CWC CWC Energy Services Corp

CALGARY, AB, March 2, 2022 /CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three months and year ended December 31, 2021. The Financial Statements and Management Discussion and Analysis ("MD&A") for the three months and year ended December 31, 2021 are filed on SEDAR at www.sedar.com.

Financial Highlights

Working capital (excluding debt) for December 31, 2021 has increased $6.9 million (57%) since December 31, 2020 driven by increases in accounts receivable ($10.0 million (62%)) offset by decreases in prepaid expenses and deposits ($0.3 million (17%)) and increases in accounts payable ($2.7 million (43%)). Long-term debt (including current portion) of $45.8 million has increased $15.6 million (52%) from December 31, 2020 primarily due to the purchase of ten (10) triple drilling rigs in Q4 2021 partially offset by the payment of long-term debt from operating cash flows throughout 2021.

Highlights for the Three Months Ended December 31, 2021

• Average Q4 2021 crude oil price, as measured by West Texas Intermediate ("WTI"), of US$73.51/bbl was 4% higher than the Q3 2021 average price of US$70.64/bbl (Q4 2020: US$42.63/bbl) and the price differential between Canadian heavy crude oil, as represented by Western Canadian Select ("WCS"), and WTI maintained a differential in the range of US$14.30/bbl to US$19.30/bbl during the fourth quarter of 2021. Natural gas prices, as measured by AECO of $4.44/GJ was 30% higher than the Q3 2021 average of $3.42/GJ (Q4 2020: $2.52/GJ).
• On November 9, 2021, CWC announced the acquisition of ten (10) high-spec triple drilling rigs and related ancillary equipment from a privately held contract drilling company based in Casper, Wyoming for total cash consideration including transaction costs of US$18.5 million (approximately C$23.5 million). The purchase further expands CWC's presence in the U.S. and more than doubles the size of the Company's active drilling fleet to nineteen (19) drilling rigs comprised of seven (7) conventional heavy double drilling rigs in Canada and five (5) AC triple, five (5) DC triple and two (2) conventional heavy double drilling rigs in the U.S.
• CWC's Canadian drilling rig utilization in Q4 2021 of 60% (Q4 2020: 39%) was more than double the Canadian Association of Energy Contractors ("CAOEC") industry average of 29% (Q4 2020: 16%). Canadian activity levels were higher in Q4 2021 with 387 drilling rig operating days (Q4 2020: 248 drilling rig operating days) from seven (7) Canadian drilling rigs as global demand for crude oil and natural gas returned when public health measures to slow the spread of COVID-19 were relaxed as a result of vaccinations becoming readily available. Average revenue per operating day of $25,103 resulted in revenue of $9.7 million (Q4 2020: $5.3 million) from the Canadian drilling operations. Due to the acquisition of the ten (10) triple drilling rigs on November 9, 2021, CWC had a quarterly weighted average⁽²⁾ of eight (8) U.S. drilling rigs and 79 operating days in Q4 2021 (Q4 2020: nil operating days from two (2) U.S. drilling rigs) resulting in U.S. Contract Drilling revenue of $2.8 million with an average revenue per operating day of US$28,425, as travel restrictions implemented between Canada and the U.S. eased and our Canadian rig crews were able to return to the U.S.
• Service rig utilization in Q4 2021 of 68% (Q4 2020: 42%) was driven by 29,737 operating hours which were 34% higher than the 22,273 operating hours in Q4 2020 with a Q4 2021 average revenue per hour of $712 (Q4 2020: $645) resulting in Production Services revenue of $21.2 million (Q4 2020: $14.7 million). During Q4 2021, the Company earned $1.3 million in revenue on 87 oil and gas sites requiring well decommissioning under the Alberta Site Rehabilitation Program ("SRP") and two (2) oil and gas sites under the Saskatchewan Accelerated Site Closure Program ("ASCP"). The $1.0 billion Alberta SRP, the $400 million ASCP and the $100 million B.C. Dormant Sites Reclamation Program ("DSRP") provide grants to eligible oilfield service contractors to perform well, pipeline, and oil and gas site closure and reclamation work, creating jobs and supporting the environment until December 31, 2022. CWC's Production Services segment is well positioned to continue to provide well decommissioning work on these inactive wells.
• Revenue of $33.7 million, an increase of $13.6 million (68%) compared to $20.1 million in Q4 2020.
• Adjusted EBITDA(1) of $6.1 million, an increase of $1.1 million (22%) compared to $5.0 million in Q4 2020. Adjusted EBITDA net of Canada Emergency Wage Subsidy ("CEWS") and Canada Emergency Rent Subsidy ("CERS") of $7.1 million, an increase of $4.4 million (164%) compared to $2.7 million in Q4 2020.
• Net income of $2.9 million, an increase of $3.7 million compared to a net loss of $0.8 million in Q4 2020.

Highlights for the Year Ended December 31, 2021

• CWC's Canadian drilling rig utilization for 2021 of 41% (2020: 27%) significantly exceeded the CAOEC industry average of 25% (2020: 16%). Canadian activity levels for 2021 increased by 53% to 1,054 drilling rig operating days from seven (7) Canadian drilling rigs (2020: 689 drilling rig operating days). Average revenue per operating day of $23,433 resulted in revenue of $24.7 million from the Canadian drilling operations. U.S. drilling rig activity levels for 2021 were 198 drilling rig operating days (2020: 144 drilling rig operating days) from an annual weighted average⁽³⁾ of three (3) U.S. drilling rigs for a utilization of 16% (2020: 20% from two (2) U.S. drilling rigs). U.S. Contract Drilling revenue of $7.0 million represented 22% of CWC's total Contract Drilling revenue in 2021 with an average revenue per operating day of US$28,198.
• CWC's service rig utilization for 2021 of 60% (2020: 34%) was driven by 105,570 operating hours, which were 45% higher than the 72,610 operating hours in 2020 with an average revenue per hour of $663 (2020: $644) resulted in Production Services revenue of $70.9 million (2020: $48.0 million).
• Revenue of $102.6 million, an increase of $34.7 million (51%) compared to $67.9 million in 2020.
• Adjusted EBITDA⁽¹⁾ of $18.9 million, an increase of $7.8 million (70%) compared to $11.1 million in 2020. 2021 Adjusted EBITDA⁽¹⁾ is the highest level of Adjusted EBITDA⁽¹⁾ that the Company has achieved since 2014 when the downturn in the global oil and gas industry first started.
• Net income of $4.6 million, an increase of $29.0 million compared to a net loss of $24.5 million in 2020. The increase is primarily due to a charge for impairment of assets of $25.5 million taken in Q1 2020.
• On August 27, 2021, CWC announced the sale of its swabbing rig assets and business for gross proceeds of $0.7 million, thereby further focusing the Company on its core assets and services of drilling rigs and service rigs.
• For the year ended December 31, 2021, the Company purchased 2,249,500 (2020: 8,994,000) common shares under the Normal Course Issuer Bid ("NCIB") which were cancelled and returned to treasury (2020: 9,113,500 common shares were cancelled and returned to treasury).

Operational Overview

Contract Drilling

The Contract Drilling division operates under the trade name CWC Ironhand Drilling and is comprised of ten (10) electric triple drilling rigs with depth ratings from 3,600 to 7,600 metres and nine (9) telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. 18 of 19 rigs have top drives and eight (8) have pad rig walking systems. All of the drilling rigs are ideally suited for the most active depths for horizontal drilling in the Western Canadian Sedimentary Basin ("WCSB"), including the Montney, Cardium, Duvernay and other deep basin horizons. The Company has expanded its drilling rig services into select United States basins including the Permian, Eagle Ford, Niobrara, Denver-Julesburg ("DJ"), Powder River and Bakken.

Canadian Contract Drilling revenue of $9.7 million for Q4 2021 (Q4 2020: $5.3 million) was achieved with a utilization rate of 60% (Q4 2020: 39%), compared to the CAOEC industry average of 29% (Q4 2020: 16%). CWC completed 387 Canadian drilling rig operating days in Q4 2021, compared to 248 Canadian drilling rig operating days in Q4 2020 as global demand for crude oil and natural gas returned when public health measures to slow the spread of COVID-19 were relaxed as a result of vaccinations becoming readily available.

U.S. Contract Drilling revenue of $2.8 million for Q4 2021 (Q4 2020: $nil) was achieved with a utilization rate of 11% with 79 U.S. drilling rig operating days (Q4 2020: nil) as travel restrictions implemented between Canada and the U.S. eased and our Canadian rig crews were able to return to the U.S. The lower utilization rate in Q4 2021 was a result of the purchase of ten (10) triple drilling rigs on November 9, 2021 and starting up operations with no previous base of assets, employees or customers.

Production Services

With a fleet of 144 service rigs, CWC is one of the largest well servicing companies in Canada as measured by active fleet and operating hours. CWC's service rig fleet consists of 75 single, 55 double and 14 slant rigs providing services which include completions, maintenance, workovers and well decommissioning with depth ratings from 1,500 to 5,000 metres. In 2021, CWC chose to park 77 of its service rigs and focus its sales and operational efforts on the remaining 67 active service rigs due to the reduction in the number of service rigs currently required to service the WCSB and the tight labour market experienced in the industry for service rig crews.

Production Services revenue of $21.2 million in Q4 2021, up $6.4 million (44%) compared to $14.7 million in Q4 2020. The revenue increase in Q4 2021 was a result of the global demand for crude oil and natural gas returning when public health measures to slow the spread of COVID-19 were relaxed as a result of vaccinations becoming readily available.

CWC's service rig utilization in Q4 2021 of 68% (Q4 2020: 42%) with 29,737 operating hours was 34% higher than the 22,273 operating hours in Q4 2020. Average revenue per hour of $712 in Q4 2021 was $67 per hour (10%) higher than the $645 per hour in Q4 2020 as the Company implemented pricing adjustments to partially offset increased labour costs in response to continuing industry labour shortages and higher inflation from our suppliers.

On September 10, 2021, the Company sold its non-core swabbing rig assets and business for gross proceeds of $0.7 million. Prior to the sale, the swabbing rig business contributed revenue of $0.8 million and Adjusted EBITDA of $0.1 million for the year ended December 31, 2021.

Capital Expenditures

Capital expenditures of $25.0 million in Q4 2021, an increase of $24.4 million compared to $0.6 million in Q4 2020.

Capital expenditures of $29.3 million for the year ended December 31, 2021, an increase of $24.1 million compared to $5.1 million in the same period of 2020. The increased capital expenditures for the quarter and year ended December 31, 2021 were primarily due to the purchase of ten (10) triple drilling rigs.

Outlook

The outlook for contract drilling and well servicing in Canada and the U.S. continues to improve as the removal of economic restrictions due to the COVID-19 health pandemic has supported a continuing increase in crude oil and natural gas prices. To support the cautious re-opening of the global economy, in July 2021 OPEC+ agreed to add back 4 million barrels per day of curtailed production in increments of 400,000 barrels per day each month into 2022. This moderate and gradual add back of oil production was reconfirmed in OPEC's meeting on February 2, 2022, thus supporting the continuation of higher crude oil prices, as measured by WTI, currently over US$95/bbl. With a strong crude oil price and global demand for crude oil continuing to rise in 2022, CWC believes North American oilfield service activity will continue to increase in 2022. Such optimism is reflected in the Canadian Association of Petroleum Producers ("CAPP") January 20, 2022 forecast that capital spending in the Canadian oil and natural gas industry will increase 22% to $32.8 billion in 2022 as oilfield activity levels have now recovered to their pre COVID-19 health pandemic levels.

CWC is currently experiencing a strong Q1 2022 with both activity and pricing increasing for both the drilling rig and service rig segments. However, as demand for our services increases for the remainder of 2022, CWC believes the labour market for rig crews will continue to be extremely tight, resulting in inflationary pressure on field labour costs, which will warrant further rate increases to our E&P customers. 

In June 2021, CWC released its inaugural Environmental, Social and Governance ("ESG") Report. Our commitment to ESG and sustainability has shown improvement over the last three years as outlined in our report. We will continue to work towards advancing these efforts further in future years, especially in the area of emission reductions and establishing goals and targets. One of the initial steps CWC has taken towards meeting its ESG targets has been to convert some of our field equipment to have carbon reduction bi-fuel capabilities. In addition, CWC is proud to say that 2% of its revenue in 2021 came from work on carbon capture, helium and salt water disposal wells using our current equipment, thereby reflecting the diversity and versatility of the nature of work for CWC's drilling rigs. Management is confident that CWC will continue to be regarded as a leader on ESG and sustainability matters in the oilfield services industry as the nature of the work for our equipment evolves.

About CWC Energy Services Corp.

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

Forward-Looking Information

This News Release contains certain forward-looking information and statements within the meaning of applicable Canadian securities legislation. Certain statements contained in this News Release, including most of those contained in the section titled "Outlook" and including statements which may contain such words as "anticipate", "could", "continue", "should", "seek", "may", "intend", "likely", "plan", "estimate", "believe", "expect", "will", "objective", "ongoing", "project" and similar expressions are intended to identify forward-looking information or statements. In particular, this News Release contains forward-looking statements including management's assessment of future plans and operations, planned levels of capital expenditures, expectations as to activity levels, expectations on the sustainability of future cash flow and earnings, expectations with respect to crude oil and natural gas prices, activity levels in various areas, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB and U.S. basins, expectations regarding entering into long term drilling contracts and expanding its customer base, and expectations regarding the business, operations, revenue and debt levels of the Company in addition to general economic conditions. Although the Company believes that the expectations and assumptions on which such forward-looking information and statements are based are reasonable, undue reliance should not be placed on the forward-looking information and statements because the Company can give no assurances that they will prove to be correct. Since forward-looking information and statements 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 including the implications of the COVID-19 health pandemic on the Company's business, operations and personnel. These factors and risks include, but are not limited to, the risks associated with the COVID-19 health pandemic and their implications on the demand and supply in the drilling and oilfield services sector (i.e. demand, pricing and terms for oilfield drilling and services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks), significant expansion measures to stop the spread of COVID-19 further restricting or prohibiting the operations of the Company's facilities and operations, actions to ensure social distancing due to COVID-19, integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation, including but not limited to tax laws, royalties and environmental regulations, stock market volatility and the inability to access sufficient capital from external and internal sources. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through SEDAR at www.sedar.com. The forward-looking information and statements contained in this News Release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Any forward-looking statements made previously may be inaccurate now.

Non-GAAP and Other Financial Measures

SOURCE CWC Energy Services Corp.