Enseco Energy Services Corp. Announces Results for the Three Months Ended June 30, 2009
August 31 2009 - 7:21PM
Marketwired Canada
Enseco Energy Services Corp. ("Enseco" or "the Company") (TSX VENTURE:ENS)
announces its consolidated financial results for the three months June 30, 2009.
HIGHLIGHTS
- During a period when the number of wells drilled in Western Canada and the
drilling rig utilization decreased by 50%, Enseco demonstrated an improvement in
its total EBITDA, cashflow and operating loss metrics as compared to the prior
year. This result was achieved through aggressive cost reductions in all of
Enseco's business lines, as well as the elimination of $927 thousand of
operating losses and $616 thousand of negative cashflow attributable to the
Cased Hole Wireline division, which was divested on March 1, 2009.
- For the month of July 2009, Enseco's Directional Drilling division achieved
record revenues of over $1 million for the first time in its history. This
impressive milestone was achieved against the backdrop of one of the worst
periods of drilling activity in Western Canada and was a significant improvement
considering this division recorded revenues of $528 thousand for the three
months ended June 30, 2009.
- Revenue from the Company's U.S. Operations continued to show growth as
revenues increased by 28% to $1.5 million for the three months ended June 30,
2009 as compared to $1.2 million during the same period in the prior year.
- As of August 31, 2009, Enseco had closed $1.6 million of its previously
announced $2.0 million convertible debenture financing. The Company expects to
close the remaining balance of the financing shortly. With the closing of this
financing, Enseco has a commitment from its lender to increase its long-term
debt facility by $1.0 million which would be immediately available to the
Company for working capital purposes. Enseco expects to utilize these funds as
soon as they are available.
- Despite one of the toughest operating environments in the history of the
oilfield services industry in Western Canada, Enseco has continued to drive
operational improvements, market share gains and significant cost reduction
through to its financial metrics. The Company expects the progress it has made
in refining and improving its business model to be demonstrated in its results
during the coming quarters as revenue levels increase from seasonal lows. These
improvements combined with the successful closing of the above mentioned
financing have positively positioned Enseco for future profitability when the
anticipated rebound in activity levels occurs.
Financial Highlights
($000's except per share data)
Three Months Three Months
Ended Ended
Jun 30, 2009 Jun 30, 2008
(unaudited) (unaudited) %change
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Revenue from continuing ops (1) $ 3,149 $ 3,727 (16%)
Operating loss from continuing
ops (1) (3,335) (2,463) (35%)
Operating loss from discontinued
ops (1) - (927) 100%
----------------------------------------
Total (3,335) (3,390) 2%
EBITDA (1) from continuing ops (2,039) (1,495) (36%)
EBITDA (1) from discontinued ops - (638) 100%
----------------------------------------
Total (2,039) (2,133) 4%
Cashflow (1) from continuing ops (2,169) (1,651) (31%)
Cashflow (1) from discontinued ops - (616) 100%
----------------------------------------
Total (2,169) (2,267) 4%
Net loss from continuing ops (1) (3,379) (2,550) (33%)
Net loss from discontinued ops (1) - (927) 100%
----------------------------------------
Total (3,379) (3,477) 3%
Per Share Data
EBITDA (1) $ (0.04) $ (0.04) -
Cashflow (1) $ (0.05) $ (0.04) (25%)
Net loss $ (0.08) $ (0.06) (33%)
June 30 March 31
2009 2009
(unaudited) (audited) %change
----------------------------------------
Financial Position
Total assets $ 42,286 $ 48,059 (12%)
Working capital (2) (18,537) (16,112) (15%)
Shareholders' equity 20,064 23,671 (15%)
(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 first half of 2009 continued to reflect a weak global economy and resulting
low energy commodity prices. While oil pricing has recovered during the quarter,
there remains considerable demand uncertainty for both oil and natural gas and
this has triggered low underlying customer demand for the industry and Enseco's
oilfield services. Accordingly, these factors have eroded oilfield services
activity levels for a third consecutive quarter as evidenced by minimal spot
market opportunities, pricing declines and low equipment utilization. At the end
of the quarter these conditions persist as the fundamentals for natural gas
continue to show weakness through record high storage levels in Canada and the
United States. The supply capacity was delivered through drilling activity
peaking in 2008 in many regions within the United States, including
unconventional resource plays in Texas and Louisiana. A significant portion of
these wells, and the associated gas production gains, are subject to high
depletion rates and the recent steep decline in drilling is expected to
eventually result in supply reductions.
As a result of lower activity levels industry wide, Enseco has experienced
significant losses and negative cashflow, and as at June 30, 2009 the working
capital deficit increased to $18.5 million as compared to a deficit of $16.1
million at March 31, 2009. As well, Shareholders' Equity decreased to $20.1
million at June 30, 2009 as compared to $23.7 million at March 31, 2009. As at
June 30, 2009 Enseco had approved access to $15.7 million ($17.0 million -
August 27, 2009) of the total $20.0 million credit facility, but had drawn $18.8
million ($19.4 million - August 27, 2009) as of that date. The Company's working
capital ratio is less than 1.25:1 as required by the bank pursuant to the terms
of the credit facility. The Company's ability to continue its operations is
dependent upon curing the breach in the credit facility, curing the current
working capital deficiency, curing the breach of the working capital covenant
with its lender, generating sufficient cash flow to cover its operating costs,
renegotiating the credit facility with the lender and the continued financial
support of its lender and raising additional equity. Due to the breaches in the
credit facility and working capital ratio, the lender has the right to demand
immediate repayment of all outstanding obligations owed to it under the existing
credit facilities. As of August 27, 2009 the Company has not received any
correspondence from its lender demanding repayment of the outstanding
obligations. The Company requires the ongoing financial support of its lender in
order to continue as a going concern. The Company is currently in the midst of
raising additional funds through the issuance of $2.0 million in convertible
debentures. To date, Enseco has closed $1.6 million of this financing with the
remainder expected to close shortly. Once the full $2.0 million financing is
closed, the Company has a commitment from its lender to increase its long-term
debt facility by an additional $1.0 million which can be drawn immediately for
working capital purposes. Enseco expects to access the additional loan facility
as soon as it becomes available.
Enseco has taken a number of measures to strengthen its underlying businesses
and to ensure that it is properly positioned for lower activity levels. The most
significant measure taken was the divestiture of Enseco's cased hole wireline
business effective March 1, 2009. The Company signed an agreement on February
27, 2009 to exchange all of the assets of Enseco's cased hole wireline business
for all of the Canadian production testing assets of large multinational
oilfield service company. The cased hole wireline division did not have the
economies of scale and operating mass necessary to effectively compete as a
standalone entity. For the three months ended June 30, 2009 and 2008 the cased
hole wireline division recorded losses of $nil and $927 thousand, respectively.
The Company has taken additional steps to generate cash flow including reducing
general and administrative costs through layoffs and terminations of employees
and wage reductions, entering into operating lease agreements for fixed asset
purchases in order to increase working capital flexibility, and seeking
alternative sources of financing.
Enseco continues to monitor both its staffing levels and fixed cost
infrastructure for additional cost saving opportunities and Management will
ensure that the Company's cost structure will appropriately match anticipated
activity levels going forward.
Enseco has filed its unaudited financial statements as at and for the three
months ended June 30, 2009, and the accompanying Management's Discussion and
Analysis. These filings are available under Enseco's SEDAR profile at
www.sedar.com.
OUTLOOK
The global economic recession reduced liquidity in the capital markets and low
oil and natural gas prices continue to have a negative impact on the oilfield
service industry. The drilling sector in both Canada and the United States is
experiencing a period of significant decline in utilization. According to
industry sources, as at August 14, 2009, the United States active land drilling
rig count was down by approximately 52% from the same period in the prior year
while the Canadian drilling rig count was down by approximately 64%. With
decreasing utilization, the competitive pressure on all of Enseco's service
offerings intensifies resulting in lower rates for services. Subject to demand
clarity and LNG imports, Enseco anticipates the supply decline from reduced
drilling may begin to outpace demand reductions in late 2009 or early 2010,
providing the catalyst for improved fundamentals to support a recovery in
drilling activity. Enseco is dealing with the near term negative outlook by
revisiting its cost structure and eliminating as much of the fixed component of
costs as possible and proactively reducing staffing levels to appropriately
reflect current and anticipated activity levels. Enseco continues to focus its
marketing and operational efforts on the United States marketplace with a view
towards growing its presence geographically as well as by diversifying its
service line offering.
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, open hole
logging, 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 regarding industry
conditions including utilization rates and demand for oilfield services 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 and statements relating to Enseco's marketing, operational
and business plans, 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.