CWC CWC Energy Services Corp

CALGARY, AB, July 29, 2022 /CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three and six months ended June 30, 2022. The Financial Statements and Management Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2022 are filed on SEDAR at www.sedar.com.

Financial Highlights

Working capital (excluding debt) for June 30, 2022 has increased $4.3 million (23%) since December 31, 2021 driven by increases in accounts receivable ($6.4 million (24%)) offset by decreases in prepaid expenses and deposits ($0.4 million (26%)) and increases in accounts payable ($1.6 million (17%)). Long-term debt (including current portion) of $49.8 million has increased $3.9 million (9%) from December 31, 2021 primarily due to the purchase of three (3) triple drilling rigs in June 2022 and partially offset by the payment of long-term debt from operating cash flows in the first six months of 2022.

Highlights for the Three Months Ended June 30, 2022

• Record Q2 2022 revenue in CWC's seventeen (17) year history of $42.7 million, an increase of $26.2 million (159%) compared to $16.5 million in Q2 2021. Revenue increased $19.3 million (563%) in the Contract Drilling segment and $6.9 million (53%) in the Production Services segment in Q2 2022 compared to Q2 2021.
• Record Q2 2022 Adjusted EBITDA⁽¹⁾ of $7.6 million, an increase of $5.1 million (205%) compared to $2.5 million in Q2 2021, which was the previous Q2 record.
• Record Q2 2022 net income of $2.7 million, an increase of $3.5 million compared to net loss of $0.8 million in Q2 2021.
• Purchase of three (3) triple drilling rigs and critical spare components for US$7.4 million (approximately C$9.6 million) on June 24, 2022.
• Drilled Alberta's first lithium evaluation well showing the diversity and versatility of our equipment.
• First Canadian drilling and well services company to publicly report our Scope 1 and 2 emissions in our 2022 ESG Report.

     ⁽¹⁾    Please refer to the "Non-GAAP and Other Financial Measures" section for further information. 

Highlights for the Six Months Ended June 30, 2022

• Record revenue for the first six months of 2022 in CWC's seventeen (17) year history of $83.5 million, an increase of $42.3 million (103%) compared to $41.2 million in the first six months of 2021. Revenue increased $28.7 million (267%) in the Contract Drilling segment and $13.7 million (45%) in the Production Services segment compared to the first six months of 2021.
• Record Adjusted EBITDA⁽¹⁾ for the first six months of 2022 of $16.0 million, an increase of $8.7 million (118%) compared to $7.3 million in the first six months of 2021.
• Record net income for the first six months of 2022 of $6.1 million, an increase of $6.4 million compared to a net loss of $0.3 million in the first six months of 2021.

     ⁽¹⁾    Please refer to the "Non-GAAP and Other Financial Measures" section for further information. 

Credit Facilities

On July 29, 2022, the Company exercised the accordion feature to expand the Credit Facility to an $80.3 million Bank Loan comprised of a $50.7 million Canadian syndicated facility, a US$12.0 million (C$15.6 million) U.S. syndicated facility, a $7.5 million Canadian operating facility and a US$5.0 million (C$6.5 million) U.S. operating facility. The company further amended the Credit Facility to extend the maturity to July 31, 2025.

Industry Overview

Average crude oil and natural gas prices

Source: GLJ Ltd price forecasts.

Russia's invasion of Ukraine and the western world's response with trade sanctions against Russia, including sanctions on crude oil and natural gas by certain countries, have resulted in a significant increase in crude oil and natural gas prices in the first six months of 2022. In addition, the continued re-opening of the global economy after being significantly slowed down in 2020 and 2021 due to the COVID-19 health pandemic, has resulted in a steady rise in global demand without a significant corresponding increase in global supply for crude oil and natural gas, further justifying the higher prices experienced in the first six months of 2022. However, significant inflationary increases and rising interest rates have sparked fears of a global recession, which has recently pulled WTI back to a range of US$95 to US$100/bbl. Despite recessionary fears, discussion about energy security is on the top of many governmental agendas, which should bode well for North American oil and gas activity and oilfield service companies for the foreseeable future.

Corporate Overview

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in Canada and the United States with a complementary suite of oilfield services including drilling rigs and service rigs. The Company's corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta and U.S. offices in Denver, Colorado and Casper, Wyoming. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

The Contract Drilling division operates under the trade name CWC Ironhand Drilling and is comprised of thirteen (13) electric triple drilling rigs with depth ratings from 3,600 to 7,600 metres and nine (9) telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. All twenty-two (22) rigs have top drives, seventeen (17) have pad rig moving systems, eight (8) have 7,500 psi pumping systems, three (3) have carbon reduction bi-fuel capabilities, and two (2) have high line power capabilities. All of the drilling rigs are ideally suited for the most active depths for horizontal drilling in the Western Canadian Sedimentary Basin ("WCSB"), including the Montney, Cardium, Duvernay and other deep basin horizons, and select United States basins including the Permian, Eagle Ford, Niobrara, Denver-Julesburg ("DJ"), Powder River and Bakken.

The Production Services division operates under the trade name CWC Well Services. With a fleet of 143 service rigs, CWC is one of Canada's largest well servicing companies as measured by active fleet and operating hours. CWC's service rig fleet consists of 75 single, 54 double and 14 slant rigs providing services which include completions, maintenance, workovers and well decommissioning with depth ratings from 1,500 to 5,000 metres. In 2022, CWC chose to park 79 of its service rigs and focus its sales and operational efforts on the remaining 64 active service rigs due to the reduction in the number of service rigs currently required to service the WCSB and the tight labour market experienced in the industry for service rig crews.

Results of Operations

Contract Drilling – Canada and United States

Canadian Contract Drilling revenue of $7.8 million for Q2 2022 (Q2 2021: $1.3 million) was achieved with a utilization rate of 43% (Q2 2021: 9%), compared to the CAOEC industry average of 23% (Q2 2021: 15%). CWC completed 273 Canadian drilling rig operating days in Q2 2022, an increase of 219 operating days (406%) compared to 54 Canadian drilling rig operating days in Q2 2021.

Gross margin in the Canadian Contract Drilling segment was $1.9 million, an increase of $2.0 million from a negative gross margin of $0.1 million in Q2 2021. The gross margin increase is a result of a 406% increase in Canadian drilling rig operating days and a 26% increase in average revenue per operating day while the increase in direct operating expenses, primarily related to inflationary increases in field labour, fuel and supplies cost, was successfully recovered from customers.

U.S. Contract Drilling revenue of $14.9 million for Q2 2022 (Q2 2021: $2.1 million) was achieved with 398 U.S. drilling rig operating days (Q2 2021: 60 U.S. drilling rig operating days). During Q2 2022, CWC had five (5) triple drilling rigs and two (2) double drilling rigs working in the U.S.

Gross margin in the U.S. Contract Drilling segment was $3.9 million, an increase of $3.5 million from $0.4 million in Q2 2021. The gross margin increase is a result of a 563% increase in U.S. drilling rig operating days partially offset by a 3% decrease in average revenue per operating day.

Total Contract Drilling's gross margin percentage of 26% in Q2 2022 is higher than the 9% gross margin percentage in Q2 2021 as the Company was successful in increasing pricing and recovering inflationary increases for field labour, fuel and supplies costs from customers.

Production Services – Canada

Production Services revenue of $20.0 million in Q2 2022, an increase of $6.9 million (53%) compared to $13.1 million in Q2 2021 as both activity levels and pricing increased. CWC's service rig utilization in Q2 2022 of 57% (Q2 2021: 47%) with 23,536 operating hours was 15% higher than the 20,463 operating hours in Q2 2021. Average revenue per hour of $848 in Q2 2022 was $225 (36%) higher than the $623 per hour in Q2 2021 as the Company implemented pricing adjustments to partially offset higher inflationary field labour, fuel and supplies costs.

During Q2 2022, the Company earned $1.3 million (Q2 2021: $1.7 million) in revenue on 59 oil and gas sites (Q2 2021: 115) requiring well decommissioning under the Alberta Site Rehabilitation Program ("SRP") and 6 oil and gas sites (Q2 2021: 13) under the Saskatchewan Accelerated Site Closure Program ("ASCP"). The $1.0 billion Alberta SRP, the $400 million ASCP and the $100 million B.C. Dormant Sites Reclamation Program ("DSRP") provide grants to eligible oilfield service contractors to perform well, pipeline, and oil and gas site closure and reclamation work, creating jobs and supporting the environment until March 31, 2023. CWC's Production Services segment is well positioned to continue to provide well decommissioning work on these inactive wells.

Capital Expenditures

Capital expenditures of $12.7 million in Q2 2022, an increase of $11.2 million compared to $1.4 million in Q2 2021. The increase in Q2 2022 is primarily due to the purchase of three (3) triple drilling rigs for US$7.4 million (C$9.6 million) and recertifications of equipment.

The outlook for contract drilling and well servicing in Canada and the U.S. continues to improve as the removal of economic restrictions due to the COVID-19 health pandemic has created an increased demand for crude oil and natural gas without a sufficient corresponding increase in global supply. This supply/demand imbalance, along with Russia's invasion of Ukraine, has resulted in increases in the crude oil and natural gas prices that we have seen for the first half of 2022. Discussion about energy security is on the top of many governmental agendas, which should bode well for North American oil and gas activity and oilfield service companies for the foreseeable future. CWC believes North American oilfield service activity will continue to increase in the back half of 2022 and into 2023.

CWC experienced a very strong Q2 2022 with both activity and prices increasing, which led to the Company achieving record second quarter and first half revenue, Adjusted EBITDA and net income in the Company's seventeen (17) year history. The Company believes that demand for our contract drilling and well servicing will increase for the remainder of 2022 and into 2023 buoyed by the addition of our thirteen (13) triple drilling rigs in the U.S. CWC currently has work for all seven (7) of seven (7) drilling rigs in Canada and eight (8) of twelve (12) drilling rigs in the U.S. The three (3) newly acquired U.S. triple drilling rigs are currently undergoing Level IV recertifications and upgrades and are expected to be marketable in Q4 2022. 52 of the 64 active service rigs in Canada are crewed and have work for the back half of 2022 and into 2023. CWC has been successful in recruiting new field employees and crewing both our drilling and service rigs. The Company now employs over 640 employees; a higher employee count than our February 2020 pre-COVID-19 employment level. However, the primary constraint for how quickly the industry and CWC can grow continues to be the available labour market for rig crews, which remains extremely tight. This limited availability of rig crews has resulted in inflationary pressure on field labour costs as well as fuel and supplies, which have been and will continue to be, passed on to our E&P customers through further price increases in the back half of 2022.  

While CWC expects a continuation of the strong operational and financial results for the remainder of 2022, various global uncertainties may derail the Company's expected positive path. Russia's invasion of Ukraine has elicited a strong global response of sanctions against Russia from many western countries. Such sanctions may have a negative effect on the global economy through supply chain disruptions and volatile commodity prices. In addition, many global economies are experiencing high levels of inflation resulting in central banks increasing interest rates at a rapid pace, which is intended to slow the pace of inflation. If interest rates increase too rapidly, or rise to a high enough level whereby economic activity slows significantly resulting in a global recession, CWC may be negatively impacted. 

In June 2022, CWC released its 2022 Environmental, Social and Governance ("ESG") Report. Since the release of our inaugural report last year, we've made numerous strides in our ESG journey, including being leaders in the Canadian drilling and well services sector by publicly reporting our Scope 1 and 2 emissions. We are committed to advancing these efforts further in future years as we work on emission reductions and setting targets with our customers to reduce our collective environmental impact. One of the initial steps CWC has taken towards meeting its ESG targets has been to convert some of our field equipment to have carbon reduction bi-fuel capabilities and converting a service rig to a Tier 4 engine.  As we progress through 2022, we are deepening our commitment to ESG excellence and look forward to sharing our initiatives and progress with our stakeholders. CWC is honoured to have worked with one of our customers on drilling Alberta's first lithium evaluation well.  We are proud of the versatility of our equipment and are not just limited to working strictly in the oil and gas fields. CWC has worked on carbon capture, helium, potash and saltwater disposal wells in the past, thereby reflecting the diversity and versatility of the nature of work for our drilling rigs. Management is confident that CWC will continue to be regarded as a leader in ESG and sustainability matters in the oilfield services industry as the nature of the work for our equipment evolves.

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in Canada and the United States with a complementary suite of oilfield services including drilling rigs and service rigs. The Company's corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta and U.S. offices in Denver, Colorado and Casper, Wyoming. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

This News Release contains certain forward-looking information and statements (collectively, "forward-looking statements") within the meaning of applicable Canadian securities legislation. Certain statements contained in this News Release, including those contained in the section titled "Outlook" and including statements which may contain such words as "anticipate", "could", "continue", "should", "seek", "may", "intend", "likely", "plan", "estimate", "believe", "expect", "will", "objective", "ongoing", "project" and similar expressions are intended to identify forward-looking statements. In particular, this News Release contains forward-looking statements including management's assessment of future plans and operations, planned levels of capital expenditures, expectations as to industry and Company activity levels in various areas, expectations on the sustainability of future cash flow and earnings, expectations with respect to crude oil and natural gas prices, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB and U.S. basins, expectations regarding entering into long term drilling contracts and expanding our customer base, and expectations regarding the business, operations, revenue and debt levels of the Company in addition to general economic conditions including industry labor shortages, inflationary pressures and a rising interest rate environment and the impact of those conditions on the Company. Although the Company believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurances that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Factors that could cause actual results to vary from forward-looking statements or may affect the operations, performance, development and results of CWC's businesses include, among other things: risks and assumptions associated with operations, such as CWC's ability to successfully implement its strategic initiatives and achieve expected benefits therefrom; assumptions concerning operational reliability; the ability to access sufficient capital from internal and external sources including debt and equity capital; risks inherent in CWC's Canadian and U.S. operations; CWC's ability to generate sufficient cash flow from operations to meet its current and future obligations; risks associated with the failure to finalize formal agreements with counterparties in certain circumstances; CWC's ability to make capital investments and the amounts of capital investments; increases in maintenance, operating or financing costs; the realization of the anticipated benefits of transactions; the possibility that CWC is unable to identify or consummate any acceptable strategic alternatives; the availability and price of labour, equipment and construction materials; the status, credit risk and continued existence of customers having contracts with CWC and its affiliates; availability of energy commodities; volatility of and assumptions regarding prices of energy commodities; competitive factors, including competition from third parties in the areas in which CWC operates or intends to operate, pricing pressures and supply and demand in the drilling and service rig business; fluctuations in currency and interest rates; inflation; risks of war (including the war in Ukraine), hostilities, civil insurrection, pandemics (including COVID-19), instability and political and economic conditions in or affecting jurisdictions in which CWC and its affiliates operate; severe weather conditions and risks related to climate change; terrorist threats; risks associated with technology; changes in laws and regulations, including environmental, regulatory and taxation laws, and the interpretation of such changes to CWC's business; the risks associated with existing and potential or threatened future lawsuits, legal proceedings and regulatory actions against CWC and its affiliates; availability of adequate levels of insurance; difficulty in obtaining necessary regulatory approvals or land access rights and maintenance of support of such approvals and rights; the effects and impacts of the COVID-19 pandemic on CWC's business and general economic and business conditions and markets; and such other risks and uncertainties described in the Annual MD&A under the section entitled "Risk Factors" and from time to time in CWC's reports and filings with the Canadian securities authorities. The impact of any one assumption, risk, uncertainty or other factor on a forward-looking statement cannot be determined with certainty, as these are interdependent and CWC's future course of action depends on management's assessment of all information available at the relevant time. You can find a discussion of those risks and uncertainties in the Annual MD&A under the section entitled "Risk Factors" and in CWC's other securities filings at www.sedar.com.

Readers are cautioned that the foregoing list of assumptions, risks, uncertainties and factors is not exhaustive. See also the section entitled "Risks and Uncertainties" for further risk factors. The forward-looking statements contained in this News Release are made as of the date of this News Release and, except to the extent expressly required by applicable securities laws and regulations, CWC assumes no obligation to update or revise forward-looking statements made herein or otherwise, whether as a result of new information, future events, or otherwise. The forward-looking statements contained in this News Release and all subsequent forward-looking statements, whether written or oral, attributable to CWC or persons acting on CWC's behalf are expressly qualified in their entirety by these cautionary statements. Any forward-looking statements made previously may be inaccurate now.

Non-GAAP and Other Financial Measures

SOURCE CWC Energy Services Corp.