CALGARY, Aug. 4, 2011 /CNW/ –
Overview
Ensign Energy Services Inc. (“Ensign” or the “Company”) recorded revenue
of $334.4 million in the three months ended June 30, 2011, an increase
of 30 percent from revenue of $257.6 million recorded in the second
quarter of the prior year. The Company recorded revenue of $836.7
million for the six months ended June 30, 2011, a 37 percent increase
from revenue of $610.4 million for the six months ended June 30, 2010.
EBITDA (defined as earnings before interest, taxes, depreciation,
amortization, and share-based compensation expense) totaled $65.1
million ($0.43 per common share) in the second quarter of 2011, 38
percent higher than EBITDA of $47.2 million ($0.31 per common share) in
the second quarter of 2010. EBITDA for the six months ended June 30,
2011 totaled $235.4 million ($1.54 per common share), an increase of 67
percent from EBITDA of $140.9 million ($0.92 per common share) recorded
in the first six months of 2010. Adjusted net income (defined as net
income before share-based compensation expense tax-effected using an
income tax rate of 35%) totaled $18.9 million ($0.12 per common share)
in the second quarter of 2011, 89 percent higher than Adjusted net
income of $10.0 million ($0.07 per common share) in the second quarter
of 2010. Adjusted net income for the six months ended June 30, 2011
totaled $106.6 million ($0.70 per common share), an increase of 119
percent from Adjusted net income of $48.6 million ($0.32 per common
share) recorded in the first six months of 2010. Net income for the
second quarter of 2011 increased slightly over the comparable prior
year period to $16.1 million ($0.11 per common share) compared to net
income of $16.0 million ($0.10 per common share) for the second quarter
of 2010. Net income for the six months ended June 30, 2011 totaled
$95.8 million ($0.63 per common share), an increase of 75 percent from
net income of $54.8 million ($0.36 per common share) recorded in the
first six months of 2010. Funds from operations increased 44 percent
to $66.4 million ($0.43 per common share) in the second quarter of 2011
from $46.0 million ($0.30 per common share) in the second quarter of
the prior year. Funds from operations for the first six months of 2011
increased 66 percent to $220.9 million ($1.44 per common share) from
$132.8 million ($0.87 per common share) recorded in the same period in
2010.
Increased demand for oilfield services in the second quarter and first
half of 2011 compared to similar periods in the prior year resulted in
improved operating and financial results from the Company’s Canadian
and United States operations. This was in spite of the “spring break
up” and wet weather setbacks experienced by the Company’s Canadian
segment during the second quarter of 2011. The Company’s international
financial contributions in the first half of 2011 also improved
slightly from the prior year despite the negative translational impact
from a weakening United States dollar.
Working capital at June 30, 2011 was $83.1 million compared to $84.5
million at December 31, 2010. A continuing focus on maintaining strong
liquidity and selective use of debt, combined with improved levels of
funds generated from operations, helps to support the Company’s growth
initiatives, including the new build program, which upon completion
will deliver an additional 19 new state-of-the-art drilling rigs and 12
well servicing rigs over the next 12 to 15 months.
FINANCIAL AND OPERATING HIGHLIGHTS
($ thousands, except per share data and operating information)
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||||||
| 2011 | 2010 | % Change | 2011 | 2010 | % Change | ||||||||||||||||
| Revenue | 334,445 | 257,578 | 30 | 836,656 | 610,417 | 37 | |||||||||||||||
| EBITDA 1 | 65,143 | 47,186 | 38 | 235,406 | 140,931 | 67 | |||||||||||||||
| EBITDA per share 1 | |||||||||||||||||||||
| Basic | $0.43 | $0.31 | 39 | $1.54 | $0.92 | 67 | |||||||||||||||
| Diluted | $0.43 | $0.31 | 39 | $1.54 | $0.92 | 67 | |||||||||||||||
| Adjusted net income 2 | 18,941 | 10,029 | 89 | 106,641 | 48,643 | 119 | |||||||||||||||
| Adjusted net income per share 2 | |||||||||||||||||||||
| Basic | $0.12 | $0.07 | 71 | $0.70 | $0.32 | 119 | |||||||||||||||
| Diluted | $0.12 | $0.07 | 71 | $0.70 | $0.32 | 119 | |||||||||||||||
| Net income | 16,073 | 16,001 | – | 95,764 | 54,847 | 75 | |||||||||||||||
| Net income per share | |||||||||||||||||||||
| Basic | $0.11 | $0.10 | 10 | $0.63 | $0.36 | 75 | |||||||||||||||
| Diluted | $0.11 | $0.10 | 10 | $0.63 | $0.36 | 75 | |||||||||||||||
| Funds from operations 3 | 66,395 | 46,027 | 44 | 220,936 | 132,759 | 66 | |||||||||||||||
| Funds from operations per share 3 | |||||||||||||||||||||
| Basic | $0.43 | $0.30 | 43 | $1.44 | $0.87 | 66 | |||||||||||||||
| Diluted | $0.43 | $0.30 | 43 | $1.44 | $0.87 | 66 | |||||||||||||||
| Weighted average shares – basic (000s) | 152,891 | 152,877 | – | 152,920 | 152,897 | – | |||||||||||||||
| Weighted average shares – diluted (000s) | 152,954 | 153,278 | – | 152,934 | 153,365 | – | |||||||||||||||
| Drilling | |||||||||||||||||||||
| Number of marketed rigs | |||||||||||||||||||||
| Canada | |||||||||||||||||||||
| Conventional | 128 | 146 | (12) | 128 | 146 | (12) | |||||||||||||||
| Oil sands coring/coal bed methane | 38 | 28 | 36 | 38 | 28 | 36 | |||||||||||||||
| United States | 85 | 80 | 6 | 85 | 80 | 6 | |||||||||||||||
| International 4 | 59 | 58 | 2 | 59 | 58 | 2 | |||||||||||||||
| Operating days | |||||||||||||||||||||
| Canada 5 | 2,380 | 2,036 | 17 | 10,307 | 8,107 | 27 | |||||||||||||||
| United States | 4,412 | 3,760 | 17 | 8,678 | 7,022 | 24 | |||||||||||||||
| International | 2,604 | 2,480 | 5 | 5,269 | 4,708 | 12 | |||||||||||||||
| Well Servicing | |||||||||||||||||||||
| Number of marketed rigs | |||||||||||||||||||||
| Canada | 101 | 112 | (10) | 101 | 112 | (10) | |||||||||||||||
| United States | 31 | 20 | 55 | 31 | 20 | 55 | |||||||||||||||
| Operating hours | |||||||||||||||||||||
| Canada | 28,960 | 25,504 | 14 | 68,481 | 63,784 | 7 | |||||||||||||||
| United States | 18,907 | 12,041 | 57 | 36,357 | 23,545 | 54 | |||||||||||||||
-
EBITDA is defined as “income before interest expense, income taxes,
depreciation and share-based compensation (recovery)/expense”.
Management believes that in addition to net income, EBITDA and EBITDA
per share are useful supplemental measures as they provide an
indication of the results generated by the Company’s principal business
activities prior to consideration of how these activities are financed,
how the results are taxed in various jurisdictions or how the results
are impacted by the accounting standards associated with the Company’s
share-based compensation plans. EBITDA and EBITDA per share as defined
above are not recognized measures under International Financial
Reporting Standards and accordingly may not be comparable to measures
used by other companies. -
Adjusted net income is defined as “net income before share-based
compensation (recovery)/expense, tax-effected using an income tax rate
of 35%”. Adjusted net income and Adjusted net income per share are
useful supplemental measures as they provide an indication of the
results generated by the Company’s principal business activities prior
to consideration of how the results are impacted by the accounting
standards associated with the Company’s share-based compensation plans,
net of income taxes. Adjusted net income and Adjusted net income per
share as defined above are not recognized measures under International
Financial Reporting Standards and accordingly may not be comparable to
measures used by other companies. -
Funds from operations is defined as “cash provided by operating
activities before the change in non-cash working capital”. Funds from
operations and funds from operations per share are measures that
provides additional information regarding the Company’s liquidity and
its ability to generate funds to finance its operations. Management
utilizes these measures to assess the Company’s ability to finance
operating activities and capital expenditures. Funds from operations
and funds from operations per share are not measures that have any
standardized meaning prescribed by International Financial Reporting
Standards and accordingly may not be comparable to similar measures
used by other companies. - Includes workover rigs.
- Excludes coring rig operating days.
Revenue and Oilfield Services Expense
| Three months ended June 30 | Six months ended June 30 | ||||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||||
| Revenue | |||||||||||||
| Canada | 93,093 | 66,799 | 39 | 368,306 | 245,677 | 50 | |||||||
| United States | 153,189 | 115,635 | 32 | 301,653 | 219,590 | 37 | |||||||
| International | 88,163 | 75,144 | 17 | 166,697 | 145,150 | 15 | |||||||
| 334,445 | 257,578 | 30 | 836,656 | 610,417 | 37 | ||||||||
| Oilfield services expense | 254,560 | 196,237 | 30 | 584,880 | 439,519 | 33 | |||||||
| 79,885 | 61,341 | 30 | 251,776 | 170,898 | 47 | ||||||||
| Gross margin | 23.9% | 23.8% | 30.1% | 28.0% | |||||||||
Revenue recorded in the second quarter of 2011 totaled $334.4 million,
an increase of 30 percent over the second quarter of 2010. Revenue was
$836.7 million for the six months ended June 30, 2011, a 37 percent
increase from $610.4 million for the six months ended June 30, 2010.
As a percentage of revenue, gross margin for the second quarter of 2011
increased slightly to 23.9 percent (2010 – 23.8 percent) and 30.1
percent for the six months ended June 30, 2011 (2010 – 28.0 percent).
Higher activity levels in the North American market led to increases in
revenues in both the three and six months ended June 30, 2011.
Increased demand allowed for improvements in day rates in 2011 as
pricing pressures arising from the excess supply of oilfield services
equipment experienced over the past two years subsided in the first
half of 2011. Despite challenges in the Company’s international
segment, revenues were up slightly for the three and six months ended
June 30, 2011 compared to similar periods in the prior year. The
Company’s Latin American operations continue to improve as demand for
oilfield services increases, while operations in the eastern hemisphere
continue to be held back by temporary weather setbacks in Australia and
ongoing geopolitical issues in parts of the Middle East and North
Africa.
Gross margin increased to $79.9 million (23.9 percent of revenue) for
the second quarter of 2011 compared with gross margin of $61.3 million
(23.8 percent of revenue) for the second quarter of 2010. Similarly,
gross margin increased to $251.8 million (30.1 percent of revenue) in
the first six months of 2011 compared to $170.9 million (28.0 percent
of revenue) for the same period in 2010. Improved margins are a result
of the increased demand for oilfield services in 2011. Partially
offsetting the improved level of spot prices in the second quarter is
the impact of major maintenance expenditures, particularly in Canada,
as the Company continues to expense such costs as incurred. Such
expenditures are often incurred during the “spring break up” period in
anticipation of higher levels of demand for oilfield services through
the remainder of the year.
Canadian Oilfield Services
Canadian operating and financial results are affected by seasonality in
the second quarter; when “spring break-up” and wet weather conditions
hinder the Company’s ability to move heavy equipment and access
Canadian drilling locations. In 2011, a longer than normal wet weather
season hindered operating activity levels in this segment, however, the
impact on operating results was offset by improvements in day rates.
Revenue increased 39 percent to $93.1 million for the three months
ended June 30, 2011, from $66.8 million for the three months ended June
30, 2010. For the six months ended June 30, 2011, revenue increased 50
percent to $368.3 million compared to $245.7 million for the same
period in 2010. In the second quarter of 2011, Canadian revenues
accounted for 28 percent of total revenue (2010 – 26 percent), and
during the six months ended June 30, 2011, Canadian revenues were 44
percent of total revenue (2010 – 40 percent).
Drilling days recorded by the Company’s Canadian operations in the
second quarter of 2011 increased 17 percent from the comparable quarter
in the prior year. During the six months ended June 30, 2011, drilling
days increased 27 percent from the same period of the prior year.
Similarly, Canadian well servicing hours increased by 14 percent in the
second quarter of 2011 and by seven percent in the six months ended
June 30, 2011 compared to the corresponding periods in the prior year.
United States Oilfield Services
The Company’s United States operations recorded revenue of $153.2
million in the second quarter of 2011, a 32 percent increase from the
$115.6 million recorded in the corresponding period of the prior year.
During the six months ended June 30, 2011, revenue of $301.7 million
was recorded, an increase of 37 percent from the $219.6 million
recorded in the six months ended June 30, 2010. The increases in
revenue in the three and six months ended June 30, 2011 were negatively
impacted on translation by the weakening of the United States dollar,
which decreased approximately six percent relative to the Canadian
dollar in the second quarter of 2011 compared to the second quarter of
2010. The United States operations accounted for 46 percent of the
Company’s revenue in the second quarter of 2011 (2010 – 45 percent) and
36 percent of total revenue in the six months ended June 30, 2011 (2010
– 36 percent).
Higher activity levels were the main driver of increased revenue in the
three and six months ended June 30, 2011 as compared to the same
periods in 2010. The number of drilling days recorded by the Company’s
United States operations in the second quarter of 2011 increased 17
percent from the same period of the prior year. Drilling days for the
first six months of 2011 increased 24 percent from the comparable
period in the prior year. United States well servicing hours in the
second quarter of 2011 were up 57 percent compared to the prior year
and well servicing hours for the first half of 2011 were up 54 percent
compared to the first half of 2010.
The increase in United States operating activity experienced by the
Company is mainly due to stronger demand for oilfield services as well
as additional oilfield services equipment being added to the Company’s
United States fleet in connection with the Company’s new build
program. The Company mobilized three additional drilling rigs and five
additional well servicing rigs during the second quarter of 2011,
bringing the total to five drilling rigs and seven well servicing rigs
added to the United States fleet during the first half of 2011.
International Oilfield Services
The Company’s international operations recorded revenue of $88.2 million
in the second quarter of 2011, a 17 percent increase from $75.1 million
recorded in the corresponding period of the prior year. International
revenues for the six months ended June 30, 2011 increased by 15 percent
to $166.7 million from $145.1 million recorded for the six months ended
June 30, 2010. International operations contributed 26 percent of the
Company’s revenue in the second quarter of 2011 (2010 – 29 percent) and
20 percent of the Company’s revenue in the first half of 2011 (2010 –
24 percent).
International operating days for the three months ended June 30, 2011
totaled 2,604 days compared with 2,480 days in the second quarter of
2010, an increase of five percent. For the six months ended June 30,
2011 international operating days totaled 5,269 days compared with
4,708 days in the same period in 2010, an increase of 12 percent.
Increases in the Company’s Latin American operations were offset by
challenges in the eastern hemisphere as the Company continued to see
the impacts of temporary weather setbacks in Australia and regional
geopolitical issues in parts of the Middle East and North Africa. In
addition, the weakening of the United States dollar relative to the
Canadian dollar negatively impacted operating results on translation.
Certain of the Company’s assets located in areas of the Middle East and
North Africa that are subject to civil unrest have not worked since
early 2011. Based on recent physical inspections, the assets remain
intact; however, there is uncertainty as to when operations may
resume. The carrying value of these assets is approximately $40.0
million and at this time, the Company does not believe that any
impairment has occurred.
Depreciation
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Depreciation | 35,081 | 29,853 | 18 | 75,859 | 63,357 | 20 | |||||
The Company uses the unit of production method of calculating
depreciation for the majority of its property and equipment.
Depreciation expense totaled $35.1 million for the second quarter of
2011 compared with $29.9 million for the second quarter of 2010.
Depreciation expense for the first six months of 2011 was $75.9
million, an increase of 20 percent over the $63.4 million recorded in
the first six months of 2010. The increase in depreciation expense is
consistent with the increase in the operating activity levels during
the three and six months ended June 30, 2011 compared to the operating
activity levels in the same periods of 2010.
General and Administrative Expense
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| General and administrative | 13,190 | 14,842 | (11) | 28,206 | 27,787 | 2 | |||||
| % of revenue | 3.9% | 5.8% | 3.4% | 4.6% | |||||||
General and administrative expense decreased 11 percent to $13.2 million
(3.9 percent of revenue) for the second quarter of 2011 compared with
$14.8 million (5.8 percent of revenue) for the second quarter of 2010.
For the six months ended June 30, 2011, general and administrative
expense totaled $28.2 million (3.4 percent of revenue) compared with
$27.8 million (4.6 percent of revenue) recorded in the six months ended
June 30, 2010, an increase of two percent.
Share-Based Compensation Expense (Recovery)
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Share-based compensation | 4,412 | (9,187) | (148) | 16,734 | (9,545) | (275) | |||||
Share-based compensation expense (recovery) arises from the
Black-Scholes valuation accounting associated with the Company’s
share-based compensation plans, whereby the liability associated with
share-based compensation is adjusted for the effect of granting and
vesting of employee stock options and changes in the underlying price
of the Company’s common shares.
For the three months ended June 30, 2011, share-based compensation
expense was $4.4 million compared with a recovery of $9.2 million
recorded in the second quarter of 2010. For the six months ended June
30, 2011, share-based compensation expense was $16.7 million compared
with a recovery of $9.5 million for the six months ended June 30,
2010. The increase in share-based compensation expense in the three
and six months ended June 30, 2011 arises from the fair value
accounting under International Financial Reporting Standards and an
increase in the price of the Company’s common shares during these
periods. The closing price of the Company’s common shares was $19.12
at June 30, 2011 ($12.52 at June 30, 2010), compared with $18.26 at
March 31, 2011 ($14.70 at March 31, 2010) and $15.03 at December 31,
2010 ($15.00 at December 31, 2009).
Interest Expense
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Interest expense | 341 | 563 | (39) | 760 | 1,304 | (42) | |||||
| Interest income | (160) | (118) | 36 | (295) | (216) | 37 | |||||
| 181 | 445 | (59) | 465 | 1,088 | (57) | ||||||
Interest is incurred on the Company’s $200.0 million global revolving
credit facility at prime interest rates or bankers’ acceptance
rates/LIBOR plus 0.75 percent.
Foreign Exchange and Other
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Foreign exchange and other | 1,552 | (687) | (326) | (11,836) | 2,180 | (643) | |||||
Included in this amount is a foreign exchange gain on the conversion of
the Australian operations from Australian dollars to United States
dollars. The Australian currency strengthened against the United
States dollar during the three and six months ended June 30, 2011, but
weakened during the first half of 2010.
Income Taxes
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Current income tax | (105) | 1,673 | (106) | 16,155 | 8,637 | 87 | |||||
| Deferred income tax | 9,501 | 8,401 | 13 | 30,429 | 22,547 | 35 | |||||
| 9,396 | 10,074 | (7) | 46,584 | 31,184 | 49 | ||||||
| 36.9% | 38.6% | 32.7% | 36.2% | ||||||||
The effective income tax rate for the three months ended June 30, 2011
was 36.9 percent compared with 38.6 percent for the three months ended
June 30, 2010. The effective income tax rate for the six months ended
June 30, 2011 was 32.7 percent compared with 36.2 percent for the six
months ended June 30, 2010. The slight decrease in the effective
income tax rate in the current quarter is due to a higher proportion of
taxable income earned in Canada, compared with the prior comparative
quarter. The effective income tax rate for the first six months of 2010
was higher than the first six months of 2011, due to the tax effects of
the currency devaluation in Venezuela in early January 2010 and a
greater proportion of taxable income that had been generated in higher
tax rate jurisdictions during that period.
Financial Position
The following chart outlines significant changes in the consolidated
statements of financial position from December 31, 2010 to June 30,
2011:
| ($ thousands) | Change | Explanation | ||
| Cash and cash equivalents | 20,687 | See consolidated statements of cash flows. | ||
| Accounts receivable | (50,523) |
Decrease is due to reduced operating activity in Canada in the second quarter of 2011 compared to the fourth quarter of 2010 as a result of “spring break-up” and wet weather. | ||
| Inventories and other | 9,066 |
Increase due to additional inventory and other, offset by normal course use of consumables. | ||
| Property and equipment | 80,134 |
Increase due to the new build construction program offset by the impact of foreign exchange fluctuations on the consolidation of the Company’s foreign subsidiaries and depreciation. | ||
| Note receivable | 40 |
Increase due to revaluation of the note to fair value offset by partial collection of the note receivable. | ||
| Accounts payable and accruals | (21,573) |
Decrease is due to reduced operating activity in Canada in the second quarter of 2011 compared to the fourth quarter of 2010. | ||
| Operating lines of credit | (8,681) | Decrease due to net repayments of the operating lines of credit. | ||
| Share-based compensation | 16,593 |
Increase due to increase in the price of the Company’s common shares as at June 30, 2011 compared with December 31, 2010. | ||
| Income taxes payable | 930 |
Increase due to the current income tax provision for the period, net of tax instalments. | ||
| Dividends payable | 8 | Dividends payable is consistent with prior period. | ||
| Deferred income taxes | 29,818 |
Increase primarily due to accelerated tax depreciation of assets added in the United States during the current year and partnership timing differences in Canada. | ||
| Shareholders’ equity | 42,309 |
Increase due to the net income for the period offset by the impact of foreign exchange rate fluctuations on net assets of foreign subsidiaries, and the amount of dividends declared in the period. |
Funds from Operations and Working Capital
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Funds from operations | 66,395 | 46,027 | 44 | 220,936 | 132,759 | 66 | |||||
| Funds from operations per share | $ 0.43 | $ 0.30 | 43 | $1.44 | $ 0.87 | 66 | |||||
| Working capital 1 | 83,131 | 84,516 | (2) | 83,131 | 84,516 | (2) | |||||
- Comparative figure as of December 31, 2010.
During the three months ended June 30, 2011, the Company generated funds
from operations of $66.4 million ($0.43 per common share) compared with
funds from operations of $46.0 million ($0.30 per common share) for the
three months ended June 30, 2010, an increase of 44 percent. For the
six months ended June 30, 2011, the Company generated funds from
operations of $220.9 million ($1.44 per common share), an increase of
66 percent over funds from operations of $132.8 million ($0.87 per
common share) generated in the first half of 2010. At June 30, 2011,
the Company’s working capital totaled $83.1 million, compared to $84.5
million at December 31, 2010, a decrease of two percent. The increases
in funds generated from operations are a direct result of the increased
demand for oilfield services, primarily in North America, in the three
and six months ended June 30, 2011 over the comparable periods of 2010
as well as the expansion of the Company’s fleet as a result of the new
build program.
The Company currently has no long-term debt and continues to have strong
liquidity as a result of positive working capital. The strong working
capital position, combined with future and currently available credit
facilities are expected to provide sufficient support for the Company’s
capital expansion initiatives and future operations.
Investing Activities
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Purchase of property and equipment | (114,326) | (64,644) | 77 | (181,009) | (91,367) | 98 | |||||
| Net change in non-cash working capital | 14,380 | (10,373) | (239) | 3,698 | (20,587) | (118) | |||||
| Cash used in investing activities | (99,946) | (75,017) | 33 | (177,311) | (111,954) | 58 | |||||
Purchases of property and equipment during the second quarter of 2011
totaled $114.3 million (2010 – $64.6 million). For the six months
ended June 30, 2011, purchases of property and equipment totaled $181.0
million (2010 – $91.4 million). The purchases of property and
equipment relates predominantly to expenditures made pursuant to the
Company’s ongoing new build program, as well as other capital
expenditures.
Financing Activities
| Three months ended June 30 | Six months ended June 30 | ||||||||||
| ($ thousands) | 2011 | 2010 | % Change | 2011 | 2010 | % Change | |||||
| Net increase (decrease) in operating lines of credit | 10,614 | (9,554) | (211) | (3,880) | (14,174) | (73) | |||||
| Purchase of shares held in trust | (4,247) | (454) | 835 | (4,911) | (1,080) | 355 | |||||
| Dividends | (14,555) | (13,408) | 9 | (29,110) | (26,815) | 9 | |||||
| Net change in non-cash working capital | (65) | 198 | (133) | (32) | 296 | (111) | |||||
| Cash used in financing activities | (8,253) | (23,218) | (64) | (37,933) | (41,773) | (9) | |||||
The Company’s available operating lines of credit consist of a $200.0
million global revolving credit facility (the “Global Facility”) and a
$10.0 million Canadian based revolving credit facility (the “Canadian
Facility”). The Global Facility is available to the Company and any of
its wholly-owned subsidiaries, and may be drawn in Canadian, United
States or Australian dollars, up to the equivalent value of $200.0
million Canadian dollars. The amount available under the Canadian
Facility is $10.0 million or the equivalent United States dollars.
Net repayments of the operating lines of credit were the result of
operating cash flows generated by the Company’s United States and
international divisions in excess of capital expenditure requirements.
As of June 30, 2011, the operating lines of credit are primarily being
used to fund the completion of the most recent new build program and to
support international operations.
On May 18, 2011, the Company announced its intent to file with the
Toronto Stock Exchange a Normal Course Issuer Bid (the “Bid”) to
acquire for cancellation up to five percent of the Company’s issued and
outstanding common shares. On June 3, 2011, the Company received
approval from the Toronto Stock Exchange to purchase up to 7,660,512
common shares for cancellation. The Bid commenced on June 7, 2011 and
will terminate on June 6, 2012 or such earlier time as the Bid is
completed or terminated at the option of the Company. As at June 30,
2011, no common shares have been purchased and cancelled pursuant to
the Bid.
The Company previously had a Bid that commenced on June 1, 2010 and
terminated on May 31, 2011, under which the Company purchased and
cancelled 200,000 common shares.
The Board of Directors of the Company has declared a third quarter
dividend of $0.095 per common share to be payable October 5, 2011 to
all Common Shareholders of record as of September 20, 2011. The
dividend is pursuant to the quarterly dividend policy adopted by the
Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act
(“ITA”), the dividend being paid is designated as an eligible dividend,
as defined in subsection 89(1) of the ITA.
Subsequent Event
On July 20, 2011 the Company announced that it had entered into a
definitive agreement to acquire the land drilling division of Rowan
Companies, Inc. (“Rowan Land Drilling”), for a purchase price of USD
$510 million plus working capital, subject to certain closing
adjustments, payable in cash on closing. The transaction is expected
to close following the receipt of all necessary regulatory approvals.
Rowan Land Drilling owns and operates 30 deeper capacity electric land
drilling rigs in the southern United States. The purchase price will
be funded through the Company’s existing working capital, available
lines of credit and a new term facility of up to USD $400 million.
The acquisition of Rowan Land Drilling will provide the Company with a
substantial presence in the southern United States, complementing the
Company’s existing operations in the Rocky Mountain region and
California. The addition of Rowan Land Drilling enhances the Company’s
ability to capitalize on strengthening industry fundamentals in the
United States and to access a diverse customer base in the increasingly
important oil and natural gas resource plays in the southern United
States.
New Builds
During the first half of 2011, the Company commissioned five new ADRTM style drilling rigs and seven well servicing rigs in the United States
and two well servicing rigs in Canada.
The remaining new build estimated delivery schedule, by geographic area,
is as follows:
| Estimated Delivery Date | ||||||||||||
| Q3-2011 | Q4-2011 | Q1-2012 | Q2-2012 | Q3-2012 | Total | |||||||
| ADR’s | ||||||||||||
| Canada | 1 | 5 | 3 | – | 1 | 10 | ||||||
| United States | 4 | 2 | 2 | – | – | 8 | ||||||
| International | 1 | – | – | – | – | 1 | ||||||
| Total | 6 | 7 | 5 | – | 1 | 19 | ||||||
| Well servicing | ||||||||||||
| Canada | 2 | – | – | – | – | 2 | ||||||
| United States | 6 | 2 | 2 | – | – | 10 | ||||||
| Total | 8 | 2 | 2 | – | – | 12 | ||||||
Outlook
The general outlook for oilfield services remains cautiously positive in
spite of potential negative pressures from a slow-down in the economic
recovery, particularly in the United States, and continuing concerns
over United States and Eurozone debt issues. While these factors weigh
on overall levels of demand for energy, the market appears to be
focused on the supply side of the equation. Continuing unrest in key
energy producing regions of Africa and the Middle East has resulted in
robust prices for crude oil. This favorable pricing has increased
demand for oilfield services in many of the areas serviced by the
Company that have less geopolitical risk than certain other energy
exporting countries.
In early June, the Canadian Association of Oilwell Drilling Contractors
(“CAODC”) revised its forecast of drilling operating days for 2011 to
154,300, an increase of 20 percent over its earlier forecast from
October 2010. The CAODC now expects 13,128 wells to be completed in
2011, an increase of 11 percent from its previous estimate. Despite
normal seasonal restrictions to road access for the Company’s equipment
and unusually wet weather conditions during the “spring break-up”
quarter, the Company’s Canadian operations generated 17 percent more
drilling days during the second quarter in comparison to the number of
drilling days generated in the comparative quarter last year. Third
quarter activity levels are expected to reflect pent up demand for
oilfield services due to the negative impact of wet weather conditions
in the second quarter.
The Company’s United States operations also surpassed last year’s second
quarter drilling days by 17 percent, attributable to strong activity
levels in crude oil and liquids-rich resource plays. NYMEX natural gas
prices have increased slightly over those in the first quarter of 2011
and similarly against the second quarter of 2010, but continue to
disappoint. The positive driver for activity continues to be strong
crude oil prices and positive economics in liquids-rich natural gas
plays, as well as those activities which retain land holdings for
future development. The net result has been continued growth in the
number of rigs drilling for crude oil, while the number of rigs
drilling for natural gas has been relatively flat since early March
2011. Going forward, the Company expects more of the same from its
soon to be expanded United States operations.
The Company’s international operations continue to experience challenges
in certain regions due to weather and geopolitical issues. Overall, the
Company’s international operations had a five percent increase in
operating days in the current quarter, when compared to the comparative
quarter last year. While there continues to be challenges with
international operations in certain areas of Africa and Latin America,
the Company remains hopeful that such matters will come to a positive
resolution and in the interim continues to focus on its core
international markets.
The recently disclosed definitive agreement to acquire Rowan Land
Drilling and its fleet of 30 deeper capacity electric drilling rigs
represents an important entry into the southern United States market
for the Company. The Rowan Land Drilling division is active in many of
the key resource plays and, upon closing of the transaction (expected
within the next 60 days upon receipt of regulatory approvals), will
fill a gap in the Company’s access to such plays. This proposed
transaction transforms the Company from being considered a regional
oilfield service provider to being a national player in the United
States market with a marketed fleet of 115 drilling rigs. The
operational excellence of the Rowan Land Drilling employees will
provide instant expertise in some key resource plays in a very
important energy producing region of the United States. The Company is
very excited about this acquisition and is keen to welcome the Rowan
Land Drilling employees to the Ensign team.
Risks 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, political and economic
conditions, crude oil and natural gas prices, foreign currency
fluctuations, weather conditions and the ability of oil and natural gas
companies to raise capital or other unforeseen conditions which could
impact on the use of the services supplied by the Company.
Conference Call
A conference call will be held to discuss the Company’s second quarter
2011 results at 11:00 a.m. MDT (1:00 p.m. EDT) on Friday, August 5,
2011. The conference call number is (647) 427-7450 (in Toronto) or
1-888-231-8191 (outside Toronto). A taped recording will be available
until August 12, 2011 by dialing 1-416-849-0833 (in Toronto) or
1-855-859-2056 (outside Toronto) and entering the reservation number
82249979. A live broadcast may be accessed through the Company’s web
site at www.ensignenergy.com.
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 | June 30 | December 31 | ||||
| 2011 | 2010 | |||||
| (Unaudited, in thousands of Canadian dollars) | ||||||
| Assets | ||||||
| Current Assets | ||||||
| Cash and cash equivalents | $ | 110,207 | $ | 89,520 | ||
| Accounts receivable | 280,614 | 331,137 | ||||
| Inventories and other | 76,917 | 67,851 | ||||
| 467,738 | 488,508 | |||||
| Property and equipment | 1,810,523 | 1,730,389 | ||||
| Note receivable | 6,631 | 6,591 | ||||
| $ | 2,284,892 | $ | 2,225,488 | |||
| Liabilities | ||||||
| Current Liabilities | ||||||
| Accounts payable and accruals | $ | 191,511 | $ | 213,084 | ||
| Operating lines of credit | 150,654 | 159,335 | ||||
| Income taxes payable | 6,728 | 5,798 | ||||
| Dividends payable | 14,555 | 14,547 | ||||
| Share-based compensation | 21,159 | 11,228 | ||||
| 384,607 | 403,992 | |||||
| Share-based compensation | 10,897 | 4,235 | ||||
| Deferred income taxes | 298,924 | 269,106 | ||||
| 694,428 | 677,333 | |||||
| Shareholders’ Equity | ||||||
| Share capital | 165,438 | 168,206 | ||||
| Contributed surplus | 3,076 | 2,929 | ||||
| Foreign currency translation reserve | (44,141) | (22,417) | ||||
| Retained earnings | 1,466,091 | 1,399,437 | ||||
| 1,590,464 | 1,548,155 | |||||
| $ | 2,284,892 | $ | 2,225,488 | |||
| Ensign Energy Services Inc. | |||||||||||||
| Consolidated Statements of Income | |||||||||||||
| For the three and six months ended June 30 | |||||||||||||
| (Unaudited, in thousands of Canadian dollars – except per share data) | |||||||||||||
| Three months ended | Six months ended | ||||||||||||
| June 30 | June 30 | June 30 | June 30 | ||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||
| Revenue | $ | 334,445 | $ | 257,578 | $ | 836,656 | $ | 610,417 | |||||
| Expenses | |||||||||||||
| Oilfield services | 254,560 | 196,237 | 584,880 | 439,519 | |||||||||
| Depreciation | 35,081 | 29,853 | 75,859 | 63,357 | |||||||||
| General and administrative | 13,190 | 14,842 | 28,206 | 27,787 | |||||||||
| Share-based compensation | 4,412 | (9,187) | 16,734 | (9,545) | |||||||||
| Foreign exchange and other | 1,552 | (687) | (11,836) | 2,180 | |||||||||
| 308,795 | 231,058 | 693,843 | 523,298 | ||||||||||
| Income before interest and income taxes | 25,650 | 26,520 | 142,813 | 87,119 | |||||||||
| Interest income | 160 | 118 | 295 | 216 | |||||||||
| Interest expense | (341) | (563) | (760) | (1,304) | |||||||||
| Income before income taxes | 25,469 | 26,075 | 142,348 | 86,031 | |||||||||
| Income taxes | |||||||||||||
| Current tax | (105) | 1,673 | 16,155 | 8,637 | |||||||||
| Deferred tax | 9,501 | 8,401 | 30,429 | 22,547 | |||||||||
| 9,396 | 10,074 | 46,584 | 31,184 | ||||||||||
| Net income | $ | 16,073 | $ | 16,001 | $ | 95,764 | $ | 54,847 | |||||
| Net income per share | |||||||||||||
| Basic | $ | 0.11 | $ | 0.10 | $ | 0.63 | $ | 0.36 | |||||
| Diluted | $ | 0.11 | $ | 0.10 | $ | 0.63 | $ | 0.36 | |||||
| Ensign Energy Services Inc. | |||||||||||||
| Consolidated Statements of Cash Flows | |||||||||||||
| For the three and six months ended June 30 | |||||||||||||
| (Unaudited, in thousands of Canadian dollars) | |||||||||||||
| Three months ended | Six months ended | ||||||||||||
| June 30 | June 30 | June 30 | June 30 | ||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||
| Cash provided by (used in) | |||||||||||||
| Operating activities | |||||||||||||
| Net income | $ | 16,073 | $ | 16,001 | $ | 95,764 | $ | 54,847 | |||||
| Items not affecting cash | |||||||||||||
| Depreciation | 35,081 | 29,853 | 75,859 | 63,357 | |||||||||
| Share-based compensation, net of cash paid | 5,740 | (8,228) | 18,884 | (7,992) | |||||||||
| Deferred income tax | 9,501 | 8,401 | 30,429 | 22,547 | |||||||||
| Net change in non-cash working capital | 109,572 | 91,199 | 15,298 | 34,860 | |||||||||
| 175,967 | 137,226 | 236,234 | 167,619 | ||||||||||
| Investing activities | |||||||||||||
| Purchase of property and equipment | (114,326) | (64,644) | (181,009) | (91,367) | |||||||||
| Net change in non-cash working capital | 14,380 | (10,373) | 3,698 | (20,587) | |||||||||
| (99,946) | (75,017) | (177,311) | (111,954) | ||||||||||
| Financing activities | |||||||||||||
| Net increase (decrease) in operating lines of credit | 10,614 | (9,554) | (3,880) | (14,174) | |||||||||
| Purchase of shares held in trust | (4,247) | (454) | (4,911) | (1,080) | |||||||||
| Dividends | (14,555) | (13,408) | (29,110) | (26,815) | |||||||||
| Net change in non-cash working capital | (65) | 198 | (32) | 296 | |||||||||
| (8,253) | (23,218) | (37,933) | (41,773) | ||||||||||
| Net increase in cash and cash equivalents | 67,768 | 38,991 | 20,990 | 13,892 | |||||||||
| Effects of foreign exchange on cash and cash equivalents | 2,268 | 2,587 | (303) | 1,433 | |||||||||
| Cash and cash equivalents | |||||||||||||
| Beginning of period | 40,171 | 108,900 | 89,520 | 135,153 | |||||||||
| End of period | $ | 110,207 | $ | 150,478 | $ | 110,207 | $ | 150,478 | |||||
| Supplemental information | |||||||||||||
| Interest paid | $ | 365 | $ | 710 | $ | 793 | $ | 1,330 | |||||
| Income taxes paid | $ | 9,162 | $ | 2,613 | $ | 15,225 | $ | 3,742 | |||||
Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361