Essential Energy Services Ltd. (TSX:ESN) ("Essential" or the "Company")
announces fourth quarter EBITDA(1) of $20.7 million, down from $22.4 million in
the fourth quarter of 2012. For the year, EBITDA(1) of $66.1 million in 2013 is
down from $74.3 million in 2012. From an industry perspective, 2013 activity was
fairly flat to 2012. Essential's decrease in EBITDA(1) for the year is primarily
due to the absence of contribution from the disposed drilling rig operation,
start-up costs related to expansion of the downhole tools operations into the
United States, lower utilization primarily in conventional coil well service and
the prolonged spring break-up in 2013.
SELECTED INFORMATION
(Thousands of dollars, except per share, percentages & fleet data)
Three months ended Year ended
December 31, December 31,
2013 2012 2013 2012
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Revenue $ 92,823 $ 96,015 $336,269 $348,580
Gross margin $ 25,332 $ 27,039 $ 83,268 $ 90,695
Gross margin % 27% 28% 25% 26%
EBITDA(1) from continuing operations $ 20,705 $ 22,368 $ 66,092 $ 74,342
EBITDA % (1) 22% 23% 20% 21%
Funds flow from continuing
operations(1) $ 14,783 $ 19,859 $ 56,037 $ 68,198
Per share - basic (1) $ 0.12 $ 0.16 $ 0.45 $ 0.55
Per share - diluted (1) $ 0.12 $ 0.16 $ 0.44 $ 0.54
Total assets $423,963 $406,853 $423,963 $406,853
Total long-term debt $ 39,027 $ 35,563 $ 39,027 $ 35,563
Utilization
Deep coil tubing rigs 74% 95% 69% 77%
Service rigs 53% 54% 50% 50%
Equipment fleet
Masted deep coil tubing rigs 15 16 15 16
Conventional deep coil tubing rigs 12 11 12 11
Service rigs 55 55 55 55
1 Refer to "Non-IFRS Measures" section for further information.
HIGHLIGHTS
Highlights for Fourth Quarter 2013
Revenue for the fourth quarter of 2013 was $92.8 million, a $3.2 million
decrease compared to the same period in 2012.
-- Coil Well Service - Essential's coil well service revenue declined
compared to the prior quarter due to lower utilization. Masted deep coil
tubing utilization of 107% was below prior quarter utilization of 113%
due to extreme winter conditions across the Western Canadian Sedimentary
Basin ("WCSB") in early December which affected the ability of equipment
to work.
Conventional deep coil tubing utilization was significantly below prior
quarter.
-- Service Rigs - Service rig revenue was consistent compared to the same
period in the prior quarter, with utilization at 53% compared to 54% in
2012. Essential continued to experience strong utilization for the three
service rigs working on steam-assisted gravity drainage ("SAGD") wells.
-- Downhole Tools & Rentals - Downhole tools & rentals performed well in
the fourth quarter due to increased revenue from both the Canadian
Tryton Multi-stage Fracturing System ("Tryton MSFS(R)") and conventional
tools and rentals service lines.
EBITDA for the fourth quarter of 2013 was $20.7 million, a decrease of $1.7
million from 2012. The decrease was due to lower utilization in coil well
service, additional labour and travel costs incurred while equipment was
shut-down due to extreme cold weather, additional labour costs for crews in
preparation for the delivery of new deep masted coil tubing rigs, and start-up
costs related to the expansion of downhole tools into the United States.
Highlights for 2013 Year
For the year ended 2013, Essential continued to strengthen its core service
capabilities and position itself to meet the rising demand for completing
complex, long-reach horizontal wells. In 2013, Essential:
-- Made progress in expanding its masted deep coil tubing fleet. In the
third quarter, one Generation III rig was delivered. During the fourth
quarter, progress was made in the construction of three additional
masted deep coil tubing rigs, one Generation III and two Generation IV
rigs. Two of these rigs, one Generation III and one Generation IV, will
be delivered in the first quarter of 2014, while the third rig will be
delivered in the second quarter of 2014. These new masted deep coil
tubing rigs have the capability to work on long-reach horizontal wells
and are well-suited to work in deep, high pressure basins, including the
Montney, Horn River and Duvernay.
-- Continued to invest in its service rig fleet adding four mobile free
standing, double service rigs, three of which are SAGD capable.
-- Expanded downhole tools into the United States, with three field
locations in Texas and Oklahoma.
-- Completed its exit from Colombia.
(R) MSFS is a registered trademark of Essential Energy Services Ltd.
Revenue for the year ended December 31, 2013 was $336.3 million, a decrease of
$12.3 million compared to 2012. Downhole tools & rentals revenue increased
compared to prior year. This was offset by a decline in coil well service
revenue due to lower utilization of the deep coil tubing fleet. Revenue in 2013
was also lower due to the prolonged spring break-up in 2013 and disposal in 2012
of the drilling rig and wireline operations, which contributed a combined $13.5
million in revenue for the prior year.
EBITDA for the year ended December 31, 2013 was $66.1 million, a decrease of
$8.3 million from the same period in 2012. The decline in EBITDA is primarily
due to the absence of the contribution in the prior year from the drilling rig
operation, start-up costs related to the expansion of downhole tools into the
United States, lower utilization in coil well service and the prolonged spring
break-up in 2013.
INDUSTRY OVERVIEW
Activity in the fourth quarter and for the year ended 2013 closely mirrored 2012
for the same periods. During the fourth quarter of 2013, drilling rig
utilization and the number of wells drilled were slightly ahead of prior
quarter, while well completions were down. Compared to the fourth quarter 2012,
drilling rig utilization increased 3 percentage points, the number of wells
drilled increased by 2%, while well completion count decreased by 11%. For the
year, drilling rig utilization decreased 2 percentage points, the number of
wells drilled was flat, and well completion counts decreased 8% compared to
2012. Drilling rig utilization, wells drilled and completion activity are all
indicators of overall oilfield activity in the 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. The
industry continues to focus on horizontal wells which typically require more
investment capital and increased rig time per well due to their depth and
complexity compared to conventional vertical wells.
SEGMENT RESULTS - WELL SERVICING
(Thousands of dollars, except Three months ended Year ended
percentages, fleet December 31, December 31,
& hours) 2013 2012 2013 2012
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Revenue
Coil Well Service (i) $ 36,150 $ 41,228 $128,241 $136,196
Service Rigs (ii) 25,593 26,012 97,751 95,439
Other (iii) - 786 - 11,823
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Total revenue 61,743 68,026 225,992 243,458
Operating expenses 45,269 48,564 171,992 182,655
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Gross margin $ 16,474 $ 19,462 $ 54,000 $ 60,803
Gross margin % 27% 29% 24% 25%
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Utilization (iv)
Deep Coil Tubing Rigs
Utilization 74% 95% 69% 77%
Operating hours 18,257 22,777 64,870 71,576
Service Rigs
Utilization 53% 54% 50% 50%
Operating hours 26,557 27,310 100,241 101,313
Equipment fleet (v)
Masted deep coil tubing rigs 15 16 15 16
Conventional deep coil tubing rigs 12 11 12 11
Service rigs 55 55 55 55
Nitrogen pumpers 14 13 14 13
Fluid pumpers 18 18 18 18
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(i) Includes revenue from coil tubing rigs, nitrogen and fluid pumpers and
other ancillary equipment.
(ii) Includes revenue from service rigs and rod rigs. Comparative amounts
have been reclassified to conform to current period's presentation.
(iii) Other revenue in 2012 represents revenue from Essential's drilling
operation which was disposed of in November 2012.
(iv) Utilization is calculated using a 10 hour day.
(v) Fleet data represents the number of units at the end of the period.
Coil well service revenue decreased during the fourth quarter of 2013 compared
to the same period in 2012. Essential's masted deep coil tubing utilization was
down quarter-over-quarter at 107% compared to 113% in 2012. Industry well
completions decreased 11% in the same period. Masted deep coil tubing
utilization was negatively impacted by extreme winter conditions in early
December and lower activity at the end of December. Colder than normal weather
impacted the ability of equipment to work and resulted in a temporary shut-down
of operations. Conventional deep coil tubing revenue was below the prior quarter
as extreme cold weather, lower activity by certain key customers and increased
competition in the less technical two inch conventional coil tubing market
adversely impacted utilization. Conventional deep coil tubing utilization was
down quarter-over-quarter at 32% compared to 67% in 2012. The revenue decrease
was partially offset by increased revenue from Essential's fluid and nitrogen
pumpers due to increased crew availability and better integration with the deep
coil tubing fleet in the fourth quarter 2013. Revenue per hour for coil tubing
rigs was consistent with prior quarter.
Service rig revenue in the fourth quarter of 2013 was comparable to the prior
quarter. Service rig utilization was higher than the prior quarter for the three
service rigs operating on SAGD wells as demand for services remained high.
Revenue per hour in the fourth quarter of 2013 was comparable to the prior
quarter.
Gross margin percentage for well servicing in the fourth quarter of 2013 was
negatively impacted by lower utilization and higher operating costs compared to
the prior quarter. These additional operating costs were a result of the extreme
winter conditions where labour and travel costs were incurred during the
shutdown of equipment as crews were retained at customer sites during the cold
period with no corresponding revenue. Additional labour costs were also incurred
to expand and retain crews in preparation for the delivery of the new deep
masted coil tubing rigs.
Coil well service revenue decreased in 2013 compared to 2012 due to extreme
winter weather conditions in the fourth quarter and reduced activity in
conventional deep coil tubing during the second half of 2013. Conventional deep
coil tubing utilization was down significantly due to lower activity from
certain key customers and increased competition. Masted deep coil tubing
utilization was 97%, comparable to prior year. Service rig revenue for 2013 was
comparable to the prior year. Year-over-year well service revenue and gross
margins were also down due to the disposal of the drilling rig business in 2012
and the prolonged spring break-up in 2013.
SEGMENT RESULTS - DOWNHOLE TOOLS & RENTALS
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Three months ended Year ended
December 31, December 31,
(Thousands of dollars, except
percentages) 2013 2012 2013 2012(i)
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Revenue $ 31,560 $ 27,989 $111,339 $105,122
Operating expenses 20,907 18,115 75,446 69,717
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Gross margin $ 10,653 $ 9,874 $ 35,893 $ 35,405
Gross margin % 34% 35% 32% 34%
Downhole Tools & Rentals Revenue-
revenue % of total
Tryton MSFS(R) 55% 51% 55% 48%
Conventional Tools & Rentals 45% 49% 45% 52%
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(i) Revenue for the year ended December 31, 2012 includes wireline
operations which were disposed of on February 2, 2012.
During the fourth quarter of 2013, downhole tools & rentals revenue increased
compared to the same quarter in the prior year. Revenue improved
quarter-over-quarter in both the Canadian Tryton MSFS(R) and conventional tools
and rentals service lines.
Downhole tools & rentals revenue increased on a year-to-date basis in 2013
compared to 2012 as a result of an increased contribution from the Canadian
Tryton MSFS(R) product, offset by a decline in Canadian conventional tools and
rentals revenue. Conventional tools and rentals revenue increased in the second
half of 2013 compared to the second half of 2012, after declining compared to
2012 in the first half of the year. Demand for Essential's Tryton MSFS(R)
product remained strong throughout the year due to quality service and
innovative product design. Tryton MSFS(R) provides customers with cost-
effective solutions for multi-stage horizontal well completions.
Essential's United States conventional downhole tools operation generated
revenue in the fourth quarter of 2013, which was less than operating costs,
resulting in a modest reduction in the division's gross margin during the
quarter. United States operations commenced late in the third quarter of 2013.
A Statement of Claim was filed on October 23, 2013 by Packers Plus Energy
Services Inc. against Essential in Canadian Federal Court which alleges products
and methods associated with the Tryton MSFS(R) infringe a patent issued to
Packers Plus Energy Services Inc. The Company filed its Statement of Defence and
Counterclaim on November 22, 2013. Essential believes that the suit is without
merit and is defending against the allegations. Proceedings of this nature can
take years to resolve through the court process.
GENERAL AND ADMINISTRATIVE
Three months ended Year ended
December 31, December 31,
(Thousands of dollars, except
percentages) 2013 2012 2013 2012
----------------------------------------------------------------------------
General and administrative expenses $ 4,627 $ 4,671 $ 17,176 $ 16,353
As a % of revenue 5% 5% 5% 5%
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General and administrative expenses are comprised of wages, professional fees,
office space and other administrative costs incurred at corporate and
operational levels. General and administrative expenses remain in line with
management's target of five percent of revenue.
OTHER EXPENSE
Three months ended Year ended
December 31, December 31,
(Thousands of dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Other expense $ 839 $ 2,750 $ 4,385 $ 1,648
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Other expense for the year ended December 31, 2013 includes a $3.6 million
expense for the write-off of deposits on two coil tubing rigs as the supplier
was placed into receivership in September 2013. The remaining balance relates to
losses on the sale of fixed assets sold during the period.
INCOME TAXES
Three months ended Year ended
December 31, December 31,
(Thousands of dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Current income tax expense $ 5,655 $ 2,475 $10,508 $ 6,567
Deferred income tax expense
(recovery) (3,734) 1,354 (3,200) 4,959
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Total income tax expense $ 1,921 $ 3,829 $ 7,308 $ 11,526
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During the fourth quarter of 2013, Essential simplified its legal entity
structure which resulted in the elimination of the partnership tax deferral. The
overall effective tax rate decreased for the year and in the fourth quarter of
2013 due to the realization of previously unrecognized losses.
FINANCIAL RESOURCES AND LIQUIDITY
WORKING CAPITAL
As at
December 31,
(Thousands of dollars, except ratios) 2013 2012
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Current assets $107,945 $ 95,840
Current liabilities, excluding current portion
of long-term debt (45,419) (37,594)
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Working capital $ 62,526 $ 58,246
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Working capital ratio 2.4:1 2.5:1
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CREDIT FACILITY
Essential's credit facility with its banking syndicate is comprised of a $100
million revolving term loan facility with a $35 million accordion feature
available on lender's consent. The revolving term loan facility matures on May
30, 2014, is renewable at the lender's consent and is secured by a general
security agreement over the Company's assets. To the extent the revolving term
loan facility is not renewed, debt payments would be required over a two year
period based on a three year amortization schedule. At December 31, 2013, the
maximum of $100 million under the revolving facility was available to Essential.
The following table outlines the repayments, excluding interest, in the event
that the credit facility is not renewed.
As at
December 31,
(Thousands of dollars) 2013
--------------------------------------------------------------
Repayments are required as follows:
Within one year $ 7,530
Between one and two years 13,033
Between two and three years 18,464
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$ 39,027
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As at December 31, 2013, all financial debt covenants were satisfied and all
banking requirements were up-to-date. Essential does not currently anticipate
any financial resource or liquidity issues to restrict its future operating,
investing or financing activities and does not anticipate any issues with
renewal of the credit facility in 2014. On March 5, 2014, Essential had
long-term debt outstanding of $44.7 million.
EQUIPMENT EXPENDITURES AND FLEET ADDITIONS
Three months ended Year ended
December 31, December 31,
(Thousands of dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Well Servicing $ 13,539 $ 15,764 $ 41,227 $ 46,799
Downhole Tools & Rentals 1,460 2,690 3,785 4,071
Corporate 643 67 1,588 892
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Total equipment expenditures 15,642 18,521 46,600 51,762
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Less proceeds on disposal of
property and equipment (1,056) (16,592) (2,657) (24,876)
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Net equipment expenditures(1) $ 14,586 $ 1,930 $ 43,943 $ 26,886
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During the fourth quarter 2013, three masted deep coil tubing rigs were expected
to be delivered, one Generation III and two Generation IV rigs. Two of these
rigs will be delivered in the first quarter of 2014 and the third rig is
expected in the second quarter of 2014. On a year-to-date basis, equipment
expenditures of $46.6 million were below expectations of $50.0 million due to
the masted coil tubing delivery delays.
Throughout 2013, Essential commissioned the following assets:
-- One Generation III masted deep coil tubing rig in the third quarter;
-- Two nitrogen pumpers in the second quarter;
-- Four mobile free standing, double service rigs (three of which are SAGD
capable), one in each of the first and second quarters and two in the
fourth quarter; and
-- One double rod rig in the fourth quarter.
Essential classifies its equipment expenditures as growth capital(1) and
maintenance capital(1):
Three months ended Year ended
December 31, December 31,
(Thousands of dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Growth capital(1) $ 10,251 $ 16,251 $ 31,650 $ 38,169
Maintenance capital(1) 5,391 2,270 14,950 13,593
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Total equipment expenditures $ 15,642 $ 18,521 $ 46,600 $ 51,762
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Essential's 2014 capital budget, announced in October 2013, of $50 million is
comprised of $33 million in growth capital and $17 million of maintenance
capital. Essential's 2014 growth capital spending plan consists primarily of
four masted deep coil tubing rigs, one quintiplex fluid pumper, one rod rig and
rental equipment. In addition, $3 million of anticipated 2013 capital spending
was deferred into 2014 due to the masted coil tubing delivery delays.
In 2012, Essential divested of its wireline and drilling rig operations for
proceeds of $7.5 million and $16.8 million, respectively.
The Company believes that it has access to sufficient funds through internally
generated cash flows and from undrawn committed credit facilities to meet
current spending needs.
The following table shows the expected dates of the major equipment being built
over 2014:
Expected Dates
Quantity 2014 /2015
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Deep masted coil tubing rigs (delayed Q4
2013 builds) 3(i) Q1(2),Q2
Deep masted coil tubing rigs 4 Q3(2),Q4,Q2'15
Quintiplex fluid pumper 1 Q3
Double rod rig 1 Q4
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(i) These equipment builds relate to Essential's 2013 capital budget.
OUTLOOK
Demand in well servicing continues to be driven by oil wells and horizontal
completions, with an increasing shift to deeper, more complex wells. Industry
trends in 2014 support Essential's strategy of introducing deeper, larger
diameter masted coil tubing rigs. Essential is well positioned to benefit from
the rising demand to complete complex, long-reach horizontal wells. Delivery
delays impacting Essential's ability to utilize new masted coil tubing rigs,
combined with associated incremental costs for commissioning, crews and
training, are expected to adversely impact earnings in the first quarter of
2014. Activity in 2014 started off slower than 2013. The strength of the first
quarter is dependent on the timing of spring breakup which impacts the duration
of the winter drilling season.
The Petroleum Services Association of Canada is forecasting 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 for 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 and the rising price
of natural gas.
While the longer term outlook still remains positive for the development of
proposed liquefied natural gas ("LNG") projects in British Columbia, anticipated
development has been delayed beyond initial 2014 expected timeframes.
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.
The $50 million equipment expansion program for 2014 will add significant growth
to Essential's masted deep coil tubing fleet. In addition to the two masted deep
coil Generation III rigs that Essential has already taken delivery of, Essential
expects to take delivery of one additional masted deep coil Generation III and
four Generation IV rigs in 2014.
With the growing number of horizontal oil wells in recent years, the industry
has been expecting an increase in demand for service rigs to perform work-over
services on these wells. This demand has not yet materialized possibly due to
new technologies prolonging primary production and/or capital allocation
decisions made by E&P companies. Essential believes, in time, these wells will
require work- over services, increasing the demand for service rigs. With
Essential's investment in its service rig fleet, the Company expects to benefit
from this potential demand.
Essential continues to expand its downhole tool operations in the southern
United States, which it started in 2013, and expects to be cash flow positive in
2014.
Essential has a very strong balance sheet with $44.7 million of debt outstanding
on March 5, 2014 and a debt to 2013 EBITDA ratio of 0.7x. Essential is well
positioned to take advantage of future growth opportunities.
QUARTERLY DIVIDEND
The cash dividend for the period January 1, 2014 to March 31, 2014 has been set
at $0.03 per share. The dividend will be paid on April 15, 2014 to shareholders
of record on March 31, 2014. The ex-dividend date is March 27, 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.
Funds flow or funds flow from operations - This measure is an indicator of
Essential's ability to generate funds flow in order to fund working capital,
principal debt repayments, capital programs and pay dividends. Funds flow or
funds flow from operations is defined as cash flow from operations before
changes in non-cash operating working capital. This measure is useful in
assessing Essential's operational cash flow as it provides cash generated in the
period excluding the timing of non-cash operating working capital. This reflects
the ability of the operations of Essential to meet the above noted funding
requirements.
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.
SUMMARY OF QUARTERLY DATA
(Thousands of dollars, except per
share amounts, percentages and Dec 31, Sept 30, Jun 30, Mar 31,
fleet data) 2013 2013 2013 2013
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Well Servicing:
Coil Well Service 36,150 33,037 9,433 49,621
Service Rigs 25,593 23,870 14,732 33,556
Other (i) - - - -
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Total well servicing 61,743 56,907 24,165 83,177
Downhole Tools & Rentals (ii) 31,560 28,185 14,252 37,342
Inter-segment eliminations (480) (582) - -
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Total revenue 92,823 84,510 38,417 120,519
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Gross margin 25,332 21,414 (1,310) 37,832
Gross margin % 27% 25% (3)% 31%
EBITDA(1) 20,705 17,132 (5,171) 33,426
EBITDA %(1) 22% 20% (13)% 28%
Continuing operations
Net income (loss) 9,478 4,292 (8,958) 19,205
Per share - basic and diluted $0.07 $0.03 $(0.07) $0.15
Net income (loss) attributable to
shareholders of Essential 11,126 3,843 (11,501) 18,627
Per share - basic and diluted $0.09 $0.03 $(0.09) $0.15
Total assets 423,963 409,613 380,728 436,301
Total long-term debt 39,027 40,484 14,592 35,603
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Utilization (iii)
Coil tubing rigs - deep 74% 73% 18% 110%
Pumpers 55% 47% 14% 73%
Service rigs 53% 50% 28% 69%
Operating Hours
Coil tubing rigs - deep 18,257 17,724 4,125 24,765
Pumpers 16,612 14,418 4,241 20,481
Service rigs 26,557 25,084 14,234 34,364
Downhole Tools & Rentals - revenue %
of total
Tryton MSFS(R) 55% 55% 40% 60%
Conventional Tools & Rentals 45% 45% 60% 40%
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Equipment fleet (iv)
Canada
Masted deep coil tubing rigs 15 15 14 14
Conventional deep coil tubing rigs 12 12 11 11
Coil tubing rigs - other 18 18 19 19
Service rigs 55 54 56 56
Nitrogen pumpers 14 15 15 13
Fluid pumpers 18 18 18 18
Rod rigs 13 12 14 14
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SUMMARY OF QUARTERLY DATA
(Thousands of dollars, except per
share amounts, percentages and Dec 31, Sep 30, Jun 30, Mar 31,
fleet data) 2012 2012 2012 2012
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Well Servicing:
Coil Well Service 41,228 33,857 18,697 42,414
Service Rigs 26,012 20,552 15,564 33,311
Other (i) 786 2,762 1,069 7,206
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Total well servicing 68,026 57,171 35,330 82,931
Downhole Tools & Rentals (ii) 27,989 26,342 15,540 35,251
Inter-segment eliminations - - - -
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Total revenue 96,015 83,513 50,870 118,182
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Gross margin 27,039 23,012 3,904 36,740
Gross margin % 28% 28% 8% 31%
EBITDA(1) 22,368 19,261 (42) 32,755
EBITDA %(1) 23% 23% 0% 28%
Continuing operations
Net income (loss) 8,050 8,343 (5,453) 19,823
Per share - basic and diluted $0.06 $0.07 $(0.04) $0.16
Net income (loss) attributable to
shareholders of Essential 678 8,660 (5,923) 18,893
Per share - basic and diluted $0.01 $0.07 $(0.05) $0.15
Total assets 406,853 415,653 393,377 430,674
Total long-term debt 35,563 50,474 41,198 57,238
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Utilization (iii)
Coil tubing rigs - deep 95% 79% 32% 102%
Pumpers 57% 50% 33% 69%
Service rigs 54% 45% 34% 68%
Operating Hours
Coil tubing rigs - deep 22,777 18,301 7,262 23,236
Pumpers 15,328 11,919 7,504 13,865
Service rigs 27,310 22,632 16,183 35,188
Downhole Tools & Rentals - revenue %
of total
Tryton MSFS(R) 51% 52% 40% 47%
Conventional Tools & Rentals 49% 48% 60% 53%
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Equipment fleet (iv)
Canada
Masted deep coil tubing rigs 16 16 16 16
Conventional deep coil tubing rigs 11 10 9 9
Coil tubing rigs - other 19 19 20 24
Service rigs 55 55 53 58
Nitrogen pumpers 13 10 10 10
Fluid pumpers 18 16 16 15
Rod rigs 14 14 14 14
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(i) Other revenue included revenue from Essential's drilling operation
until its disposal in November 2012.
(ii) Revenue for Downhole Tools & Rentals included revenue from Essential's
wireline business which was disposed of in February 2012.
(iii) Utilization is calculated using a 10 hour day.
(iv) Fleet data represents the number of units at the end of the period.
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
December 31
(Thousands) 2013 2012
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Assets
Current
Trade and other accounts receivable $ 76,640 $ 71,835
Inventories 27,979 20,699
Prepayments 3,326 3,306
----------------------------------------------------------------------------
107,945 95,840
----------------------------------------------------------------------------
Non-current
Property and equipment 230,292 211,304
Intangible assets 30,712 36,555
Goodwill 55,014 55,014
----------------------------------------------------------------------------
316,018 302,873
Assets held for sale - 8,140
----------------------------------------------------------------------------
Total assets $ 423,963 $ 406,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness $ 2,112 $ 1,835
Trade and other payables 36,161 32,354
Dividends payable 3,765 3,100
Income taxes payable 3,381 305
Current portion of long-term debt 7,603 -
----------------------------------------------------------------------------
53,022 37,594
----------------------------------------------------------------------------
Non-current
Long-term debt 31,424 35,563
Deferred tax liabilities 26,360 29,560
----------------------------------------------------------------------------
57,784 65,123
Liabilities held for sale - 1,731
----------------------------------------------------------------------------
Total liabilities 110,806 104,448
----------------------------------------------------------------------------
Equity
Share capital 262,177 258,772
Retained earnings 46,622 38,276
Other reserves 4,358 5,363
----------------------------------------------------------------------------
Equity attributable to shareholders of
Essential 313,157 302,411
Non-controlling interest - (6)
----------------------------------------------------------------------------
Total equity 313,157 302,405
----------------------------------------------------------------------------
Total liabilities and equity $ 423,963 $ 406,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF NET INCOME AND COMPREHENSIVE INCOME
For the years ended
December 31
(Thousands, except per share amounts) 2013 2012
----------------------------------------------------------------------------
Revenue $ 336,269 $ 348,580
Operating expenses 253,001 257,885
----------------------------------------------------------------------------
Gross margin 83,268 90,695
General and administrative expenses 17,176 16,353
----------------------------------------------------------------------------
66,092 74,342
Depreciation and amortization 26,710 26,325
Share-based compensation 2,038 1,902
Other expense 4,385 1,648
----------------------------------------------------------------------------
Operating profit from continuing operations 32,959 44,467
Finance costs 1,634 2,177
----------------------------------------------------------------------------
Net income before income tax from continuing
operations 31,325 42,290
Current income tax expense 10,508 6,567
Deferred income tax expense (recovery) (3,200) 4,959
----------------------------------------------------------------------------
Total income tax expense 7,308 11,526
----------------------------------------------------------------------------
Net income from continuing operations 24,017 30,764
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Loss from discontinued operations, net of tax (2,110) (8,901)
----------------------------------------------------------------------------
Net income 21,907 21,863
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Unrealized foreign exchange loss from
continuing operations (54) -
Unrealized foreign exchange gain (loss) from
discontinued operations (224) 1,431
Reclassification of foreign exchange from
discontinued operations (664) -
----------------------------------------------------------------------------
Other comprehensive income (loss) (942) 1,431
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income 20,965 23,294
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) attributable to:
Shareholders of Essential $ 22,095 $ 22,308
Non-controlling interest (188) (445)
----------------------------------------------------------------------------
$ 21,907 $ 21,863
----------------------------------------------------------------------------
Comprehensive income (loss) attributable to:
Shareholders of Essential $ 21,153 $ 23,669
Non-controlling interest (188) (375)
----------------------------------------------------------------------------
$ 20,965 $ 23,294
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income per share from continuing
operations
Basic and diluted, attributable to
shareholders of Essential $ 0.19 $ 0.25
Net income per share
Basic, attributable to shareholders of
Essential $ 0.18 $ 0.18
Diluted, attributable to shareholders of
Essential $ 0.17 $ 0.18
Comprehensive income per share
Basic and diluted, attributable to
shareholders of Essential $ 0.17 $ 0.19
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the years ended
December 31
(Thousands) 2013 2012
----------------------------------------------------------------------------
Operating activities:
Net income from continuing operations $ 24,017 $ 30,764
Non-cash adjustments to reconcile net income
for the year to operating cash flow:
Depreciation and amortization 26,710 26,325
Deferred income tax expense (recovery) (3,200) 4,959
Share-based compensation 1,177 1,902
Provision (recovery) for impairment of trade
accounts receivable 810 (87)
Finance costs 1,634 2,177
Write-off of vendor deposit 3,567 -
Loss on disposal of assets 1,322 2,158
----------------------------------------------------------------------------
Operating cash flow before changes in working
capital 56,037 68,198
Change in non-cash operating working capital:
Trade and other accounts receivable before
provision (6,708) 10,556
Inventories (7,280) (2,879)
Prepayments (20) (531)
Trade and other accounts payable (2,358) (9,987)
Current taxes payable 4,119 (4,822)
----------------------------------------------------------------------------
Net cash provided by operating activities from
continuing operations 43,790 60,535
----------------------------------------------------------------------------
Investing activities:
Purchase of property, equipment and
intangibles (46,600) (51,762)
Non-cash investing working capital in trade
and other accounts payable 5,873 3,567
Proceeds on disposal of equipment 2,657 24,876
Proceeds from sale of assets held for sale 3,063 -
----------------------------------------------------------------------------
Net cash used in investing activities from
continuing operations (35,007) (23,319)
----------------------------------------------------------------------------
Financing activities:
Borrowings (repayment) in long-term debt 3,464 (27,251)
Proceeds from exercise of share options 3,389 695
Repurchase of shares (1,226) -
Dividends paid (13,083) (9,290)
Finance costs (1,634) (2,177)
----------------------------------------------------------------------------
Net cash used in financing activities from
continuing operations (9,090) (38,023)
----------------------------------------------------------------------------
Foreign exchange loss gain on cash held in a
foreign currency 30 77
----------------------------------------------------------------------------
Net decrease in cash (277) (730)
Bank indebtedness, beginning balance,
discontinued operations - (1,269)
Cash (bank indebtedness), beginning of the
year (1,835) 164
----------------------------------------------------------------------------
Bank indebtedness, end of year $ (2,112) $ (1,835)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Supplemental cash flow information
Cash taxes paid $ 6,370 $ 11,506
Cash interest and standby fees paid 1,402 1,897
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2013 FOURTH QUARTER AND YEAR END EARNINGS CONFERENCE CALL AND WEBCAST
Essential has scheduled a conference call and webcast at 10:00 am MT (12:00 pm
ET) on March 6, 2014.
The conference call dial in numbers are 416-340-2217 or 866-696-5910, passcode
7179989.
An archived recording of the conference call will be available approximately one
hour after completion of the call until March 22, 2014 by dialing 905-694-9451
or 800-408-3053, passcode 1051594.
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
Multi-Stage Fracturing System (Tryton MSFS(R)). 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, 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 second half of 2014 may include: a weaker Canadian dollar which
would increase E&P cash flows, improved access to equity capital markets for E&P
companies and rising natural gas prices, 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), the addition of the new masted deep coil tubing rigs
will position Essential to benefit from the rising demand to complete complex,
long-reach horizontal wells, horizontal oil wells will require work-over
services thereby increasing the demand for service rigs, the downhole tool
operations in the United States will be cash flow positive in 2014, the new
generation masted deep coil tubing rigs have the capability to work on
long-reach horizontal wells and are well-suited to work in deep, high pressure
basins including the Montney, Horn River and Duvernay, Essential does not
anticipate any financial resource or liquidity issues to restrict its future
operating, investing or financing activities, and does not anticipate any issues
with renewal of the credit facility in 2014.
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 under "Risks and
Uncertainties" in this news release, 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 other unforeseen conditions associated with the sale of the
Colombian business; 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Essential Energy Services Ltd.
Garnet K. Amundson
President and CEO
(403) 513-7272
service@essentialenergy.ca
Essential Energy Services Ltd.
Karen Perasalo
Investor Relations
(403) 513-7272
service@essentialenergy.ca
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