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| Share Name | Share Symbol | Market | Type |
|---|---|---|---|
| Lng Energy Ltd. | TSXV:LNG | TSX Venture | Common Stock |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0 | - |
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Essential Energy Services Ltd. (TSX:ESN) ("Essential" or the "Company")
announces third quarter EBITDA(1) of $17.1 million, down from $19.3 million in
the third quarter of 2012. Given the relatively flat industry activity,
Essential's EBITDA decrease is largely attributed to start-up costs for
expansion of the downhole tools business into the United States and the absence
of EBITDA from the drilling rig assets that was included in third quarter 2012
results. The drilling assets were sold in November 2012. On a year-to-date
basis, EBITDA was $45.4 million.
SELECTED INFORMATION
Three months ended Nine months ended
September 30, September 30,
(Thousands, except per share
amounts) 2013 2012(i) 2013 2012(i)
----------------------------------------------------------------------------
Revenue $ 84,510 $ 83,513 $243,445 $ 252,566
Gross margin $ 21,414 $ 23,012 $ 57,935 $ 63,655
Gross margin % 25% 28% 24% 25%
EBITDA(1) from continuing operations $ 17,132 $ 19,261 $ 45,386 $ 51,973
EBITDA % (1) 20% 23% 19% 21%
Net income from continuing
operations $ 4,292 $ 8,343 $ 14,539 $ 22,714
Per share - basic and diluted $ 0.03 $ 0.07 $ 0.12 $ 0.18
Total assets $409,613 $415,653 $409,613 $ 415,653
Total long-term debt $ 40,484 $ 50,474 $ 40,484 $ 50,474
Utilization
Deep coil tubing rigs 73% 79% 67% 71%
Service rigs 50% 45% 49% 49%
Equipment fleet (ii)
Deep coil tubing rigs 27 26 27 26
Service rigs 54 55 54 55
----------------------------------------------------------------------------
(i) Certain comparative amounts have been reclassified to conform to the
current period's presentation.
(ii) Fleet data represents the number of units at the end of a period.
(1) Refer to "Non-IFRS Measures" section for further information.
HIGHLIGHTS
Third quarter 2013 industry activity was in line with 2012. In addition to wet
weather at the beginning of the quarter, exploration and production ("E&P")
companies were cautious with their capital spending as the oil price
differential continued to be volatile and equity capital market activity was
limited, making it difficult for producers to raise capital.
Essential's revenue for the third quarter of 2013 was generally flat compared to
2012, consistent with industry activity. Reported revenue of $84.5 million,
increased $1.0 million compared to the third quarter of 2012.
-- Coil Well Service - Essential's coil well service third quarter revenue
was consistent with the same period in the prior year despite a decline
in deep coil tubing utilization from 79% in the third quarter of 2012 to
73% in the current quarter. Essential saw an increase in utilization for
the masted deep coil tubing fleet in the quarter and revenue increased
from Essential's larger fleet of nitrogen and fluid pumpers. These gains
were offset by a softening in demand for the conventional deep coil
tubing fleet.
-- Service Rigs - During the third quarter, service rig revenue improved
and utilization increased from 45% to 50% quarter-over-quarter.
Essential saw improved utilization in specific operating areas including
Grande Prairie and Fort St. John. Demand continued for service rigs
operating on steam-assisted gravity drainage ("SAGD") wells.
-- Downhole Tools & Rentals - Revenue for downhole tools & rentals
increased during the third quarter of 2013 compared to the same period
in the prior year due to an increase in Tryton Multi-stage Fracturing
System ("Tryton MSFS(R)") product demand.
EBITDA for the third quarter of 2013 was $17.1 million, a decrease of $2.1
million from 2012. The decrease was mainly attributable to start-up costs
related to the expansion of the downhole tools operations into the United
States, the EBITDA contribution in the prior quarter from the drilling rig
operation which was sold in November 2012, and higher general and administrative
costs.
Capital - In the third quarter, Essential took delivery of its first
state-of-the-art Generation III masted deep coil tubing rig. This Generation III
rig can reach up to 4,900 meters, with a coil diameter of 2 5/8".
This rig is capable of working on long-reach horizontal wells and is well-suited
to meet the growing demand in servicing deeper, more complex wells.
(R) MSFS is a registered trademark of Essential Energy Services Ltd.
INDUSTRY OVERVIEW
During the third quarter of 2013, the Western Canadian Sedimentary Basin
("WCSB") experienced a slow recovery from the unseasonably wet June. Overall
industry activity in the third quarter was comparable to prior quarter levels.
The lack of momentum in the third quarter was due in part to wet weather
experienced in the WCSB and a lack of urgency exhibited by E&P companies.
Drilling rig utilization, wells drilled and completion activity are all
indicators of overall oilfield activity levels in the WCSB. During the third
quarter of 2013, drilling rig utilization and the number of wells drilled were
slightly ahead of prior quarter, while well completions were slightly down.
Compared to the third quarter 2012, drilling rig utilization increased 1%, the
number of wells drilled increased by 5% and well completion count decreased 3%.
FINANCIAL RESULTS
SEGMENT RESULTS - WELL SERVICING
Three months ended Nine months ended
September 30, September 30,
(Thousands, except percentages) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue
Coil Well Service (i) $ 33,037 $ 33,857 $ 92,091 $ 94,968
Service Rigs (ii) 23,870 20,552 72,158 69,427
Other (iii) - 2,762 - 11,037
----------------------------------------------------------------------------
Total revenue 56,907 57,171 164,249 175,432
Operating expenses 42,383 41,537 126,723 134,091
----------------------------------------------------------------------------
Gross margin $ 14,524 $ 15,634 $ 37,526 $ 41,341
Gross margin % 26% 27% 23% 24%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Utilization (iv)
Deep Coil Tubing Rigs
Utilization 73% 79% 67% 71%
Operating hours 17,724 18,301 46,614 48,799
Service Rigs
Utilization 50% 45% 49% 49%
Operating hours 25,084 22,632 73,682 74,003
Equipment fleet (v)
Coil tubing rigs - deep 27 26 27 26
Coil tubing rigs - other 18 19 18 19
Service rigs 54 55 54 55
Nitrogen pumpers 15 10 15 10
Fluid pumpers 18 16 18 16
Rod rigs 12 14 12 14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Includes revenue from coil tubing rigs, nitrogen and fluid pumpers and
other ancillary equipment.
(ii) Includes revenue from service rigs and rod rigs. Comparative amounts
have been reclassified to conform to current period's presentation.
(iii) Other revenue in 2012 represents revenue from Essential's drilling
operation which was disposed of in November 2012.
(iv) Utilization is calculated using a 10 hour day.
(v) Fleet data represents the number of units at the end of the period.
Coil well service revenue was unchanged during the third quarter of 2013
compared to the same period in the prior year despite a decrease in utilization
from 79% to 73% quarter-over-quarter. Essential's masted deep coil tubing fleet
performed well with 112% utilization compared to 100% in third quarter of 2012
and revenue increased from Essential's larger fleet of nitrogen and fluid
pumpers. These gains were offset by a decrease in revenue from the conventional
deep coil tubing fleet. Management anticipates utilization for the conventional
deep coil tubing fleet may continue to lag below prior year levels through the
rest of the year. Addition of the first Generation III masted deep coil tubing
rig in the third quarter and three more masted deep coil tubing rigs in the
fourth quarter will position Essential to meet the growing demand for long-reach
coil tubing rigs. Revenue per hour for coil tubing rigs was consistent with
prior year.
Service rig revenue improved during the third quarter of 2013 compared to the
same period in the prior year as Essential saw improved utilization in Grande
Prairie and Fort St. John. During the third quarter, Essential continued to see
demand for its service rigs operating on SAGD wells. Revenue per hour increased
from prior year due to the mix of services provided.
Well servicing revenue decreased on a quarter-to-date and year-to-date basis in
2013 compared to 2012 as the prior period included $2.8 million and $11.0
million, respectively, in revenue from the drilling rig operation which was
disposed of in November 2012.
SEGMENT RESULTS - DOWNHOLE TOOLS & RENTALS
Three months ended Nine months ended
September 30, September 30,
(Thousands, except percentages) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue
Downhole Tools & Rentals $ 28,185 $ 26,342 $ 79,779 $ 75,452
Other(i) - - - 1,681
----------------------------------------------------------------------------
Total revenue 28,185 26,342 79,779 77,133
Operating expenses 19,524 17,587 54,539 51,602
----------------------------------------------------------------------------
Gross margin $ 8,661 $ 8,755 $ 25,240 $ 25,531
Gross margin % 31% 33% 32% 33%
Downhole Tools & Rentals Revenue - %
of total
Tryton MSFS(R) 55% 52% 54% 47%
Conventional Tools & Rentals 45% 48% 46% 53%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Other revenue consists of Essential's wireline business which was
disposed of in February 2012.
During the third quarter of 2013, Downhole Tools & Rentals revenue increased
compared to the same quarter in the prior year due to an increase in demand for
the Tryton MSFS(R) product line. Revenue for conventional tools and rentals was
comparable to the same period in the prior year.
Downhole tools & rentals revenue increased on a year-to-date basis in 2013
compared to 2012 as a result of continued growth in Tryton MSFS(R) activity.
Demand for Tryton MSFS(R) has remained strong due to innovative product design
and the high quality of service offered by the business. Tryton continues to
provide tools that are a cost-effective technical solution for customers looking
to minimize horizontal well completion costs.
Essential has started expanding downhole tool operations into the southern
United States, strategically operating near active basins. Gross margin
percentage declined on a quarter-over-quarter basis due to United States
start-up costs with limited revenue as the business is in the very early stages
of operations.
A Statement of Claim was filed on October 23, 2013 by Packers Plus Energy
Services Inc. against Essential in Federal Court. The Statement of Claim alleges
products and methods associated with the Tryton MSFS(R) infringe a patent issued
to Packers Plus Energy Services Inc. Essential believes the suit is without
merit and will actively defend against the allegations.
GENERAL AND ADMINISTRATIVE
Three months ended Nine months ended
September 30, September 30,
(Thousands of dollars, except
percentages) 2013 2012 2013 2012
----------------------------------------------------------------------------
General and administrative expenses $ 4,282 $ 3,751 $ 12,549 $ 11,682
As a % of revenue 5% 4% 5% 5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
General and administrative expenses are comprised of wages, professional fees,
office space and other administrative costs incurred at corporate and
operational levels. General and administrative expenses in the three and
nine-months ended September 30, 2013 were higher than 2012, both in dollars and
as a percentage of revenue. The increase is due to additional corporate staff,
facility lease costs and professional fees.
OTHER EXPENSE (INCOME)
Three months ended Nine months ended
September 30, September 30,
(Thousands of dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Other expense (income) $ 3,493 $ 117 $ 3,546 $ (1,102)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other expense in the three and nine months ended September 30, 2013 included a
$3.6 million expense of deposits on two coil tubing rigs as the supplier was
placed into receivership in September 2013. In the nine months ended September
30, 2012, other income of $1.1 million related to gains on fixed asset sales.
DISCONTINUED OPERATIONS
Results of the Colombian operations have been presented as discontinued
operations. As of November 6, 2013, Essential has received approximately $2.2
million in cash proceeds from the sale of certain of its Colombian assets during
2013.
Loss from discontinued operations related to the Colombian business was as
follows:
Three months ended Nine months ended
September 30, September 30,
(Thousands of dollars, except per
share amounts) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue $ 24 $ 1,382 $ 1,887 $ 4,243
Expenses 350 1,685 2,740 5,673
Disposal costs 147 - 532 -
Loss on revaluation of discontinued
operations - - 2,373 -
----------------------------------------------------------------------------
Loss before income taxes (473) (303) (3,758) (1,430)
Deferred income tax expense
(recovery) - (676) - (156)
----------------------------------------------------------------------------
Net income (loss) from discontinued
operations $ (473) $ 373 $ (3,758) $ (1,274)
----------------------------------------------------------------------------
Net income (loss) per share from
discontinued operations
Basic and diluted $ 0.00 $ 0.00 $ (0.03) $ (0.01)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
FINANCIAL RESOURCES AND LIQUIDITY
WORKING CAPITAL(1)
As at As at
September 30 December 31
(Thousands of dollars, except ratios) 2013 2012
----------------------------------------------------------------------------
Current assets $ 96,510 $ 95,840
Current liabilities, excluding current portion
of long-term debt (32,662) (37,594)
----------------------------------------------------------------------------
Working capital $ 63,848 $ 58,246
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Working capital ratio 3.0:1 2.5:1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EQUIPMENT EXPENDITURES AND FLEET ADDITIONS
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Thousands of dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Well Servicing $ 11,180 $ 10,401 $ 27,688 $ 31,035
Downhole Tools & Rentals 584 159 2,325 1,381
Corporate 490 115 945 824
----------------------------------------------------------------------------
Total equipment expenditures 12,254 10,675 30,958 33,240
----------------------------------------------------------------------------
Less proceeds on disposal of
property and equipment (874) (169) (1,601) (8,284)
----------------------------------------------------------------------------
Net equipment expenditures(1) $ 11,380 $ 10,506 $ 29,357 $ 24,956
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the three and nine months ended September 30, 2013, Essential's
equipment expenditures of $12.3 million and $31.0 million, respectively,
consisted primarily of progress payments related to its 2013 capital
program.
During the nine months ended September 30, 2013, Essential commissioned the
following assets:
-- One Generation III masted deep coil tubing rig in the third quarter;
-- One deep coil tubing rig conversion from an intermediate rig in the
third quarter;
-- Two nitrogen pumpers in the second quarter, and;
-- Two mobile free standing, double service rigs which are SAGD capable,
one in each of the first and second quarters, respectively.
Essential classifies its equipment expenditures as growth capital(1) and
maintenance capital(1):
Three months ended Nine months ended
September 30, September 30,
(Thousands of dollars) 2013 2012 2013 2012
----------------------------------------------------------------------------
Growth capital(1) $ 8,047 $ 6,285 $ 21,399 $ 21,918
Maintenance capital(1) 4,207 4,390 9,559 11,322
----------------------------------------------------------------------------
Total equipment expenditures $ 12,254 $ 10,675 $ 30,958 $ 33,240
----------------------------------------------------------------------------
In October 2013, Essential announced its 2014 capital budget of $50 million
comprised of $33 million in growth capital and $17 million of maintenance
capital. Essential's 2014 growth capital spending plan consists primarily of
four masted deep coil tubing rigs, one quintiplex fluid pumper, one rod rig and
rental equipment.
Essential increased its 2013 capital spending budget from $45 million to $50
million to include deposits and progress payments payable in 2013 for its 2014
capital program. The $50 million is comprised of $37 million of growth capital
and $13 million of maintenance capital.
The following table shows the expected dates of the major equipment being built
over the remainder of 2013 and 2014:
Expected Dates
Quantity 2013 2014
----------------------------------------------------------------------------
Deep masted coil tubing rigs 7 Q4(3) Q2,Q3,Q4,Q2'15
Quintiplex fluid pumper 1 - Q3
Double rod rigs 2 Q4 Q4
Double service rigs - mobile free
standing 2 Q4(2) -
(one of these rigs is SAGD
capable)
----------------------------------------------------------------------------
NORMAL COURSE ISSUER BID ("NCIB")
On March 20, 2013 the Company received approval from the Toronto Stock Exchange
("TSX") to implement an NCIB for Essential's common shares ("Shares"). Any Share
purchases by Essential pursuant to the NCIB will be for cancellation. The NCIB
commenced on March 25, 2013 and will terminate on March 24, 2014 or at such
earlier date as the NCIB is completed or terminated at the option of Essential.
Under the NCIB, Essential may purchase up to 12,182,508 of its issued and
outstanding Shares on the open market through the facilities of the TSX. On
November 6, 2013, Essential amended the Form 12 with the TSX to allow for
purchases of shares to occur on other alternative trading systems, in addition
to the TSX.
For the nine months ended September 30, 2013, a total of 520,052 Shares were
acquired and cancelled under the NCIB at an average cost of $2.35 per Share.
Shareholders may obtain a copy of the "Notice of Intention to make a Normal
Course Issuer Bid" that was filed by the Company with the TSX, free of charge,
by contacting the Company.
OUTLOOK
Heading into the fourth quarter, industry activity in the WCSB has been
consistent with 2012 levels. Demand in well servicing continues to be driven by
oil wells and horizontal completions, with an increasing shift to deeper, more
complex wells. Looking beyond the near term, there is a positive overall tone in
the potential for the proposed liquefied natural gas ("LNG") projects in British
Columbia which would include development of the Montney, Horn River and Duvernay
basins. This is expected to increase the demand for oilfield services, including
the demand for deep coil tubing and downhole tools.
Essential is well positioned to benefit from the rising demand to complete
complex, long-reach horizontal wells. During the third quarter of 2013,
Essential took delivery of one Generation III masted deep coil tubing rig. In
the fourth quarter of 2013, Essential expects to take delivery of three more
masted deep coil tubing rigs, one Generation III and two Generation IV.
Essential's recently announced 2014 capital program will further focus on these
state-of-the-art assets including one additional Generation III masted deep coil
tubing rig and three Generation IV masted deep coil tubing rigs. With a coil
diameter of 2 5/8", the Generation III rigs can reach 4,900 meters and the
Generation IV rigs can reach 6,400 meters, making them well suited for deeper
more complex wells.
Essential recently expanded its downhole tool operations into the southern
United States, strategically establishing operations near active basins. The
business is currently in the early stages of operations.
Essential has a very strong balance sheet with $44.7 million of debt outstanding
on November 6, 2013 and a debt to EBITDA ratio of 0.7x. Essential is well
positioned to take advantage of future growth opportunities including servicing
deep horizontal wells and possible LNG related demand.
QUARTERLY DIVIDEND
The cash dividend for the period October 1, 2013 to December 31, 2013 has been
set at $0.03 per share. The dividend will be paid on January 15, 2014 to
shareholders of record on December 31, 2013. The ex-dividend date is December
27, 2013.
The third quarter Management's Discussion and Analysis and Financial Statements
are available on Essential's website at www.essentialenergy.ca and on SEDAR at
www.sedar.com.
SUMMARY OF QUARTERLY DATA
($Thousands, except per share Sept 30, Jun 30, Mar 31, Dec 31,
amounts) 2013 2013 2013 2012
----------------------------------------------------------------------------
Well Servicing:
Coil Well Service 33,037 9,433 49,621 41,228
Service Rigs 23,870 14,732 33,556 26,012
Other (i) - - - 786
----------------------------------------------------------------------------
Total well servicing 56,907 24,165 83,177 68,026
Downhole Tools & Rentals (ii) 28,185 14,252 37,342 27,989
Inter-segment eliminations (iii) (582) - - -
----------------------------------------------------------------------------
Total revenue 84,510 38,417 120,519 96,015
----------------------------------------------------------------------------
Gross margin 21,414 (1,310) 37,832 27,039
Gross margin % 25% (3)% 31% 28%
EBITDA(1) 17,132 (5,171) 33,426 22,368
EBITDA %(1) 20% (13)% 28% 23%
Continuing operations
Net income (loss) 4,292 (8,958) 19,205 8,050
Per share - basic and diluted 0.03 $(0.07) $0.15 $0.06
Net income (loss) attributable to
shareholders of Essential 3,843 (11,501) 18,627 678
Per share - basic and diluted 0.03 $(0.09) $0.15 $0.01
Total assets 409,613 380,728 436,301 406,853
Total long-term debt 40,484 14,592 35,603 35,563
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Utilization (iv)
Coil tubing rigs - deep 73% 18% 110% 95%
Coil tubing rigs - other 12% 7% 15% 16%
Pumpers 47% 14% 73% 57%
Service rigs 50% 28% 69% 54%
Operating Hours
Coil tubing rigs - deep 17,724 4,125 24,765 22,777
Coil tubing rigs - other 2,016 1,185 2,511 2,757
Pumpers 14,418 4,241 20,481 15,328
Service rigs 25,084 14,234 34,364 27,310
Downhole Tools & Rentals - revenue %
of total
Tryton MSFS(R) 55% 40% 60% 51%
Conventional Tools & Rentals 45% 60% 40% 49%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equipment fleet (v)
Canada
Coil tubing rigs - deep 27 25 25 27
Coil tubing rigs - other 18 19 19 19
Service rigs 54 56 56 55
Nitrogen pumpers 15 15 13 13
Fluid pumpers 18 18 18 18
Rod rigs 12 14 14 14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUMMARY OF QUARTERLY DATA
($Thousands, except per share Sep 30, Jun 30, Mar 31, Dec 31,
amounts) 2012 2012 2012 2011
----------------------------------------------------------------------------
Well Servicing:
Coil Well Service 33,857 18,697 42,414 43,945
Service Rigs 20,552 15,564 33,311 28,118
Other (i) 2,762 1,069 7,206 4,677
----------------------------------------------------------------------------
Total well servicing 57,171 35,330 82,931 76,740
Downhole Tools & Rentals (ii) 26,342 15,540 35,251 32,115
Inter-segment eliminations (iii) - - - -
----------------------------------------------------------------------------
Total revenue 83,513 50,870 118,182 108,855
----------------------------------------------------------------------------
Gross margin 23,012 3,904 36,740 35,498
Gross margin % 28% 8% 31% 33%
EBITDA(1) 19,261 (42) 32,755 31,733
EBITDA %(1) 23% 0% 28% 29%
Continuing operations
Net income (loss) 8,343 (5,453) 19,823 17,082
Per share - basic and diluted $0.07 $(0.04) $0.16 $0.14
Net income (loss) attributable to
shareholders of Essential 8,660 (5,923) 18,893 17,559
Per share - basic and diluted $0.07 $(0.05) $0.15 $0.14
Total assets 415,653 393,377 430,674 421,500
Total long-term debt 50,474 41,198 57,238 63,486
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Utilization (iv)
Coil tubing rigs - deep 79% 32% 102% 111%
Coil tubing rigs - other 15% 7% 25% 30%
Pumpers 50% 33% 69% 71%
Service rigs 45% 34% 68% 59%
Operating Hours
Coil tubing rigs - deep 18,301 7,262 23,236 23,524
Coil tubing rigs - other 2,819 1,596 5,494 6,778
Pumpers 11,919 7,504 13,865 13,008
Service rigs 22,632 16,183 35,188 31,005
Downhole Tools & Rentals - revenue %
of total
Tryton MSFS(R) 52% 40% 47% 47%
Conventional Tools & Rentals 48% 60% 53% 53%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Equipment fleet (v)
Canada
Coil tubing rigs - deep 26 25 25 25
Coil tubing rigs - other 19 20 24 24
Service rigs 55 53 58 57
Nitrogen pumpers 10 10 10 10
Fluid pumpers 16 16 15 15
Rod rigs 14 14 14 14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Other revenue included revenue from Essential's drilling operation
until its disposal in November 2012.
(ii) Revenue for Downhole Tools & Rentals included revenue from Essential's
wireline business which was disposed of in February 2012.
(iii) Transactions between segments are eliminated upon consolidation.
(iv) Utilization is calculated using a 10 hour day.
(v) Fleet data represents the number of units at the end of the period.
Essential reviews the economic circumstance of each rig near the end of its
service period to determine whether the rig should be retired or
refurbished. During the nine months ended September 30, 2013, Essential
retired the following assets from its fleet:
-- One double service rig, one single service rig and two rod rigs in the
third quarter;
-- One double service rig in the second quarter; and
-- Two masted coil tubing rigs in the first quarter.
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(unaudited)
As at As at
September 30 December 31
(Thousands) 2013 2012
----------------------------------------------------------------------------
Assets
Current
Trade and other receivables $ 67,145 $ 71,835
Inventories 25,444 20,699
Prepayments 3,921 3,306
----------------------------------------------------------------------------
96,510 95,840
----------------------------------------------------------------------------
Non-current
Property and equipment 221,611 211,304
Intangible assets 32,063 36,555
Goodwill 55,014 55,014
----------------------------------------------------------------------------
308,688 302,873
Assets held for sale 4,415 8,140
----------------------------------------------------------------------------
Total assets $ 409,613 $ 406,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current
Bank indebtedness $ 503 $ 1,835
Trade and other payables 28,404 32,354
Dividends payable 3,755 3,100
Current portion of long-term debt 4,394 -
Income taxes payable - 305
----------------------------------------------------------------------------
37,056 37,594
----------------------------------------------------------------------------
Non-current
Long-term debt 36,090 35,563
Deferred tax liabilities 30,094 29,560
----------------------------------------------------------------------------
66,184 65,123
Liabilities held for sale 822 1,731
----------------------------------------------------------------------------
Total liabilities 104,062 104,448
----------------------------------------------------------------------------
Equity
Share capital 261,460 258,772
Retained earnings 39,262 38,276
Other reserves 5,027 5,363
----------------------------------------------------------------------------
Equity attributable to shareholders of
Essential 305,749 302,411
Non-controlling (198) (6)
----------------------------------------------------------------------------
Total equity 305,551 302,405
----------------------------------------------------------------------------
Total liabilities and equity $ 409,613 $ 406,853
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF NET INCOME AND COMPREHENSIVE INCOME
(unaudited)
For the For the
three months ended nine months ended
September 30 September 30
(Thousands, except per share
amounts) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenue $ 84,510 $ 83,513 $243,445 $252,566
Operating expenses 63,096 60,501 185,510 188,911
----------------------------------------------------------------------------
Gross margin 21,414 23,012 57,935 63,655
General and administrative expenses 4,282 3,751 12,549 11,682
----------------------------------------------------------------------------
17,132 19,261 45,386 51,973
Depreciation and amortization 6,515 6,339 19,565 19,538
Share-based compensation 585 492 1,197 1,427
Other (income) expense 3,493 117 3,546 (1,102)
----------------------------------------------------------------------------
Operating profit from continuing
operations 6,539 12,313 21,078 32,110
Finance costs 375 510 1,153 1,699
----------------------------------------------------------------------------
Earnings before income taxes from
continuing operations 6,164 11,803 19,925 30,411
----------------------------------------------------------------------------
Income taxes expense
Current 1,396 1,625 4,852 4,092
Deferred 476 1,835 534 3,605
----------------------------------------------------------------------------
Total income tax expense 1,872 3,460 5,386 7,697
----------------------------------------------------------------------------
Net income from continuing
operations $ 4,292 $ 8,343 $ 14,539 $ 22,714
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) from discontinued
operations, net of tax (473) 373 (3,758) (1,274)
----------------------------------------------------------------------------
Net Income $ 3,819 $ 8,716 $ 10,781 $ 21,440
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Unrealized foreign exchange gain
(loss) on discontinued operations (56) 197 (243) 1,204
----------------------------------------------------------------------------
Other comprehensive income (loss)
from discontinued operations (56) 197 (243) 1,204
----------------------------------------------------------------------------
Comprehensive income $ 3,763 $ 8,913 $ 10,538 $ 22,644
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income (loss) attributable to:
Shareholders of Essential $ 3,843 $ 8,660 $ 10,969 $ 21,631
Non-controlling interest (24) 56 (188) (191)
----------------------------------------------------------------------------
$ 3,819 $ 8,716 $ 10,781 $ 21,440
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income (loss)
attributable to:
Shareholders of Essential $ 3,783 $ 8,826 $ 10,730 $ 22,672
Non-controlling interest (20) 87 (192) (28)
----------------------------------------------------------------------------
$ 3,763 $ 8,913 $ 10,538 $ 22,644
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income per share from continuing
operations
Basic and diluted, attributable to
shareholders of Essential $ 0.03 $ 0.07 $ 0.12 $ 0.18
Net income per share
Basic and diluted, attributable to
shareholders of Essential $ 0.03 $ 0.07 $ 0.09 $ 0.17
Comprehensive income per share
Basic and diluted, attributable to
shareholders of Essential $ 0.03 $ 0.07 $ 0.09 $ 0.18
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ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
For the nine months ended
September 30
(Thousands) 2013 2012
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Operating activities:
Net income from continuing operations $ 14,539 $ 22,714
Non-cash adjustments to reconcile
net income to net cash flow:
Depreciation and amortization 19,565 19,538
Deferred income tax expense 534 3,605
Equity-settled share-based compensation 919 1,427
Provision (recovery) for impairment of trade
receivables 660 (237)
Finance costs 1,153 1,705
(Gain) loss on disposal of assets 3,883 (413)
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Operating cash flow before changes in working
capital 41,253 48,339
Changes in working capital:
Decrease in trade and other receivables
before provision 4,167 16,750
Increase in inventories (4,746) (1,854)
Increase in prepayments (614) (825)
Decrease in income taxes payable (1,520) (6,697)
Decrease in trade and other accounts
payables (7,023) (11,862)
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Net cash flows from operating activities 31,517 43,851
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Investing activities:
Purchase of property and equipment &
intangibles (30,958) (33,240)
Non-cash investing working capital in trade
and other accounts payable 3,073 -
Proceeds on disposal of equipment 1,601 8,284
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Net cash flows used in investing activities (26,284) (24,956)
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Financing activities:
Borrowings (repayment) of long-term debt 4,921 (12,249)
Dividends paid (9,328) (6,190)
Issuance of share capital upon exercise of
options 2,897 684
Repurchase of shares (1,226) -
Finance costs (1,153) (1,705)
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Net cash flows used in financing activities (3,889) (19,460)
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Foreign exchange loss on cash held in a
foreign currency (12) (27)
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Net increase (decrease) in cash 1,332 (592)
Net decrease in cash, discontinued operations - (1,029)
Cash, beginning balance, discontinued
operations - 1,269
Bank indebtedness, beginning of period (1,835) (1,105)
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Bank indebtedness, end of period $ (503) $ (1,457)
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Supplemental cash flow information
Cash taxes paid $ 6,370 $ 10,906
Cash interest and standby fees paid 970 1,477
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(1) Non-IFRS Measures
Throughout this news release, certain terms that are not specifically defined in
IFRS are used to analyze Essential's operations. In addition to the primary
measures of net earnings and net earnings per share in accordance with IFRS,
Essential believes that certain measures not recognized under IFRS assist both
Essential and the reader in assessing performance and understanding Essential's
results. Each of these measures provides the reader with additional insight into
Essential's ability to fund principal debt repayments, capital programs and pay
dividends. As a result, the method of calculation may not be comparable with
other companies. These measures should not be considered alternatives to net
earnings and net earnings per share as calculated in accordance with IFRS.
EBITDA (Earnings before finance costs, income taxes, depreciation, amortization,
transaction costs, non- controlling interest earnings, losses or gains on
disposal of equipment, results of discontinued operations and share-based
compensation, which includes both equity-settled and cash-settled transactions)
- This measure is considered an indicator of Essential's ability to generate
funds flow in order to fund required working capital, service debt, fund capital
programs and pay dividends.
EBITDA % - This measure is considered an indicator of Essential's ability to
generate funds flow as calculated by EBITDA divided by revenue.
Funds flow or funds flow from operations - This measure is an indicator of
Essential's ability to generate funds flow in order to fund working capital,
principal debt repayments, capital programs and pay dividends. Funds flow or
funds flow from operations is defined as cash flow from operations before
changes in non-cash operating working capital. This measure is useful in
assessing Essential's operational cash flow as it provides cash generated in the
period excluding the timing of non-cash operating working capital. This reflects
the ability of the operations of Essential to meet the above noted funding
requirements.
Working capital - Working capital is calculated as current assets less current
liabilities.
Growth capital - Growth capital is capital spending which is intended to result
in incremental increases in revenue. Growth capital is considered to be a key
measure as it represents the total expenditures on equipment expected to add
incremental revenues and funds flow to Essential.
Maintenance capital - Equipment additions that are incurred in order to
refurbish or replace previously acquired equipment less proceeds on the disposal
of retired equipment. Such additions do not provide incremental increases in
revenue. Maintenance capital is a key component in understanding the
sustainability of Essential's business as cash resources retained within
Essential must be sufficient to meet maintenance capital needs to replenish the
assets for future cash generation.
Net equipment expenditures - This measure is equipment expenditures less
proceeds on the disposal of equipment. Essential uses net equipment expenditures
to assess net cash flows related to the financing of Essential's oilfield
services equipment.
ABOUT ESSENTIAL
Essential is a growth-oriented, dividend paying corporation that provides
oilfield services to producers in western Canada for producing wells and new
drilling activity. Essential operates the largest coil tubing well service fleet
in Canada with 45 coil tubing rigs and a fleet of 54 service rigs. Essential
also sells, rents and services downhole tools and equipment including the Tryton
Multi-Stage Fracturing System. Further information can be found at
www.essentialenergy.ca.
FORWARD-LOOKING STATEMENTS AND INFORMATION
This news release contains forward-looking statements and forward-looking
information within the meaning of applicable securities laws. The use of any of
the words "expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and
similar expressions are intended to identify forward-looking information or
statements. In particular, this news release contains forward-looking statements
including expectations regarding capital spending, in-service timing of new
equipment, demand for new equipment, expectations of future cash flow and
earnings, expectations regarding the future areas of development in the WCSB,
the level and type of drilling activity, completion activity, work-over
activity, production activity and required oilfield services in the WCSB,
expectations regarding the business, operations and revenues of the Company in
addition to general economic conditions, expectations regarding Essential's
ability to meet the changing needs of the WCSB market, expectations regarding
the capital spending programs of E&P companies, expectations for Essential's
positioning for the future, expectations that development of possible LNG
projects on the west coast will increase the demand for oilfield services
including the demand for deep coil tubing and downhole tools, anticipated
proceeds from asset sales in Colombia, anticipated shut-down and disposal costs
of Colombian operations, expectations of the net realizable value of the
Colombian assets, expectations of the opportunity for growth through expansion
into the United States, expectations that the results of the conventional deep
coil tubing fleet may continue to lag below prior year levels through the rest
of the year, and expectations that the addition of the new masted deep coil
tubing rigs will position Essential to meet the growing demand for long-reach
coil tubing rigs.
Although the Company believes that the expectations and assumptions on which
such forward-looking statements and information are reasonable, undue reliance
should not be placed on the forward-looking statements and information because
the Company can give no assurance that such statements and information will
prove to be correct. Since forward-looking statements and information address
future events and conditions, by their very nature they involve inherent risks
and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors and risks. These include, but are not limited to: the risks
associated with the oilfield services sector (e.g. demand, pricing and terms for
oilfield services; current and expected oil and natural gas prices; exploration
and development costs and delays; reserves discovery and decline rates; pipeline
and transportation capacity; weather, health, safety and environmental risks);
integration of acquisitions, competition, and uncertainties resulting from
potential delays or changes in plans with respect to acquisitions, development
projects or capital expenditures and changes in legislation, including but not
limited to tax laws, royalties, incentive programs and environmental
regulations; stock market volatility and the inability to access sufficient
capital from external and internal sources; the ability of the Company's
subsidiaries to enforce legal rights in foreign jurisdictions; general economic,
market or business conditions; global economic events; changes to Essential's
financial position and cash flow; the availability of qualified personnel,
management or other key inputs; currency exchange fluctuations; changes in
political and security stability; risks and other unforeseen conditions
associated with the sale of the Colombian business; risks and uncertainty
related to distribution and pipeline constraints; and other unforeseen
conditions which could impact the use of services supplied by the Company.
Accordingly, readers should not place undue reliance on the forward-looking
statements. Readers are cautioned that the foregoing list of factors is not
exhaustive.
Additional information on these and other factors that could affect the
Company's financial results are included in reports on file with applicable
securities regulatory authorities and may be accessed through the SEDAR website
(www.sedar.com) for the Company. The forward-looking statements and information
contained in this news release are made as of the date hereof and the Company
undertakes no obligation to update publicly or revise any forward-looking
statements or information, whether as a result of new information, future events
or otherwise, unless so required by applicable securities laws.
THIRD QUARTER 2013 EARNINGS CONFERENCE CALL AND WEBCAST
Essential has scheduled a conference call and webcast at 10:00 am MT (12:00 pm
ET) on November 7, 2013.
The conference call dial in numbers are 416-340-2217 or 866-696-5910, passcode
7312337.
An archived recording of the conference call will be available approximately one
hour after completion of the call until November 23, 2013 by dialing
905-694-9451 or 800-408-3053, passcode 9018160.
A live webcast of the conference call will be accessible on Essential's website
at www.essentialenergy.ca by selecting "Investors" and "Events and
Presentations". Shortly after the live webcast, an archived version will be
available for approximately 30 days.
The TSX has neither approved nor disapproved the contents of this news release.
FOR FURTHER INFORMATION PLEASE CONTACT:
Essential Energy Services Ltd.
Garnet K. Amundson
President and CEO
(403) 513-7272
service@essentialenergy.ca
Essential Energy Services Ltd.
Karen Perasalo
Investor Relations
(403) 513-7272
service@essentialenergy.ca
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