CALGARY, AB, Nov. 5, 2020 /CNW/ -
THIRD QUARTER HIGHLIGHTS
- Revenue for the third quarter of 2020 was $156.9 million, a 60 percent decrease from the
third quarter of 2019 revenue of $393.4
million.
- Revenue by geographic area:
-
- Canada - $21.8 million, 14 percent of total;
- United States - $83.3 million, 53 percent of total; and
- International - $51.8 million, 33
percent of total.
- Canadian drilling recorded 686 operating days in the third
quarter of 2020, a 71 percent decrease from 2,354 operating days in
the third quarter of 2019. Canadian well servicing recorded 5,556
operating hours in the third quarter of 2020, a 52 percent decrease
from 11,574 operating hours in the third quarter of 2019.
- United States drilling
recorded 1,437 operating days in the third quarter of 2020, a 77
percent decrease from 6,382 operating days in the third quarter of
2019. United States well servicing
recorded 21,682 operating hours in the third quarter of 2020, a 26
percent decrease from 29,416 operating hours in the third quarter
of 2019.
- International drilling recorded 790 operating days in the third
quarter of 2020, a 44 percent decrease from 1,403 operating days
recorded in third quarter of 2019.
- Adjusted EBITDA for the third quarter of 2020 was $39.5 million, a 60 percent decrease from
Adjusted EBITDA of $97.9 million for
the third quarter of 2019.
- Funds flow from operations for the third quarter of 2020
decreased 65 percent to $29.8 million
from $85.5 million in the third
quarter of the prior year.
- During the third quarter of 2020, the Company completed the
acquisition of Halliburton's 40 percent ownership interest of the
Trinidad Drilling International ("TDI") joint venture. The
40 percent ownership interest, inclusive of working capital of
$20.2 million in the TDI joint
venture, was purchased with the Company's cash on hand for US
$33.4 million. With this acquisition,
the Company now owns 100 percent of TDI.
- During the third quarter of 2020, the Company received a
$4.2 million Canada Emergency Wage Subsidy ("CEWS")
payment from the Government of Canada and a $3.2
million wage subsidy from the Government of Australia. The wage subsidies received
partially offset the decrease in Adjusted EBITDA and net loss
attributable to common shareholders.
- During the third quarter of 2020, the Company recognized
$5.6 million of idle but contracted
rig revenue and $8.7 million of
contract cancellation or early termination fees. As the Company
moves through the remainder of 2020 and into 2021 the amount of
such fees and idle but contracted revenue will reduce
quarter-over-quarter.
- Net capital purchases for the third quarter of 2020 were
$3.2 million consisting $5.5 million in maintenance capital, offset by
proceeds of $2.3 million from
disposals. Planned capital expenditures for the 2020 year remain at
$50.0 million, of which approximately
$40.0 million will be maintenance
capital.
- General and administrative expense decreased 21 percent to
$9.2 million for the third quarter of
2020 from $11.6 million for the third
quarter of 2019.
- Over the third quarter of 2020, US $51.2
million face value of our Senior Notes were repurchased by
the Company in the open market for cancellation, recognizing a gain
of $40.1. million. Subsequent to
September 30, 2020, the Company
repurchased US $26.1 million face
value of the Senior Notes, in the open market, for cancellation. A
gain on the repurchase of $21.8
million (US $16.4 million)
will be recognized in the fourth quarter of 2020.
- Total debt for the third quarter of 2020 decreased
year-over-year by $159.4 million to
$1,474.3 million as of September 30, 2020 from $1,633.7 million as of September 30, 2019. The decrease in aggregate
debt was partially offset by $10.0
million due to foreign currency exchange fluctuations.
- The Company's available liquidity consisting of cash and
available borrowings under its revolving credit facility was
$181.4 million at September 30, 2020.
- Subject to market conditions during the remainder of 2020, it
is likely that the Company will be required to enter into
discussions with its Credit Facility syndicate to amend covenants
under the Credit Facility which otherwise may be susceptible to
breach in the last quarter of 2020.
OVERVIEW
Revenue for the third quarter of 2020 was $156.9 million, a decrease of 60 percent from
revenue for the third quarter of 2019 of $393.4 million. Revenue for the nine months ended
September 30, 2020 was $735.6 million, a decrease of 40 percent from
revenue for the nine months ended September
30, 2019 of $1,215.9
million.
Adjusted EBITDA totaled $39.5
million ($0.24 per common
share) in the third quarter of 2020, 60 percent lower than Adjusted
EBITDA of $97.9 million ($0.62 per common share) in the third quarter of
2019. For the first nine months of 2020, Adjusted EBITDA totaled
$188.8 million ($1.16 per common share), 40 percent lower than
Adjusted EBITDA of $317.1 million
($2.01 per common share) in the first
nine months of 2019.
Net loss attributable to common shareholders for the third
quarter of 2020 was $36.1 million
($0.23 per common share) compared to
a net loss attributable to common shareholders of $37.6 million ($0.24 per common share) for the third quarter of
2019. Net loss attributable to common shareholders for the nine
months ended September 30, 2020 was
$82.4 million ($0.51 per common share), compared to net loss
attributable to common shareholders of $91.3
million ($0.58 per common
share) for the nine months ended September
30, 2019.
During the third quarter of 2020, the Company completed the
acquisition of Halliburton's 40 percent ownership interest of the
Trinidad Drilling International ("TDI") joint venture. The
40 percent ownership interest, inclusive of working capital of
$20.2 million in the TDI joint
venture, was purchased with the Company's cash on hand for US
$33.4 million. With this acquisition,
the Company now owns 100 percent of TDI.
During the third quarter of 2020, the Company received a
$4.2 million Canada Emergency Wage Subsidy
("CEWS") from the Government of Canada and a $3.2
million wage subsidy from the Government of Australia. For nine months of 2020, the
Company received a $7.8 million CEWS
from the Government of Canada and
$4.7 million wage subsidy from the
Government of Australia. For three
and nine month ending September 30,
2020, the wage subsidies received partially offset the
decrease in Adjusted EBITDA and net loss attributable to common
shareholders.
Funds flow from operations decreased 65 percent to $29.8 million ($0.18 per common share) in the third quarter of
2020 compared to $85.5 million
($0.54 per common share) in the third
quarter of the prior year. Funds flow from operations decreased 50
percent to $140.6 million
($0.86 per common share) in the first
nine months of 2020 compared to $282.7
million ($1.78 per common
share) in the first nine months of the prior year.
On March 11, 2020, the World
Health Organization ("WHO") declared the novel coronavirus
("COVID-19") a global pandemic due to the sustained risk of
worldwide spread of the virus. Governments and health authorities
around the world implemented a wide variety of measures to combat
the spread of the virus, including travel restrictions, business
closures, social distancing, public gathering restrictions,
stay-at-home orders and event cancellations. The impact of these
measures led to a significant slow-down in global economic activity
that subsequently reduced the demand for crude oil and natural gas.
The significant reduction in demand contributed to a steep and
rapid decline in global crude oil and natural gas prices earlier
this year. Furthermore, the demand decline further challenged
commodity prices already reeling from a market share and oil price
war between certain crude oil producing nations. The full magnitude
and duration of the impact of these events on global economies and
the oil and natural gas industry remains uncertain.
Over the course of the third quarter, stay-at-home related
restrictions continued to ease globally, increasing the demand for
crude oil and natural gas over the quarter. OPEC+ nations curtailed
crude oil supply in addition to producer led production
curtailments resulted in improved supply and demand fundamentals
over the quarter. Improved fundamentals resulted in relatively
stabilized crude oil commodity prices over the third quarter. As a
result, drilling and completions activity stabilized and improved
modestly.
Over the short term, there is a high degree of uncertainty
regarding the macroeconomic conditions that will impact our
business that include the pathway of the COVID-19 pandemic,
COVID-19 mitigation strategies, such as stay-at-home orders and
lockdown related restrictions, the degree and impact of COVID-19
mitigation strategies and other factors on demand for crude oil and
natural gas, commodity prices and the demand for oilfield
services.
Early in March 2020, in response
to the COVID-19 pandemic, the Company implemented rigorous measures
across its global operations to ensure the safety of its
operations, the health of its employees and the continuity of its
business. These measures include, but are not limited to, remote
work where possible, fitness for work screening for employees,
contractors and any third parties on site, restricted travel
policies and aggressive hygiene practices and disinfecting
protocols in accordance with WHO and local jurisdiction guidelines.
Across the Company's global operations, these proactive measures
have facilitated the safe continuity and reliability of its
operations in the field and an orderly transition to remote work
for our office employees. Furthermore, the Company has implemented
regional Emergency Response Groups to respond to any incidents.
These measures continue to be in place as the Company monitors
local government recommendations and public health guidelines,
prioritizing the health and safety of its workforce.
The Company's operating days were lower in the third quarter of
2020 when compared to the same period in 2019 as the significant
impacts of the COVID-19 pandemic, subsequent restrictions and
impact on global crude oil demand resulted in severe downward
pressure on the short-term demand for the Company's services.
Customers continue to respond to the fluid environment by
curtailing capital expenditures and cautiously revisiting drilling
programs.
The strengthening year-over-year of the United States dollar against the Canadian
dollar partially offset the decrease in the financial results on
translation to Canadian dollars. The average United States dollar exchange rate was
$1.35 for the first nine months of
2020 (2019 - $1.33) versus the
Canadian dollar, an increase of two percent, compared to the same
period of 2019. The acquisition of Halliburton's 40 percent
ownership interest in TDI, with the effective date of July 16, 2020, also partially offset the decrease
in financial and operational results.
Working capital at September 30, 2020 was a surplus of
$80.2 million, compared to a surplus
of $127.0 million at December 31, 2019. The Company's available
liquidity, consisting of cash and available borrowings under its
$900.0 million revolving credit
facility (the "Credit Facility"), was $181.4 million at September 30,
2020.
This news release contains "forward-looking information and
statements" within the meaning of applicable securities
legislation. For a full disclosure of the forward-looking
information and statements and the risks to which they are subject,
see the "Advisory Regarding Forward-Looking Statements" later in
this news release. This news release contains references to
Adjusted EBITDA and Adjusted EBITDA per common share. These
measures do not have any standardized meaning prescribed by IFRS
and accordingly, may not be comparable to similar measures used by
other companies. The non-GAAP measures included in this news
release should not be considered as an alternative to, or more
meaningful than, the IFRS measure from which they are derived or to
which they are compared. See "Non-GAAP Measures" later in this news
release.
FINANCIAL AND OPERATING HIGHLIGHTS
(Unaudited, in thousands of Canadian dollars, except per
common share data and operating information)
|
Three months ended
September 30
|
Nine months ended
September 30
|
2020
|
2019
|
% change
|
2020
|
2019
|
% change
|
Revenue
1
|
$
|
156,933
|
$
|
393,412
|
(60)
|
$
|
735,553
|
$
|
1,215,928
|
(40)
|
Adjusted EBITDA
1,2
|
39,476
|
97,943
|
(60)
|
188,783
|
317,064
|
(40)
|
Adjusted EBITDA per
common share 1,2
|
|
|
|
|
|
|
Basic
|
$0.24
|
$0.62
|
(61)
|
$1.16
|
$2.01
|
(42)
|
Diluted
|
$0.24
|
$0.62
|
(61)
|
$1.16
|
$2.01
|
(42)
|
Net loss attributable
to common shareholders
|
(36,094)
|
(37,770)
|
4
|
(82,421)
|
(91,290)
|
10
|
Net loss per common
share
|
|
|
|
|
|
|
Basic
|
$(0.23)
|
$(0.24)
|
4
|
$(0.51)
|
$(0.58)
|
12
|
Diluted
|
$(0.23)
|
$(0.24)
|
4
|
$(0.51)
|
$(0.58)
|
12
|
Cash provided by
operating activities 1
|
39,417
|
109,421
|
(64)
|
229,581
|
277,020
|
(17)
|
Funds flow from
operations 1
|
29,802
|
85,523
|
(65)
|
140,635
|
282,722
|
(50)
|
Funds flow from
operations per common share 1
|
|
|
|
|
|
|
Basic
|
$0.18
|
$0.54
|
(67)
|
$0.86
|
$1.78
|
(52)
|
Diluted
|
$0.18
|
$0.54
|
(67)
|
$0.86
|
$1.78
|
(52)
|
Total long term
debt
|
1,474,307
|
1,633,736
|
(10)
|
1,474,307
|
1,633,736
|
(10)
|
Weighted average
common shares - basic (000s)
|
162,728
|
158,667
|
3
|
162,629
|
158,513
|
3
|
Weighted average
common shares - diluted (000s)
|
162,957
|
158,738
|
3
|
162,901
|
158,621
|
3
|
Drilling
|
2020
|
2019
|
% change
|
2020
|
2019
|
% change
|
Number of marketed
rigs 3
|
|
|
|
|
|
|
Canada
4
|
101
|
118
|
(14)
|
101
|
118
|
(14)
|
United
States
|
122
|
134
|
(9)
|
122
|
134
|
(9)
|
International
5
|
48
|
43
|
12
|
48
|
43
|
12
|
Total
|
271
|
295
|
(8)
|
271
|
295
|
(8)
|
|
|
|
|
|
|
|
Operating days
6
|
|
|
|
|
|
|
Canada
4
|
686
|
2,354
|
(71)
|
4,165
|
6,732
|
(38)
|
United
States
|
1,437
|
6,382
|
(77)
|
8,791
|
19,489
|
(55)
|
International
5
|
790
|
1,403
|
(44)
|
2,922
|
3,928
|
(26)
|
Total
|
2,913
|
10,139
|
(71)
|
15,878
|
30,149
|
(47)
|
Well
Servicing
|
2020
|
2019
|
% change
|
2020
|
2019
|
% change
|
Number of
rigs
|
|
|
|
|
|
|
Canada
|
52
|
55
|
(5)
|
52
|
55
|
(5)
|
United
States
|
47
|
47
|
—
|
47
|
47
|
—
|
Total
|
99
|
102
|
(3)
|
99
|
102
|
(3)
|
Operating
hours
|
|
|
|
|
|
|
Canada
|
5,556
|
11,574
|
(52)
|
21,383
|
35,072
|
(39)
|
United
States
|
21,682
|
29,416
|
(26)
|
72,252
|
86,741
|
(17)
|
Total
|
27,238
|
40,990
|
(34)
|
93,635
|
121,813
|
(23)
|
1.
|
Comparative
revenue, Adjusted EBITDA, Adjusted EBITDA per common share, cash
provided by operating activities, funds flow from operations and
funds flow from operations per common share have been revised to
conform with current year's presentation.
|
2.
|
Refer to Adjusted
EBITDA calculation in Non-GAAP Measures
|
3.
|
Total owned rigs:
Canada - 118, United States - 138, International - 53 (2019 Total
owned rigs: Canada - 135, United States - 152, International -
48)
|
4.
|
Excludes coring
rigs.
|
5.
|
Includes workover
rigs and former TDI joint venture drilling rigs, effective July 16,
2020.
|
6.
|
Defined as
contract drilling days, between spud to rig release.
|
FINANCIAL POSITION AND CAPITAL EXPENDITURES
HIGHLIGHTS
As at ($
thousands)
|
September 30
2020
|
September 30
2019
|
December 31
2019
|
Working
capital1
|
80,194
|
140,087
|
126,987
|
Cash
|
56,973
|
36,540
|
28,408
|
Long-term
debt
|
1,474,307
|
1,633,736
|
1,581,529
|
Total long-term
financial liabilities
|
1,481,795
|
1,651,674
|
1,591,047
|
Total
assets
|
3,242,768
|
3,668,970
|
3,470,601
|
Long-term debt to
long-term debt plus equity ratio
|
0.51
|
0.51
|
0.52
|
1 See Non-GAAP Measures
section.
|
|
Three months ended
September 30
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
2020
|
2019
|
% change
|
Capital
expenditures
|
|
|
|
|
|
|
Upgrade/growth
|
—
|
32,695
|
nm
|
10,013
|
86,345
|
(88)
|
Maintenance
|
5,539
|
5,659
|
(2)
|
35,197
|
25,287
|
39
|
Proceeds
from disposals or property and equipment
|
(2,308)
|
(3,295)
|
(30)
|
(23,458)
|
(32,915)
|
(29)
|
Net capital
expenditures
|
3,231
|
35,059
|
(91)
|
21,752
|
78,717
|
(72)
|
nm - calculation
not meaningful
|
REVENUE AND OILFIELD SERVICES EXPENSE
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Revenue
1
|
|
|
|
|
|
|
|
Canada
|
21,838
|
65,158
|
(66)
|
|
135,987
|
222,178
|
(39)
|
United
States
|
83,263
|
252,683
|
(67)
|
|
426,401
|
787,227
|
(46)
|
International
|
51,832
|
75,571
|
(31)
|
|
173,165
|
206,523
|
(16)
|
Total revenue
1
|
156,933
|
393,412
|
(60)
|
|
735,553
|
1,215,928
|
(40)
|
|
|
|
|
|
|
|
|
Oilfield services
expense 1
|
108,716
|
285,928
|
(62)
|
|
521,493
|
867,868
|
(40)
|
1. Comparative
revenue and oilfield services expense have been revised to conform
with current year's presentation.
|
Revenue for the three months ended September 30, 2020
totaled $156.9 million, a decrease of
60 percent from the third quarter of 2019 of $393.4 million. Revenue for the nine months ended
September 30, 2020 totaled $735.6
million, a 40 percent decrease from the nine months ended
September 30, 2019.
The decrease in total revenue during the first nine months of
2020 was due to the oil price and market share war between certain
crude oil producing nations followed by the significant and adverse
impact of the COVID-19 pandemic on the oil and natural gas
industry. The fallout from the pandemic led to a significant drop
in demand for crude oil and natural gas, further challenging an
already over-supplied commodity market. The steep declines in
demand and continued oversupply have resulted in a significant
activity slowdown for oilfield services, particularly in
the United States and Canadian
operating regions.
The financial results from the Company's United States and international operations
were positively impacted on currency translation, as the United States dollar strengthened relative
to the Canadian dollar in the first nine months of 2020.
CANADIAN OILFIELD SERVICES
Revenue decreased 66 percent to $21.8
million for the three months ended September 30, 2020
from $65.2 million for the three
months ended September 30, 2019. The Company recorded revenue
of $136.0 million in Canada for the nine months ended
September 30, 2020, a decrease of 39 percent from $222.2 million recorded for the nine months ended
September 30, 2019.
Canadian revenues accounted for 14 percent of the Company's
total revenue in the third quarter of 2020 (2019 - 17 percent) and
18 percent (2019 - 18 percent) for the nine months ended
September 30, 2020. During the third
quarter of 2020, the Company recognized $1.1
million of idle but contracted rig revenue (2019 -$
nil).
The Company's Canadian drilling operations recorded 686
operating days in the third quarter of 2020, compared to 2,354
operating days for the third quarter of 2019, a decrease of 71
percent. For the nine months ended September 30, 2020, the
Company recorded 4,165 operating days compared to 6,732 drilling
days for the nine months ended September 30, 2019, a decrease
of 38 percent. Canadian well servicing hours decreased by 52
percent to 5,556 operating hours in the third quarter of 2020
compared to 11,574 operating hours in the corresponding period of
2019. For the nine months ended September 30, 2020, well
servicing hours decreased by 39 percent to 21,383 operating hours
compared with 35,072 operating hours for the nine months ended
September 30, 2019.
The operating and financial results for the Company's Canadian
operations were significantly and negatively impacted during the
first nine months of 2020 due to the macroeconomic and industry
conditions seen since March of this year including but not limited
to, the impact of the COVID-19 pandemic and subsequent lockdown
related restrictions resulting in decreased demand for crude oil
and increased market supply.
UNITED STATES OILFIELD
SERVICES
The Company's United States
operations recorded revenue of $83.3 million in the third
quarter of 2020, a decrease of 67 percent from the $252.7 million recorded in the corresponding
period of the prior year. During the nine months ended
September 30, 2020, revenue of $426.4
million was recorded, a decrease of 46 percent from the
$787.2 million recorded in the
corresponding period of the prior year.
The Company's United States
operations accounted for 53 percent of the Company's revenue in the
third quarter of 2020 (2019 - 64 percent) and 58
percent of the Company's revenue in the first nine months of
2020 (2019 - 65 percent). In the United States, the Company recognized US
$2.9 million of idle but contracted
rig revenue and US $6.4 million of
contract early termination or cancellation fees in the third
quarter of 2020 (2019 - $ nil). The Company recognized US
$7.0 million of idle but contracted
rig revenue and US $19.6 million of
contract cancellation fees in the first nine months of 2020 (2019 -
$ nil).
Drilling rig operating days decreased to 1,437 operating days in
the third quarter of 2020 from 6,382 operating days in the third
quarter of 2019, and to 8,791 operating days in first nine months
of 2020 from 19,489 operating days in the first nine months of
2019. Well servicing activity, expressed in operating hours,
decreased by 26 percent in the third quarter of 2020 to 21,682
operating hours from 29,416 operating hours in the third quarter of
2019. For the nine months ended September 30, 2020 well
servicing activity decreased 17 percent to 72,252 operating hours
from 86,741 operating hours in the first nine months of 2019.
The operating and financial results for the Company's
United States operations were also
significantly and negatively impacted during the first nine months
of 2020 due to the macroeconomic and industry conditions seen this
year.
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of
$51.8 million in the third quarter of
2020, a 31 percent decrease from the $75.6 million recorded in the corresponding
period of the prior year. International revenues for the nine
months ended September 30, 2020, decreased 16 percent to
$173.2 million from $206.5 million recorded in the nine months ended
September 30, 2019.
The Company's international operations contributed 33 percent of
the total revenue in the third quarter of 2020 (2019 - 19 percent)
and 24 percent of the Company's revenue in the first nine months of
2020 (2019 - 17 percent). During the first three and nine months of
2020 the Company's international operations recognized US
$0.4 million (2019 - $ nil)
and US $7.5 million (2019 - $
nil) of idle but contracted rig revenue respectively.
International operating days for the three months ended
September 30, 2020, totaled 790 operating days compared to
1,403 operating days in the same period of 2019, a decrease of 44
percent. For the nine months ended September 30, 2020,
international operating days totaled 2,922 operating days compared
to 3,928 operating days for the nine months ended
September 30, 2019, a decrease of 26 percent.
Similar to our North American operations, international
operating and financial results were also negatively impacted by
industry conditions seen this year. The acquisition of TDI joint
venture during the quarter partially offset the declines in
operating activity.
JOINT VENTURE
During the third quarter of 2020, the Company completed the
acquisition of Halliburton's 40 percent ownership interest in the
TDI joint venture. The 40 percent ownership interest, inclusive of
working capital of $20.2 million in
TDI joint venture, was purchased with the Company's cash on hand
for US $33.4 million. With this
acquisition, the Company now owns 100 percent of TDI. The
acquisition was accounted for as a business combination using the
acquisition method whereby the net assets and liabilities assumed
are recorded at fair value.
The preliminary purchase price allocation is based on
management's best estimates of the fair value of TDI's assets and
liabilities as at the Effective Acquisition Date of July 16, 2020, although future adjustments to
estimates may be required. If new information is obtained within
one year from the acquisition date about facts and circumstances
that existed as at the Effective Acquisition Date and which
reasonably requires adjustments to above amounts, or any additions
to provisions that existed at the Effective Acquisition Date, then
the accounting at acquisition will be revised.
Amounts below are presented at 100 percent of the value included
in the statement of operations and comprehensive (loss) income for
TDI joint venture up to the date of acquisition by the Company.
Prior to July 16, 2020, the Company
owned 60 percent of the shares of TDI joint venture and each of the
parties had equal voting rights. The former joint venture had been
considered to be a financial asset and fair valued the instrument
through the consolidated statement of loss (income).
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Revenue
|
2,858
|
17,589
|
(84)
|
|
38,514
|
40,973
|
(6)
|
Net income
|
704
|
(4,537)
|
nm
|
|
(2,247)
|
(3,376)
|
(33)
|
Drilling operating
days
|
48
|
216
|
(78)
|
|
535
|
421
|
27
|
nm - calculation
not meaningful
|
In the three months ended September 30,
2020, up to the date of the acquisition of July 16, 2020, TDI joint venture recorded revenue
of $2.9 million (2019 - $17.6 million) and operating days totaled 48
(2019 - 216). For the nine months ended September 30, 2020, TDI joint venture recorded
revenue of $38.5 million (2019 -
$41.0 million). For the nine months
of 2020, TDI joint venture operating days totaled 535 (2019 - 421).
The decrease in revenue and operating days during the period was
due to the acquisition of the remaining 40 percent interest in TDI
joint venture, which effective July 16,
2020, is consolidated within the financial and operating
results of the Company.
DEPRECIATION
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Depreciation
|
96,417
|
92,410
|
4
|
|
278,367
|
269,607
|
3
|
Depreciation expense totaled $96.4
million for the third quarter of 2020 compared with
$92.4 million for the third quarter
of 2019, an increase of four percent. Depreciation expense for the
nine months ended September 30, 2020
increased by three percent, to $278.4
million compared with $269.6
million in nine months of 2019. The increase to depreciation
expense was the result of depreciating newly acquired property and
equipment and a higher foreign exchange rate on United States dollar denominated property and
equipment values.
GENERAL AND ADMINISTRATIVE
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
General and
administrative
|
9,207
|
11,587
|
(21)
|
|
31,752
|
41,602
|
(24)
|
% of
revenue
|
5.9
|
2.9
|
|
|
4.3
|
3.4
|
|
General and administrative expenses decreased 21 percent to
$9.2 million (5.9 percent of revenue)
for the third quarter of 2020 compared to $11.6 million (2.9 percent of revenue) for the
third quarter of 2019. For the nine months ended September 30,
2020, general and administrative expense totaled $31.8 million (4.3 percent of revenue) compared
to $41.6 million (3.4 percent of
revenue) for the nine months ended September
30, 2019. General and administrative expenses decreased as a
result of cost saving initiatives, the wage subsidy received from
the Government of Canada and
organizational restructuring. The decrease was partially offset by
$0.5 million in accounts receivable
write-offs recorded in the nine months ending September 30, 2020 (2019 -$ nil).
In light of the current operating environment, the Company took
further steps to reduce overhead costs by reducing the salaries of
employees. The Company's named executive officers' salaries were
reduced by 40 percent for the Chairman, 20 percent for the
President and Chief Operating Officer and 12.5 percent for the
other named executive officers, all effective April 1, 2020.
In addition, the annual base cash and equity retainers for
independent members of the Board of Directors have been reduced,
also effective April 1, 2020, by 20 and 40 percent
respectively. Such reductions reflect the Company's belief in the
importance of continued cost control in light of the current
oilfield services industry outlook. The Company has and will
continue to consider additional means of reducing overhead and
operating costs.
RESTRUCTURING
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Restructuring
|
4,208
|
1,692
|
nm
|
|
11,594
|
11,089
|
5
|
nm - calculation
not meaningful
|
Restructuring expense totaled $4.2
million for the third quarter of 2020 (2019 - $1.7 million). For the nine months ended
September 30, 2020, restructuring
costs were $11.6 million (2019 -
$11.1 million). Restructuring expense
consists of costs relating to the organizational restructuring of
the Company due to the significant decline in activity. Additional
costs are expected to be incurred in subsequent quarters as the
Company continues to adjust to the current operating
environment.
FOREIGN EXCHANGE AND OTHER (GAIN) LOSS
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Foreign exchange and
other (gain) loss
|
(1,598)
|
13,670
|
nm
|
|
3,062
|
20,753
|
(85)
|
nm - calculation
not meaningful
|
Included in this amount is the impact of foreign currency
fluctuations in the Company's subsidiaries that have functional
currencies other than the Canadian dollar.
GAIN ON REPURCHASE OF UNSECURED SENIOR NOTES
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Gain on repurchase of
unsecured
Senior Notes
|
(40,072)
|
(920)
|
nm
|
|
(103,589)
|
(650)
|
nm
|
nm - calculation
not meaningful
|
For the three months ended September 30,
2020, the Company repurchased US $51.2 million (2019 - US $19.0 million) of face value unsecured Senior
Notes ("Senior Notes"), in the open market, for cancellation
and recorded a gain on repurchase of $40.1
million (US $30.3 million)
(2019 - $0.9 million).
For nine months ended September 30,
2020, the Company repurchased US $126.0 million (2019 - US $37.5 million) of face value Senior Notes, in the
open market, for cancellation and recorded a gain on repurchase of
$103.6 million (US $75.6 million) (2019 - $1.6 million).
Subsequent to September 30, 2020,
the Company repurchased US $26.1
million face value of the Senior Notes, in the open market,
for cancellation. A gain on the repurchase of $21.8 million (US $16.4
million) will be recognized in the fourth quarter of
2020.
LOSS (GAIN) ON ASSET SALE
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Loss (gain) on asset
sale
|
—
|
—
|
nm
|
|
3,437
|
(9,824)
|
nm
|
nm - calculation
not meaningful
|
During the second quarter of 2020, the Company finalized the
sale of the land and building that was classified on its balance
sheet as an asset held for sale. The net proceeds received were
$15.4 million, resulting in a loss of
$3.4 million (2019 - gain of
$9.8 million) before taxes.
FINANCING CHARGES
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Interest
expense
|
24,292
|
32,058
|
(24)
|
|
83,138
|
100,528
|
(17)
|
Accretion of deferred
financing charges
|
2,972
|
2,812
|
6
|
|
8,915
|
11,347
|
(21)
|
Financing
charges
|
27,264
|
34,870
|
(22)
|
|
92,053
|
111,875
|
(18)
|
Financing charges were incurred on the Company's Credit
Facility, the United States dollar
denominated Senior Notes, $37.0
million of subordinate convertible debentures (the
"Convertible Debentures") and capital lease obligations.
Included in interest expense is the amortization of deferred
financing costs associated with refinancing the Company's debt,
which totaled $3.0 million and
$8.9 million respectively for the
three and nine months ended September 30,
2020 (2019 - $2.8 million and
$11.3 million respectively). Included
within interest expense are $2.3
million and $4.4 million
respectively for the three and nine months ended September 30, 2020 (2019 - $0.8 million and $1.1
million respectively) of accrued interest relating to the
Senior Notes, paid in cash as part of the repurchase of the Senior
Notes.
Financing charges decreased by $7.6
million for the third quarter of 2020 compared to the third
quarter of 2019 and decreased by $19.8
million for the first nine months of 2020 compared to the
same period of 2019. The decrease is the result of a decrease in
overall borrowing level. Offsetting the decrease is the negative
translational impact of the United
States dollar denominated debt.
The Company's blended interest rate on its outstanding debt for
the 2020 year will be approximately seven percent. The current
capital structure primarily consisting of the Credit Facility and
the Senior Notes allows the Company to utilize funds flow generated
to reduce debt in the near term with greater flexibility than a
more non-callable weighted capital structure.
INCOME TAXES (RECOVERY)
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Current tax
income
|
640
|
550
|
16
|
|
1,089
|
1,451
|
(25)
|
Deferred tax income
(recovery)
|
(10,012)
|
(10,274)
|
(3)
|
|
(20,867)
|
(12,725)
|
64
|
Total income tax
(recovery)
|
(9,372)
|
(9,724)
|
(4)
|
|
(19,778)
|
(11,274)
|
75
|
Effective income tax
rate (%)
|
20.6
|
20.1
|
2
|
|
19.6
|
10.9
|
80
|
The effective income tax rate for the three months ended
September 30, 2020 was 20.6 percent compared to 20.1
percent for the three months ended September 30, 2019.
The effective income tax rate for the nine months ended
September 30, 2020 was 19.6 percent compared to 10.9
percent for the nine months ended September 30,
2019. The effective tax rate in the first nine months of the
current year was higher than the effective tax rate in the first
nine months of 2019 due to the impact of the of the accelerated
provincial income tax rate reduction in Alberta, Canada, capital gains on Senior Notes
and the impact of foreign tax rates.
FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL
($ thousands,
except per common share data)
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Cash provided by
operating activities 1
|
39,417
|
109,421
|
(64)
|
|
229,581
|
277,020
|
(17)
|
Funds flow from
operations 1
|
29,802
|
85,523
|
(65)
|
|
140,635
|
282,722
|
(50)
|
Funds flow from
operations per common share 1
|
$0.18
|
$0.54
|
(67)
|
|
$0.86
|
$1.78
|
(52)
|
Working capital
2
|
80,194
|
126,987
|
(37)
|
|
80,194
|
126,987
|
(37)
|
1
Comparative cash provided by operating activities, funds flow
from operations and funds flow from operations per common share
have been revised to conform with current year's
presentation.
|
2
Comparative figure as at December 31, 2019
|
During the three months ended September 30, 2020, the
Company generated funds flow from operations of $29.8 million ($0.18 per common share) compared to funds flow
from operations of $85.5 million
($0.54 per common share) for the
three months ended September 30, 2019, a decrease of 65
percent. For the nine months ended September 30, 2020, the
Company generated funds flow from operations of $140.6 million ($0.86 per common share) a decrease of 50 percent
from $282.7 million ($1.78 per common share) for the nine months ended
September 30, 2019. The decrease in funds flow from operations
for three and nine months ended September
30, 2020 compared to the same periods of 2019 is due to
decrease in activity as a result of the oil and natural gas
industry's current business environment.
At September 30, 2020, the Company's working capital was a
surplus of $80.2 million, compared to
a working capital surplus of $127.0
million at December 31, 2019. The Company currently
expects funds generated by operations, combined with current and
future credit facilities to fully support the Company's current
operating and capital requirements. The Company's Credit Facility
provides for total borrowings of $900.0
million, of which $124.4
million was undrawn and available at September 30,
2020.
INVESTING ACTIVITIES
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Purchase of property
and equipment
|
(5,539)
|
(38,354)
|
(86)
|
|
(45,210)
|
(111,632)
|
(60)
|
Proceeds from
disposals of property and equipment
|
2,308
|
3,295
|
(30)
|
|
23,458
|
32,915
|
(29)
|
Acquisition of joint
venture and minority interest net of cash
|
(31,885)
|
—
|
nm
|
|
(31,885)
|
(49,214)
|
(35)
|
Net change in
non-cash working capital
|
(3,666)
|
(6,515)
|
(44)
|
|
583
|
4,485
|
(87)
|
Cash used in
investing activities
|
(38,782)
|
(41,574)
|
(7)
|
|
(53,054)
|
(123,446)
|
(57)
|
nm - calculation not
meaningful
|
Net purchases of property and equipment for the third quarter of
2020 totaled $3.2 million (2019
- $35.1 million). Net purchases of property and equipment
during the first nine months of 2020 totaled $21.8 million (2019 - $78.7 million). The purchase of property and
equipment for the first nine months of 2020 consists of
$35.2 million in maintenance capital
and $10.0 million in upgrade
capital.
FINANCING ACTIVITIES
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
% change
|
|
2020
|
2019
|
% change
|
Proceeds from
long-term debt
|
14,280
|
10,000
|
43
|
|
108,569
|
2,234,231
|
(95)
|
Repayments of
long-term debt
|
(43,309)
|
(53,251)
|
(19)
|
|
(148,786)
|
(2,305,358)
|
(94)
|
Lease obligation
principal
repayments
|
(1,777)
|
(2,380)
|
(25)
|
|
(7,404)
|
(5,996)
|
23
|
Interest
paid
|
(14,360)
|
(14,546)
|
(1)
|
|
(75,504)
|
(96,275)
|
(22)
|
Purchase of common
shares held in trust
|
(169)
|
(373)
|
(55)
|
|
(725)
|
(896)
|
(19)
|
Cash
dividends
|
—
|
(11,298)
|
nm
|
|
(19,574)
|
(41,735)
|
(53)
|
Net change in
non-cash working capital
|
—
|
2,719
|
nm
|
|
—
|
20,368
|
nm
|
Cash used in
financing activities
|
(45,335)
|
(69,129)
|
(34)
|
|
(143,424)
|
(195,661)
|
(27)
|
nm - calculation not
meaningful
|
The Company's available bank facilities consist of a
$900.0 million Credit Facility, which
matures November 26, 2021, of which
$124.4 million was available and
undrawn as of September 30,
2020. In addition, the Company also has available US
$50.0 million secured letter of
credit facility, of which US $19.7
million was available as at September
30, 2020.
The Company may at any time and from time-to-time acquire
additional Senior Notes for cancellation by means of open market
purchases, negotiated transactions or otherwise. As previously
noted, the Company has repurchased US $126.0
million of face value Senior Notes, in the open market, for
cancellation during the first nine months of 2020. The Company
repurchased a further US $26.1
million of face value Senior Notes in open market, for
cancellation subsequent to September 30,
2020.
Covenants
The following is a list of the Company's currently applicable
covenants and the calculations as at September 30, 2020:
|
Covenant
|
September 30,
2020
|
The Credit
Facility
|
|
|
Consolidated Total
Debt to Consolidated EBITDA1
|
≤ 5.00
|
4.59
|
Consolidated EBITDA to
Consolidated Interest Expense1,2
|
≥ 2.50
|
2.82
|
Consolidated Senior
Debt to Consolidated EBITDA1,3
|
≤ 2.50
|
2.38
|
1 Please refer to Non-GAAP
Measures for Consolidated EBITDA definition.
|
2 Consolidated Interest
Expense is defined as all interest expense calculated on twelve
month rolling consolidated basis excluding amortized finance cost
and interest expense on capital building lease.
|
3 Consolidated Senior Debt
is defined as Consolidated Total Debt minus Subordinated
Debt.
|
As at September 30, 2020 the
Company was in compliance with all covenants related to the Credit
Facility.
The Credit facility
The Credit Facility agreement, available on SEDAR, requires that
the Company comply with certain covenants including Consolidated
Total Debt to Consolidated EBITDA, Consolidated Senior Debt to
Consolidated EBITDA and Consolidated EBITDA to Consolidated
Interest Expense as detailed above.
The Credit Facility contains certain covenants that place
restrictions on the Company's ability to create, incur or assume
additional indebtedness; change the Company's primary business;
enter into mergers or amalgamations; and to dispose of
property.
Subject to market conditions during the remainder of 2020, it is
likely that the Company will be required to enter into discussions
with its Credit Facility syndicate to amend covenants under the
Credit Facility which otherwise may be susceptible to breach in the
last quarter of 2020.
The Senior Notes
The indenture governing the Senior Notes, available on SEDAR,
contains certain restrictions and exemptions on the Company's
ability to pay dividends, purchase and redeem shares and
subordinated debt of the Company, and make certain restricted
investments. Limitations on these restrictions are tempered by the
existence of a number of exceptions to the general prohibition,
including baskets allowing for restricted payments.
The indenture also restricts the ability to incur additional
indebtedness if the Fixed Charge Coverage Ratio determined on a pro
forma basis for the most recently ended four fiscal quarter period
for which internal financial statements are available is not at
least 2.0 to 1.0. As at September 30,
2020, the Company has not incurred additional indebtedness
that would require the Fixed Charge Coverage Ratio to be
calculated. As is the case with restricted payments, there are a
number of exceptions to this prohibition on the incurrence of
indebtedness, including the incurrence of debt under credit
facilities up to the greater of $900.0
million or 22.5 percent of the Company's consolidated
tangible assets and of additional secured debt subordinated to the
credit facilities up to the greater of US $125.0 million or 4.0 percent of the Company's
consolidated tangible assets.
NEW BUILDS AND MAJOR RETROFITS
Through the acquisition of the remaining 40% interest in the TDI
joint venture, the Company added five drilling rigs, of which it
previously had a 60 percent ownership interest. The Company is
currently directing capital expenditures primarily to maintenance
capital items.
OUTLOOK
Industry Overview
The outlook for the oilfield service industry continues to
evolve. The operating environment for the oil and natural gas
industry remains challenged by the tenuous recovery of crude oil
and natural gas demand, continuing concerns regarding the pathway
of the COVID-19 pandemic, high crude oil inventories, and the
market dynamics of OPEC+ production and the supply of crude
oil.
Global economies generally remained committed, where possible,
to avoiding lock-down restrictions related to COVID-19 during the
third quarter. As a result, recovered demand for crude oil and
natural gas remained steady and outpaced global supply over the
third quarter resulting in crude oil inventory draws. In addition,
global commodity prices were relatively stable over the third
quarter with the benchmark price of West Texas Intermediate
("WTI") averaged US $40.71/bbl
in July, US $42.34/bbl in August, US
$39.63/bbl in September and averaging
US $39.43/bbl in October.
For the remainder of the year, continued uncertainty over the
pathway of COVID-19 and the recovery of oil and natural gas demand
has reinforced conservatism in capital expenditures for oil and
natural gas producers. Without further and sustainable improvements
to commodity prices, we expect producers will continue to direct
focus on maintaining production levels and cash preservation. We
also expect producers to modestly revisit drilling programs through
the remainder of 2020 and into 2021 as legacy wells may decline in
production, demand recovery may stabilize, and global inventories
may decline.
In the short term, we expect continued uncertainty with the
macroeconomic conditions including the pathway of the COVID-19
pandemic, the potential reinstatement of COVID-19 mitigation
strategies, such as stay-at-home orders and lockdown related
restrictions, the degree and impact of COVID-19 mitigation
strategies on demand for crude oil and natural gas, commodity
prices and the demand for oilfield services.
During the third quarter, the Company acquired the remaining 40
percent ownership in the TDI with the Company's cash on hand for US
$33.4 million. TDI joint venture owns
and operates five drilling rigs located in Kuwait (two rigs), Mexico (two rigs) and Bahrain (one rig). The Company views this as a
strategic and opportunistic transaction, given the asset value,
exposure to key basins and contracted revenue with active and
long-term contracts in Kuwait and
Bahrain.
The Company has continued to adapt to the current operating
environment with strict capital allocation, debt retirement and
significant, structural and on-going cost reductions. The Company's
expected total capital expenditures for 2020 remain at $50.0 million.
Canadian Activity
Canadian activity, representing 14 percent of our business,
modestly improved through the third quarter with relatively stable
commodity prices. We expect activity to increase, perhaps with some
pressure to revenue rates, into the fourth quarter as we enter the
winter drilling season.
Of our 101 marketed Canadian drilling rigs, approximately 23
percent are engaged under term contracts of various terms.
Approximately 35 percent of our contracted rigs have a remaining
term of six months or longer, although they may be subject to early
terminations.
United States Activity
United States activity,
representing 53 percent of our business, plateaued over the third
quarter and improved modestly exiting the quarter as commodity
prices stabilized. We expect activity to remain flat for the
remainder of the year as producers seemingly remain reluctant to
rampup drilling programs without further and sustained improvements
to commodity prices.
Of 122 marketed United States
drilling rigs, approximately 26 percent are engaged under term
contracts of various terms. Approximately 32 percent of our
contracted rigs have a remaining term of six months or longer,
although they may be subject to early terminations.
International Activity
International activity, representing 33 percent of our business,
stabilized over the third quarter. Operations in Argentina are expected to remain flat at
current levels with one rig running throughout the fourth quarter.
In the Middle East, our operations
in Bahrain and Kuwait remain steady with a total of four rigs
running under long-term contracts. Australian operations remained
steady over the third quarter and are expected to modestly improve
over the remainder of the year.
Of 48 marketed international drilling rigs, including the former
five TDI joint venture drilling rigs now wholly owned,
approximately 26 percent are engaged under term contracts of
various terms. Approximately 83 percent of our contracted rigs have
a remaining term of six months or longer, although they may be
subject to early terminations.
RISK AND UNCERTAINTIES
This document contains forward-looking statements based upon
current expectations that involve a number of business risks and
uncertainties. The factors that could cause results to differ
materially include, but are not limited to, the impact of the
COVID-19 virus, political, the potential reinstatement COVID-19
mitigation strategies, such as stay-at-home orders and lockdown
related restrictions, economic and market conditions, crude oil and
natural gas prices, foreign currency fluctuations, weather
conditions, the Company's defense of lawsuits and the ability of
oil and gas companies to pay accounts receivable balances and raise
capital or other unforeseen conditions which could ongoing impact
on the use of the services supplied by the Company. For a more
detailed description of the risk factors and uncertainties that
face the Company and the industry in which it operates, refer to
the "Risks and Uncertainties" section of our current Management's
Discussion & Analysis and the section titled "Risk Factors" in
our current Annual Information Form.
CONFERENCE CALL
A conference call will be held to discuss the Company's third
quarter 2020 results at 10:00 a.m.
MDT (12:00 p.m. EDT) on
Thursday, November 5, 2020. The
conference call number is 1-647-427-7450 (in Toronto) or 1-888-231-8191 (outside
Toronto). A taped recording will
be available until August 17, 2020 by
dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside
Toronto) and entering the
reservation number 6789671. A live broadcast may be accessed
through the Company's web site at
www.ensignenergy.com/presentations.
Ensign Energy Services Inc. is an international oilfield
services contractor and is listed on the Toronto Stock Exchange
under the trading symbol ESI.
Ensign Energy Services Inc.
Consolidated Statements
of Financial Position
As at
|
September 30
2020
|
|
December 31
2019
|
(Unaudited - in
thousands of Canadian dollars)
|
|
|
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$
|
56,973
|
|
$
|
28,408
|
Accounts
receivable
|
149,334
|
|
272,254
|
Inventories, prepaid
and other
|
52,869
|
|
47,292
|
Asset held for
sale
|
—
|
|
18,806
|
Income taxes
receivable
|
—
|
|
1,515
|
Total current
assets
|
259,176
|
|
368,275
|
Property and
equipment
|
2,841,179
|
|
2,855,223
|
Deferred income
taxes
|
142,413
|
|
121,748
|
Investment in joint
ventures
|
—
|
|
125,355
|
Total
assets
|
$
|
3,242,768
|
|
$
|
3,470,601
|
|
|
|
|
Liabilities
|
|
|
|
Current
Liabilities
|
|
|
|
Accounts payable and
accruals
|
$
|
161,032
|
|
$
|
216,719
|
Cash dividends
payable
|
—
|
|
9,787
|
Share-based
compensation
|
135
|
|
297
|
Income taxes
payable
|
9,152
|
|
4,489
|
Current portion of
lease obligation
|
8,663
|
|
9,996
|
Total current
liabilities
|
178,982
|
|
241,288
|
|
|
|
|
Share-based
compensation
|
1,722
|
|
6,325
|
Long-term
debt
|
1,474,307
|
|
1,581,529
|
Lease
obligations
|
7,488
|
|
9,518
|
Deferred income
taxes
|
167,774
|
|
163,781
|
Non-controlling
interest
|
5,069
|
|
5,138
|
Total
liabilities
|
1,835,342
|
|
2,007,579
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
Shareholders'
capital
|
230,598
|
|
230,100
|
Contributed
surplus
|
23,710
|
|
23,966
|
Equity component of
convertible debenture
|
3,193
|
|
3,193
|
Accumulated other
comprehensive income
|
280,141
|
|
243,771
|
Retained
earnings
|
869,784
|
|
961,992
|
Total shareholders'
equity
|
1,407,426
|
|
1,463,022
|
Total liabilities and
shareholders' equity
|
$
|
3,242,768
|
|
$
|
3,470,601
|
Ensign Energy Services Inc.
Consolidated Statements
of Loss
|
Three months
ended
|
|
Nine months
ended
|
|
September 30
2020
|
September 30
2019
|
|
September 30
2020
|
September 30
2019
|
(Unaudited - in
thousands of Canadian dollars, except per common share
data)
|
|
|
|
|
|
Revenue
|
$
|
156,933
|
$
|
393,412
|
|
$
|
735,553
|
$
|
1,215,928
|
Expenses
|
|
|
|
|
|
Oilfield
services
|
108,716
|
285,928
|
|
521,493
|
867,868
|
Depreciation
|
96,417
|
92,410
|
|
278,367
|
269,607
|
General and
administrative
|
9,207
|
11,587
|
|
31,752
|
41,602
|
Restructuring
|
4,208
|
1,692
|
|
11,594
|
11,089
|
Share-based
compensation
|
(1,272)
|
(673)
|
|
(2,893)
|
2,214
|
Foreign exchange and
other (gain) loss
|
(1,598)
|
13,670
|
|
3,062
|
20,753
|
Total
expenses
|
215,678
|
404,614
|
|
843,375
|
1,213,133
|
(Loss) income
before financing charges and other (gains) losses and income
taxes
|
(58,745)
|
(11,202)
|
|
(107,822)
|
2,795
|
|
|
|
|
|
|
Gain (loss) from
investment in joint ventures
|
(436)
|
2,207
|
|
1,349
|
1,911
|
Gain on repurchase of
unsecured Senior Notes
|
(40,072)
|
(920)
|
|
(103,589)
|
(1,570)
|
(Loss) gain on asset
sale
|
—
|
—
|
|
3,437
|
(9,824)
|
Financing
charges
|
27,264
|
34,870
|
|
92,053
|
111,875
|
Loss before income
taxes
|
(45,501)
|
(47,359)
|
|
(101,072)
|
(99,597)
|
Income tax
(recovery)
|
|
|
|
|
|
Current income
tax
|
640
|
550
|
|
1,089
|
1,451
|
Deferred income tax
(recovery)
|
(10,012)
|
(10,274)
|
|
(20,867)
|
(12,725)
|
Total income tax
(recovery)
|
(9,372)
|
(9,724)
|
|
(19,778)
|
(11,274)
|
Net loss from
continuing operations
|
(36,129)
|
$
|
(37,635)
|
|
(81,294)
|
(88,323)
|
|
|
|
|
|
|
Loss from
discontinued operations
|
(73)
|
$
|
(931)
|
|
(1,327)
|
(4,162)
|
Net loss
|
$
|
(36,202)
|
$
|
(38,566)
|
|
$
|
(82,621)
|
$
|
(92,485)
|
Net loss
attributable to:
|
|
|
|
|
|
Common
shareholders
|
(36,094)
|
(37,770)
|
|
(82,421)
|
(91,290)
|
Non-controlling
interests
|
(108)
|
(796)
|
|
(200)
|
(1,195)
|
|
(36,202)
|
(38,566)
|
|
(82,621)
|
(92,485)
|
|
|
|
|
|
|
Net loss
attributable to common shareholders per common share
|
|
|
|
|
|
Basic
|
$
|
(0.23)
|
$
|
(0.24)
|
|
$
|
(0.51)
|
$
|
(0.58)
|
Diluted
|
$
|
(0.23)
|
$
|
(0.24)
|
|
$
|
(0.51)
|
$
|
(0.58)
|
Ensign Energy Services Inc.
Consolidated Statements
of Cash Flows
|
Three months
ended
|
|
Nine months
ended
|
|
September
30 2020
|
September 30
2019
|
|
September 30
2020
|
September 30
2019
|
(Unaudited - in
thousands of Canadian dollars)
|
|
|
|
|
|
Cash provided by
(used in)
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
Net loss
|
$
|
(36,202)
|
$
|
(38,566)
|
|
$
|
(82,621)
|
$
|
(92,485)
|
Items not affecting
cash
|
|
|
|
|
|
Depreciation
|
96,417
|
92,410
|
|
278,367
|
269,607
|
(Gain) loss from
investment in joint ventures
|
(436)
|
2,207
|
|
1,349
|
1,911
|
Gain (loss) on asset
sale
|
—
|
—
|
|
3,437
|
(9,824)
|
Gain on purchase of
unsecured Senior Notes
|
(40,072)
|
(920)
|
|
(103,589)
|
(1,570)
|
Share-based
compensation
|
(1,272)
|
(673)
|
|
(2,893)
|
2,214
|
Unrealized foreign exchange and other
|
(5,885)
|
6,469
|
|
(24,601)
|
13,719
|
Accretion of deferred
financing charges
|
2,972
|
2,812
|
|
8,915
|
11,347
|
Interest
expense
|
24,292
|
32,058
|
|
83,138
|
100,528
|
Deferred income
tax
|
(10,012)
|
(10,274)
|
|
(20,867)
|
(12,725)
|
Funds flow from
operations
|
29,802
|
85,523
|
|
140,635
|
282,722
|
Net change in
non-cash working capital
|
9,615
|
23,898
|
|
88,946
|
(5,702)
|
Cash provided by
operating activities
|
39,417
|
109,421
|
|
229,581
|
277,020
|
Investing
activities
|
|
|
|
|
|
Purchase of property
and equipment
|
(5,539)
|
(38,354)
|
|
(45,210)
|
(111,632)
|
Proceeds from
disposals of property and equipment
|
2,308
|
3,295
|
|
23,458
|
32,915
|
Acquisition of joint
venture and minority interest net of cash
|
(31,885)
|
—
|
|
(31,885)
|
(49,214)
|
Net change in
non-cash working capital
|
(3,666)
|
(6,515)
|
|
583
|
4,485
|
Cash used in
investing activities
|
(38,782)
|
(41,574)
|
|
(53,054)
|
(123,446)
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
Proceeds from
long-term debt
|
14,280
|
10,000
|
|
108,569
|
2,234,231
|
Repayments of
long-term debt
|
(43,309)
|
(53,251)
|
|
(148,786)
|
(2,305,358)
|
Lease obligation
principal repayments
|
(1,777)
|
(2,380)
|
|
(7,404)
|
(5,996)
|
Interest
paid
|
(14,360)
|
(14,546)
|
|
(75,504)
|
(96,275)
|
Purchase of common
shares held in trust
|
(169)
|
(373)
|
|
(725)
|
(896)
|
Cash
dividends
|
—
|
(11,298)
|
|
(19,574)
|
(41,735)
|
Net change in
non-cash working capital
|
—
|
2,719
|
|
—
|
20,368
|
Cash used in
financing activities
|
(45,335)
|
(69,129)
|
|
(143,424)
|
(195,661)
|
Net (decrease)
increase in cash
|
(44,700)
|
(1,282)
|
|
33,103
|
(42,087)
|
Effects of foreign
exchange on cash
|
(983)
|
(1,880)
|
|
(4,538)
|
(6,196)
|
Cash – beginning
of period
|
102,656
|
39,702
|
|
28,408
|
84,823
|
Cash – end of
period
|
$
|
56,973
|
$
|
36,540
|
|
$
|
56,973
|
$
|
36,540
|
Ensign Energy Services Inc.
Non-GAAP Measures
Adjusted EBITDA, Adjusted EBITDA per common share and
Consolidated EBITDA. These measures do not have any standardized
meaning prescribed by IFRS and accordingly, may not be comparable
to similar measures used by other companies. The non-GAAP measures
included in this press release should not be considered as an
alternative to, or more meaningful than, the IFRS measure from
which they are derived or to which they are compared.
Adjusted EBITDA is used by management and investors to analyze
the Company's profitability based on the Company's principal
business activities prior to how these activities are financed, how
assets are depreciated and amortized and how the results are taxed
in various jurisdictions. Additionally, in order to focus on the
core business alone, amounts are removed related to foreign
exchange, share-based payment expense, impairment expenses, the
sale of assets, restructuring costs, gain on repurchase of
unsecured Senior Notes and fair value adjustments on financial
assets and liabilities, as the Company does not deem these to
relate to its core drilling and well services business. Adjusted
EBITDA also takes into account the Company's portion of the
principal activities of the joint venture arrangements by removing
the loss (gain) from investments in joint ventures and including
Adjusted EBITDA from investments in joint ventures. Adjusted EBITDA
is not intended to represent net loss as calculated in accordance
with IFRS.
ADJUSTED
EBITDA
|
Three months
ended
September 30
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
2020
|
2019
|
Loss before income
taxes 1
|
(45,501)
|
(47,359)
|
(101,072)
|
(99,597)
|
Add-back/(deduct):
|
|
|
|
|
Financing charges
|
27,264
|
34,870
|
92,053
|
111,875
|
Depreciation
|
96,417
|
92,410
|
278,367
|
269,607
|
Restructuring
|
4,208
|
1,692
|
11,594
|
11,089
|
Gain
(loss) from investment in joint ventures
|
(436)
|
2,207
|
1,349
|
1,911
|
Share-based compensation
|
(1,272)
|
(673)
|
(2,893)
|
2,214
|
Loss
(gain) on asset sale
|
—
|
—
|
3,437
|
(9,824)
|
Gain on
repurchase of unsecured Senior Notes 2
|
(40,072)
|
(920)
|
(103,589)
|
(1,570)
|
Foreign
exchange and other (gain) loss
|
(1,598)
|
13,670
|
3,062
|
20,753
|
Adjusted
EBITDA from investment in joint ventures
|
466
|
2,046
|
6,475
|
10,606
|
Adjusted
EBITDA
|
39,476
|
97,943
|
188,783
|
317,064
|
1 Comparative loss before income
taxes have been revised to conform with current year's
presentation.
|
2 See "Financing Charges"
section for definition of Senior Notes.
|
Adjusted EBITDA from investment in joint ventures is used by
management and investors to analyze the results generated by the
Company's joint venture operations prior to how these activities
are financed, how assets are depreciated and amortized and how the
results are taxed in various jurisdictions. Additionally, in order
to focus on its core drilling and well services business, amounts
related to foreign exchange, dividend expense, dividend re-class,
impairment adjustments to property and equipment, as well as
preferred share valuation and the sale of assets are removed.
Lastly, amounts recorded for the revaluation on the investment of
the former TDI joint venture are removed as these are non-cash
items and unrelated to the operations of the business. Adjusted
EBITDA from investments in joint ventures is not intended to
represent net loss as calculated in accordance with IFRS.
Adjusted EBITDA from investment in joint ventures is calculated
below:
|
Three months
ended
September 30
|
Nine months ended
September 30
|
($
thousands)
|
2020
|
2019
|
2020
|
2019
|
(Loss) gain from
investment in joint ventures
|
436
|
(2,207)
|
(1,349)
|
(1,911)
|
Add-back/(deduct):
|
|
|
|
|
TDI fair
value adjustment
|
—
|
(25)
|
—
|
625
|
Depreciation
|
—
|
3,396
|
7,185
|
10,051
|
Foreign
exchange and other loss (gain)
|
(11)
|
(46)
|
229
|
(70)
|
Financing charge
|
41
|
474
|
62
|
1,168
|
Income
taxes
|
—
|
442
|
283
|
584
|
Preferred shares valuation
|
—
|
12
|
—
|
159
|
Adjusted EBITDA from
investment in joint ventures
|
466
|
2,046
|
6,475
|
10,606
|
Consolidated EBITDA
Consolidated EBITDA, as defined in the Company's Credit Facility
agreement, is used in determining the Company's compliance with its
covenants. The Consolidated EBITDA is substantially similar to
Adjusted EBITDA, except that Adjusted EBITDA from the TDI joint
venture is only included into Consolidated EBITDA for the purpose
of the Company's Credit Facility when Adjusted EBITDA earned in the
TDI joint venture is distributed up to the Company. Consolidated
EBITDA is calculated on a rolling twelve-month basis.
Working Capital
Working capital is defined as current assets less current
liabilities as reported on the consolidated statements of financial
position.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this document constitute forward-looking
statements or information (collectively referred to herein as
"forward-looking statements") within the meaning of applicable
securities legislation. Forward-looking statements generally can be
identified by the words "believe", "anticipate", "expect", "plan",
"estimate", "target", "continue", "could", "intend", "may",
"potential", "predict", "should", "will", "objective", "project",
"forecast", "goal", "guidance", "outlook", "effort", "seeks",
"schedule" or other expressions of a similar nature suggesting
future outcome or statements regarding an outlook.
Disclosure related to expected future commodity pricing or
trends, revenue rates, equipment utilization or operating activity
levels, operating costs, capital expenditures and other prospective
guidance provided throughout this document, including, but not
limited to, information provided in the "Funds Flow from Operations
and Working Capital" section regarding the Company's expectation
that funds generated by operations combined with current and future
credit facilities will support current operating and capital
requirements, information provided in the "New Builds and Major
Retrofits" section, information provided in the "Financial
Instruments" section regarding Venezuela and information provided in the
"Outlook" section regarding the general outlook for the remainder
of 2020, are examples of forward-looking statements. These
statements are not representations or guarantees of future
performance and are subject to certain risks and unforeseen
results. The reader should not place undue reliance on
forward-looking statements as there can be no assurance that the
plans, initiatives, projections, anticipations or expectations upon
which they are based will occur.
The forward-looking statements are based on current
expectations, estimates and projections about the Company and the
industries and environments in which the Company operates, which
speak only as of the date such statements were made or as of the
date of the report or document in which they are contained. They
are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. Such risk factors include, among
others: general economic and business conditions which will, among
other things, impact demand for and market prices of the Company's
services and the ability of the Company's customers to pay accounts
receivable balances; volatility of and assumptions regarding crude
oil and natural gas commodity prices; fluctuations in currency and
interest rates; economic conditions in the countries and regions in
which the Company conducts business; political uncertainty and
civil unrest; the Company's ability to implement its business
strategy; impact of competition; the Company's defence of lawsuits;
availability and cost of labour and other equipment, supplies and
services; the Company's ability to complete its capital programs;
operating hazards and other difficulties inherent in the operation
of the Company's oilfield services equipment; availability and cost
of financing and insurance; the Company's ability to amend
covenants under the Credit Facility with its Credit Facility
syndicate; timing and success of integrating the business and
operations of acquired companies; actions by governmental
authorities; government regulations and the expenditures required
to comply with them (including safety and environmental laws and
regulations and the impact of climate change initiatives on capital
and operating costs); the adequacy of the Company's provision for
taxes; the Company's response to the global COVID-19 pandemic and
the impact thereof upon the business environments in which the
Company is or may become engaged; and other circumstances affecting
the Company's business, revenues and expenses.
The Company's operations and levels of demand for its services
have been, and at times in the future may be, affected by political
risks and developments, such as expropriation, nationalization, or
regime change, and by national, regional and local laws and
regulations such as changes in taxes, royalties and other amounts
payable to governments or governmental agencies, environmental
protection regulations, the global COVID-19 pandemic, the potential
reinstatement COVID-19 mitigation strategies, such as stay-at-home
orders and lockdown related restrictions, and the impact thereof
upon the Company, its customers and its business. Should one or
more of these risks or uncertainties materialize, or should any of
the Company's assumptions prove incorrect, actual results may vary
in material respects from those expressed or implied by the
forward-looking statements. The impact of any one factor on a
particular forward-looking statement is not determinable with
certainty as such factors are interdependent upon other factors,
and the Company's course of action would depend upon its assessment
of the future considering all information then available.
For additional information refer to the "Risk and Uncertainties"
section of the MD&A. Readers are cautioned that the lists of
important factors contained herein are not exhaustive.
Unpredictable or unknown factors not discussed in the MD&A
could also have material adverse effects on forward-looking
statements.
Although the Company believes the expectations conveyed by the
forward-looking statements are reasonable based on information
available to it on the date such forward-looking statements are
made, no assurances can be given as to future results, levels of
activity and achievements. Except as required by law, the Company
assumes no obligation to update forward-looking statements should
circumstances or its projections, anticipations, estimates or
opinions change.
SOURCE Ensign Energy Services Inc.