05 May Ensign Energy Services Reports 2007 First Quarter Results
CALGARY, May 7 /CNW/
Overview
Ensign Energy Services Inc. (the “Company”) recorded net income of
$102.3 million ($0.67 per common share) for the three months ended March 31,
2007 compared with net income of $127.9 million ($0.85 per common share) for
the three months ended March 31, 2006, a decline of 20 percent. Revenue for
the first quarter of 2007 totaled $509.5 million, a decline of 10 percent
compared with the first quarter of 2006. Although partially offset by strong
results from the Company’s United States and international operations, the
decline in revenue and net income on a quarter-over-quarter basis is
predominantly due to softening demand in the Canadian market. Demand for
oilfield services in Western Canada has tempered compared to the record levels
of the prior year given the uncertainty surrounding natural gas commodity
prices and the resultant impact on customers’ drilling programs. An early
spring break-up also negatively impacted operating activity levels in Canada
in the first quarter of 2007, compared with the more favorable weather
conditions of the first quarter of 2006 that extended the winter drilling
season through the end of March.
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FINANCIAL AND OPERATING HIGHLIGHTS
($thousands, except per share data
and operating information)
————————————————————————-
Three months ended March 31
————————————————————————-
2007 2006 % change
————————————————————————-
Revenue 509,485 567,999 (10)
————————————————————————-
EBITDA(1) 185,419 229,919 (19)
EBITDA per share(1),(5)
Basic $1.22 $1.52 (20)
Diluted $1.19 $1.46 (18)
————————————————————————-
Adjusted net income(2) 106,060 129,448 (18)
Adjusted net income per share(2),(5)
Basic $0.70 $0.86 (19)
Diluted $0.68 $0.82 (17)
————————————————————————-
Net income 102,321 127,850 (20)
Net income per share(5)
Basic $0.67 $0.85 (21)
Diluted $0.66 $0.81 (19)
————————————————————————-
Funds from operations(3) 117,607 155,105 (24)
Funds from operations per share(3),(5)
Basic $0.77 $1.03 (25)
Diluted $0.76 $0.99 (23)
————————————————————————-
Weighted average shares
– basic (000s)(5) 152,357 151,616 –
Weighted average shares
– diluted (000s)(5) 155,553 157,450 (1)
————————————————————————-
Drilling
Number of marketed rigs
Canada
Conventional 163 159 3
Oil sands coring/coal bed methane 31 21 48
United States 66 61 8
International(4) 47 47 –
Operating days
Canada 9,175 11,885 (23)
United States 4,479 4,420 1
International 2,361 2,367 –
————————————————————————-
Well Servicing
Number of marketed rigs/units
Canada 114 116 (2)
United States 11 8 38
Operating hours
Canada 59,231 68,346 (13)
United States 5,963 5,435 10
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(1) EBITDA is defined as “income before interest expense, income taxes,
depreciation and stock-based compensation 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
stock-based compensation plans. EBITDA and EBITDA per share as
defined above are not recognized measures under Canadian generally
accepted accounting principles and accordingly may not be comparable
to measures used by other companies.
(2) Adjusted net income is defined as “net income before stock-based
compensation 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 stock-based compensation
plans, net of income taxes. Adjusted net income and adjusted net
income per share as defined above are not recognized measures under
Canadian generally accepted accounting principles 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 shareholders and potential investors with 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 Canadian generally accepted accounting
principles and accordingly may not be comparable to similar measures
used by other companies.
(4) Includes workover rigs.
(5) All share and per share data has been restated to reflect the
two-for-one common share split in May 2006.
Revenue and Oilfield Services Expense
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
Revenue
Canada 312,614 392,556 (79,942) (20)
United States 136,747 122,517 14,230 12
International 60,124 52,926 7,198 14
——————————————————-
509,485 567,999 (58,514) (10)
Oilfield services
expense 309,824 325,003 (15,179) (5)
——————————————————-
199,661 242,996 (43,335) (18)
——————————————————-
Gross margin 39.2% 42.8%
————————————————————————-
The Company’s Canadian oilfield services division experienced a decline
in demand for its services in the first quarter of 2007 compared to the record
demand and operating activity levels enjoyed in the first quarter of 2006. The
concerns over natural gas commodity prices that surfaced in the latter half of
2006 continued to have a negative impact on the cash flows and capital
spending of the Company’s customers in the first quarter of 2007. The cutback
in drilling programs, particularly in the shallow natural gas and coal bed
methane markets, resulted in decreased equipment utilization for the Company’s
Canadian oilfield services divisions and a corresponding decline in revenue.
Revenue for the Company’s Canadian oilfield services divisions totaled
$312.6 million for the three months ended March 31, 2007, a decline of 20
percent from revenue of $392.6 million recorded in the first three months of
2006. The softness noted in natural gas drilling activity was somewhat
mitigated by relatively strong levels of demand for oil-related services.
First quarter financial results and operating activity levels of the
Canadian oilfield services segment are impacted by the occurrence and timing
of spring break-up, whereby the Company’s ability to move its equipment is
hindered by soft ground conditions and road bans. Spring break-up occurred
earlier in March 2007 than in March 2006, further contributing to the
quarter-over-quarter decline in revenue and operating activity levels.
The Company’s United States oilfield services divisions continued to
perform strongly in the first quarter of 2007, increasing revenue by
12 percent over the first quarter of 2006. The Company’s United States
operations have helped to mitigate weakening demand in Canada, and will
continue to be a growth area as the Company expands its United States-based
equipment fleet over the remainder of 2007. The United States oilfield
services divisions have benefited from the addition of highly efficient
Automated Drill Rig (ADR(TM)) technology to its equipment fleet. Three new
ADRs under long-term take-or-pay contracts were added to the drilling rig
fleet in the first quarter of 2007. This new equipment, in addition to the
three ADRs that were placed in service in the United States in 2006,
contributed to the revenue growth experienced in the first three months of
2007 as the inherent efficiency of newly constructed equipment typically
supports higher revenue rates. Despite the additional drilling rigs added in
the first quarter, drilling operating days in the United States have remained
flat quarter-over-quarter primarily due to adverse weather conditions in the
Rocky Mountain region in the first quarter of 2007 compared to the prior year.
The Company’s international operations continue to show steady
improvement in financial results. Operating activity levels for the first
quarter of 2007 are comparable to that experienced in the first quarter of
2006; however, the Company is growing revenue as contracts are renewed or
negotiated at more favorable rates. Revenue for the international oilfield
services division totaled $60.1 million for the three months ended March 31,
2007, a 14 percent increase over revenue of $52.9 million recorded in the
three months ended March 31, 2006. The Company continues to see opportunities
in the international market given the favorable indicators around global
supply and demand fundamentals for crude oil. As a result, the Company is
making preparations to relocate one drilling rig from its Canadian fleet of
equipment to Australia in the second quarter of 2007 and is modernizing its
equipment fleet based in the Middle East and Africa with the refurbishment of
two drilling rigs and the upgrade and reactivation of one previously idle
drilling rig.
Gross margin percentages for the first quarter of 2007 for the Company’s
United States and international oilfield services divisions remained
comparable with those achieved in the first quarter of 2006. The overall
decline in gross margin as a percentage of revenue is the result of margin
compression in the Canadian segment in the first three months of 2007. The
Company has taken steps to control costs in an environment of reduced activity
levels; however, industry-wide labour rate increases in Canada (effective
October 2006) partially offset these efforts.
Depreciation
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
Depreciation 23,307 23,090 217 1
————————————————————————-
Depreciation expense totaled $23.3 million for the three months ended
March 31, 2007 compared with $23.1 million for the three months ended
March 31, 2006. Although operating activity levels in the first quarter of
2007 declined compared with the same period of 2006, depreciation expense has
remained flat due to a higher capital asset base resulting from the Company’s
equipment building program over the past several years.
General and Administrative Expense
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
General and
administrative 14,242 13,077 1,165 9
% of revenue 2.8% 2.3%
————————————————————————-
General and administrative expense totaled $14.2 million for the three
months ended March 31, 2007, an increase of nine percent over the three months
ended March 31, 2006. The increase in general and administrative expense is
primarily due to additional administrative requirements associated with the
Company’s expanded operations in the United States. General and administrative
expense expressed as a percentage of revenue was 2.8 percent for the three
months ended March 31, 2007, compared with 2.3 percent for the three months
ended March 31, 2006.
Stock-Based Compensation Expense
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
Stock-based compensation 5,752 2,459 3,293 134
————————————————————————-
Stock-based compensation expense arises from the intrinsic value
accounting of the Company’s stock option plan, whereby the liability
associated with stock-based compensation is adjusted on a quarterly basis for
the effect of vesting and exercising of stock options, as well as changes in
the underlying price of the Company’s common shares. For the three months
ended March 31, 2007, stock-based compensation expense is comprised of
$1.9 million for additional granting and vesting of stock options, $5.9
million related to the increase in the price of the Company’s common shares,
net of a recovery of $2.0 million due to forfeitures during the quarter. The
closing price of the Company’s common shares was $19.35 at March 31, 2007
compared with $18.39 at December 31, 2006.
Interest Expense
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
Interest 943 1,727 (784) (45)
————————————————————————-
Interest expense is incurred on the Company’s operating lines of credit.
The decrease in interest expense on a period-over-period basis is due to the
decrease in the average balance outstanding of the Company’s operating lines
of credit. The average balance outstanding for the first quarter of 2007 was
$89.6 million compared with $164.9 million for the first quarter of 2006.
Income Taxes
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
Current income tax 56,759 57,836 (1,077) (2)
Future income tax (3,663) 16,957 (20,620) (122)
——————————————————-
53,096 74,793 (21,697) (29)
——————————————————-
Effective income
tax rate (%) 34.2% 36.9%
————————————————————————-
The effective income tax rate for the three months ended March 31, 2007
was 34.2 percent compared with 36.9 percent for the three months ended
March 31, 2006. The decrease in the Company’s effective income tax rate on a
period-over-period basis is primarily due to federal and provincial income tax
rate reductions in Canada.
The future income tax recovery in the first quarter of 2007 is due to
partnership timing differences. Taxable income generated in Canadian
partnerships was a significant component of the future income tax liability as
at December 31, 2006. This balance has declined as of March 31, 2007 due to
the expected decline in income generated by Canadian partnerships.
Financial Position
The following chart outlines significant changes in the consolidated
balance sheet from December 31, 2006 to March 31, 2007:
($ thousands) Change Explanation
————————————————————————-
Cash and cash equivalents (65) See consolidated statement of cash
flows.
Accounts receivable 38,340 Increase due to an increase in
operating activity levels in the first
quarter of 2007 compared with the
fourth quarter of 2006.
Inventory and other 2,074 Increase due to additions to drill
pipe inventory.
Property and equipment 70,275 Increase due to ongoing capital
expenditures and equipment under
construction, offset by depreciation
for the period.
Accounts payable and
accrued liabilities (10,656) Decrease due to a reduction in the
aging of accounts payable.
Operating lines of
credit 39,244 Increase due to the use of operating
lines of credit to finance the
Company’s rig building program.
Stock-based
compensation (5,496) Decrease due to stock option exercises
and forfeitures, net of the increase
associated with additional vesting and
share price increases.
Income taxes payable (909) Decrease due to income tax payments,
net of the current income tax
provision for the period.
Dividends payable 33 Increase due to a slight increase in
the number of outstanding common
shares compared with the fourth
quarter of 2006.
Future income taxes (3,414) Decrease due to the future income tax
recovery in the period.
Shareholders’ equity 91,822 Increase due to the aggregate impact of
net income for the period, increase in
capital stock due to exercises of
employee stock options, impact of
foreign exchange rate fluctuations on
net assets of foreign self-sustaining
subsidiaries, less dividends declared
in the period.
————————————————————————-
Working Capital and Funds from Operations
Three months ended March 31
—————————-
($ thousands, except
per share data) 2007 2006 Change % change
————————————————————————-
Funds from operations 117,607 155,105 (37,498) (24)
Funds from operations
per share $0.77 $1.03 $(0.26) (25)
Working capital(1) 73,217 63,162 10,055 16
————————————————————————-
(1) Comparative figure as of December 31, 2006.
Funds from operations for the three months ended March 31, 2007 declined
24 percent compared with the three months ended March 31, 2006. The decline is
predominantly due to a reduction in operating activity and compressed margins
in the Company’s Canadian oilfield services divisions on a period-over-period
basis.
At March 31, 2007, the Company’s working capital totaled $73.2 million
compared with working capital of $63.2 million at December 31, 2006. The
improvement in working capital at March 31, 2007 is largely due to the
increase in revenue, and therefore accounts receivable, in the first quarter
of 2007 compared with the fourth quarter of 2006. Offsetting this improvement
was an increase in the utilized balance of the Company’s operating lines of
credit, which was used to finance capital expenditure activities. As of
March 31, 2007, the Company continues to operate with sufficient liquidity to
meet its obligations as they come due, and anticipates that its planned
capital expenditures and dividend payments will continue to be financed with
internally generated funds and existing credit facilities.
Investing Activities
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
Net purchase of
property and
equipment (93,608) (90,570) (3,038) 3
Net change in
non-cash working
capital (4,262) (7,537) 3,275 (43)
——————————————————-
Cash used in
investing
activities (97,870) (98,107) 237 –
————————————————————————-
Net investing activities for the three months ended March 31, 2007
totalled $97.9 million compared with $98.1 million for the three months ended
March 31, 2006. In addition to the ongoing refurbishment of existing
equipment, a significant portion of capital expenditures in the first quarter
of 2007 relates to the Company’s new-build program that commenced in 2006. Of
the previously announced projects, 13 ADRs for the United States and two slant
well servicing rigs for Canada were scheduled for completion in 2007. During
the first quarter of 2007, three of the 13 ADRs for the United States were
completed and placed into service. Construction of the two slant well
servicing rigs is ongoing and the Company expects construction to be complete
in the second quarter of 2007. In addition to these previously announced
projects, the Company bolstered its oil sands coring fleet of equipment in the
first quarter of 2007 with the addition of nine coring rigs. The Company is
also in the process of refurbishing two drilling rigs and reactivating one
previously idle drilling rig for the international market.
Financing Activities
Three months ended March 31
—————————-
($ thousands) 2007 2006 Change % change
————————————————————————-
Net increase
(decrease) in
operating lines
of credit 39,244 (1,720) 40,964 (2,382)
Issue of capital
stock 826 1,800 (974) (54)
Dividends (12,188) (7,583) (4,605) 61
Net change in
non-cash working
capital 33 17 16 94
——————————————————-
Cash provided by
(used in)
financing
activities 27,915 (7,486) 35,401 (473)
————————————————————————-
The Company increased the utilized balance of its operating lines of
credit by $39.2 million during the first quarter of 2007. The funds provided
by this increase were used primarily to finance the Company’s capital
expenditure program in North America. During the first quarter of 2007, the
Company amended the terms of its United States-based operating line of credit
and increased the amount available to US$50.0 million. The increased credit
facility will be used to finance the Company’s new build projects and support
its expanded operations in the United States.
Other financing activities during the first quarter of 2007 include the
receipt of $0.8 million on the exercise of employee stock options and the
payment of dividends in the amount of $12.2 million. The increase in dividends
on a quarter-over-quarter basis is due to an increase in the Company’s
quarterly dividend rate from $0.05 per common share in the first quarter of
2006 to $0.08 per common share in the first quarter of 2007. All dividends
paid by the Company subsequent to January 1, 2006 qualify as an eligible
dividend, as defined by subsection 89(1) of the Income Tax Act.
Outlook
The 2007 fiscal year started as expected with weaker year-over-year first
quarter financial results from our Canadian operations; improved first quarter
results from our United States operations; and slight improvements in the
first quarter results from our international operations.
The early start to spring break-up in Canada has continued into the
second quarter of 2007. Wet conditions have resulted in low drilling rig and
equipment utilization rates in April; however, utilization should improve in
May as indicated by the current level of equipment bookings, subject to region
specific weather conditions. Activity levels and financial results throughout
the second and third quarters of 2007 are expected to lag last year’s record
quarters. It is anticipated that the supply of oilfield services equipment in
Western Canada will exceed demand at a time when there is significant
uncertainty surrounding the scale of customers’ drilling programs for the
remainder of 2007. Despite improved natural gas fundamentals, as indicated by
the current futures strip for natural gas commodity prices, the capital
spending outlook by Canadian exploration and production companies remains
conservative. While there are many reasons for the cautious approach,
customers appear to be grappling with the issue of inflation in finding and
development costs and its contribution to the declining economics of operating
in the Western Canadian Sedimentary Basin. In this regard, the Company
continues to work with its customers to alleviate some of the inefficiencies
of the past several years when an over-heated industry had to wait on services
and is focused on providing cost-effective solutions throughout our suite of
oilfield services.
The United States market continues to display remarkable resiliency
compared to the Canadian market. The United States oilfield services industry
is subject to the same crude oil and natural gas commodity supply and demand
fundamentals that drive the Canadian industry; however, the company’s United
States customers appear to be drilling through the malaise that has negatively
impacted activity levels north of the border. As such, we expect financial
results from our Rocky Mountain and California operations to continue to
improve throughout the balance of 2007 as demand holds steady and we expand
our equipment fleet in this important market segment.
Finally, we remain optimistic about our opportunities in the
international market. The demand for oilfield services in certain key markets
remains high supported by strong crude oil commodity prices. An expanded
equipment fleet and continuous improvement to our operations should result in
improved financial results through the remainder of the year.
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.
A conference call will be held to discuss the Company’s first quarter
results at 2:00 p.m. MDT (4:00 p.m. EDT) on Monday, May 7, 2007. The
conference call number is 1-800-814-4861. A taped recording will be available
until May 14, 2007 by dialing 1-877-289-8525 and entering reservation number
21231904 followed by the number sign. 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.
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
March 31 December 31
2007 2006
—— ——
(Unaudited)
Assets
Current assets
Cash and cash equivalents 14,505 14,570
Accounts receivable 403,415 365,075
Inventory and other 79,302 77,228
Future income taxes 12,281 11,010
——————————-
509,503 467,883
Property and equipment 1,364,541 1,294,266
——————————-
1,874,044 1,762,149
——————————-
——————————-
Liabilities
Current liabilities
Accounts payable and accrued liabilities 231,320 241,976
Operating lines of credit 109,233 69,989
Current portion of stock-based
compensation 37,671 33,818
Income taxes payable 45,874 46,783
Dividends payable 12,188 12,155
——————————-
436,286 404,721
Stock-based compensation 8,650 17,999
Future income taxes 229,681 231,824
——————————-
674,617 654,544
——————————-
Shareholders’ Equity
Capital stock (note 2) 156,802 154,838
Accumulated other comprehensive
income (note 1) (21,152) (20,163)
Retained earnings 1,063,777 972,930
——————————-
1,199,427 1,107,605
——————————-
1,874,044 1,762,149
——————————-
——————————-
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the three months ended March 31, 2007 and 2006
(Unaudited, in thousands of dollars, except per share data)
2007 2006
—— ——
Revenue
Oilfield services 509,485 567,999
Expenses
Oilfield services 309,824 325,003
Depreciation 23,307 23,090
General and administrative 14,242 13,077
Stock-based compensation 5,752 2,459
Interest 943 1,727
——————————-
354,068 365,356
——————————-
Income before income taxes 155,417 202,643
——————————-
Income taxes
Current 56,759 57,836
Future (3,663) 16,957
——————————-
53,096 74,793
——————————-
Net income for the period 102,321 127,850
Retained earnings –
beginning of period,
as originally reported 972,930 674,151
Transition adjustment on adoption
of financial instruments
standard (note 1) 714 –
——————————-
Retained earnings –
beginning of period, as restated 973,644 674,151
Dividends (note 2) (12,188) (7,583)
——————————-
Retained earnings – end of period 1,063,777 794,418
——————————-
——————————-
Net income per share (note 2)
Basic $ 0.67 $ 0.85
Diluted $ 0.66 $ 0.81
——————————-
——————————-
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2007 and 2006
(Unaudited, in thousands of dollars)
2007 2006
—— ——
Cash provided by (used in)
Operating Activities
Net income for the period 102,321 127,850
Items not affecting cash:
Depreciation 23,307 23,090
Stock-based compensation,
net of cash paid (4,358) (12,792)
Future income taxes (3,663) 16,957
——————————-
Cash provided by operating activities
before the change in non-cash
working capital 117,607 155,105
Net change in non-cash working
capital (note 4) (47,717) (40,736)
——————————-
69,890 114,369
——————————-
Investing Activities
Net purchase of property and equipment (93,608) (90,570)
Net change in non-cash working
capital (note 4) (4,262) (7,537)
——————————-
(97,870) (98,107)
——————————-
Financing Activities
Net (decrease) increase in operating
lines of credit 39,244 (1,720)
Issue of capital stock 826 1,800
Dividends (note 2) (12,188) (7,583)
Net change in non-cash working
capital (note 4) 33 17
——————————-
27,915 (7,486)
——————————-
(Decrease) increase in cash and
cash equivalents during the period (65) 8,776
Cash and cash equivalents –
beginning of period 14,570 31,993
——————————-
Cash and cash equivalents –
end of period 14,505 40,769
——————————-
——————————-
Supplemental information
Interest paid 961 1,362
Income taxes paid 57,668 31,570
——————————-
——————————-
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2007 and 2006
(Unaudited, in thousands of dollars)
2007 2006
—— ——
Net income for the period 102,321 127,850
Other comprehensive income
Foreign currency translation adjustment (989) (2,851)
——————————-
Comprehensive income 101,332 124,999
——————————-
——————————-
See accompanying notes to the consolidated financial statements.
CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
For the three months ended March 31, 2007 and 2006
(Unaudited, in thousands of dollars)
2007 2006
—— ——
Accumulated other comprehensive
income – beginning of period (20,163) (39,221)
Foreign currency translation adjustment (989) (2,851)
——————————-
Accumulated other comprehensive
income – end of period (21,152) (42,072)
——————————-
See accompanying notes to the consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2007 and 2006
(Unaudited, in thousands of dollars, except share and per share data)
The interim consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles, and include
the accounts of Ensign Energy Services Inc. and all of its subsidiaries and
partnerships (the “Company”), substantially all of which are wholly-owned. The
interim consolidated financial statements have been prepared following the
same accounting policies and methods of computation as the consolidated
financial statements for the year ended December 31, 2006, except as noted
below. The disclosures provided below are incremental to those included with
the annual consolidated financial statements. These interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto in the Company’s annual report for
the year ended December 31, 2006.
1. Change in accounting policies
Effective January 1, 2007, the Company adopted the Canadian Institute
of Chartered Accountants Handbook Section 1530 “Comprehensive
Income”, Section 3251 “Equity” and Section 3855 “Financial
Instruments – Recognition and Measurement”. As required by the new
standards, prior periods have not been restated except to reclassify
the cumulative translation adjustment balance.
Comprehensive income
The new standards introduce comprehensive income, which consists of
net income and other comprehensive income (“OCI”). For the Company,
OCI is comprised entirely of the movement in the cumulative
translation adjustment balance. The Company’s consolidated financial
statements now include Consolidated Statements of Comprehensive
Income, which include the components of comprehensive income.
The cumulative changes in OCI are included in accumulated other
comprehensive income (“AOCI”), which is presented as a new category
within shareholders’ equity in the Consolidated Balance Sheets. The
cumulative translation adjustment, formerly presented as a separate
category within shareholders’ equity, is now included in AOCI. The
Company’s consolidated financial statements now include Consolidated
Statements of Accumulated Other Comprehensive Income, which provide
the continuity of the AOCI balance.
Financial instruments
The financial instruments standard establishes the recognition and
measurement criteria for financial assets and financial liabilities.
All financial instruments are required to be measured at fair value
on initial recognition of the instrument. Measurement in subsequent
periods depends on how the financial instruments have been classified
in accordance with the standard. The adjustment to recognize
financial instruments at fair value on the balance sheet was recorded
as an adjustment to the opening balance of retained earnings.
2. Capital stock
Authorized
Unlimited common shares
Unlimited preferred shares, issuable in series
Common share split
The Company’s shareholders approved a split of its issued and
outstanding common shares on a two-for-one basis at the Company’s
Annual and Special Meeting of Shareholders held on May 17, 2006. All
common share, stock option and per common share amounts have been
restated to retroactively reflect the two-for-one common share split.
Outstanding
Number of
Common Shares Amount
———————————————————————
Balance at January 1, 2007 152,267,928 $ 154,838
Issued under employee stock option plan 104,800 1,964
—————————
Balance at March 31, 2007 152,372,728 $ 156,802
———————————————————————
Options
A summary of the status of the Company’s stock option plan as of
March 31, 2007, and the changes during the three-month period then
ended, is presented below:
Weighted
Average
Exercise
Number of Options Price
———————————————————————
Outstanding at January 1, 2007 11,112,100 $ 13.16
Granted 130,500 18.85
Exercised for shares (104,800) (7.88)
Exercised for cash (966,050) (8.09)
Forfeited (605,300) (17.46)
———————————————————————
Outstanding at March 31, 2007 9,566,450 $ 13.53
———————————————————————
Exercisable at March 31, 2007 4,161,350 $ 9.07
———————————————————————
Options Outstanding Options Exercisable
———————————————————————
Average Weighted Weighted
Vesting Average Average
Exercise Options Remaining Exercise Options Exercise
Price Outstanding (in years) Price Exercisable Price
———————————————————————
$6.25 to $8.75 2,285,950 0.09 $ 6.73 2,079,950 $ 6.53
$9.45 to $13.50 4,675,000 1.51 11.76 2,059,000 11.51
$16.55 to
$23.33 2,605,500 2.98 22.68 22,400 20.39
——————————————————
9,566,450 1.57 $13.53 4,161,350 $ 9.07
———————————————————————
Common share dividends
During the three months ended March 31, 2007, the Company declared
dividends of $12,188 (2006 – $7,583), being $0.08 per common share
(2006 – $0.05 per common share).
Net income per share
Net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the
period. Diluted net income per share is calculated using the treasury
stock method, which assumes that all outstanding stock options are
exercised, if dilutive, and the assumed proceeds are used to purchase
the Company’s common shares at the average market price during the
period.
The weighted average number of common shares outstanding for the
three months ended March 31, 2007 and 2006 are as follows:
2007 2006
———— ————-
Weighted average number of common
shares outstanding – basic 152,356,587 151,616,520
Weighted average number of common
shares outstanding – diluted 155,552,697 157,450,976
———— ————-
Stock options of 2,449,000 (2006 – 1,791,000) were excluded from the
calculation of diluted weighted average number of common shares
outstanding, as the options’ exercise price was greater than the
average market price of the common shares for the period.
3. Segmented information
The Company operates in three geographic areas within one industry
segment. Oilfield services are provided in Canada, the United States
and internationally. The amounts related to each geographic area are
as follows:
Three months ended March 31, 2007
———————————————————————
Canada United States International Total
———————————————————————
Revenue $ 312,614 $ 136,747 $ 60,124 $ 509,485
Property and
equipment, net $ 804,795 $ 291,522 $ 268,224 $1,364,541
Capital
expenditures,
net $ 40,360 $ 40,669 $ 12,579 $ 93,608
Depreciation $ 13,346 $ 4,639 $ 5,322 $ 23,307
———————————————————————
Three months ended March 31, 2006
———————————————————————
Canada United States International Total
———————————————————————
Revenue $ 392,556 $ 122,517 $ 52,926 $ 567,999
Property and
equipment, net $ 672,383 $ 180,295 $ 242,385 $1,095,063
Capital
expenditures,
net $ 48,950 $ 40,281 $ 1,339 $ 90,570
Depreciation $ 13,536 $ 3,467 $ 6,087 $ 23,090
———————————————————————
4. Supplemental disclosure of cash flow information
2007 2006
————– ———–
Net change in non-cash working capital
Accounts receivable $ (38,340) $ (68,411)
Inventory and other (2,074) (5,445)
Accounts payable and accrued liabilities (10,656) (683)
Income taxes payable (909) 26,266
Dividends payable 33 17
————- ————
$ (51,946) $ (48,256)
————- ————
————- ————
Relating to
Operating activities $ (47,717) $ (40,736)
Investing activities (4,262) (7,537)
Financing activities 33 17
————- ————
$ (51,946) $ (48,256)
————- ————
————- ————
5. Prior period amounts
Certain prior year amounts have been reclassified to conform to the
current year’s presentation.
%SEDAR: 00001999E
For further information: Glenn Dagenais, Executive Vice President
Finance and Chief Financial Officer, (403) 262-1361