Ensign Energy Services Inc. Reports 2012 Second Quarter Results

CALGARY, Aug. 13, 2012 /CNW/ –

Overview

Ensign Energy Services Inc. (“Ensign” or the “Company”) recorded
increased revenues and profits in the three and six months ended June
30, 2012 over comparable periods in the prior year.  Revenue for the
second quarter of 2012 was $463.9 million, 39 percent higher than
revenue of $334.4 million recorded in the second quarter of 2011. 
Revenue for the six months ended June 30, 2012 was $1,141.5 million, 36
percent higher than revenue of $836.7 million for the six months ended
June 30, 2011.  Net income for the second quarter of 2012 increased 16
percent to $18.7 million ($0.12 per common share) compared to net
income of $16.1 million ($0.11 per common share) for the second quarter
of 2011.  Net income for the six months ended June 30, 2012 increased
30 percent to $124.2 million ($0.81 per common share) compared to net
income of $95.8 million ($0.63 per common share) for the first six
months of 2011.  EBITDA, defined as “income before interest, income
taxes, depreciation, and share-based compensation expense (recovery)”,
totaled $84.5 million ($0.55 per common share) in the second quarter of
2012, 30 percent higher than EBITDA of $65.1 million ($0.43 per common
share) in the second quarter of 2011.  For the first six months of 2012
EBITDA was $295.7 million ($1.94 per common share); 26 percent higher
than EBITDA of $235.4 million ($1.54 per common share) for the first
six months of 2011.  Similarly, funds from operations increased 24
percent to $82.5 million ($0.54 per common share) in the second quarter
of 2012 from $66.4 million ($0.43 per common share) in the second
quarter of the prior year.  For the six months ended June 30, 2012,
funds from operations increased 17 percent to $259.5 million compared
to $220.9 million for the six months ended June 30, 2011.

Consistent with prior years, the Company’s Canadian operations were
negatively impacted in the second quarter of 2012 by spring break-up
weather conditions which restricted activity levels for much of the
quarter. Allowing for the impact of the 2011 third quarter acquisition
of the land drilling division of Rowan Companies, Inc. (“Rowan Land
Drilling”), subsequently renamed Ensign US Southern Drilling LLC
(“Ensign US Southern”), activity levels in the Company’s United States
and international operations were comparable to similar periods of the
prior year.  A stronger United States dollar versus the Canadian dollar
for the three and six months ended June 30, 2012 helped to improve the
operating results of the Company’s United States and international
operations when translated into Canadian dollars for reporting
purposes.

During the current quarter, increases to the Company’s credit facilities
resulted in an increase in available borrowings to $87.2 million as of
June 30, 2012 compared with $10.1 million at December 31, 2011. 
Long-term debt at June 30, 2012 was reduced to $303.6 million and
consists of USD $300.0 million of senior unsecured notes, issued in
February 2012.  The senior unsecured notes consist of: USD $100.0
million in five year notes with an interest rate of 3.43 percent; USD
$100.0 million in seven year notes with an interest rate of 3.97
percent; and USD $100.0 million in ten year notes with an interest rate
of 4.54 percent.  Proceeds from the issuance of the senior unsecured
notes, along with the Company’s credit facilities and funds generated
from operations, were used to fully repay the USD $400 million term
loan in the first half of 2012.

FINANCIAL AND OPERATING HIGHLIGHTS

($ thousands, except per share data and operating information)

Revenue for the three months ended June 30, 2012 increased 39 percent to
$463.9 million compared to $334.4 million for the comparable period in
2011.  Revenue for the six months ended June 30, 2012 increased 36
percent to $1,141.5 million over revenue of $836.7 million recorded for
the six months ended June 30, 2011.  As a percentage of revenue, gross
margin for the second quarter of 2012 decreased slightly to 23.8
percent (2011 – 23.9 percent) and increased slightly to 30.2 percent
for the six months ended June 30, 2012 (2011 – 30.1 percent).  Second
quarter gross margins were negatively impacted by expenditures incurred
to perform planned major maintenance during the break-up quarter.

Revenue growth in 2012 over the prior year was a result of the expanded
operations of the Company through the addition of Ensign US Southern in
the third quarter of 2011 and additions to the Company’s rig fleet
through the new build program.  The Company added 10 ADR^®-style drilling rigs and 16 well servicing rigs in 2011, all through the
new build program.  As of June 30, 2012 seven additional ADR^®-style drilling rigs and six additional well servicing rigs have been
delivered to the Company’s North American operations.  Overall pricing
increases in the Company’s North American operations also improved
financial results in 2012 over the prior year while international
operating results were higher in 2012 as comparative results in 2011
were negatively impacted by regional flooding in the Company’s
operations in Australia.

Canadian Oilfield Services

Revenue increased 17 percent to $108.8 million for the three months
ended June 30, 2012, from $93.1 million for the three months ended June
30, 2011. For the six months ended June 30, 2012, revenue increased 18
percent to $433.7 million compared to $368.3 million for the same
period in 2011. Canadian revenues accounted for 23 percent of the
Company’s total revenue in the second quarter of 2012, compared with 28
percent in the second quarter of 2011, and during the six months ended
June 30, 2012, Canadian revenues were 38 percent of total revenue (2011
– 44 percent). Revenue growth in Canada in the three and six months
ended June 30, 2012, compared to the prior year was primarily a result
of improved pricing for Canadian oilfield services as activity levels
decreased slightly in the three and six months ended June 30, 2012 over
similar periods of the prior year.

The Company recorded 2,281 drilling days in the second quarter of 2012,
compared to 2,380 drilling days for the second quarter of 2011, a four
percent decrease, due to wet weather setbacks in the latter half of the
quarter.  For the six months ended June 30, 2012 drilling days were
9,712 compared to 10,307 for the six months ended June 30, 2011, a six
percent decrease.  The reduced operating activity in 2012 over 2011 was
due to a longer spring break-up period which limited mobility of the
Company’s equipment.  Canadian well servicing hours increased by six
percent to 30,691 operating hours in the second quarter of 2012
compared with 28,960 operating hours in the corresponding period of
2011.  For the six months ended June 30, 2012 well servicing hours
increased by three percent to 70,826 operating hours compared with
68,481 operating hours for the six months ended June 30, 2011.

During the six months ended June 30, 2012, the Company added four newly
constructed ADRs to its Canadian drilling rig fleet, with one added in
the second quarter of 2012.  The Company also decommissioned three
inactive drilling rigs in the first quarter of 2012 and disposed of 14
inactive oil sands coring rigs in the second quarter of 2012.

United States Oilfield Services

Bolstered by the addition of Ensign US Southern in the third quarter of
2011, the Company’s United States operations recorded revenue of $244.4
million in the second quarter of 2012, a 60 percent increase from the
$153.2 million recorded in the corresponding period of the prior year.
During the six months ended June 30, 2012, revenue of $493.8 million
was recorded, an increase of 64 percent from the $301.7 million
recorded for the six months ended June 30, 2011. The Company’s United
States operations accounted for 53 percent of the Company’s revenue in
the second quarter of 2012 (2011 – 46 percent) and 43 percent of total
revenue in the six months ended June 30, 2012 (2011 – 36 percent). 
Drilling rig operating days increased by 40 percent to 6,188 drilling
days in the second quarter of 2012 from 4,412 drilling days in the
second quarter of 2011.  For the six months ended June 30, 2012
drilling days increased by 44 percent to 12,501 drilling days from
8,678 drilling days in the six months ended June 30, 2011.  Well
servicing activity increased by 61 percent in the second quarter of
2012 to 30,491 operating hours from 18,907 operating hours in the
second quarter of 2011.  For the six months ended June 30, 2012 well
servicing activity increased 67 percent to 60,640 operating hours from
36,357 operating hours in the first six months of 2011.

Increased revenue and operating activity in the Company’s United States
operations was mainly a result of an expanded rig fleet through the
2011 third quarter acquisition of Rowan Land Drilling, which added 30
ADR^®-style drilling rigs to the fleet, and additions from the Company’s new
build program.  In 2011 eight new ADR^® drilling rigs and 12 new well servicing rigs were added through the new
build program, with a further three new ADR^® drilling rigs and six new well servicing rigs added in the first half
of 2012.  In addition, the Company decommissioned six inactive drilling
rigs in the first quarter of 2012 and disposed of one well servicing
rig in the second quarter of 2012.

A strengthening United States dollar against the Canadian dollar in the
first six months of 2012 further improved operating results from the
Company’s United States operations on translation to Canadian dollars. 
In the first six months of 2012 the average United States dollar
exchange rate increased by three percent to 1.01 when compared to the
same period of the prior year.

International Oilfield Services

The Company’s international operations recorded revenue of $110.7
million in the second quarter of 2012, a 26 percent increase from $88.2
million recorded in the corresponding period of the prior year.
International revenues for the six months ended June 30, 2012 increased
by 28 percent to $214.1 million from $166.7 million recorded for the
six months ended June 30, 2011. International operations contributed 24
percent of the Company’s revenue in the second quarter of 2012 (2011 –
26 percent) and 19 percent of the Company’s revenue in the first half
of 2012 (2011 – 20 percent). International operating days for the three
months ended June 30, 2012 totaled 2,845 drilling days compared with
2,604 drilling days in 2011, an increase of nine percent.  For the six
months ended June 30, 2012 international operating days totaled 5,642
drilling days compared with 5,269 drilling days for the six months
ended June 30, 2011, an increase of seven percent.

Higher revenue and activity levels for the three and six months ended
June 30, 2012 compared to similar periods in the prior year were mainly
a result of increased revenue rates across the Company’s Latin America
and Eastern Hemisphere operations as well as increased activity from
the Company’s Australian operations compared to the first half of 2011
when Australian activity levels were reduced due to flooding in certain
regions.  Similar to the Company’s United States operations,
international operations benefited from the strengthening of the United
States dollar over the Canadian dollar on translation into Canadian
dollars for reporting purposes in the second quarter of 2012 compared
to the second quarter of the prior year.

The Company uses the unit of production method of calculating
depreciation for the majority of its property and equipment. 
Depreciation expense totalled $50.4 million for the second quarter of
2012 compared with $35.1 million for the second quarter of 2011, an
increase of 44 percent.  Depreciation expense for the first six months
of 2012 was $108.6 million, an increase of 43 percent over the $75.9
million recorded for the first six months of 2011.  Increased
depreciation reflects the impact from the growth of the Company’s North
American fleet through the addition of Ensign US Southern in the third
quarter of 2011 and recent additions from the Company’s new build
program.

General and administrative expense increased 57 percent to $20.7 million
(4.5 percent of revenue) for the second quarter of 2012 compared with
$13.2 million (3.9 percent of revenue) for the second quarter of 2011.
For the six months ended June 30, 2012, general and administrative
expense totaled $40.1 million (3.5 percent of revenue) compared with
$28.2 million (3.4 percent of revenue) recorded for the six months
ended June 30, 2011, an increase of 42 percent. The overall increase in
general and administrative expense was to support the increased
operating activity during the first half of 2012, including the impact
from the addition of Ensign US Southern in the third quarter of 2011,
and also includes the negative translational impact of a stronger
United States dollar on United States and international administrative
expenses in the current periods.

Share-based compensation (recovery) expense 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, 2012, share-based compensation
(recovery) expense was a recovery of $3.3 million compared with an
expense of $4.4 million recorded in the second quarter of 2011. For the
six months ended June 30, 2012, share-based compensation was a recovery
of $6.2 million compared with an expense of $16.7 million for the six
months ended June 30, 2011.   The decrease in share-based compensation
expense in the three and six months ended June 30, 2012 compared to
similar periods in the prior year was a result of the change in the
fair value of share-based compensation liability primarily resulting
from a decrease in the price of the Company’s common shares during the
first half of 2012.  The closing price of the Company’s common shares
was $14.00 at June 30, 2012 ($19.12 at June 30, 2011), compared with
$14.91 at March 31, 2012 ($18.26 at March 31, 2011) and $16.25 at
December 31, 2011 ($15.03 at December 31, 2010).

The Company increased its global revolving credit facility (the “Global
Facility”) by $150.0 million to $400.0 million in the second quarter of
2012.  Interest is incurred on the Company’s $10.0 million
Canadian-based revolving credit facility (the “Canadian Facility”), the
$400.0 million Global Facility, the USD $300.0 million senior unsecured
notes issued in February 2012 and the USD $100.0 million remaining
balance of the term loan which was repaid in full in the second quarter
of 2012.  The amortization of deferred financing costs associated with
the issuance of the Company’s long-term debt are included in interest
expense in the three and six months ended June 30, 2012.

The increase in interest expense in the first half of 2012 reflects the
additional debt incurred by the Company in connection with the Rowan
Land Drilling acquisition, completed in the third quarter of 2011.

Included in this amount is the impact of the conversion of the
Australian operations from Australian dollars to United States
dollars.  The Australian currency weakened against the United States
dollar during the first half of 2012 but strengthened during the first
half of 2011.

The effective income tax rate for the three months ended June 30, 2012
was 41.4 percent compared with 36.9 percent for the three months ended
June 30, 2011. The effective income tax rate was higher in the current
quarter due to a higher proportion of income earned in high tax-rate
jurisdictions.  The effective income tax rate for the six months ended
June 30, 2012 was 32.4 percent compared with 32.7 percent for the six
months ended June 30, 2011. The effective income tax rate in both the
first half of 2012 and 2011 was comparable to the expected annualized
income tax rate for the Company.

Financial Position

The following chart outlines significant changes in the consolidated
statement of financial position from December 31, 2011 to June 30,
2012:

During the three months ended June 30, 2012, the Company generated funds
from operations of $82.5 million ($0.54 per common share) compared with
funds from operations of $66.4 million ($0.43 per common share) for the
three months ended June 30, 2011, an increase of 24 percent. For the
six months ended June 30, 2012, the Company generated funds from
operations of $259.5 million ($1.70 per common share), an increase of
17 percent over funds from operations of $220.9 million ($1.44 per
common share) generated in the first half of 2011.   This increase was
primarily attributable to the Company’s expanded operations in the
United States through the addition of Ensign US Southern in the third
quarter of 2011 and additions from the new build program to the
Company’s North American equipment fleet throughout 2011 and 2012.

At June 30, 2012, the Company’s working capital totaled negative $44.0
million, compared to negative $10.2 million at December 31, 2011.  In
the second quarter of 2012 the Company repaid the remaining balance of
the USD $100.0 million term loan using internally generated cash flows
and the recently expanded credit facilities which put downward pressure
on working capital.  The Company expects funds generated by operations,
combined with current and future credit facilities, to fully support
current operating and capital requirements.  Existing revolving credit
facilities provide for total borrowing of $410.0 million, of which
$87.2 million was available at June 30, 2012.

Purchases of property and equipment during the second quarter of 2012
totaled $76.1 million (2011 – $114.3 million).  Purchases of property
and equipment during the first half of 2012 totaled $156.6 million
(2011 – $181.0 million).  The purchase of property and equipment for
the three and six months ended June 30, 2012 relate predominantly to
expenditures made pursuant to the Company’s ongoing new build program.

The Company’s Global Facility was increased by $150.0 million during the
second quarter to a new limit of $400.0 million.  Additionally, the
Company has available a $10.0 million Canadian Facility. The Global
Facility is available to the Company and certain of its wholly-owned
subsidiaries, and may be drawn in Canadian, United States or Australian
dollars, up to the equivalent value of $400.0 million Canadian dollars.
The amount available under the Canadian Facility is $10.0 million or
the equivalent United States dollars.

Net draws of the operating lines of credit in the second quarter of 2012
were mainly the result of the repayment of the USD $100.0 million
remaining balance of the term loan.  As of June 30, 2012, 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.

In February 2012, the Company completed the private placement of USD
$300.0 million of senior unsecured notes (the “Notes”), with the
proceeds from the issuance being used to repay a portion of the term
loan.  The Notes consist of: USD $100.0 million in five year notes with
an interest rate of 3.43 percent and a maturity date of February 22,
2017; USD $100.0 million in seven year notes with an interest rate of
3.97 percent and a maturity date of February 22, 2019; and USD $100.0
million in ten year notes with an interest rate of 4.54 percent and a
maturity date of February 22, 2022.  The Notes rank equally with the
Company’s Global Facility.

On June 14, 2012 the Company received approval from the Toronto Stock
Exchange to acquire for cancellation up to three percent of the
Company’s issued and outstanding common shares under a Normal Course
Issuer Bid (the “Bid”).  The Company may purchase up to 4,596,397
common shares for cancellation.  The Bid commenced on June 18, 2012 and
will terminate on June 17, 2013 or such earlier time as the Bid is
completed or terminated at the option of the Company.  As at June 30,
2012, no common shares have been purchased and cancelled pursuant to
the Bid.

The Company previously had a Bid that commenced on June 7, 2011 and
terminated on June 6, 2012, under which no common shares were purchased
and cancelled.

The Board of Directors of the Company has declared a third quarter
dividend of $0.105 per common share to be payable October 5, 2012 to
all Common Shareholders of record as of September 20, 2012.  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.

New Builds

During the six months ended June 30, 2012, the Company commissioned
three new ADR^® drilling rigs and six new well servicing rigs in the United States; and
four new ADR^® drilling rigs in Canada.

The remaining new build estimated delivery schedule, by geographic area,
is as follows:

Outlook

The softening in crude oil prices that began in the second quarter of
2012 has weakened the cash flows of exploration and production
companies and caused many of them to reassess projects planned for the
remainder of the year.  Natural gas prices have improved slightly due
to hotter than normal weather conditions throughout much of North
America, but prices and the outlook for natural gas have not recovered
sufficiently to encourage expanding natural gas-directed oilfield
service activity.  The headline price for crude oil is, generally,
still supportive of development of many of the oil and liquids rich
natural gas plays within North America; however, concerns remain
regarding the impact of generally soft global economic conditions on
the outlook for crude oil demand and crude oil prices, and the impact
of reduced commodity prices on the cash flows of the exploration and
production companies.  In particular, reduced cash flow levels have
negatively impacted the ability of the small to intermediate sized
exploration and production companies to finance planned development
programs.  Historically, such smaller companies have often spent in
excess of their internally generated funds, making up the shortfall
using a combination of bank debt and funds raised in capital market
transactions.  While the banks appear supportive of the industry,
recent reductions to the price deck for oil and natural gas have
resulted in reduced levels of borrowing capacity.  Additionally, the
capital markets are less attractive alternatives at current prices as
many investors appear to be waiting on the sidelines for general
economic fundamentals to improve.  Against this backdrop, the Company
expects that activity levels within North America could experience some
downward pressure through the remainder of 2012.

Activity levels in the Company’s Canadian operations during the second
quarter of 2012 were generally comparable to the second quarter of the
prior year, but wet weather in the latter stages of the current year’s
second quarter hampered the ability to resume many oilfield
operations.  The rig count in Canada started to improve at the start of
the third quarter as weather and field conditions improved, but
activity levels remain below the levels of the prior year.  Exploration
and production companies appear to be delaying or reducing oilfield
activity in response to reduced levels of commodity prices against a
challenging global economic backdrop.  The margin levels for oilfield
services have also fallen slightly as the Company’s revenue rates have
been reduced to maintain market share in an increasingly challenging
oilfield services market.  The Company’s ADR^® drilling rigs remain fully committed as demand weakness has thus far
been directed towards other rig categories.  The Company is currently
completing three new ADRs and four new well servicing rigs that will be
deployed into the Canadian market pursuant to the current new build
program.

The Company’s United States operations during the recently completed
second quarter were up compared to the second quarter of 2011, due to
the positive impact arising from the September 2011 acquisition of
Rowan Land Drilling. Industry activity levels, as measured by the
industry active drilling rig count, appear to have leveled off as the
decrease in the natural gas directed drilling rig count has been mostly
offset by increases in crude oil and liquids rich natural gas directed
drilling activity.  The Company believes there may be some downside
risk to such activity levels through the remainder of 2012 in light of
the recent pull back in crude oil commodity prices and the resultant
impact on customer cash flows and expected demand for oilfield
services.  At present, activity levels remain fairly strong, especially
for ADR^®-style drilling rigs.  An additional five new ADRs and five new well
servicing rigs will be delivered by the Company into the United States
market under the current new build program.  The last of these new
builds will be delivered in the third quarter of 2013.

International operations continue to be influenced not only by global
fundamentals, but also by specific geopolitical influences in each
country.  The Company expects international operations to remain steady
through the remainder of 2012 as long-term contracts remain in place in
many of its key markets.  Latin America remains a challenge and
operations in Libya have not yet recommenced.  These under-performing
areas continue to be a focus of the Company.  Two new ADRs have
recently been completed for Australia and the first of these rigs will
be operational before the end of the third quarter.

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
2012 results at 2:00 p.m. MST (4:00 p.m. EST) on Monday, August 13,
2012.  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 20, 2012 by dialing 1-416-849-0833 (in Toronto) or
1-855-859-2056 (outside Toronto) and entering the reservation number
43349364.  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.

.

SOURCE: Ensign Energy Services Inc.

Glenn Dagenais, Executive Vice President Finance and Chief Financial Officer, (403) 262-1361.