Ensign Energy Services Inc. Reports Strong 2012 First Quarter Results

CALGARY, May 7, 2012 /CNW/ –

Overview

Record revenue was recorded in the first quarter of 2012 for Ensign
Energy Services Inc. (“Ensign” or the “Company”), increasing 35 percent
over the first quarter of 2011 to $677.7 million, the highest quarterly
revenue in the Company’s history.  Net income for the first quarter of
2012 increased 32 percent to $105.5 million ($0.69 per common share)
compared to net income of $79.7 million ($0.52 per common share) for
the first quarter of 2011.  EBITDA (defined as earnings before
interest, income taxes, depreciation, and share-based compensation
expense (recovery)) totaled $211.1 million ($1.38 per common share) in
the first quarter of 2012, 24 percent higher than EBITDA of $170.3
million ($1.11 per common share) in the first three months of 2011. 
Similarly, Funds from operations increased 15 percent to $177.0 million
($1.16 per common share) in the first three months of 2012 from $154.5
million ($1.01 per common share) in the first three months of the prior
year.  The acquisition of the land drilling division of Rowan Companies
Inc. (“Rowan Land Drilling”), subsequently renamed Ensign US Southern
Drilling LLC (“Ensign US Southern”), in the third quarter of 2011
significantly contributed to the strong start to the 2012 financial
year compared to the prior year.  Additionally, all other areas of the
Company produced strong first quarter results, with levels of activity
comparable to those of the first quarter of 2011.  A slight
strengthening in the United States dollar over the Canadian dollar in
the first quarter of 2012 compared to the first quarter of the prior
year had a positive impact on the operating results of the Company’s
United States and international operations when translated into
Canadian dollars.

Gross margin improved to $234.3 million (34.6 percent of revenue) for
the first quarter of 2012 compared with gross margin of $171.9 million
(34.2 percent of revenue) for the first quarter of 2011.  Increased
revenue rates in the Company’s North American operations contributed to
the improved margins.  Major maintenance expenses had less of an impact
in the first quarter of 2012 compared to the prior two quarters as the
majority of the maintenance was completed in prior quarters in
anticipation of the increased operating activity levels in the first
quarter of 2012 and the Canadian winter drilling season.  These costs
are generally expensed as incurred.

In February 2012 the Company issued USD $300.0 million of senior
unsecured notes with the proceeds applied to partially repay the USD
$400.0 million term loan.  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.  The remaining USD $100.0 million
balance of the term loan makes up the current portion of the Company’s
long-term debt and is due in February 2013.  Long-term debt as at March
31, 2012 totaled $297.6 million.

Total revenue recorded in the first quarter of 2012 was the highest
quarterly revenue in the Company’s history, totaling $677.7 million, an
increase of 35 percent over the first quarter of 2011.  As a percentage
of revenue, gross margin for the first quarter of 2012 increased to
34.6 percent from 34.2 percent for the first quarter of 2011.

The growth in the Company’s revenues is a reflection of the increased
operations through the addition of Ensign US Southern in the third
quarter of 2011 as well as additions to the Company’s North American
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.  The fleet has been further expanded with the
delivery of five ADR^®-style drilling rigs and three well servicing rigs in the first quarter
of 2012.  The Company’s North American operations benefited in the
first quarter of 2012 from higher revenue rates which resulted in
increased revenues over the first quarter of 2011.  International
operating results also improved in the first quarter of 2012 over the
first quarter of 2011 as a result of reduced weather impacts in
Australia as regional flooding had negatively impacted operating
results in the first quarter of 2011.

Canadian Oilfield Services

Revenue increased 18 percent to $324.9 million for the three months
ended March 31, 2012, from $275.2 million for the three months ended
March 31, 2011.  Canadian revenues accounted for 48 percent of the
Company’s total revenue in the first quarter of 2011, compared with 55
percent in the first quarter of 2011. Revenue growth in Canada was a
result of improved pricing for Canadian oilfield services as activity
levels were generally similar to those of the first quarter of the
prior year.

The Company recorded 7,431 drilling days in the first quarter of 2012,
this compares with 7,927 drilling days for the first quarter of 2011, a
six percent decrease due to an earlier spring break-up.  Canadian well
servicing hours increased by two percent to 40,135 operating hours in
the first quarter of 2012 compared with 39,521 operating hours in the
corresponding period of 2011.

During the three months ended March, 31, 2012, the Company added three
newly constructed ADRs to its Canadian drilling rig fleet, and
decommissioned three inactive drilling rigs.

United States Oilfield Services

The Company’s United States operations recorded revenue of $249.4
million in the first quarter of 2012, a 68 percent increase from the
$148.5 million recorded in the corresponding period of the prior year. 
The Company’s United States operations accounted for 37 percent of the
Company’s revenue in the first quarter of 2012, compared to 29 percent
in the same period in 2011.  Drilling rig operating days increased by
48 percent to 6,313 drilling days in the first quarter of 2012 from
4,266 drilling days in the first quarter of 2011.  Well servicing
activity increased by 73 percent in the first quarter of 2012 to 30,149
operating hours from 17,450 operating hours in the first quarter of
2011.

A significant expansion to the Company’s United States equipment fleet
in 2011 contributed to the increase in first quarter revenue and
operating activity compared to the prior year.  The Company acquired
Rowan Land Drilling and its fleet of 30 ADR^®-style drilling rigs in the third quarter of 2011; and added eight new
ADR^® drilling rigs and 12 new well servicing rigs throughout 2011.  The
Company added two new ADR^® drilling rigs and three new well servicing rigs; and decommissioned six
inactive drilling rigs in the first quarter of 2012.

Results from the Company’s United States operations were positively
impacted on translation to Canadian dollars by a strengthening United
States dollar against the Canadian dollar during the first quarter of
2012.  In the first three months of 2012 the United States dollar
increased by two percent when compared to the same period of the prior
year.

International Oilfield Services

The Company’s international operations recorded revenue of $103.4
million in the first quarter of 2012, a 32 percent increase from $78.5
million recorded in the corresponding period of the prior year. 
International operations contributed 15 percent of the Company’s
revenue in the first quarter of 2012 compared with 16 percent in the
same period of 2011.  International operating days for the three months
ended March 31, 2012 totaled 2,797 drilling days compared with 2,665
drilling days in 2011, an increase of five percent.

The improved start to 2012 from the Company’s international operations
is mainly a result of increased operating results from the Company’s
Australian operations which had been negatively impacted by severe
flooding in the first quarter of the prior year.  Operating results
from the Company’s other operations (excluding operations in Libya,
which remain suspended) were generally consistent in the first quarter
of 2012 with the comparable quarter of the prior year.  Similar to the
Company’s United States operations, international operations benefited
from the strengthening United States dollar over the Canadian dollar on
translation into Canadian dollars for reporting purposes in the first
quarter of 2012 compared to the first 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 totaled $58.2 million for the first quarter of
2012 compared with $40.8 million for the first quarter of 2011, an
increase of 43 percent.  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
additions from the Company’s new build program.

General and administrative expense increased 29 percent to $19.4 million
(2.9 percent of revenue) for the first quarter of 2012 compared with
$15.0 million (3.0 percent of revenue) for the first quarter of 2011. 
The overall increase in general and administrative expense was to
support the increased operating activity during the first quarter 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 quarter.

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 March 31, 2012, share-based compensation
(recovery) expense was a recovery of $2.9 million compared with an
expense of $12.3 million recorded in the first quarter of 2011.  The
decrease in share-based compensation expense in the first quarter of
2012 is 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 three months of 2012. 
The closing price of the Company’s common shares was $14.91 at March
31, 2012 ($18.26 at March 31, 2011) compared with $16.25 at December
31, 2011 ($15.03 at December 31, 2010).

Interest is incurred on the Company’s $10.0 million Canadian-based
revolving credit facility, the $250.0 million global revolving credit
facility, the USD $100.0 million remaining balance of the term loan,
and the USD $300.0 million senior unsecured notes issued in February
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 first quarter of 2012.

The increase in interest expense in the first quarter 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.  Similar to the first quarter of 2011, the Australian currency
strengthened against the United States dollar during the first quarter
of 2012, however the impact was much lower in 2012 compared to the
prior year.

The effective income tax rate for the three months ended March 31, 2012
was 30.5 percent compared with 31.8 percent for the three months ended
March 31, 2011.  The effective income tax rate in both quarters was
lower than the expected annualized income tax rate for the Company due
to the relatively high proportion of taxable income earned in Canada
during the first quarter, due to the seasonality of Canadian
operations.

Financial Position

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

During the three months ended March 31, 2012, the Company generated
Funds from operations of $177.0 million ($1.16 per common share)
compared with Funds from operations of $154.5 million ($1.01 per common
share) for the three months ended March 31, 2011, an increase of 15
percent.  This increase is primarily attributable to the increased
operations in North America as a result of the addition of Ensign US
Southern in the third quarter of 2011 as well as additions from the new
build program throughout 2011 and 2012.

At March 31, 2012, the Company’s working capital totaled negative $25.0
million, compared to negative $10.2 million at December 31, 2011. 
Included in working capital at March 31, 2012 is the remaining balance
of the term loan totaling $99.7 million at March 31, 2012.  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 $260.0 million, of which $20.4 million was available at
March 31, 2012.

Purchases of property and equipment during the first quarter of 2012
totaled $80.6 million (2011 – $66.7 million).  The purchase of property
and equipment relates predominantly to expenditures made pursuant to
the Company’s ongoing new build program.

The Company’s available operating lines of credit consist of a $250.0
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 certain
of its wholly-owned subsidiaries, and may be drawn in Canadian, United
States or Australian dollars, up to the equivalent value of $250.0
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 March 31, 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.  The remaining USD $100.0 million balance of
the term loan matures on February 28, 2013.

On June 3, 2011, the Company received approval from the Toronto Stock
Exchange to acquire for cancellation up to five percent of the
Company’s issued and outstanding common shares under a Normal Course
Issuer Bid (the “Bid”).  The Company may 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 March 31,
2012, no common shares have been purchased and cancelled pursuant to
the Bid.

The Board of Directors of the Company has declared a second quarter
dividend of $0.105 per common share to be payable July 6, 2012 to all
Common Shareholders of record as of June 21, 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 quarter ended March 31, 2012, the Company commissioned two
new ADR^® drilling rigs and three new well servicing rigs in the United States;
and three new ADR^® drilling rigs in Canada.

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

Outlook

The impact of modestly improving economic conditions in North America,
together with a continuing premium for potential Middle East supply
disruptions has sustained WTI crude oil prices above the USD$100 level.
However, softening economic expansion in Asia and the ongoing debt
crisis in Europe continue to weigh on future prospects for energy
demand. Further complicating the outlook for crude oil development in
North America are the infrastructure constraints that are resulting in
regional differentials from the headline crude oil price.  A widening
of such differentials would likely have a negative impact on the demand
for oilfield services in certain regions.  Additionally, the natural
gas supply glut in North America has further reduced natural gas prices
and activities.  While the reduction in natural gas drilling has
generally been offset by an increase in drilling and production
development activities in crude oil and liquids-rich natural gas plays,
a further consequence of lower natural gas prices is the impact on the
funds available to producing companies for oilfield services
expenditures.  While the economics for crude oil development remain
encouraging, it may take several years for a rebalancing of the natural
gas market to occur in North America.

Despite an earlier spring breakup in 2012 compared to the prior year,
the Company’s Canadian operations had a very strong first quarter, with
operating days very similar to the levels recorded last year. Based on
forecasts from the Canadian Association of Oilwell Drilling
Contractors, activity levels in the Company’s Canadian operations are
currently expected to continue in line with those experienced in 2011.
Margins for the first quarter of 2012 were improved from the fourth
quarter of 2011, due to reduced requirements in the current quarter for
major maintenance expenditures to prepare the fleet for strong levels
of demand. The Company’s ability to maintain margins for the remainder
of 2012 will depend on successful cost containment, particularly as
higher activity and demand for oilfield services has created
inflationary pressures on some input costs.  The Company expects to add
four new ADR^® drilling rigs and four new well servicing rigs to the Canadian fleet
over the next twelve months pursuant to the ongoing new build program.

Despite the anticipated softening of demand for natural gas drilling,
the Company’s United States activity levels in the first quarter of
2012 were a continuation of the strong performance in the last quarter
of 2011 and includes a full quarter of operations from Ensign US
Southern, acquired in September 2011.  The downward trend in the number
of land-based rigs drilling for natural gas continued with the industry
recording a 20 percent reduction during the quarter, substantially
offset by an increased number of land-based rigs drilling for crude oil
and liquids-rich natural gas. The Company currently plans to add eight
new ADR^® drilling rigs and eight new well servicing rigs to the United States
fleet during the next twelve months.  This will further increase the
Company’s operational capability in this important market.

The Company’s international operations continued to generate steady
operating and financial results in the first quarter of 2012. The
Company anticipates that demand for international oilfield services
will continue to expand at a steady pace, barring any major unforeseen
global events.  The current new build program will add two new ADR^® drilling rigs to the Company’s international equipment fleet in 2012.

The Company’s private placement issuance of USD$300 million of long-term
notes during the first quarter of 2012 provides the Company with a
measure of stability with respect to its capital structure.  The
private placement and the recently expanded operating debt facilities,
together with the Company’s levels of funds from operations and prudent
cash management, are expected to serve the Company well in funding
further expansion, both in the form of opportunistic acquisitions, and
the ongoing new build and fleet modernization program.

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 first quarter
2012 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 7, 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 May 14, 2012 by dialing 1-416-849-0833 (in Toronto) or
1-855-859-2056 (outside Toronto) and entering the reservation number
43339866.  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.

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