing significant improvements over the prior year's performance.
Operating loss was decreased to $1.7 million and $5.1 million for the three and
six months ended September 30, 2008, as compared to $2.4 million and $9.0
million for the same periods in 2007. Management anticipates that, going
forward, Enseco will continue to show strong performance relative to the
comparative prior year period.
Reached Full Commercialization of Open Hole Tools
Enseco reached full commercialization of its Open Hole Logging tools, commonly
referred to as the open hole quad stack, in late September 2008. The open hole
quad stack, including array induction, array sonic, litho density and
compensated neutron has been in development and field testing over the past
year. Enseco, through an exclusivity agreement for Canada, will be the only
service provider with access to this technology. Enseco currently has two units
operational with plans for further expansion in the future.
Expanded Geographic Presence by Opening an Operations Centre in Midale, Saskatchewan
Enseco recently announced the expansion of its Production Testing Division into
the Southeast Saskatchewan market with the opening of a new location in Midale.
The Company currently has two testing packages based out of this location and
will look to increase this number based on customer demand.
Progress on Implementation of Strategic Plan
Enseco continued to show progress in the current quarter by further improving
its operational and financial performance. A key objective in the Company's plan
is to diversify its revenue stream away from activity levels in Alberta. The
Company has begun to achieve this by establishing a presence in North Dakota in
the United States, as well as recently opening a field office in Midale,
Saskatchewan. Enseco anticipates a further expansion of its market presence in
the United States by expanding geographically, as well as moving additional
equipment into this region. Enseco is also placing greater emphasis on
opportunities in northeast British Columbia and southeast Saskatchewan and will
move more equipment into these areas based on customer demand for its services.
Another of Enseco's objectives was to ensure that the Company continues to
maintain discipline with respect to its cost structure. Enseco continues to show
progress in this area by reducing general and administrative costs have by 5%
and 18% for the three and six months ended September 30, 2008 despite a nearly
50% increase in revenue during these same periods.
Financial Highlights
($000's except per share data)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sept 30, Sept 30, Sept 30, Sept 30,
2008 2007 % 2008 2007 %
(unaudited) (unaudited) change (unaudited) (unaudited) change
----------- ----------- ------ ----------- ----------- ------
Revenue $ 8,908 $ 6,066 47% $ 13,210 $ 8,954 48%
Operating
loss (1) (1,695) (2,371) 29% (5,085) (9,017) 44%
EBITDA (1) (387) (1,126) 67% (2,519) (5,676) 56%
Cashflow (1) (504) (1,167) 57% (2,771) (5,778) 52%
Net loss (1,982) (2,205) 10% (5,459) (28,493) 81%
Per Share
Data
EBITDA (1) $ (0.01) $ (0.04) 75% $ (0.06) $ (0.23) 74%
Cashflow (1) $ (0.01) $ (0.04) 75% $ (0.06) $ (0.23) 74%
Net loss $ (0.05) $ (0.08) 38% $ (0.13) $ (1.12) 88%
Sept 30 March 31
2008 2008
(audited) % change
--------- --------- ----------
Financial Position
Total assets $ 46,631 $ 56,514 (17)%
Long-term debt (excluding
current portion) 11,221 11,371 (1)%
Working capital (2) (1,379) (1,144) (21)%
Shareholders' equity 24,528 25,090 (2)%
(1) Operating loss is loss before impairment loss on intangible assets,
impairment loss on goodwill, gain (loss) on sale of equipment 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 (gain)/loss on disposal of assets minus foreign
exchange gain 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.
The current state of the global financial system is a concern as access to
capital through the debt and equity markets is challenging. The liquidity and
capital contraction is expected to cause many producers of oil and natural gas
to demonstrate renewed focus on balance sheet discipline and to work within
their existing financing and cash flow means. Subject to the coming winter
heating season and demand levels for natural gas in North America, the current
economic slowdown could moderate energy consumption growth and may result in
lower producer spending for marginal oil and natural gas programs. Enseco is
actively managing its business through this period of uncertainty by trying to
diversify as much of its revenue stream as possible away from the cyclicality of
the Western Canadian Sedimentary Basin and looking at increasing its presence in
areas where drilling activity is expected to be robust, such as the Montney in
Northeastern British Columbia and the Bakken in North Dakota and Saskatchewan.
The results for the three and six months ended September 30, 2008 are reflective
of the seasonal slowdown associated with the two weakest operating quarters of
the year, however activity levels have increased subsequent to quarter end as
Enseco's customers prepare to execute their winter drilling programs. The losses
and capital expenditures incurred during the three and six months ended
September 30, 2008 are reflected in the Company's financial condition. The
working capital deficit increased to $1.4 million at September 30, 2008 as
compared to a deficit of $1.1 million at March 31, 2008. As well, Shareholders'
Equity decreased to $24.5 million at September 30, 2008 as compared to $25.1
million at March 31, 2008. Both working capital and Shareholders' Equity were
negatively impacted by the losses incurred during the three and six months ended
September 30, 2008 given that the September 30, 2008 amounts also reflect the
proceeds of the Company's $5.0 million private placement which closed on April
24, 2008.
Summary
The increase in revenues for the three and six months ended September 30, 2008
was due to a new revenue stream provided by Enseco's U.S. operations and a
significant increase in revenue from the Directional Drilling division. This was
offset by a decrease in revenue from the Wireline division which was
attributable to nonrecurring project work performed for a non oil and gas
customer during the three and six months ended September 30, 2007.
Directional Drilling
Enseco's Directional division reported revenue of $1.5 million and $2.2 million
for the three and six months ended September 30, 2008, as compared to $0.2
million and $0.3 million for the three and six months ended September 30, 2007.
The large increase in the Directional division's revenue base is a result of a
significant ramp up in repeat business from existing customers who had tried
this division's services over the past year and are now adding Enseco
Directional as a key supplier based on their satisfaction with the service
provided. Average utilization of the directional drilling kits was 38% and 27%
for the three and six months ended September 30, 2008, as compared to 6% and 5%
for the same period in 2007. This division operated an average of 5 directional
kits during the three and six months ended September 30, 2008, as compared to 4
directional kits during the same period in 2007.
Testing
The revenue reported from Enseco's Testing division increased by 129% to $4.1
million and 142% to $6.2 million for the three and six months ended September
30, 2008 as compared to $1.8 million and $2.6 million for the three and six
months ended September 30, 2007. Revenue increased due to the expansion of the
Corp.'s operations into North Dakota. This expanded geographic presence provided
$1.7 million and $2.9 million of additional revenue for the three and six months
ended September 30, 2008, respectively, as compared to $nil for same periods in
the prior year. For the three and six months ended September 30, 2008 the
Canadian Testing division achieved average utilization rates of 26% and 18%,
respectively, as compared to 19% and 15% for the three and six months ended
September 30, 2007. During the three months ended September 30, 2008, the U.S.
testing division achieved a utilization rate of 69% with an average of five
operated units, whereas for the six months ended September 30, 2008 the U.S.
testing division achieved a weighted average utilization rate of 71%. During the
three and six months ended September 30, 2008 the Canadian Testing division
operated a weighted average of 33 testing units. This compared to a weighted
average of 37 units operated during the three and six months ended September 30,
2007. The average day rate achieved by the testing division in Canada increased
by 11% and 32% for the three and six months ended September 30, 2008 as compared
to the same period in the prior year. The increase in day rate achieved was a
direct result of the Company's decision to market its services to larger, more
established customers who are willing to pay a premium for the Company's
services and comprehensive safety program. There are no prior period comparable
results for the U.S. testing division as the six months ended September 30, 2008
was this division's first full period of operations.
Swabbing
The revenue reported from Enseco's Swabbing division decreased to $1.9 million
and $2.9 million for the three and six months ended September 30, 2008,
respectively, as compared to $2.2 million and $3.2 million for the three and six
months ended September 30, 2007. For the three and six months ended September
30, 2008 average utilization of the swabbing units was 29% and 22%, as compared
to 35% and 26% for the three and six months ended September 30, 2007. This
division operated an average of 20 units for both the three and six months ended
September 30, 2008 and 2007. The average day rate achieved by the Swabbing
division decreased by 2% and increased 3% for the three and six months ended
September 30, 2008 as compared to the same periods in 2007.
Wireline
The Wireline division had an operating loss of $0.7 million and an operating
loss of $1.6 million for the three and six months ended September 30, 2008, as
compared to an operating loss of $0.2 million and an operating loss of $1.2
million for the three and six months ended September 30, 2007. Enseco's Wireline
division had nonrecurring project revenue in the three and six months ended
September 30, 2007 of $0.5 million and $1.1 million, respectively, from a client
who is not associated with the oil and gas industry. The loss of this
nonrecurring revenue accounted for 27% and 38% of revenue for the three and six
months ended September 30, 2007 and was the primary contributing factor to the
loss in this division.
Consolidated
Operating loss decreased 29% to $1.7 million and decreased 44% to $5.1 million
for the three and six months ended September 30, 2008, respectively, as compared
to $2.4 million and $9.0 million for the three and six months ended September
30, 2007. The decreased operating loss is due to increased revenue from U.S.
Operations combined with the realization of costs savings from the elimination
of numerous field and administrative positions within the Company's structure,
as well as the realized savings from company wide wage reductions implemented in
late 2007. Another factor in decreasing the operating loss for the six months
ended September 30, 2008 as compared to the same period in 2007 relates to the
fact that amortization expense was $nil for the six months ended September 30,
2008 as compared to $908 thousand for the same period in the prior year.
Amortization was not recorded from June 30, 2007 forward as the Company incurred
a fiscal first quarter impairment charge in 2007 on all of its intangible assets
resulting in no future amortization charges.
The Company recorded net losses of $2.0 million and $5.5 million for the three
and six months ended September 30, 2008 as compared to net losses of $2.2
million and $28.5 million for the three and six months ended September 30, 2007.
During the three and six months ended September 30, 2008, the Company recognized
$24 thousand and $60 thousand, respectively, of income tax expense relating to
the income generated from Enseco's U.S. operating division. Whereas, income tax
expense was $nil for the three and six months ended September 30, 2007 due to a
valuation allowance being recognized which offset any potential future income
tax recovery. Enseco continued to recognize a valuation allowance against any
potential future income tax recovery until such time as it can demonstrate a
consistent track record of profitability.
OUTLOOK
The volatility of the commodity markets and the unfolding global financial
crisis has created uncertainty through the latter stages of 2008 and into 2009.
Understanding that certain risks still exist, including a prolonged slowdown in
the US and global economies, the potential burden that Alberta's New Royalty
Framework could bring in 2009 and the impact of recent commodity price
fluctuations on capital spending budgets, Management is of the opinion that
activity levels in Western Canada should mirror the seasonal strengths
traditionally experienced during this time of the year, however activity levels
subsequent to the "winter drilling season" are expected to be curtailed
significantly. The opposite holds true for Enseco's prospects in its recently
established North Dakota operation. In this area, activity levels are expected
to moderate to a more "normalized" pace of development rather than the
aggressive ramp up that Enseco was anticipating based on its previous
discussions with customers. This moderated pace of activity will allow Enseco to
properly plan and execute its strategy to meet what is still expected to be
robust customer demand for a Company of Enseco's size.
The WCSB is a mature basin predominantly focused on natural gas drilling and has
been facing production declines for several years. With the depletion of
conventional, easily accessible and relatively cheap-to-exploit reservoirs,
exploration and production companies have had to shift their focus towards
directional drilling techniques, augmented by multi-fracture completion
technology, to access technically challenging reservoirs. As a percentage of
total wells drilled, horizontal and directional well composition has increased
from less than 20% in 1999 to 45% through September 2008. This trend is
consistent with production companies exploring for hydrocarbons in
hard-to-access reservoirs including unconventional plays that require the
capability of drilling directionally. Based on Enseco's recent results it is
clear that the Company's Directional division is seeing a significant benefit
from this trend and Enseco expects further positive impact going forward as the
Company proves its ability to help its customers drill these more complex wells.
In relation to commodity prices over the medium to long-term, many analysts and
experts believe the trend of rising energy prices is likely to resume as
industrialization continues to drive global oil demand growth while new supplies
remain increasingly more expensive to produce. As well, their long-term view for
natural gas prices remains intact. A rising demand trend is expected to continue
given the relatively lower cost that natural gas represents and the improved
impact to the environment that burning natural gas can offer when compared to
other fossil-fuel based technologies. In addition, natural gas will become an
increasingly important source of supply to feed rapidly growing oil sands
demand, especially in light of the declining production in western Canada. These
market forecasts support a favorable outlook for Enseco in the long-term,
predicting continued demand for services tied to natural gas exploration.
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, Midale, Saskatchewan and Minot, North Dakota, as well as
a corporate and sales office 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.
FORWARD-LOOKING STATEMENTS
Certain information and statements contained in this press release constitute
forward-looking information, including expectations concerning the nature and
timing of growth within Enseco's various business divisions, expectations
respecting the competitive position of such business divisions, and statements
as to future economic and operating conditions, which are provided by Management
to enable investors to better understand our business, and such information may
not be appropriate for other purposes. These forward-looking statements are
based upon the opinions, expectations and estimates of management as at the date
the statements are made including the Company's current budget (which is subject
to change), expectations relating to future economic and operating conditions,
the competitive environment and opinions of third-party analysts respecting
anticipated economic and operating conditions. These forward-looking statements
are subject to a variety of risks and uncertainties and other factors that could
cause actual events or outcomes to differ materially from those anticipated 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. Enseco has made assumptions regarding, but not
limited to, commodity prices, foreign exchange rates, interest rates, the
availability of skilled labour, and the timing and amount of capital
expenditures. Readers are cautioned that the assumptions used in the preparation
of such information, although considered reasonable at the time of preparation,
may prove to be imprecise and, as such, undue reliance should not be placed on
forward-looking statements. Enseco's actual results, performance or achievement
could differ materially from those expressed in, or implied by, these
forward-looking statements, or if any of them do so, what benefits that Enseco
will derive therefrom. Enseco disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.