CALGARY, AB, July 27, 2020 /CNW/ - Western Energy Services
Corp. ("Western" or the "Company") (TSX: WRG) announces the release
of its second quarter 2020 financial and operating results.
Additional information relating to the Company, including the
Company's financial statements and management's discussion and
analysis as at and for the three and six months ended June 30, 2020 and 2019 will be available on SEDAR
at www.sedar.com. Non-International Financial Reporting
Standards ("Non-IFRS") measures, such as Adjusted EBITDA, and
abbreviations and definitions for standard industry terms are
included later in this press release. All amounts are
denominated in Canadian dollars (CDN$) unless otherwise
identified.
Second Quarter 2020 Operating Results:
- Second quarter revenue decreased by $26.9 million (or 71%) to $10.8 million in 2020 as compared to $37.7 million in the second quarter of 2019 and
included US$4.5 million of shortfall
commitment revenue. In the contract drilling segment, revenue
totalled $7.1 million in the second
quarter of 2020, a decrease of $20.5
million (or 74%) as compared to $27.6
million in the second quarter of 2019. In the production
services segment, revenue totalled $3.8
million for the three months ended June 30, 2020, as compared to $10.2 million for the three months ended
June 30, 2019, a decrease of
$6.4 million (or 63%). The ongoing
COVID-19 pandemic significantly impacted revenue in the contract
drilling, well servicing, and oilfield rental equipment segments as
described below:
-
- The COVID-19 pandemic had a significant impact on customer
demand and drilling rig utilization – Operating Days ("Drilling Rig
Utilization") in Canada and
resulted in no drilling rigs working in the second quarter of 2020,
compared to a Drilling Rig Utilization average of 13% in the same
period of the prior year. The decrease in activity in the second
quarter of 2020 was mainly attributable to the significant decrease
in crude oil prices, as a result of the international price war and
the COVID-19 pandemic, which resulted in heightened market
uncertainty and customers reducing and cancelling their 2020
drilling programs. The Canadian Association of Oilwell Drilling
Contractors ("CAODC") industry average of 4%1
for the second quarter of 2020 represented a decrease of 1,000
basis points ("bps") compared to the CAODC industry average of 14%
in the second quarter of 2019, mainly due to lower demand as a
result of the COVID-19 pandemic;
- In the United States, the
demand destruction as a result of the COVID-19 pandemic had a
significant impact on Drilling Rig Utilization which totalled 1%,
as one rig worked during the second quarter of 2020, compared to
46% Drilling Rig Utilization in the second quarter of 2019,
reflecting a 98% decrease in Operating Days. Revenue per Billable
Day for the second quarter of 2020 is not meaningful as compared to
the same period of the prior year, due to low activity in the
period. US$4.5 million of shortfall
commitment revenue was recognized in the second quarter of 2020,
compared to US$1.3 million in the
same period of the prior year; and
- In Canada, service rig
utilization was 9% in the second quarter of 2020 compared to 20% in
the same period of the prior year. The decrease is due to the
demand destruction caused by the COVID-19 pandemic, coupled with
historic low commodity prices in the second quarter of 2020.
Revenue per Service Hour was consistent with the second quarter of
2019. Lower utilization led to well servicing revenue totalling
$3.8 million in the second quarter of
2020, a decrease of $6.4 million (or
63%), as compared to the same period in the prior year.
- Administrative expenses decreased by $2.2 million (or 51%) to $2.2 million in the second quarter of 2020, as
compared to $4.4 million in the
second quarter of 2019, mainly due to lower employee related costs
as a result of temporary headcount reductions, as well as the
receipt of the Canada Emergency
Wage Subsidy ("CEWS") from the Government of Canada in the second quarter of 2020 due to
the COVID-19 pandemic.
- The Company incurred a net loss of $8.0
million in the second quarter of 2020 ($0.09 per basic common share) as compared to a
net loss of $10.1 million in the same
period in 2019 ($0.11 per basic
common share). The change can mainly be attributed to a
$5.7 million decrease in income tax
recovery and a $1.8 million increase
in other items, mainly related to foreign exchange gains, offset
partially by a $4.3 million decrease
in depreciation expense due to certain assets being fully
depreciated in the period, as well as the impact of asset
impairments in previous quarters, and a $1.6
million increase in Adjusted EBITDA.
- Second quarter Adjusted EBITDA increased by $1.6 million (or 66%) to $4.0 million in 2020 as compared to $2.4 million in the second quarter of 2019. The
year over year change in Adjusted EBITDA is due to US$4.5 million of shortfall commitment revenue,
the receipt of the CEWS of $1.6
million and temporary headcount reductions, offset partially
by lower contract drilling activity in Canada and the
United States, and lower oilfield rental equipment and well
servicing activity in Canada.
- Second quarter 2020 additions to property and equipment of
$0.3 million relates to maintenance
capital. In total, additions to property and equipment in the
second quarter of 2020 decreased by $1.4
million (or 85%) from the $1.7
million incurred in the second quarter of 2019.
Year to Date 2020 Operating Results:
- Revenue for the six months ended June
30, 2020 decreased by $40.9
million to $62.6 million (or
40%) in 2020 as compared to $103.5
million in the six months ended June
30, 2019. In the contract drilling segment, revenue totalled
$41.3 million for the six months
ended June 30, 2020, a decrease of
$35.8 million (or 46%) as compared to
$77.1 million in the same period of
2019 and included US$4.5 million of
shortfall commitment revenue. In the production services segment,
revenue totalled $21.4 million for
the six months ended June 30, 2020,
as compared to $26.6 million for the
six months ended June 30, 2019, a
decrease of $5.2 million (or 19%).
While contract drilling day rates were steady in the United States and Canada, activity was lower in all divisions,
which impacted revenue as described below:
-
- Drilling Rig Utilization in Canada for the six months ended June 30, 2020 decreased to 13% compared to an
average of 23% for the six months ended June
30, 2019, reflecting a 1,000 bps reduction. The decrease in
activity in 2020 was mainly attributable to the significant
decrease in crude oil prices in the latter part of the first
quarter, as a result of the international price war and the
COVID-19 pandemic, which resulted in heightened market uncertainty
and customers reducing and cancelling their 2020 drilling programs.
Drilling Rig Utilization of 13% in 2020 represented a discount of
700 bps to the CAODC industry average of
20%2, a decrease as compared to Drilling Rig
Utilization of 23% in 2019, which was 100 bps higher than the
industry average. The decrease in the Company's utilization as
compared to the industry average in 2020 was due to the COVID-19
pandemic decreasing demand and customers cancelling their drilling
programs. Western's market share, represented by the Company's
Operating Days as a percentage of the CAODC's total Operating Days
in the Western Canadian Sedimentary Basin ("WCSB"), decreased to
6.5% in the six months ended June 30,
2020, as compared to 9.2% in the same period of 2019.
Revenue per Billable Day improved by 1% in 2020, as compared to
2019, due to changes in the average rig mix;
- In the United States, two of
the Company's eight drilling rigs worked during 2020, one of which
operated on a term contract. Drilling Rig Utilization decreased to
10% in 2020, compared to 55% in 2019, reflecting an 80% decrease in
Operating Days. Revenue per Billable Day for the six months ended
June 30, 2020 was consistent with the
same period of the prior year, mainly due to changes in the average
rig mix as the higher day rates on the Company's high specification
AC 1500 HP class rigs in the Williston Basin in North Dakota, were offset by the rigs working
in the Permian Basin in Texas,
which worked at lower average day rates, while operating at a
significantly lower cost. Additionally, US$4.7 million of shortfall commitment revenue
was recognized in the six months ended June
30, 2020, compared to US$1.3
million in the same period of 2019; and
- In Canada, service rig
utilization was 23% for the six months ended June 30, 2020 compared to 28% in the same period
of the prior year. The decrease is due to continued market
uncertainty including historic low commodity prices due to the
COVID-19 pandemic in 2020. Revenue per Service Hour increased
during the six months ended June 30,
2020 by 7%, as compared to the same period in the prior
year, due to changes in customer mix. Lower utilization, offset
partially by higher pricing, led to well servicing revenue in the
period decreasing by $5.2 million (or
19%) to $21.4 million, as compared to
$26.6 million in the same period in
the prior year.
- Administrative expenses decreased by $2.6 million (or 30%) to $6.0 million for the six month period ended
June 30, 2020, as compared to
$8.6 million in the same period of
the prior year, mainly due to lower employee related costs as a
result of temporary headcount reductions, as well as the receipt of
the CEWS from the Government of Canada during the second quarter of 2020.
- As a result of continued market uncertainty, ultra-low
commodity prices, unprecedented demand destruction due to the
COVID-19 pandemic and the related outlook for current and future
oilfield services activity and pricing, the Company completed an
impairment test for each of its cash generating units ("CGU") as at
March 31, 2020 and June 30, 2020. Based on the results of these
tests, it was determined that property and equipment in the
Company's contract drilling and oilfield rentals CGUs was impaired
by $9.5 million and $2.0 million respectively in the first quarter of
2020. There was no impairment recognized in the Company's well
servicing CGU. There was no impairment recognized during the three
months ended June 30, 2020.
- The Company incurred a net loss of $23.4
million for the six months ended June
30, 2020 ($0.26 per basic
common share) as compared to a net loss of $17.2 million in the same period in 2019
($0.19 per basic common share). The
change can mainly be attributed to the $11.5
million impairment loss, a $3.1
million decrease in income tax recovery and a $1.3 million decrease in Adjusted EBITDA, offset
partially by a $7.7 million decrease
in depreciation expense due to certain assets being fully
depreciated in the period, as well as the impact of asset
impairments in previous quarters, and a $1.7
million increase in other items mainly due to foreign
exchange gains.
- Adjusted EBITDA for the six months ended June 30, 2020 decreased by $1.3 million (or 9%) to $12.4 million as compared to $13.7 million in the same period of the prior
year. The year over year change in Adjusted EBITDA is due to lower
contract drilling activity in Canada and the
United States, and lower well servicing and oilfield rental
equipment activity in Canada,
offset partially by US$4.7 million of
shortfall commitment revenue, lower administrative expenses and the
receipt of $1.6 million related to
the CEWS.
- Year to date additions to property and equipment in 2020 of
$0.8 million included $0.1 million related to expansion capital and
$0.7 million of maintenance capital.
In total, additions to property and equipment for the six months
ended June 30, 2020 decreased by
$3.1 million (or 79%) from the
$3.9 million incurred in 2019.
- On January 6, 2020, the Company
announced a normal course issuer bid (the "Bid"), which was filed
with and accepted by the Toronto Stock Exchange. Pursuant to
the Bid, Western may purchase for cancellation up to 5,200,000
common shares of the Company. The Bid commenced on
January 14, 2020 and will terminate
the earlier of: (i) January 13, 2021;
and (ii) the date on which the maximum number of common shares are
purchased pursuant to the Bid. Since the commencement of the
Bid, for the six months ended June 30,
2020, 1,584,000 common shares for a total cost of
$0.5 million have been
repurchased. Effective May 21,
2020, Western decided to suspend further purchases under its
share repurchase program. Western may determine to recommence
purchases under its program or otherwise modify its share purchase
plans in the future at any time without prior notice.
- On June 30, 2020, the Company
announced that it and Alberta Investment Management Corporation,
the lender under its second lien secured term loan facility (the
"Second Lien Facility"), have agreed to amend the Second Lien
Facility agreement to provide that the payment of interest and a
portion of principal that Western would have been required to pay
on July 2, 2020 will now be due on
September 1, 2020.
Selected Financial
Information
|
(stated in
thousands, except share and per share amounts)
|
|
Three months ended
June 30
|
|
Six months ended June 30
|
Financial
Highlights
|
2020
|
2019
|
Change
|
|
2020
|
2019
|
Change
|
Revenue
|
10,802
|
37,728
|
(71%)
|
|
62,567
|
103,503
|
(40%)
|
Adjusted
EBITDA(1)
|
4,036
|
2,438
|
66%
|
|
12,398
|
13,686
|
(9%)
|
Adjusted EBITDA as a
percentage of revenue
|
37%
|
6%
|
517%
|
|
20%
|
13%
|
54%
|
Cash flow from
operating activities
|
25,732
|
17,501
|
47%
|
|
27,272
|
23,389
|
17%
|
Additions to property
and equipment
|
258
|
1,691
|
(85%)
|
|
833
|
3,883
|
(79%)
|
Net loss
|
(8,042)
|
(10,128)
|
(21%)
|
|
(23,372)
|
(17,206)
|
36%
|
– basic net loss per
share
|
(0.09)
|
(0.11)
|
(18%)
|
|
(0.26)
|
(0.19)
|
37%
|
– diluted net loss per
share
|
(0.09)
|
(0.11)
|
(18%)
|
|
(0.26)
|
(0.19)
|
37%
|
Weighted average
number of shares
|
|
|
|
|
|
|
|
– basic
|
90,918,814
|
92,307,042
|
(2%)
|
|
91,405,800
|
92,306,939
|
(1%)
|
– diluted
|
90,918,814
|
92,307,042
|
(2%)
|
|
91,405,800
|
92,306,939
|
(1%)
|
Outstanding common
shares as at period end
|
90,918,814
|
92,307,042
|
(2%)
|
|
90,918,814
|
92,307,042
|
(2%)
|
(1) See "Non-IFRS measures" included
in this press release.
|
|
|
Three months ended
June 30
|
|
Six months ended
June 30
|
Operating
Highlights
|
2020
|
2019
|
Change
|
|
2020
|
2019
|
Change
|
Contract
Drilling
|
|
|
|
|
|
|
|
Canadian
Operations:
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
– Average
active rig count
|
-
|
7.0
|
(100%)
|
|
7.4
|
12.8
|
(42%)
|
– End of
period
|
49
|
49
|
-
|
|
49
|
49
|
-
|
Revenue per Billable
Day
|
NM
|
23,265
|
NM
|
|
22,173
|
21,972
|
1%
|
Revenue per Operating
Day
|
NM
|
25,405
|
NM
|
|
25,164
|
24,568
|
2%
|
Operating
Days
|
-
|
582
|
(100%)
|
|
1,181
|
2,075
|
(43%)
|
Drilling rig
utilization – Billable Days
|
-
|
14%
|
(100%)
|
|
15%
|
26%
|
(42%)
|
Drilling rig
utilization – Operating Days
|
-
|
13%
|
(100%)
|
|
13%
|
23%
|
(43%)
|
CAODC industry
average utilization – Operating Days(3)
|
4%
|
14%
|
(71%)
|
|
20%
|
22%
|
(9%)
|
|
|
|
|
|
|
|
|
United States
Operations:
|
|
|
|
|
|
|
|
Contract drilling rig
fleet:
|
|
|
|
|
|
|
|
– Average active rig
count
|
0.2
|
4.3
|
(95%)
|
|
1.0
|
4.9
|
(80%)
|
– End of
period
|
8
|
8
|
-
|
|
8
|
8
|
-
|
Revenue per Billable
Day (US$)
|
NM
|
21,165(5)
|
NM
|
|
20,652(4)
|
20,499(5)
|
1%
|
Revenue per Operating
Day (US$)
|
NM
|
24,597(5)
|
NM
|
|
24,556(4)
|
24,024(5)
|
2%
|
Operating
Days
|
7
|
338
|
(98%)
|
|
149
|
760
|
(80%)
|
Drilling rig
utilization – Billable Days
|
2%
|
54%
|
(96%)
|
|
12%
|
64%
|
(81%)
|
Drilling rig
utilization – Operating Days
|
1%
|
46%
|
(98%)
|
|
10%
|
55%
|
(82%)
|
|
|
|
|
|
|
|
|
Production
Services
|
|
|
|
|
|
|
|
Canadian
Operations:
Well servicing rig
fleet:
|
|
|
|
|
|
|
|
– Average active rig
count
|
5.5
|
13.0
|
(58%)
|
|
14.6
|
18.0
|
(19%)
|
– End of
period
|
63
|
63
|
-
|
|
63
|
63
|
-
|
Revenue per Service
Hour
|
654
|
657
|
-
|
|
713
|
667
|
7%
|
Service
Hours
|
5,043
|
11,646
|
(57%)
|
|
26,534
|
32,144
|
(17%)
|
Service rig
utilization
|
9%
|
20%
|
(55%)
|
|
23%
|
28%
|
(18%)
|
NM: Not meaningful
due to the limited activity in the period.
|
(2)
|
See "Defined Terms"
included in this press release.
|
(3)
|
Source: The
Canadian Association of Oilwell Drilling Contractors ("CAODC")
monthly Contractor Summary. The CAODC industry average is
based on Operating Days divided by total available drilling
days.
|
(4)
|
Excludes shortfall
commitment revenue from take or pay contracts of US$4.7 million for
the six months ended June 30, 2020.
|
(5)
|
Excludes shortfall
commitment revenue from take of pay contracts of US$1.3 million for
the three and six months ended June 30, 2019.
|
Financial Position
at (stated in thousands)
|
June 30,
2020
|
|
December 31,
2019
|
June 30,
2019
|
Working
capital
|
(4,555)
|
(1)
|
7,031
|
4,981
|
Property and
equipment
|
480,372
|
|
511,052
|
591,935
|
Total assets
|
494,493
|
|
550,537
|
626,890
|
Long term
debt
|
214,255
|
|
228,274
|
223,363
|
(1)
|
The definition of the
working capital ratio under the Company's Credit Facilities differs
from that presented above in this press release, as the interest
accrued on the Second Lien Facility and the current portion of long
term debt as at June 30, 2020 are excluded from current liabilities
in the ratio. See Liquidity and Capital Resources discussion
on page 11 of the Company's management's discussion and analysis as
at and for the three and six months ended June 30, 2020.
|
Western is an oilfield service company focused on three core
business lines: contract drilling, well servicing and oilfield
rental equipment services. Western provides contract drilling
services through its division, Horizon Drilling ("Horizon") in
Canada, and its wholly owned
subsidiary, Stoneham Drilling Corporation ("Stoneham") in
the United States ("US").
Western provides well servicing and oilfield rental equipment
services in Canada through its
wholly owned subsidiary Western Production Services Corp. ("Western
Production Services"). Western Production Services' division,
Eagle Well Servicing ("Eagle") provides well servicing operations,
while its division, Aero Rental Services ("Aero") provides oilfield
rental equipment services. Stoneham's division, Western Oilfield
Services, provides well servicing operations in the United
States. Financial and operating results for Horizon and
Stoneham are included in Western's
contract drilling segment, while financial and operating results
for Eagle, Aero, and Western Oilfield Services are included in
Western's production services
segment.
Western has a drilling rig fleet of 57 rigs
specifically suited for drilling complex horizontal wells.
Western is currently the fourth largest drilling contractor in
Canada, based on the CAODC
registered rigs3, with a fleet of 49 rigs
operating through Horizon. Of the Canadian fleet, 23 are
classified as Cardium class rigs, 19 as Montney class rigs and seven as Duvernay class rigs. As compared to the
Cardium class rigs, the Montney
class rigs have a larger hookload, while the Duvernay class rigs have the largest hookload
allowing the rig to support more drill pipe downhole.
Additionally, Western has eight drilling rigs operating through
Stoneham in the US, including six
Duvernay class rigs. Western
is also the fourth largest well servicing company in Canada, based on the CAODC registered
rigs4, with a fleet of 63 rigs operating
through Eagle. Additionally, Western Oilfield Services
operates three well servicing rigs in the Bakersfield area of California in the US. Western's oilfield
rental equipment division, which operates through Aero, provides
oilfield rental equipment for hydraulic fracturing services, well
completions and production work, coil tubing and drilling
services.
Crude oil and natural gas prices impact the cash flow of
Western's customers, which in turn impacts the demand for Western's
services. The following table summarizes average crude oil
and natural gas prices, as well as average foreign exchange rates,
for the three and six months ended June 30,
2020 and 2019.
|
Three months ended
June 30
|
|
Six months ended
June 30
|
|
2020
|
2019
|
Change
|
|
2020
|
2019
|
Change
|
Average crude oil
and natural gas prices(1)(2)
|
|
|
|
|
|
|
|
Crude
Oil
|
|
|
|
|
|
|
|
West Texas
Intermediate (US$/bbl)
|
27.84
|
59.84
|
(53%)
|
|
37.01
|
57.33
|
(35%)
|
Western Canadian
Select (CDN$/bbl)
|
22.42
|
65.75
|
(66%)
|
|
28.26
|
61.20
|
(54%)
|
|
|
|
|
|
|
|
|
Natural
Gas
|
|
|
|
|
|
|
|
30 day Spot AECO
(CDN$/mcf)
|
1.96
|
1.08
|
81%
|
|
1.97
|
1.82
|
8%
|
|
|
|
|
|
|
|
|
Average foreign
exchange rates(2)
|
|
|
|
|
|
|
|
US dollar to Canadian
dollar
|
1.39
|
1.34
|
4%
|
|
1.36
|
1.33
|
2%
|
(1)
|
See "Abbreviations"
included in this press releases
|
(2)
|
Source: Sproule June
30, 2020 Price Forecast, Historical Prices.
|
West Texas Intermediate ("WTI") on average declined by 53% and
35% for the three and six months ended June
30, 2020 respectively, compared to the same periods in the
prior year. Similarly, pricing on Western Canadian Select
("WCS") crude oil decreased by 66% and 54% for the three and six
months ended June 30, 2020
respectively, compared to the same periods in the prior year.
Crude oil prices in 2020 for both Canada and the US were impacted by the
international price war between Saudi
Arabia and Russia, coupled
with the ongoing COVID-19 pandemic. Crude oil prices reached
historical lows in the six months ended June
30, 2020, which significantly impacted the demand for the
Company's services. Natural gas prices in Canada strengthened in the first half of the
year, as the 30 day spot AECO price improved by 81% and 8%
respectively, for the three and six months ended June 30, 2020, compared to the same periods of
the prior year. The US dollar to the Canadian dollar foreign
exchange rate strengthened in both the three and six months ended
June 30, 2020, compared to the same
periods of the prior year, which had a slightly positive effect on
the cash flows of Western's Canadian customers, when selling US
dollar denominated commodities.
In the United States, industry
activity decreased in the first half of 2020. As reported by
Baker Hughes Company5, the number of active drilling
rigs in the United States
decreased by approximately 73% in the first half of 2020, as
compared to the same period in the prior year. The
international price war coupled with unprecedented low demand as a
result of the COVID-19 pandemic have had significant impacts on
industry activity in both the US and in Canada. Prior to the
COVID-19 pandemic, there were also continued industry concerns over
market access, increased regulation, and the prevailing customer
preference to return cash to shareholders, or pay down debt, rather
than grow production in Canada and
the US. The number of active rigs in the WCSB decreased to
historical lows in the second quarter of 2020 with only 16 active
rigs in mid-June, compared to 128 rigs at the same time in
2019. The CAODC6 reported that for drilling in
Canada, the total number of
Operating Days in the WCSB decreased by approximately 76% and 19%
for the three and six months ended June 30,
2020 as compared to the same periods in the prior year.
Outlook
Currently, 2 of Western's drilling rigs and 18 of Western's well
servicing rigs are operating. One of Western's 57 drilling
rigs is under a term take or pay contract, which is expected to
expire in 2021. These contracts each typically generate
between 250 and 350 Billable Days per year.
Due to decreased activity levels as a result of the
unprecedented demand destruction and ultra-low commodity price
environment associated with the COVID-19 pandemic, Western's
revised capital budget for 2020 is expected to total approximately
$2 million, mainly related to
maintenance capital. Western believes the revised 2020
capital budget provides a prudent use of cash resources to manage
its balance sheet. Western will continue to manage its
operations in a disciplined manner and make required adjustments to
its capital program as customer demand changes.
The significant decrease in crude oil prices in the first half
of 2020 resulting from the COVID-19 pandemic and international
price war have caused increased uncertainty in global
markets. Low crude oil demand associated with the COVID-19
pandemic is having a significant impact on Western's
customers. The precise duration and extent of the adverse
impacts of the current macroeconomic environment and the COVID-19
pandemic on Western's customers, operations, business and global
economic activity remains highly uncertain at this time.
Additionally, continued uncertainty surrounding takeaway capacity
related to the timing of completion of the construction on the
Trans Mountain pipeline expansion and the delays associated with
the Keystone XL pipeline, as well as the in service date of the
Enbridge Line 3 pipeline replacement, have resulted in 2020 capital
budgets for Western's Canadian customers decreasing considerably
year over year. As such, activity levels in Canada and the
United States are expected to be significantly lower in
2020, compared to 2019 levels. Controlling fixed costs,
maintaining balance sheet flexibility and managing through the
unprecedented market downturn are priorities for the Company, as
prices and demand for Western's services remain below historical
levels. Since the beginning of the year, Western temporarily
reduced its salaried workforce by 50%, reduced cash compensation
for the remaining employees, reduced planned capital expenditures,
and continues to identify opportunities to further streamline its
support structure. Going forward, Western's variable cost
structure, and a prudent capital budget, will aid in preserving its
balance sheet.
As at June 30, 2020, Western had
no amounts drawn on its $60.0 million
credit facilities, consisting of its $50.0
million syndicated first lien credit facility (the
"Revolving Facility") and its $10.0
million committed operating facility (the "Operating
Facility" and together the "Credit Facilities"), which mature on
December 17, 2021. Western
currently has $210.2 million
outstanding on its Second Lien Facility, which matures on
January 31,
2023.
Oilfield service activity in Canada will be affected by the development of
resource plays in Alberta and
northeast British Columbia which
will be impacted by pipeline construction, environmental
regulations, and the level of investment in Canada. In the
short term, the largest challenges facing the oilfield service
industry are ongoing liquidity concerns as a result of the reduced
customer spending caused by the demand destruction from the
COVID-19 pandemic and international price war, ultra-low crude oil
pricing, and limited take away capacity. However, Western
views the Government of Canada's
decision to contribute $1.7 billion
towards the clean-up of abandoned and orphaned wells favorably and
agrees this will assist with improving industry activity for well
servicing activities in the short term. Western has submitted
applications and has begun to see work awarded under these
programs. In the medium term, Western's rig fleet is well
positioned to benefit from the recently approved liquefied natural
gas project in British Columbia. It remains Western's view
that its modern drilling and well servicing rig fleets, reputation,
and disciplined cash management provide a competitive advantage
which will enable the Company to manage through the current
challenging oilfield service environment.
Non-IFRS Measures
Western uses certain measures in this press release which do not
have any standardized meaning as prescribed by International
Financial Reporting Standards ("IFRS"). These measures, which
are derived from information reported in the condensed consolidated
financial statements, may not be comparable to similar measures
presented by other reporting issuers. These measures have
been described and presented in this press release in order to
provide shareholders and potential investors with additional
information regarding the Company. The Non-IFRS measure used
in this press release is identified and defined as follows:
Adjusted EBITDA
Earnings before interest and finance costs, taxes, depreciation
and amortization, other non-cash items and one-time gains and
losses ("Adjusted EBITDA") is a useful supplemental measure as it
is used by management and other stakeholders, including current and
potential investors, to analyze the Company's principal business
activities. Adjusted EBITDA provides an indication of the
results generated by the Company's principal operating segments,
which assists management in monitoring current and forecasting
future operations, as certain non-core items such as interest and
finance costs, taxes, depreciation and amortization, and other
non-cash items and one-time gains and losses are removed. The
closest IFRS measure would be net loss for consolidated
results.
The following table provides a reconciliation of net loss, as
disclosed in the condensed consolidated statements of operations
and comprehensive income, to Adjusted EBITDA:
Three months ended
June 30
|
Six months ended
June 30
|
(stated in
thousands)
|
2020
|
2019
|
2020
|
2019
|
Net
loss
|
(8,042)
|
(10,128)
|
(23,372)
|
(17,206)
|
Income tax
recovery
|
(3,095)
|
(8,807)
|
(8,234)
|
(11,329)
|
Loss before income
taxes
|
(11,137)
|
(18,935)
|
(31,606)
|
(28,535)
|
Add
(deduct):
|
|
|
|
|
Depreciation
|
12,245
|
16,472
|
25,143
|
32,848
|
Stock based
compensation
|
135
|
140
|
235
|
314
|
Finance
costs
|
4,474
|
4,700
|
9,152
|
9,376
|
Other items
|
(1,681)
|
61
|
(2,026)
|
(317)
|
Impairment of property
and equipment
|
-
|
-
|
11,500
|
-
|
Adjusted
EBITDA
|
4,036
|
2,438
|
12,398
|
13,686
|
Defined Terms:
Average active rig count (contract drilling): Calculated
as drilling rig utilization – Billable Days multiplied by the
average number of drilling rigs in the Company's fleet for the
period.
Average active rig count (production services):
Calculated as service rig utilization multiplied by the average
number of service rigs in the Company's fleet for the period.
Billable Days: Defined as Operating Days plus rig
mobilization days.
Drilling rig utilization – Operating Days (or
"Drilling Rig Utilization"): Calculated based on
Operating Days divided by total available days.
Drilling rig utilization – Billable Days:
Calculated based on Billable Days divided by total available
days.
Operating Days: Defined as contract drilling days,
calculated on a spud to rig release basis.
Service Hours: Defined as well servicing hours
completed.
Service rig utilization: Calculated based on
Service Hours divided by available hours, being 10 hours per day,
per well servicing rig, 365 days per year.
Contract Drilling Rig Classifications:
Cardium class rig: Defined as any contract drilling rig
which has a total hookload less than or equal to 399,999 lbs (or
177,999 daN).
Montney class rig:
Defined as any contract drilling rig which has a total hookload
between 400,000 lbs (or 178,000 daN) and 499,999 lbs (or 221,999
daN).
Duvernay class rig:
Defined as any contract drilling rig which has a total hookload
equal to or greater than 500,000 lbs (or 222,000 daN).
Abbreviations:
- Alternating current ("AC");
- Barrel ("bbl");
- Basis point ("bps"): A 1% change equals 100 basis points and a
0.01% change is equal to one basis point;
- Canadian Association of Oilwell Drilling Contractors
("CAODC");
- DecaNewton ("daN");
- Horsepower ("HP");
- International Financial Reporting Standards ("IFRS");
- NM: Not meaningful due to the limited activity in the
period;
- Pounds ("lbs");
- Thousand cubic feet ("mcf");
- Western Canadian Sedimentary Basin ("WCSB");
- Western Canadian Select ("WCS"); and
- West Texas Intermediate ("WTI").
Forward-Looking Statements and Information
This press
release contains certain statements or disclosures relating to
Western that are based on the expectations of Western as well as
assumptions made by and information currently available to Western
which may constitute forward-looking information under applicable
securities laws. All information and statements contained
herein that are not clearly historical in nature constitute
forward-looking information, and words and phrases such as "may",
"will", "should", "could", "expect", "intend", "anticipate",
"believe", "estimate", "plan", "potential", "continue", "looking
to", or the negative of these terms or other comparable
terminology are generally intended to identify forward-looking
information. Such information represents the Company's
internal projections, estimates or beliefs concerning, among other
things, an outlook on the estimated amounts and timing of additions
to property and equipment, anticipated future debt levels and
revenues or other expectations, beliefs, plans, objectives,
assumptions, intentions or statements about future events or
performance. This information involves known and unknown
risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in
such forward-looking information.
In particular, forward-looking information in this press release
includes, but is not limited to, statements relating to commodity
pricing; the future demand for the Company's services and
equipment, in particular, in light of the ultra-low commodity price
environment associated with the international price war and the
COVID-19 pandemic; the pricing for the Company's services and
equipment; the terms of existing and future drilling contracts
in Canada and the US and the
revenue resulting therefrom (including the number of Billable Days
typically generated from such contracts and expected expiration
dates of such contracts); the Company's revised expansion and
maintenance capital plans for 2020 and its ability to make changes
thereto in response to customer demands; the Company's liquidity
needs including the ability of current capital resources to cover
Western's financial obligations, working capital requirements and
the revised 2020 capital budget; expectations as to the increase in
crude oil transportation capacity through pipeline development;
expectations as to the benefits of the liquefied natural gas
expansion in British Columbia on
the Company and its rig fleet; the future deployment or retirement
of rigs and other existing assets; the potential impact of changes
to laws, governmental and environmental regulations; the
expectation of continued investment in the Canadian crude oil and
natural gas industry; the development of Alberta and British
Columbia resource plays; expectations relating to producer
spending and activity levels for oilfield services; the Company's
approach to management of its budget and operations; the Company's
ability to maintain a competitive advantage to enable it to manage
the current oilfield service environment; and the Company's ability
to find and maintain enough field crew members; and the Company's
plans to recommence purchases of common shares under the Bid.
The material assumptions in making the forward-looking
statements in this press release include, but are not limited to:
demand levels and pricing for oilfield services; demand for crude
oil and natural gas and the price and volatility of crude oil and
natural gas; pressures on commodity pricing; the continued business
relationships between the Company and its significant customers;
the Company's competitive advantage; crude oil transport and
pipeline approval and development; the Company's ability to finance
its operations; the effectiveness of the Company's cost structure
and capital budget; the effects of seasonal and weather conditions
on operations and facilities; the competitive environment to which
the various business segments are, or may be, exposed in all
aspects of their business and the Company's competitive position
therein; the ability of the Company's various business segments to
access equipment (including spare parts and new technologies);
assumptions with respect to global economic conditions and the
accuracy of the Company's market outlook expectations for 2020 and
in the future; the Company's expectations regarding the impacts,
direct and indirect, of the COVID-19 pandemic on our business,
customers, business partners, employees, supply chain, other
stakeholders and the overall economy; changes in laws or
regulations; currency exchange fluctuations; the ability of the
Company to attract and retain skilled labour and qualified
management; the ability to retain and attract significant
customers; the ability to maintain a satisfactory safety record;
and general business, economic and market conditions.
Although Western believes that the expectations and assumptions
on which such forward-looking statements and information are based
on are reasonable, undue reliance should not be placed on the
forward-looking statements and information as Western cannot give
any assurance that they 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 results could differ materially
from those currently anticipated due to a number of factors and
risks. These include, but are not limited to, the risk that
the ultra-low commodity price environment will be sustained for an
indefinite period, the impact of the COVID-19 pandemic and the
resulting effects on economic conditions, restrictions imposed by
public health authorities or governments, fiscal and monetary
responses by governments and financial institutions and disruptions
to global supply chains and other general industry, economic,
market and business conditions. Readers are cautioned that
the foregoing list of risks, uncertainties and assumptions are not
exhaustive. Additional information on these and other risk
factors that could affect Western's operations and financial
results are discussed under the heading "Risk Factors" in Western's
annual information form for the year ended December 31, 2019 which may be accessed through
the SEDAR website at www.sedar.com. The forward-looking
statements and information contained in this press release are made
as of the date hereof and Western does not undertake any obligation
to update publicly or revise any forward-looking statements and
information, whether as a result of new information, future events
or otherwise, unless so required by applicable securities laws.
1 Source: CAODC, monthly Contractor
Summary.
|
2 Source: CAODC, monthly Contractor
Summary.
|
3 Source: CAODC Contractor Summary as
at July 27, 2020.
|
4 Source: CAODC Fleet List as at July
27, 2020.
|
5 Source: Baker Hughes Company, 2020
Rig Count monthly press releases.
|
6 Source: CAODC, monthly Contractor
Summary.
|
SOURCE Western Energy Services Corp.