Enseco Energy Services Corp. ("Enseco" or "the Company") (TSX VENTURE:ENS)
announces its consolidated financial results for the three and nine months
December 31, 2009.
HIGHLIGHTS
- Successfully repositioned the Company for future growth in directional
drilling services by appointing a new CEO and completing the acquisition of
Focus Directional Services Inc. in November 2009.
- Streamlined Enseco's business lines through the disposition of the Company's
Open Hole wireline assets for proceeds of $1.15 million.
- Further strengthened and solidified Enseco's presence in directional drilling
through the acquisition of the assets of a private directional services company
in February.
- Raised $8 million through a private placement completed in February 2010.
Successfully repositioned Enseco for future growth in Directional Drilling Services
In November 2009 the Company repositioned itself with a bold new strategy to
aggressively consolidate the directional drilling services business in North
America. This strategy was initiated with the 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 will prove to be a significant asset to the Company as it moves
forward with its growth initiatives. The Company also closed the acquisition of
Focus Directional Services Inc. which increased Enseco's directional drilling
job capability from 6 to 24 (currently at 34). Focus had a strong operational
track record and a consistent history of profitable results, which immediately
positioned Enseco with cash flow positive operating results and a solid
foundation for future growth. In addition, the founders of Focus agreed to join
Enseco in various capacities to provide the Company with sufficient management
depth to execute its strategic plan.
Divested the Company's Open Hole Wireline assets for proceeds of $1.15 million
In January 2010, the Company entered into an agreement to sell the remaining
assets of its Open Hole wireline division for proceeds of $1.15 million. This
division was deemed to be a noncore business line in Enseco's strategic plan as
it was unable to achieve the utilization and operating results necessary to
justify its expansion in the current operating environment. This transaction is
expected to close in early March with the proceeds used to reduce Enseco's
operating facility.
Acquisition of Directional Drilling Assets
In February 2010, the Company closed its previously announced acquisition of the
assets of a private directional services company with operations primarily in
the United States. The assets purchased consist of 10 directional drilling kits
and 70 motors, as well as other related equipment. This acquisition provides
Enseco with a strategic presence in key geographic resource plays within the
United States and an entry point into a customer base that includes some of the
most active land drillers in North America.
Raised $8 million through a private placement completed in February 2010
In February 2010, the Company closed a private placement of 40,000,000 units.
Each unit consists of one common share and one half of a common share purchase
warrant, with each full common share purchase warrant exercisable for one common
share at a price of $0.25 per share until February 11, 2011. Each common share
was issued at a price of $0.20 per common share, resulting in aggregate gross
proceeds of $8.0 million. The Company received net proceeds of approximately
$7.5 million after agent's fees and closing costs.
Financial Highlights
($000's except per share data)
Three Months Three Months
Ended Ended
Dec 31, 2009 Dec 31, 2008
(unaudited) (unaudited) % change
-------------------------------------------
Revenue from continuing ops (1) $ 7,739 $ 8,516 (9%)
Operating loss from continuing
ops (1) (4,453) (1,437) (210%)
Operating loss from discontinued
ops (1) - (854) 100%
-------------------------------------------
Total (4,453) (2,291) (94%)
EBITDA (1) from continuing ops (1,581) (388) (307%)
EBITDA (1) from discontinued ops - (575) 100%
-------------------------------------------
Total (1,581) (963) (64%)
Cashflow (1) from continuing ops (3,075) (455) (576%)
Cashflow (1) from discontinued ops - (553) 100%
-------------------------------------------
Total (3,075) (1,008) (205%)
Net loss from continuing ops(1) (5,328) (1,348) (65%)
Net loss from discontinued ops (1) - (854) 100%
-------------------------------------------
Total (5,328) (2,202) (142%)
Per Share Data
EBITDA (1) $ (0.05) $ (0.01) (400%)
Cashflow (1) $ (0.06) $ (0.01) (500%)
Net loss $ (0.09) $ (0.05) (80%)
Nine Months Nine Months
Ended Ended
Dec 31, 2009 Dec 31, 2008
(unaudited) (unaudited) % change
-------------------------------------------
Revenue from continuing ops (1) $ 16,843 $ 19,742 (15%)
Operating loss from continuing
ops (1) (9,874) (4,899) (102%)
Operating loss from discontinued
ops (1) - (2,492) 100%
-------------------------------------------
Total (9,874) (7,391) (34%)
EBITDA (1) from continuing ops (4,388) (1,863) (136%)
EBITDA (1) from discontinued ops - (1,618) 100%
-------------------------------------------
Total (4,388) (3,481) (26%)
Cashflow (1) from continuing ops (6,187) (2,227) (178%)
Cashflow (1) from discontinued ops - (1,552) 100%
-------------------------------------------
Total (6,187) (3,779) (64%)
Net loss from continuing ops(1) (10,803) (5,169) (109%)
Net loss from discontinued ops (1) - (2,492) 100%
-------------------------------------------
Total (10,803) (7,661) (41%)
Per Share Data
EBITDA (1) $ (0.11) $ (0.04) (175%)
Cashflow (1) $ (0.12) $ (0.05) (140%)
Net loss $ (0.21) $ (0.18) (17%)
December 31 March 31
2009 2009
(audited) % change
-------------------------------------------
Financial Position
Total assets $ 64,721 $ 48,059 35%
Working capital (2) (28,125) (16,112) (82%)
Shareholders' equity 19,561 23,671 (17)%
(1) Operating loss is loss before impairment loss on intangible assets,
impairment loss on goodwill, impairment loss on fixed assets, 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, plus impairment
loss on fixed assets. 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.
Enseco's results for the three and nine months ended December 31, 2009 continue
to reflect the protracted downturn that has heavily impacted the oilfield
services industry in Western Canada. Enseco had significant cost and revenue
challenges during the quarter which were further impacted by a new strategic
plan and direction that resulted in the recognition of $1.2 million in
restructuring charges relating to severance costs for staffing reductions, as
well as lease and contract termination fees on facilities and business lines
that were exited during the quarter or shortly thereafter. It is anticipated
that the difficult measures taken during the quarter will properly position
Enseco to execute on its new strategic direction going forward.
Uncertain capital markets, a weak United States currency and uncertainty about
future natural gas commodity prices continue to have a negative impact on the
North American oilfield service industry. These factors have improved in 2010
and according to industry sources, as at February 5, 2010, the United States
active land drilling rig count was down about 4% from the same period in the
prior year while the Canadian drilling rig count was up about 28%.
As a result of lower activity levels industry wide, Enseco has experienced
significant losses and negative cashflow, and as at December 31, 2009 has a
working capital deficit of $28.1 million. As at February 19, 2009 Enseco had
approved access to $32.5 million of the total $35.2 million credit facility, but
has drawn $32.8 million as of that date. The Company's working capital ratio is
less than 1.10:1 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. Subsequent to quarter end, the Company has taken steps to increase its
liquidity including the completion of an $8.0 million private placement
completed in February 2010 and the disposal of its open hole wireline assets for
proceeds of $1.15 million which is expected to be completed in early March 2010.
The Company currently has $1.5 million of the $8 million private placement
financing held in escrow pending regulatory approval. Following the release of
these funds from escrow and the closing of the previously mentioned asset
disposition, Enseco expects to be within the margin requirements outlined in its
credit facility and will have the additional liquidity necessary to meet its
obligations when due.
Enseco has filed its unaudited financial statements as at and for the three and
nine months ended December 31, 2009, and the accompanying Management's
Discussion and Analysis. These filings are available under Enseco's SEDAR
profile at www.sedar.com.
OUTLOOK
Enseco is optimistic about its future and that of the Industry as a whole.
Horizontal drilling and completion technology has fundamentally changed the
nature of onshore oil and gas exploration and development activities in North
America. Resources that were previously deemed uneconomic or incapable of
production are being revisited with a view towards the application of new
drilling and completion techniques to produce a markedly different outcome. Over
fifty percent of new wells drilled in North America are non-vertical and it is
expected that this percentage will continue to rise as exploration and
production companies continue to dedicate an ever increasing percentage of their
capital budgets to opportunity types and resource plays that require horizontal
well technology. In Canada, it appears that the Industry is slowly emerging from
one of the most difficult operating environments on record, and the number of
new wells drilled in Western Canada is expected to rise to between 11,000 and
13,000 from approximately 8,500 in 2009.
Despite the recently challenging macro level environment facing the oilfield
services industry, Enseco has continued to use this uncertain landscape to move
aggressively to grow its directional drilling business and further solidify its
financial position. 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 a sales office located in Houston, Texas and
the acquisition of the directional drilling assets of a private directional
services company, as detailed above. Enseco also expects to realize significant
cost savings from its acquisition of Focus Directional Services by better
utilizing its existing fleet of assets, streamlining operational and senior
management roles and responsibilities, and rationalizing its existing geographic
footprint by reducing the number of operating facilities that the 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 directional drilling, production testing
and swabbing 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 conditions including drilling activity levels and expectations
regarding use of horizontal well technology; expectations regarding the impact
of the Focus acquisition, including the effect on Enseco's cash flow, cost
savings and future growth opportunities and the impact of the additions to
Enseco's management team as a result of the acquisition; expectations regarding
the anticipated benefits to be obtained from the acquisition of the private
directional services company; expectations regarding the closing of the sale of
Enseco's Open Hole wireline assets, the timing thereof and the use of proceeds
therefrom; expectations regarding Enseco's credit facility and ability to meet
its obligations when due; and Enseco's ongoing focus, strategy, and business
plans, including 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.