Enseco Energy Services Corp. ("Enseco" or "the Company") announces
its consolidated financial results for the three and six months
September 30, 2009.
HIGHLIGHTS
- On October 2, 2009, Enseco closed the remaining $0.4 million
of its previously announced $2.0 million convertible debenture
financing. With the closing of this financing, Enseco's lender
increased its long-term debt facility by $2.0 million which was
immediately advanced to and used by the Company for working capital
purposes.
- On October 28, 2009, the Company announced that Mr. Lane
Roberts was appointed as the new President and Chief Executive
Officer of Enseco Energy Services Corp. Mr. Roberts brings an
extensive background of managing operations in international
markets and a wealth of senior level oilfield services experience,
both of which should prove to be a tremendous asset to Enseco as it
moves into new geographic regions in order to grow and diversify
its revenue stream.
- On November 12, 2009, the Company announced the signing of a
definitive agreement to acquire all of the outstanding common
shares of a private directional services company with operations in
the United States and Canada. This acquisition will provide Enseco
with the necessary scale required to compete effectively in this
market by increasing its directional equipment fleet from 6
directional kits prior to the acquisition to 24 directional kits in
the combined entity. It is anticipated that this acquisition will
also improve the financial results of the combined entity by
providing access to a larger suite of motors and ancillary
equipment, as well as the elimination of redundant costs between
the two companies.
- For the three months ended September 30, 2009, Enseco's
Directional Drilling division achieved a 40% increase in revenues
to $2.1 million as compared to $1.5 million for the same period in
the prior year. This revenue increase was accomplished despite one
of the worst periods of drilling activity in Western Canada.
Financial Highlights
($000's except per share data)
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sep 30, Sep 30, Sep 30, Sep 30,
2009 2008 % 2009 2008 %
(unaudited) (unaudited) change (unaudited) (unaudited) change
--------------------------------------------------------------
Revenue from
continuing
ops (1) $ 5,955 $ 7,499 (21%) $ 9,104 $11,226 (19%)
Operating
loss from
continuing
ops (1) (2,086) (999) (109%) (5,421) (3,462) (57%)
Operating
loss from
discontinued
ops (1) - (695) 100% - (1,622) 100%
--------------------------------------------------------------
Total (2,086) (1,694) (23%) (5,421) (5,084) (7%)
EBITDA (1)
from
continuing
ops (772) (417) (85%) (2,855) (1,963) (45%)
EBITDA (1)
from
discontinued
ops - (405) 100% - (1,043) 100%
--------------------------------------------------------------
Total (772) (822) 6% (2,855) (3,006) 5%
Cashflow
(1) from
continuing
ops (943) (120) (686%) (3,112) (1,771) (76%)
Cashflow (1)
from
discontinued
ops - (383) 100% - (999) 100%
--------------------------------------------------------------
Total (943) (503) (87%) (3,112) (2,770) (12%)
Net loss
from
continuing
ops(1) (2,096) (1,271) (65%) (5,475) (3,821) (43%)
Net loss
from
discontinued
ops (1) - (711) 100% - (1,638) 100%
--------------------------------------------------------------
Total (2,096) (1,982) (6%) (5,475) (5,459) -
Per Share
Data
EBITDA (1) $ (0.02) $ (0.02) - $ (0.06) $ (0.07) 14%
Cashflow (1) $ (0.02) $ (0.01) (100%) $ (0.07) $ (0.06) (14%)
Net loss $ (0.05) $ (0.05) - $ (0.12) $ (0.12) -
March 31
September 30 2009
2009 (audited) % change
------------ ------------ ------------
Financial Position
Total assets $ 43,661 $ 48,059 (9%)
Working capital (2) (18,012) (16,112) (12%)
Shareholders' equity 17,783 23,671 (25%)
The first three quarters of calendar 2009 continued to reflect a
weak global economy and resulting low energy commodity prices.
While the economy has begun to show signs of stabilization and oil
pricing has recovered somewhat, there remains considerable demand
uncertainty for both oil and natural gas and this has triggered low
underlying customer demand for oilfield services. At the end of the
quarter these conditions persist as the fundamentals for natural
gas continued to show weakness as a result of 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, especially 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 beginning to show
in recently reported production levels.
As a result of lower activity levels industry wide, Enseco has
experienced significant losses and negative cashflow, and as at
September 30, 2009 has a working capital deficit of $19.5 million.
As at September 30, 2009 Enseco had approved access to $17.4
million of the total $20.0 million credit facility, but has drawn
$19.9 million as of that date and has not been able to pay all of
its accounts payable when due. The Company's working capital ratio
is less than 1.10:1 as required by its lender 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, the continued financial
support of its lender and raising additional equity. The Company
has taken steps to generate additional cash flow including reducing
general and administrative costs including 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 is seeking alternative sources of
financing. The Company completed a private placement of $2.0
million in 14% interest per annum convertible debentures as of
October 2, 2009. Upon closing, the Company's lender increased its
long-term debt facility by $2.0 million from $14.0 million to $16.0
million. This amount was immediately drawn and used by the Company
for working capital purposes.
Enseco has filed its unaudited financial statements as at and
for the three and six months ended September 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 natural gas prices continue to have a negative
impact on the oilfield services 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 November 17, 2009, the United States active land drilling rig
count was down by approximately 45% from the same period in the
prior year while the Canadian drilling rig count was down by
approximately 30%. With decreasing utilization, the competitive
pressure on all of Enseco's service offerings intensified resulting
in lower rates for services. Enseco expects this trend to continue
into the fourth quarter of calendar 2009 and longer depending on
commodity prices. With the recession negatively impacting energy
demand, the United States natural gas storage levels are currently
9% higher than storage volumes a year ago. Canada exports over half
its natural gas production to the United States and Enseco's
oilfield service businesses are highly dependent on associated
customer economics. The view that North America has an oversupply
of natural gas has driven gas prices lower. The recent increase in
United States natural gas production, concerns over the declines in
industrial gas consumption and the prospect of higher liquefied
natural gas ("LNG") imports has overshadowed lower Canadian imports
and the drop in active North American drilling rig count. Subject
to demand clarity and LNG imports, Enseco anticipates the supply
decline from reduced drilling may begin to outpace demand
reductions in late 2010, providing the catalyst for improved
fundamentals to support a recovery in drilling activity.
Despite the challenging macro issues facing the oilfield
services industry, Enseco has recently taken a number of aggressive
measures to ensure its future success. The first was the recent
appointment of Mr. Lane Roberts as Enseco's new President and CEO.
Mr. Roberts' numerous years of industry experience in downhole
drilling technologies and his extensive international contact base
should prove to be a significant asset to the Company as it moves
forward with its growth initiatives. In conjunction with Mr.
Roberts appointment, the Company completed a common share private
placement with Mr. Roberts in exchange for a mortgage valued at
$850,000 which is expected to be converted to cash during the first
quarter of 2010. The second key measure was the strategic
acquisition of a private directional services company which will
increase Enseco's inventory of directional drilling kits from 6 to
24. With the increased focus on horizontal well technology, this
acquisition represents a very solid and significant step forward in
Enseco's corporate evolution. The private directional services
company has a strong operational track record and a consistent
history of profitable results, which immediately positions Enseco
with cash flow positive operating results and a solid foundation
for future growth. In addition, the founders of the private
directional services company have agreed to join Enseco in various
capacities to provide the Company with sufficient management depth
to execute Enseco's strategic plan. Enseco's near term strategy is
to significantly expand its presence in the directional services
market in the United States. This is being accomplished through the
setup of new sales office located in Houston, Texas. Enseco also
expects to realize significant cost savings from its acquisition of
the private directional services company by better utilizing
existing assets, streamlining operational and senior management
roles and responsibilities, and rationalizing its existing
geographic footprint by reducing the number of operating facilities
that Company works out of. Enseco's strategic direction is now
clearly focused on Resource Play environments, the majority of
which require non-vertical wells in order to access the potential
resource, as well as higher pressure tanks and testing vessels in
order to handle the ever increasing pressures and volumes
associated with new fracturing techniques.
Enseco is a premier 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.
(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.
FORWARD-LOOKING STATEMENTS
Certain information and statements contained in this press
release constitute forward-looking information, including
expectations regarding the closing of the acquisition, the benefits
to be derived from the acquisition including, expectations
regarding revenue, cash-flow and operating income, growth
opportunities, synergies and economies of scale as a result of the
acquisition and the impact on the additions to Enseco's management
team as a result of the acquisition, expectations regarding the
conversion of the mortgage from Mr. Roberts to cash and the timing
thereof, Enseco's ongoing focus and business plans, including
expansion in the directional services market in the United States
and 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
regarding the Company's ability to continue its operations, the
continued support of the Company's lender and the Company's ability
to raise additional equity, 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 and the Company's ability to continue
its operations, the continued support of the Company's lender and
Enseco's ability to raise additional equity. 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.
Neither the TSX Venture Exchange nor its Regulation Service
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Contacts: Enseco Energy Services Corp. Lane Roberts President
and CEO (403) 806-0088 Enseco Energy Services Corp. Aly Khan Musani
Senior Vice President and CFO (403) 806-0088