Essential Energy Services Announces First Quarter Results and
Declares Quarterly Dividend
CALGARY, ALBERTA--(Marketwired - May 6, 2014) - Essential Energy
Services Ltd. (TSX:ESN) ("Essential" or the "Company") announces
first quarter earnings.
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SELECTED INFORMATION |
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|
|
For the three months ended March 31, |
(Thousands of dollars, except per share, percentages
and fleet data) |
|
2014 |
|
2013 |
|
Revenue |
$ |
103,730 |
$ |
120,519 |
|
|
|
|
|
Gross margin |
|
27,327 |
|
37,832 |
Gross margin % |
|
26% |
|
31% |
EBITDA(1) from continuing operations |
|
22,507 |
|
33,426 |
EBITDA %(1) |
|
22% |
|
28% |
|
|
|
|
|
Net income attributable to shareholders of
Essential |
|
10,149 |
|
18,627 |
|
Per share - basic and diluted |
|
0.08 |
|
0.15 |
|
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|
|
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Total assets |
|
439,745 |
|
436,301 |
Total long-term debt |
|
50,821 |
|
35,603 |
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|
|
|
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Utilization |
|
|
|
|
|
Deep coil tubing rigs |
|
77% |
|
110% |
|
Service rigs |
|
66% |
|
69% |
Equipment fleet |
|
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|
|
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Masted deep coil tubing rigs |
|
16 |
|
14 |
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Conventional deep coil tubing rigs |
|
12 |
|
11 |
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Service rigs |
|
55 |
|
56 |
1 Refer to "Non-IFRS
Measures" section for further information.
At $103.7 million
and $22.5 million, respectively, Essential's first quarter 2014
revenue and EBITDA(1) were lower than the prior year and below
management's expectations. A slow start to the quarter and periods
of unusually cold weather disrupted the ability to provide services
to customers, reducing revenue and contributing to higher costs as
a percentage of revenue. Essential also experienced inconsistency
in sales during the quarter due to variances in customer activity
and increased competition. Two of Essential's three primary service
lines were adversely impacted by these factors.
Masted deep coil
tubing utilization was 109%, below the prior quarter of 148%, due
to the factors noted above and new equipment delivery issues. The
masted deep coil tubing fleet increased by two rigs compared to the
first quarter of 2013 with the addition of two Generation III
masted deep coil tubing rigs. These two new rigs contributed less
than expected due to delivery timing and new equipment
commissioning time. Delays in the delivery of two Generation IV
masted deep coil tubing rigs resulted in gross margin reductions
due to the absence of revenue and increased costs for manpower
related to hiring additional crews in anticipation of delivery.
These two rigs are expected to be delivered in the second
quarter.
Essential's first
quarter 2014 coil well service results are anticipated to be a
temporary circumstance caused by delivery delays of new masted deep
coil tubing rigs, adverse weather conditions and unique competitive
circumstances. Management continues to be optimistic about the
future of its masted deep coil tubing, fluid and nitrogen pumping
operations as new equipment is delivered and commissioned. The
incremental costs associated with coil well service in the first
quarter 2014 are expected to be temporary and management expects
margins will improve for the remainder of the year once new
equipment is delivered and working at expected utilization.
Service rigs
performed well in the quarter despite the unusual cold winter
weather. With utilization at 66%, service rigs were less affected
by the weather events in the quarter than the other service
lines.
Conventional
downhole tools and rentals activity increased over the prior
quarter resulting in higher revenue. Demand for production-related
and abandonment tool products, Essential's service locations, which
are strategically positioned in active oil-related basins, across
western Canada, and growth in the rentals business all contributed
to this success. This increase was more than offset by reduced
sales of the Tryton Multi-stage Fracturing System ("Tryton MSFS®")
compared to the first quarter of 2013. Management believes the
revenue decline was primarily the result of some customers choosing
to broaden their choice of completion techniques. Competitive
bidding practices and service bundling practices also affected
Tryton MSFS® revenue in the quarter. Essential has faced these
types of competitive industry pressures in the past and expects to
overcome them in the future. Gross margin was negatively impacted
by the Tryton MSFS® revenue decline and the United States
operations.
INDUSTRY
OVERVIEW
Industry activity in
the first quarter was comparable to the first quarter of 2013.
Drilling rig utilization increased three percentage points, well
completion count was flat and the number of wells drilled decreased
by 4%. These are indicators of overall oilfield activity in the
Western Canadian Sedimentary Basin ("WCSB").
Well service
activity in the WCSB continues to be driven by horizontal drilling,
completion and stimulation of oil and liquids-rich natural gas
wells. Horizontal wells typically require more investment capital
and increased rig time per well due to their depth and complexity
compared to conventional vertical wells. The first quarter of 2014
saw a slight shift towards natural gas drilling activity away from
oil.
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SEGMENT RESULTS - WELL SERVICING |
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Three months ended |
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March 31, |
(Thousands of dollars, except percentages, fleet and
hours) |
|
2014 |
|
2013 |
|
|
|
|
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Revenue |
|
|
|
|
|
Coil Well Service (i) |
$ |
41,499 |
$ |
49,621 |
|
Service Rigs |
|
32,499 |
|
33,556 |
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|
|
|
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Total revenue |
|
73,998 |
|
83,177 |
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|
|
|
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Operating expenses |
|
54,261 |
|
56,042 |
|
|
|
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Gross margin |
$ |
19,737 |
$ |
27,135 |
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Gross margin % |
|
27% |
|
33% |
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Utilization (ii) |
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Deep coil tubing rigs |
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Utilization |
|
77% |
|
110% |
|
Operating hours |
|
19,131 |
|
24,765 |
|
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Service rigs |
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Utilization |
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66% |
|
69% |
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Operating hours |
|
32,616 |
|
34,364 |
Equipment fleet (iii) |
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Masted deep coil tubing rigs |
|
16 |
|
14 |
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Conventional deep coil tubing rigs |
|
12 |
|
11 |
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Service rigs |
|
55 |
|
56 |
|
Nitrogen pumpers |
|
14 |
|
13 |
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Fluid pumpers |
|
18 |
|
18 |
(i) Includes revenue from coil tubing rigs, nitrogen and fluid
pumpers and other ancillary equipment.
(ii) Utilization is calculated using a 10 hour day.
(iii) Fleet data represents the number of units at the end of
the period.
Essential's masted
deep coil tubing utilization was down quarter-over-quarter at 109%
compared to 148% in 2013. The decrease in utilization was driven by
a slow start at the beginning of the quarter, lower activity from
certain customers, unusually cold weather hindering the ability for
equipment to work at certain times and increased competition. The
masted deep coil tubing fleet increased by two rigs compared to the
first quarter of 2013 with the addition of two Generation III
masted deep coil tubing rigs. These two new rigs contributed less
revenue than expected due to delivery timing and new equipment
commissioning time.
Conventional deep
coil tubing utilization was down quarter-over-quarter at 35%
compared to 62% in 2013. Revenue was below the prior quarter due to
lower activity from certain customers, the impact of specialty work
completed in the prior quarter that did not recur in the first
quarter of 2014 and increased competition in the less technical two
inch conventional coil tubing market.
Service rig
utilization was 66% compared to 69% in the prior quarter,
performing well compared to the CAODC service rig industry
utilization of 55%. Utilization was particularly strong in the
Grande Prairie and Fort St. John areas as well as for the rigs
working in SAGD operations.
Gross margin
percentage for well servicing in the first quarter of 2014 was
negatively impacted by lower utilization and higher operating costs
as a percentage of revenue. Revenue per hour for coil well service
and service rigs was consistent with the prior quarter. Coil well
service operating expenses were impacted by incremental labour
costs incurred to retain employees during periods of lower
utilization and costs to hire additional crews in anticipation of
the delivery of the new deep masted coil tubing rigs.
Service rigs incurred higher repairs and maintenance costs in
the first quarter of 2014 compared to 2013. Coil well service and
service rigs were both impacted by higher fuel costs.
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SEGMENT RESULTS - DOWNHOLE TOOLS &
RENTALS |
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Three months ended |
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|
March 31, |
(Thousands of dollars, except percentages) |
|
2014 |
|
2013 |
|
|
|
|
|
Revenue |
$ |
30,286 |
$ |
37,342 |
|
|
|
|
|
Operating expenses |
|
21,228 |
|
24,374 |
|
|
|
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Gross margin |
$ |
9,058 |
$ |
12,968 |
|
Gross margin % |
|
30% |
|
35% |
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Downhole Tools & Rentals Revenue- revenue % of
total |
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Tryton MSFS® |
|
39% |
|
60% |
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Conventional Tools & Rentals |
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61% |
|
40% |
Conventional
Canadian downhole tools and rentals revenue increased by 14% over
the prior quarter. Demand for production-related and abandonment
tool products, Essential's service locations, which are
strategically positioned in active oil-related basins across
western Canada, and growth in the rentals business all contributed
to this success. Canadian conventional tool revenue for the three
months ended March 31, 2014 was one of the best quarters for this
business despite adverse cold weather that disrupted revenue in
other areas of Essential's operations. Rentals revenue increased
compared to the prior quarter from an expanded offering of
specialty heavy-weight range three drill pipe and a broadening of
the customer base through enhanced sales initiatives.
Tryton MSFS® revenue
declined quarter-over-quarter by approximately $10.6 million, to
$11.8 million, which was significantly below management's
expectations. Management believes this revenue decline was
primarily the result of some customers choosing to broaden their
choice of completion techniques. Competitive bidding practices and
service bundling practices also affected Tryton MSFS® revenue in
the quarter. Similar to industry events adversely impacting
Essential's well servicing businesses, Tryton MSFS® revenue was
reduced by a slow start at the beginning of the quarter and
unusually cold weather at certain times. New competing
technologies, competitor practices and adverse industry conditions
have all been experienced in previous quarters since the
introduction of the Tryton MSFS® in 2009. Essential has faced these
types of competitive industry pressures in the past and expects to
overcome them in the future.
Gross margin and
gross margin percentage were lower in the current quarter primarily
due to lower Tryton MSFS® revenue and Essential's United States
downhole tools operation. Price per job for Tryton MSFS® products
experienced moderate declines quarter-over-quarter as the industry
continued to respond to customer demand for lower cost completion
technologies. Essential's United States conventional downhole tool
business, which started operations in the third quarter of 2013,
continued to realize quarterly revenue growth during the first
quarter of 2014, however, this operation continued to generate
negative gross margin as it further established a customer base and
increased sales.
On April 30, 2014,
Essential acquired all of the issued and outstanding shares of
Sam's Packer & Supply LLC, a private downhole tool company that
operates in Norman, Oklahoma and Liberal, Kansas. Sam's Packer
& Supply LLC has been in business for more than 30 years and
provides conventional tool sales, rentals and services to a
diversified customer base in Oklahoma, Kansas and Texas. The
purchase price was US$5.1 million plus possible incremental future
performance payments of up to US$0.5 million in the next two years,
and working capital adjustments.
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GENERAL AND ADMINISTRATIVE |
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Three months ended |
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March 31, |
(Thousands of dollars, except percentages) |
|
2014 |
|
2013 |
|
|
|
|
|
General and administrative expenses |
$ |
4,820 |
$ |
4,406 |
|
As a % of revenue |
|
5% |
|
4% |
General and
administrative expenses are comprised of wages, professional fees,
office space and other administrative costs incurred at corporate
and operational levels. The increase compared to the prior quarter
is due to higher employee costs, additional facility lease costs
and higher legal fees.
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OTHER EXPENSE |
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|
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Three months ended |
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|
March 31, |
|
(Thousands of dollars) |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
Other expense (income) |
$ |
755 |
$ |
(133 |
) |
Other expense in the
first quarter of 2014 relates to losses on assets sold and retired
assets, compared to the first quarter of 2013, when a gain on the
sale of fixed assets was realized.
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INCOME TAXES |
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Three months ended |
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March 31, |
(Thousands of dollars) |
|
2014 |
|
2013 |
|
|
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|
|
Current income tax expense |
$ |
2,782 |
$ |
4,425 |
Deferred income tax expense |
|
952 |
|
2,166 |
|
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|
Total income tax expense |
$ |
3,734 |
$ |
6,591 |
During the first
quarter of 2014, income tax expense decreased compared to the first
quarter of 2013 due to lower reported earnings before income
taxes.
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FINANCIAL RESOURCES AND LIQUIDITY |
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WORKING CAPITAL |
|
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As at |
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|
As at |
|
|
|
March 31 |
|
December 31 |
|
(Thousands of dollars, except ratios) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Current assets |
$ |
121,390 |
|
$ |
107,945 |
|
Current liabilities, excluding current portion of long-term
debt |
|
(41,810 |
) |
|
(45,419 |
) |
|
|
|
|
|
|
|
Working capital |
$ |
79,580 |
|
$ |
62,526 |
|
|
|
|
|
|
|
|
Working capital ratio |
|
2.9:1 |
|
|
2.4:1 |
|
EQUIPMENT EXPENDITURES AND FLEET ADDITIONS |
|
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|
|
|
|
|
|
Three months ended |
|
|
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|
|
March 31, |
|
(Thousands of dollars) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
Well Servicing |
$ |
6,807 |
|
$ |
6,142 |
|
|
Downhole Tools & Rentals |
|
3,716 |
|
|
444 |
|
|
Corporate |
|
525 |
|
|
238 |
|
Total equipment expenditures |
|
11,048 |
|
|
6,824 |
|
|
|
|
|
|
|
|
Less proceeds on disposal of property |
|
|
|
|
|
|
and equipment |
|
(865 |
) |
|
(540 |
) |
Net equipment expenditures(1) |
$ |
10,183 |
|
$ |
6,284 |
|
During the first
quarter, one Generation III rig was commissioned and put into
service. During the second quarter, two Generation IV rigs are
expected to be delivered and will be put into service in the third
quarter of 2014.
Essential classifies
its equipment expenditures as growth capital(1) and maintenance
capital(1):
|
|
|
Three months ended |
|
|
|
March 31, |
(Thousands of dollars) |
|
2014 |
|
2013 |
|
Growth capital(1) |
$ |
8,539 |
$ |
4,766 |
|
Maintenance capital(1) |
|
2,509 |
|
2,048 |
Total equipment expenditures |
$ |
11,048 |
$ |
6,824 |
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|
Essential's 2014
capital budget of $53 million is comprised of $36 million in growth
capital and $17 million of maintenance capital. This includes $3
million of carry-in from 2013. Growth capital consists primarily of
seven masted deep coil tubing rigs and rental equipment. The
capital budget was updated to include an investment in rental
equipment offset by the cancellation of the previously announced
rod rig and fluid pumper.
The Company believes
that it has access to sufficient funds through internally generated
cash flows and from the credit facility to meet current spending
needs.
The following table
shows the expected dates of the major equipment being built over
the remainder of 2014 and early 2015:
|
|
Expected Dates |
|
Quantity |
2014 /2015 |
|
Deep masted coil tubing rigs |
6 |
Q2(2),Q3,Q4,Q1'15,Q2'15 |
OUTLOOK
With the delayed
spring breakup in the WCSB, some equipment continued to work into
the beginning of April 2014. Essential expects that oilfield
service activity following breakup will return to a more typical
post-spring breakup level as compared to the same period in 2013,
which was extremely wet and prolonged. Unlike a year ago, some
customers are providing positive indications for work programs and
plans after breakup.
The Petroleum
Association of Canada continues to forecast consistent activity
expectations year-over-year compared to 2013. Generally speaking,
exploration and production ("E&P") capital budgets for 2014 are
consistent with 2013. Essential believes there are reasons for
optimism in the second half of the year including: a weaker
Canadian dollar which would increase E&P cash flows, improved
access to equity capital markets for E&P companies, improved
natural gas prices and oil prices that have been relatively
strong.
The longer term
outlook remains positive for the development of proposed liquefied
natural gas ("LNG") projects in British Columbia. Development of
the Montney, Horn River and Duvernay basins for LNG export is
expected to increase the demand for oilfield services, including
the demand for Essential's deep coil tubing and downhole tools
& rentals.
Essential's $53
million equipment expansion program for 2014 will add significant
growth to Essential's masted deep coil tubing fleet. Essential
expects to put into service two Generation IV masted deep coil
tubing rigs in the third quarter and take delivery of one
Generation III and one Generation IV rig in the remainder of 2014.
These rigs have industry leading large diameter coil-carrying
capacity making them uniquely capable of working on long-reach
horizontal wells.
Essential has a
strong balance sheet with $47.2 million of debt outstanding on May
6, 2014 and a debt to EBITDA ratio of 0.9x.
QUARTERLY
DIVIDEND
The cash dividend
for the period April 1, 2014 to June 30, 2014 has been set at $0.03
per share. The dividend will be paid on July 15, 2014 to
shareholders of record on June 30, 2014. The ex-dividend date is
June 26, 2014.
The Management's
Discussion and Analysis and Financial Statements are available on
Essential's website at www.essentialenergy.ca and on SEDAR at
www.sedar.com.
(1)Non-IFRS
Measures
Throughout this news
release, certain terms that are not specifically defined in
International Financial Reporting Standards ("IFRS") are used to
analyze Essential's operations. In addition to the primary measures
of net earnings and net earnings per share in accordance with IFRS,
Essential believes that certain measures not recognized under IFRS
assist both Essential and the reader in assessing performance and
understanding Essential's results. Each of these measures provides
the reader with additional insight into Essential's ability to fund
principal debt repayments, capital programs and pay dividends. As a
result, the method of calculation may not be comparable with other
companies. These measures should not be considered alternatives to
net earnings and net earnings per share as calculated in accordance
with IFRS.
EBITDA (Earnings
before finance costs, income taxes, depreciation, amortization,
transaction costs, non- controlling interest earnings, losses or
gains on disposal of equipment, results of discontinued operations
and share-based compensation, which includes both equity-settled
and cash-settled transactions) - This measure is considered an
indicator of Essential's ability to generate funds flow in order to
fund required working capital, service debt, fund capital programs
and pay dividends.
EBITDA % - This
measure is considered an indicator of Essential's ability to
generate funds flow as calculated by EBITDA divided by revenue.
Working capital -
Working capital is calculated as current assets less current
liabilities.
Growth capital -
Growth capital is capital spending which is intended to result in
incremental increases in revenue. Growth capital is considered to
be a key measure as it represents the total expenditures on
equipment expected to add incremental revenues and funds flow to
Essential.
Maintenance capital
- Equipment additions that are incurred in order to refurbish or
replace previously acquired equipment less proceeds on the disposal
of retired equipment. Such additions do not provide incremental
increases in revenue. Maintenance capital is a key component in
understanding the sustainability of Essential's business as cash
resources retained within Essential must be sufficient to meet
maintenance capital needs to replenish the assets for future cash
generation.
Net equipment
expenditures - This measure is equipment expenditures less proceeds
on the disposal of equipment. Essential uses net equipment
expenditures to assess net cash flows related to the financing of
Essential's oilfield services equipment.
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SUMMARY OF QUARTERLY DATA |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of dollars, except per share |
Mar 31, |
|
Dec 31, |
|
Sept 30, |
|
Jun 30, |
|
Mar 31, |
|
Dec 31, |
|
Sep 30, |
|
Jun 30, |
|
amounts, percentages and fleet data) |
2014 |
|
2013 |
|
2013 |
|
2013 |
|
2013 |
|
2012 |
|
2012 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well Servicing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coil Well Service |
|
41,499 |
|
|
36,150 |
|
|
33,037 |
|
|
9,433 |
|
|
49,621 |
|
|
41,228 |
|
|
33,857 |
|
|
18,697 |
|
|
Service Rigs |
|
32,499 |
|
|
25,593 |
|
|
23,870 |
|
|
14,732 |
|
|
33,556 |
|
|
26,012 |
|
|
20,552 |
|
|
15,564 |
|
|
Other (i) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
786 |
|
|
2,762 |
|
|
1,069 |
|
Total well servicing |
|
73,998 |
|
|
61,743 |
|
|
56,907 |
|
|
24,165 |
|
|
83,177 |
|
|
68,026 |
|
|
57,171 |
|
|
35,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Downhole Tools & Rentals |
|
30,286 |
|
|
31,560 |
|
|
28,185 |
|
|
14,252 |
|
|
37,342 |
|
|
27,989 |
|
|
26,342 |
|
|
15,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment eliminations |
|
(554 |
) |
|
(480 |
) |
|
(582 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
103,730 |
|
|
92,823 |
|
|
84,510 |
|
|
38,417 |
|
|
120,519 |
|
|
96,015 |
|
|
83,513 |
|
|
50,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
27,327 |
|
|
25,332 |
|
|
21,414 |
|
|
(1,310 |
) |
|
37,832 |
|
|
27,039 |
|
|
23,012 |
|
|
3,904 |
|
|
Gross margin % |
|
26% |
|
|
27% |
|
|
25% |
|
|
(3 |
)% |
|
31% |
|
|
28% |
|
|
28% |
|
|
8% |
|
EBITDA(1) |
|
22,507 |
|
|
20,705 |
|
|
17,132 |
|
|
(5,171 |
) |
|
33,426 |
|
|
22,368 |
|
|
19,261 |
|
|
(42 |
) |
|
EBITDA %(1) |
|
22% |
|
|
22% |
|
|
20% |
|
|
(13 |
)% |
|
28% |
|
|
23% |
|
|
23% |
|
|
0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
10,149 |
|
|
9,478 |
|
|
4,292 |
|
|
(8,958 |
) |
|
19,205 |
|
|
8,050 |
|
|
8,343 |
|
|
(5,453 |
) |
|
Per share - basic and diluted |
$ |
0.08 |
|
$ |
0.07 |
|
$ |
0.03 |
|
$ |
(0.07 |
) |
$ |
0.15 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
shareholders of Essential |
|
10,149 |
|
|
11,126 |
|
|
3,843 |
|
|
(11,501 |
) |
|
18,627 |
|
|
678 |
|
|
8,660 |
|
|
(5,923 |
) |
|
Per share - basic and diluted |
$ |
0.08 |
|
$ |
0.09 |
|
$ |
0.03 |
|
$ |
(0.09 |
) |
$ |
0.15 |
|
$ |
0.01 |
|
$ |
0.07 |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
439,745 |
|
|
423,963 |
|
|
409,613 |
|
|
380,728 |
|
|
436,301 |
|
|
406,853 |
|
|
415,653 |
|
|
393,377 |
|
Total long-term debt |
|
50,821 |
|
|
39,027 |
|
|
40,484 |
|
|
14,592 |
|
|
35,603 |
|
|
35,563 |
|
|
50,474 |
|
|
41,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization (ii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deep coil tubing rigs |
|
77% |
|
|
74% |
|
|
73% |
|
|
18% |
|
|
110% |
|
|
95% |
|
|
79% |
|
|
32% |
|
|
Pumpers |
|
69% |
|
|
55% |
|
|
47% |
|
|
14% |
|
|
73% |
|
|
57% |
|
|
50% |
|
|
33% |
|
|
Service rigs |
|
66% |
|
|
53% |
|
|
50% |
|
|
28% |
|
|
69% |
|
|
54% |
|
|
45% |
|
|
34% |
|
Operating Hours |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deep coil tubing rigs |
|
19,131 |
|
|
18,257 |
|
|
17,724 |
|
|
4,125 |
|
|
24,765 |
|
|
22,777 |
|
|
18,301 |
|
|
7,262 |
|
|
Pumpers |
|
19,995 |
|
|
16,612 |
|
|
14,418 |
|
|
4,241 |
|
|
20,481 |
|
|
15,328 |
|
|
11,919 |
|
|
7,504 |
|
|
Service rigs |
|
32,616 |
|
|
26,557 |
|
|
25,084 |
|
|
14,234 |
|
|
34,364 |
|
|
27,310 |
|
|
22,632 |
|
|
16,183 |
|
Downhole Tools & Rentals - revenue % of total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tryton MSFS® |
|
39% |
|
|
55% |
|
|
55% |
|
|
40% |
|
|
60% |
|
|
51% |
|
|
52% |
|
|
40% |
|
|
Conventional Tools & Rentals |
|
61% |
|
|
45% |
|
|
45% |
|
|
60% |
|
|
40% |
|
|
49% |
|
|
48% |
|
|
60% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment fleet (iii) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Masted deep coil tubing rigs |
|
16 |
|
|
15 |
|
|
15 |
|
|
14 |
|
|
14 |
|
|
16 |
|
|
16 |
|
|
16 |
|
|
Conventional deep coil tubing rigs |
|
12 |
|
|
12 |
|
|
12 |
|
|
11 |
|
|
11 |
|
|
11 |
|
|
10 |
|
|
9 |
|
|
Coil tubing rigs - other |
|
18 |
|
|
18 |
|
|
18 |
|
|
19 |
|
|
19 |
|
|
19 |
|
|
19 |
|
|
20 |
|
|
Service rigs |
|
55 |
|
|
55 |
|
|
54 |
|
|
56 |
|
|
56 |
|
|
55 |
|
|
55 |
|
|
53 |
|
|
Nitrogen pumpers |
|
14 |
|
|
14 |
|
|
15 |
|
|
15 |
|
|
13 |
|
|
13 |
|
|
10 |
|
|
10 |
|
|
Fluid pumpers |
|
18 |
|
|
18 |
|
|
18 |
|
|
18 |
|
|
18 |
|
|
18 |
|
|
16 |
|
|
16 |
|
|
Rod rigs |
|
13 |
|
|
13 |
|
|
12 |
|
|
14 |
|
|
14 |
|
|
14 |
|
|
14 |
|
|
14 |
|
(i) Other revenue included revenue from Essential's drilling
operation until its disposal in November 2012.
(ii) Utilization is calculated using a 10 hour day.
(iii) Fleet data represents the number of units at the end of
the period.
|
|
|
|
|
ESSENTIAL ENERGY SERVICES LTD. |
|
|
|
|
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
As at |
|
As at |
|
|
March 31 |
December 31 |
(Thousands) |
|
2014 |
|
2013 |
|
|
|
|
|
Assets |
|
|
|
|
Current |
|
|
|
|
|
Trade and other accounts receivable |
$ |
89,573 |
$ |
76,640 |
|
Inventories |
|
29,134 |
|
27,979 |
|
Prepayments |
|
2,683 |
|
3,326 |
|
|
121,390 |
|
107,945 |
|
|
|
|
|
Non-current |
|
|
|
|
|
Property and equipment |
|
233,563 |
|
230,292 |
|
Intangible assets |
|
29,778 |
|
30,712 |
|
Goodwill |
|
55,014 |
|
55,014 |
|
|
318,355 |
|
316,018 |
|
|
|
|
|
Total assets |
$ |
439,745 |
$ |
423,963 |
|
|
|
|
|
Liabilities |
|
|
|
|
Current |
|
|
|
|
|
Bank indebtedness |
$ |
4,025 |
$ |
2,112 |
|
Trade and other accounts payable |
|
33,487 |
|
36,161 |
|
Dividends payable |
|
3,768 |
|
3,765 |
|
Income taxes payable |
|
530 |
|
3,381 |
|
Current portion of long-term debt |
|
14,096 |
|
7,603 |
|
|
55,906 |
|
53,022 |
|
|
|
|
|
Non-current |
|
|
|
|
|
Long-term debt |
|
36,725 |
|
31,424 |
|
Deferred tax liabilities |
|
27,312 |
|
26,360 |
|
|
64,037 |
|
57,784 |
|
|
|
|
|
Total liabilities |
|
119,943 |
|
110,806 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
262,394 |
|
262,177 |
|
Retained earnings |
|
53,003 |
|
46,622 |
|
Other reserves |
|
4,405 |
|
4,358 |
Total equity |
|
319,802 |
|
313,157 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
$ |
439,745 |
$ |
423,963 |
ESSENTIAL ENERGY SERVICES LTD. |
|
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE
INCOME |
|
(Unaudited) |
|
|
For the three months ended |
|
|
|
|
|
March 31 |
|
(Thousands, except per share amounts) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Revenue |
$ |
103,730 |
|
$ |
120,519 |
|
|
|
|
|
|
|
|
Operating expenses |
|
76,403 |
|
|
82,687 |
|
Gross margin |
|
27,327 |
|
|
37,832 |
|
|
|
|
|
|
|
|
General and administrative expenses |
|
4,820 |
|
|
4,406 |
|
|
|
22,507 |
|
|
33,426 |
|
Depreciation and amortization |
|
6,785 |
|
|
7,044 |
|
Share-based compensation |
|
651 |
|
|
343 |
|
Other expense (income) |
|
755 |
|
|
(133 |
) |
Operating profit from continuing operations |
|
14,316 |
|
|
26,172 |
|
Finance costs |
|
433 |
|
|
376 |
|
Net income before income tax from continuing
operations |
|
13,883 |
|
|
25,796 |
|
|
|
|
|
|
|
|
Current income tax expense |
|
2,782 |
|
|
4,425 |
|
Deferred income tax expense |
|
952 |
|
|
2,166 |
|
Total income tax expense |
|
3,734 |
|
|
6,591 |
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
10,149 |
|
|
19,205 |
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax |
|
- |
|
|
(607 |
) |
|
|
|
|
|
|
|
Net income |
|
10,149 |
|
|
18,598 |
|
|
|
|
|
|
|
|
Unrealized foreign exchange loss from continuing
operations |
|
(86 |
) |
|
- |
|
Unrealized foreign exchange loss from discontinued
operations |
|
- |
|
|
(31 |
) |
Other comprehensive loss |
|
(86 |
) |
|
(31 |
) |
|
|
|
|
|
|
|
Comprehensive income |
$ |
10,063 |
|
$ |
18,567 |
|
|
|
|
|
|
|
|
Net income (loss) attributable to: |
|
|
|
|
|
|
|
Shareholders of Essential |
$ |
10,149 |
|
$ |
18,627 |
|
|
Non-controlling interest |
|
- |
|
|
(29 |
) |
|
$ |
10,149 |
|
$ |
18,598 |
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
Shareholders of Essential |
$ |
10,063 |
|
$ |
18,597 |
|
|
Non-controlling interest |
|
- |
|
|
(30 |
) |
|
$ |
10,063 |
|
$ |
18,567 |
|
|
|
|
|
|
|
|
Net income per share from continuing operations |
|
|
|
|
|
|
|
Basic and diluted, attributable to shareholders of Essential |
$ |
0.08 |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
Net income per share |
|
|
|
|
|
|
|
Basic and diluted, attributable to shareholders of Essential |
$ |
0.08 |
|
$ |
0.15 |
|
|
|
|
|
|
|
|
Comprehensive income per share |
|
|
|
|
|
|
|
Basic and diluted, attributable to shareholders of Essential |
$ |
0.08 |
|
$ |
0.15 |
|
ESSENTIAL ENERGY SERVICES LTD. |
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
For the three months ended |
|
|
|
|
|
March 31 |
|
(Thousands) |
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
$ |
10,149 |
|
$ |
19,205 |
|
|
|
|
|
|
|
|
Non-cash adjustments to reconcile net income for the
period to operating cash flow: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
6,785 |
|
|
7,044 |
|
|
Deferred income tax expense |
|
952 |
|
|
2,166 |
|
|
Share-based compensation |
|
211 |
|
|
343 |
|
|
Provision for impairment of trade accounts receivable |
|
225 |
|
|
250 |
|
|
Finance costs |
|
433 |
|
|
376 |
|
|
Loss (gain) on disposal and retirement of assets |
|
1,046 |
|
|
(106 |
) |
Operating cash flow before changes in working
capital |
|
19,801 |
|
|
29,278 |
|
Change in non-cash operating working capital: |
|
|
|
|
|
|
|
Trade and other accounts receivable before provision |
|
(13,276 |
) |
|
(31,159 |
) |
|
Inventories |
|
(1,155 |
) |
|
(762 |
) |
|
Prepayments |
|
643 |
|
|
658 |
|
|
Trade and other accounts payable |
|
1,141 |
|
|
6,201 |
|
|
Current taxes payable |
|
(2,851 |
) |
|
1,795 |
|
Net cash provided by operating activities from
continuing operations |
|
4,303 |
|
|
6,011 |
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
Purchase of property, equipment and intangibles |
|
(11,048 |
) |
|
(6,824 |
) |
|
Non-cash investing working capital in trade and other accounts
payable |
|
(3,815 |
) |
|
1,061 |
|
|
Proceeds on disposal of equipment |
|
865 |
|
|
540 |
|
Net cash used in investing activities from continuing
operations |
|
(13,998 |
) |
|
(5,223 |
) |
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
Issuance of long-term debt |
|
11,794 |
|
|
40 |
|
|
Proceeds from exercise of share options |
|
140 |
|
|
88 |
|
|
Repurchase of shares |
|
- |
|
|
(8 |
) |
|
Dividends paid |
|
(3,765 |
) |
|
(3,100 |
) |
|
Finance costs |
|
(433 |
) |
|
(376 |
) |
Net cash from (used in) financing activities from
continuing operations |
|
7,736 |
|
|
(3,356 |
) |
|
|
|
|
|
|
|
Foreign exchange loss on cash held in a foreign
currency |
|
46 |
|
|
- |
|
|
|
|
|
|
|
|
Net increase in bank indebtedness |
|
(1,913 |
) |
|
(2,568 |
) |
Bank indebtedness, beginning of period |
|
(2,112 |
) |
|
(1,835 |
) |
Bank indebtedness, end of period |
$ |
(4,025 |
) |
$ |
(4,403 |
) |
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
Cash taxes paid |
$ |
5,650 |
|
$ |
2,630 |
|
|
Cash interest and standby fees paid |
|
386 |
|
|
328 |
|
2014 FIRST QUARTER EARNINGS CONFERENCE CALL AND WEBCAST
Essential has
scheduled a conference call and webcast at 10:00 am MT (12:00 pm
ET) on May 7, 2014.
The conference call
dial in numbers are 416-340-2217 or 866-696-5910, passcode
3606107.
An archived
recording of the conference call will be available approximately
one hour after completion of the call until May 23, 2014 by dialing
905-694-9451 or 800-408-3053, passcode 7279612.
A live webcast of
the conference call will be accessible on Essential's website at
www.essentialenergy.ca by selecting "Investors" and "Events and
Presentations". Shortly after the live webcast, an archived version
will be available for approximately 30 days.
ABOUT ESSENTIAL
Essential is a
growth-oriented, dividend paying corporation that provides oilfield
services to producers in western Canada for producing wells and new
drilling activity. Essential operates the largest coil tubing well
service fleet in Canada with 46 coil tubing rigs and a fleet of 55
service rigs. Essential also sells, rents and services downhole
tools and equipment including the Tryton MSFS®. Further information
can be found at www.essentialenergy.ca.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This news release
contains forward-looking statements and forward-looking information
within the meaning of applicable securities laws. The use of any of
the words "expect", "anticipate", "continue", "estimate",
"objective", "ongoing", "may", "will", "project", "should",
"believe", "plans", "intends", "budget", "scheduled", "forecast"
and similar expressions are intended to identify forward-looking
information or statements. In particular, this news release
contains forward-looking statements, including expectations
regarding: capital spending, in-service timing of new equipment,
demand for new equipment, future cash flow and earnings, access to
sufficient funding, the future areas of development in the WCSB,
the level and type of drilling activity, completion activity,
work-over activity, production activity and required oilfield
services in the WCSB, the business, operations and revenues of the
Company in addition to general economic conditions, Essential's
ability to meet the changing needs of the WCSB market, the capital
spending programs of E&P companies, Essential's positioning for
the future, the temporary nature of the first quarter 2014 coil
well service results and the future of the coil well service
operations and Essential's ability to overcome competitive industry
pressure for the multi-stage fracturing system. In addition, this
news release contains forward looking statements, including
expectations regarding: the Company's outlook for the second half
of 2014 including: a weaker Canadian dollar increasing E&P cash
flows, improving access to equity capital markets for E&P
companies and improving natural gas prices and relatively strong
oil prices, development of proposed LNG projects in British
Columbia, development of the Montney, Horn River and Duvernay
basins for LNG export increasing the demand for oilfield services
(including the demand for Essential's deep coil tubing and downhole
tools & rentals), oilfield service activity following breakup
and any financial resource or liquidity issues restricting
Essential's future operating, investing or financing
activities.
Although the Company
believes that the expectations and assumptions on which such
forward-looking statements and information are reasonable, undue
reliance should not be placed on the forward-looking statements and
information because the Company can give no assurance that such
statements and information will prove to be correct. Since
forward-looking statements and information address future events
and conditions, by their very nature they involve inherent risks
and uncertainties.
Actual performance
and results could differ materially from those currently
anticipated due to a number of factors and risks. These include,
but are not limited to: known and unknown risks, including those
set forth in the Annual Information Form (a copy of which can be
found under Essential's profile on SEDAR at www.sedar.com), the
risks associated with the oilfield services sector (e.g. demand,
pricing and terms for oilfield services; current and expected oil
and natural gas prices; exploration and development costs and
delays; reserves discovery and decline rates; pipeline and
transportation capacity; weather, health, safety and environmental
risks); integration of acquisitions, competition, and uncertainties
resulting from potential delays or changes in plans with respect to
acquisitions, development projects or capital expenditures and
changes in legislation, including but not limited to tax laws,
royalties, incentive programs and environmental regulations; stock
market volatility and the inability to access sufficient capital
from external and internal sources; the ability of the Company's
subsidiaries to enforce legal rights in foreign jurisdictions;
general economic, market or business conditions; global economic
events; changes to Essential's financial position and cash flow;
the availability of qualified personnel, management or other key
inputs; currency exchange fluctuations; changes in political and
security stability; risks and uncertainty related to distribution
and pipeline constraints; and other unforeseen conditions which
could impact the use of services supplied by the Company.
Accordingly, readers should not place undue reliance on the
forward-looking statements and forward-looking information. Readers
are cautioned that the foregoing list of factors is not
exhaustive.
Additional
information on these and other factors that could affect the
Company's operations and financial results are included in reports
on file with applicable securities regulatory authorities and may
be accessed through the SEDAR website at www.sedar.com for the
Company. The forward-looking statements and information contained
in this news release are made as of the date hereof and the Company
undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
The TSX has
neither approved nor disapproved the contents of this news
release.
Essential Energy Services Ltd.Garnet K. AmundsonPresident and
CEO(403) 513-7272service@essentialenergy.caEssential Energy
Services Ltd.Karen PerasaloInvestor Relations(403)
513-7272service@essentialenergy.ca
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