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.