Ensign Energy Services Inc. Reports Increase in 2011 First Quarter Earnings

CALGARY, May 9 /CNW/ –

Overview

Ensign Energy Services Inc. (“Ensign” or the “Company”) began reporting
its financial results in accordance with International Financial
Reporting Standards (“IFRS”) effective January 1, 2011. Accordingly the
financial results for the three months ended March 31, 2011, and all
comparative information, has been prepared in accordance with IFRS.

The Company recorded revenue of $502.2 million in the three months ended
March 31, 2011, an increase of 42 percent from revenue of $352.8
million recorded in the first quarter of the prior year. Net income for
the first quarter of 2011 increased 105 percent to $79.7 million ($0.52
per common share) compared to net income of $38.8 million ($0.25 per
common share) for the first quarter of 2010. EBITDA (defined as
earnings before interest, taxes, depreciation, amortization, and
share-based compensation) totaled $170.3 million in the first quarter
of 2011, 82 percent higher than EBITDA of $93.7 million in the first
three months of 2010. Similarly, funds from operations increased 78
percent to $154.5 million ($1.01 per common share) in the first three
months of 2011 from $86.7 million ($0.57 per common share) in the first
three months of the prior year. The improved start to the 2011
financial year is directly attributable to improved operating and
financial results from the Company’s Canadian and United States
operations resulting from improved levels of demand for oilfield
services in the first quarter of 2011 compared to the prior year. The
Company’s international financial contributions also improved slightly
from the prior year despite the negative translational impact from a
weakening United States dollar.

Gross margin improved to $171.9 million (34.2 percent of revenue) for
the first quarter of 2011 compared with gross margin of $109.6 million
(31.1 percent of revenue) for the first quarter of 2010. Increased
demand for oilfield services resulted in improved margins in the first
quarter of 2011 as spot prices, particularly in Canada, improved in
line with the increased level of operating activity. Additionally, the
level of major maintenance expenditures subsided in the first quarter
of 2011 compared to the prior two quarters when much of the maintenance
was completed in anticipation of increased levels of demand for
oilfield services, particularly for the Canadian winter drilling
season.

Working capital at March 31, 2011 was $147.5 million compared to $84.5
million at December 31, 2010. Positive working capital, no long term
debt and improved levels of funds from operations will enable the
Company to fund its current new build program, which will deliver 22
new state-of-the-art drilling rigs and 19 well servicing rigs over the
next 12 to 15 months. These new builds will continue to expand the
technical capabilities of the Company’s extensive oilfield services
equipment fleet.

¹ 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.
² 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.
³ 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
provide 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.
⁴ Includes workover rigs.

Revenue and Oilfield Services Expense

Revenue recorded in the first quarter of 2011 totaled $502.2 million, an
increase of 42 percent over the first quarter of 2010. As a percentage
of revenue, gross margin for the first quarter of 2011 increased to
34.2 percent from 31.1 percent for the first quarter of 2010.

The increases in revenue in Canada and the United States are a
reflection of higher activity levels in crude oil and liquids-rich
natural gas resource plays. The increased demand for oilfield services
has resulted in improved margins. The pricing pressures arising from
the excess supply of oilfield services equipment experienced over the
past two years were reduced as a result of the higher activity levels.
International revenues were up slightly over the prior year as the
Company’s Latin American operations held steady and activities in the
eastern hemisphere generally increased, despite temporary weather
setbacks in Australia and the disruption of activity related to the
ongoing public protests in parts of north Africa and the Middle East.

Canadian Oilfield Services

Revenue increased 54 percent to $275.2 million for the three-months
ended March 31, 2011, from $178.9 million for the three months ended
March 31, 2010. Canadian revenues accounted for 55 percent of the
Company’s total revenue in the first quarter of 2011, compared with 51
percent in the first quarter of 2010. Increased revenues were
attributable to higher equipment utilization, combined with increased
day rates.

Drilling days in the current quarter of 7,927 days were 21 percent
higher than the 6,554 days for the first quarter of 2010. Canadian well
servicing hours increased by three percent to 39,521 hours in the first
quarter of 2011 compared with 38,280 hours in the same period of 2010.

During the three months ended March 31, 2011, the Company decommissioned
eight drilling rigs in its Canadian fleet. The Company will retain the
serviceable components from these drilling rigs to support the
remainder of its drilling rig fleet.

United States Oilfield Services

The Company’s United States operations recorded revenue of $148.5
million in the first quarter of 2011, a 43 percent increase from the
$104.0 million recorded in the corresponding period of the prior year,
in spite of the negative translational impact given the approximately
six percent weakening of the United States dollar relative to the
Canadian dollar in the first quarter of 2011 compared to the first
quarter of 2010. The United States segment accounted for 29 percent of
the Company’s revenue in the first quarter of 2011 consistent with the
same period in 2010.

Increased revenue was largely attributable to an increase in drilling
operating days of 31 percent to 4,266 days in the first quarter of 2011
versus 3,262 days in the first quarter of 2010. Additionally, well
servicing hours increased 52 percent from 11,504 hours in the first
three months of 2010 to 17,450 hours in the first three months of 2011.

During the three months ended March 31, 2011, the Company mobilized two
additional drilling rigs and two additional well servicing rigs in
California, where demand for oilfield services remains steady, due to a
focus on crude oil in the area.

International Oilfield Services

The Company’s international operations recorded revenue of $78.5 million
in the first quarter of 2011, a 12 percent increase from $70.0 million
recorded in the corresponding period of the prior year. Similar to the
United States segment, the increase in revenue in the segment was
tempered by the negative translational impact of the weakening United
States dollar relative to the Canadian dollar. The international
segment contributed 16 percent of the Company’s revenue in the first
quarter of 2011 compared with 20 percent in the same period of 2010.

International operating days for the three months ended March 31, 2011
totaled 2,665 days compared with 2,228 days in 2010, an increase of 20
percent. A significant portion of the increase in operating days is
attributable to Latin America, as operations in Venezuela improved
significantly on a year-over-year basis after the resumption of
operations in the first quarter of 2010. The Company’s international
operations were challenged in a few key areas during the first quarter
of 2011, as the Company worked through weather-related issues in
Australia, as well as regional geopolitical issues in north Africa and
the Middle East.

Funds from Operations and Working Capital

¹ Comparative figure as of December 31, 2010.

During the three months ended March 31, 2011, the Company generated
funds from operations of $154.5 million ($1.01 per common share)
compared with funds from operations of $86.7 million ($0.57 per common
share) for the three months ended March 31, 2010, an increase of 78
percent. At March 31, 2011, the Company’s working capital totaled
$147.5 million, compared to $84.5 million at December 31, 2010, an
increase of 74 percent. These increases are primarily attributable to
higher operating activity levels in North America during the first
quarter of 2011 compared to those during the fourth quarter of 2010;
and are further driven by contributions from the new equipment added
pursuant to the new build program.

The Company’s strong working capital position and existing credit
facilities are expected to adequately support its future operations and
capital expansion initiatives. Existing credit facilities provide for
total borrowings of $210.0 million, of which $55.4 million was
available as at March 31, 2011. The Company exited the first quarter
with a strong balance sheet and no long-term debt.

Investing Activities

Net purchases of property and equipment during the first quarter of 2011
totaled $66.7 million (2010 – $26.7 million). The net purchase 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

The Company’s available operating lines of credit consist of a $200
million global revolving credit facility (the “Global Facility”) and a
$10 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
million Canadian dollars. The amount available under the Canadian
Facility is $10 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, 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.

The Board of Directors of the Company has declared a second quarter
dividend of $0.095 per common share to be payable July 6, 2011 to all
Common Shareholders of record as of June 21, 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.

New Builds

In response to continued customer demand for new oilfield services
equipment to meet the growing technical demands of resource plays, the
Company’s new build program will result in 22 new ADR™ style drilling
rigs and 19 new well servicing rigs being constructed for delivery
throughout 2011 and early 2012. One drilling rig has been allocated to
the international segment; 11 drilling rigs and 15 well servicing rigs
have been allocated to the United States; and the remaining 10 drilling
rigs and four well servicing rigs have been allocated to Canada. The
Company plans to fund the construction program using internally
generated cash flows and available operating lines of credit.

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

Outlook

The energy sector currently faces many challenges that will ultimately
impact future activity levels. Crude oil prices have risen in recent
quarters on the back of concerns over potential disruptions to future
energy supplies. Such concerns run the gamut from the increasing
challenges of replacing reserves in many oil producing regions of the
world to the impact of events of public protest in parts of north
Africa and the Middle East to the impact on energy supplies from the
earthquake-related disaster in Japan. Short term the concern over crude
oil supply and the impact on crude oil prices serves as a positive
driver for oilfield services activity levels; however, there is concern
that rising crude oil pricing levels, if left unchecked, could hurt the
fragile global economic recovery and ultimately lead to lower levels of
demand. Against the backdrop of rising crude oil prices on the global
stage, there has been an increase in demand for oilfield services aimed
at crude oil projects throughout North America, but overall levels of
North American activity continue to be negatively impacted by a
lingering over-supply of natural gas. Reduced levels of demand in North
America for energy in general, and natural gas in particular, coming
out of the last economic recession have hit at a time of rising levels
of supply of natural gas due to the technical success of many of the
new natural gas resource plays. It will likely take a number of years
before there is a rebalancing of natural gas supply and demand
fundamentals and a more “normal” correlation between natural gas prices
and crude oil prices resumes.

Drilling days in the Company’s Canadian operations increased 21 percent
in the first quarter of 2011 when compared to the first quarter of
2010. The strength and positive outlook for crude oil fundamentals
drove activity levels higher in the 2010/11 winter drilling season. As
anticipated, margins are also improving into 2011, a positive reaction
to increased levels of demand for oilfield services and as a result of
a reduction in the required levels of major maintenance expenditures,
as much of these expenditures were previously incurred to prepare
portions of the Company’s fleet for higher activity levels. The Company
expects improved levels of demand for oilfield services in the coming
year, as its customers continue to focus on crude oil and liquids-rich
natural gas resource plays. Rising activity levels do not occur without
challenges. The Canadian energy services industry continues to be
challenged by crew labor constraints; and there remains the possibility
of an extended spring break-up as field conditions in western Canada
transform from prolonged winter conditions.

The Company’s United States operations increased drilling operating days
in the first quarter of 2011 by 31 percent over the same quarter of
2010, as its customers increased the demand for oilfield services to
take advantage of rising crude oil prices. For the broader energy
services industry in the United States, the current cycle of natural
gas drilling appears to have peaked, with rigs drilling for natural gas
trending down in 2011 compared to the prior year. Current challenging
supply and demand fundamentals for natural gas are further exacerbated
by expanding domestic production capacity, resulting in constrained
natural gas prices in the short term. The demand for United States
oilfield services into the second quarter and for the balance of 2011
will be supported by expected continuing favorable economics for crude
oil and liquids rich natural gas resource plays. The Company currently
has nine new ADR drilling rigs under construction for its United States
operations to meet the growing demand for new technology to effectively
develop such resource plays. Consistent with the Company’s increased
utilization in the first quarter of 2011, its expectations are for
continued improvements in the operational and financial contributions
from its United States oilfield services division through the balance
of 2011.

The Company’s international operations experienced a 20 percent increase
in drilling operating days in the first quarter of 2011 when compared
to the corresponding quarter of 2010; however, activity levels were
relatively flat in comparison to the previous two quarters. Operating
days are expected to show a positive trend for the remainder of the
year, as the adverse effects of wet weather in Australia subside and
the Company is able to effect improvements in Latin America. The
Company still faces challenges in certain of its eastern hemisphere
operations due to continuing political unrest in parts of north Africa
and the Middle East. The Company remains hopeful that tensions will
subside and it can resume normal operations in the near
future. Overall, the Company continues to anticipate slow but steady
growth in its international operations.

Favorable crude oil supply and demand fundamentals are expected to drive
improved levels of demand for oilfield services through the remainder
of 2011. The Company’s strong balance sheet, increasing profitability
and prudent cash management will support its focus on pursuing
opportunistic growth, and it anticipates expansion benefits from the
fleet modernization and expanding new build programs.

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.

Transition to IFRS

Additional details and disclosure with respect to the effect of the
Company’s transition to IFRS will be included in the consolidated
financial statements for the three months ended March 31, 2011 and the
related management’s discussion and analysis (“MD&A”) of such financial
statements. These documents will be filed with regulators and available
to all interested parties in due course.

Conference Call

A conference call will be held to discuss the Company’s first quarter
2011 results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 9,
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 May 16, 2011 by dialing 1-416-849-0833 (in Toronto) or
1-800-642-1687 (outside Toronto) and entering the reservation number
58623790. 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