01:21:46 EDT Fri 29 Mar 2024
Enter Symbol
or Name
USA
CA



Essential Energy Services Ltd
Symbol ESN
Shares Issued 141,856,813
Close 2017-03-08 C$ 0.73
Market Cap C$ 103,555,473
Recent Sedar Documents

Essential loses $90.62-million in 2016

2017-03-08 20:09 ET - News Release

Mr. Garnet Amundson reports

ESSENTIAL ENERGY SERVICES ANNOUNCES FOURTH QUARTER AND YEAR END FINANCIAL RESULTS

Essential Energy Services Ltd. has released fourth quarter and year-end results.

                                          SELECTED INFORMATION
                  (in thousands of dollars, except percentages, per-share amounts and hours)

                                                   Three months ended                 Years ended     
                                                         Dec. 31,                       Dec. 31,      
                                                     2016        2015         2016        2015        2014

Revenue                                          $ 33,043    $ 34,964     $ 97,527    $147,664    $258,397
Gross margin                                        4,148       5,952        7,787      27,600      67,534
Gross margin %                                         13%         17%           8%         19%         26%
EBITDAS (1) from continuing operations (i)         (4,161)      3,366       (9,169)     14,696      49,806
Adjusted EBITDAS (1) from continuing operations     1,141       3,510       (2,118)     16,674      49,806
Net (loss) from continuing operations (i) (ii)     (9,832)    (14,739)     (62,622)    (19,034)    (18,837)
Per share -- basic and diluted                      (0.07)      (0.12)       (0.48)      (0.15)      (0.15)
Net (loss) (i) (ii)                               (25,411)    (18,082)     (90,629)    (22,485)    (22,822)
Per share -- basic and diluted                      (0.18)      (0.14)       (0.70)      (0.18)      (0.18)
Operating hours
Coil tubing rigs                                   11,119      13,817       32,306      51,739      72,677
Pumpers                                            12,341      15,049       37,022      54,763      70,138
                                                  -------     -------      -------     -------     -------

(i) The fourth quarter and year ended Dec. 31, 2016, include an onerous lease contract expense 
of $4.8-million.  
(ii) The year ended Dec. 31, 2016, includes an impairment loss of $51.2-million, of which 
$45.8-million was recognized in the first quarter 2016 and $5.4-million was recognized in the 
fourth quarter 2016. The fourth quarter and year ended Dec. 31, 2015, include an impairment 
loss of $11.1-million. The year ended Dec. 31, 2014, includes an impairment loss of 
$32.8-million.

In December, 2016, Essential sold its service rig business for $28.2-million in return for coil well service assets and cash proceeds of $12.2-million. The service rig business has been reported as a discontinued operation in this reporting period with prior periods restated to this same basis of accounting and disclosure.

Outlook

To date in the first quarter of 2017, improved commodity prices and a more positive industry outlook have resulted in higher oil field service activity. Much of this activity is focused on horizontal well completions in key basins like the Montney, Bakken and Duvernay, where Essential is active. Quarter to date, the WCSB drilling rig count has been approximately 46 per cent higher than the same period in 2016. Due to significant layoffs and cost reductions in the past two years of industry downturn, the ability for oil field service companies to provide equipment has become constrained due to a shortage of qualified field staff. This relatively quick change in industry sentiment is changing the dynamic between oil field service companies and exploration and production companies. As E&P companies seek to secure oil field services for their completion programs, the undersupply of efficient, crewed equipment has initiated new discussions about work scheduling, service pricing, safety and efficiency. Based on 2017 E&P company capital budgets announced to date, oil field service activity for 2017 is expected to be considerably stronger than 2016. The Petroleum Services Association of Canada has projected a 26-per-cent increase in wells drilled (rig released) in Canada in 2017.

With the largest coil tubing fleet in Canada, associated pumping services, and an established downhole tool and rental operation, Essential is well positioned to benefit from this increase in demand and long-standing relationships with its customers. Essential has seen activity improve in all of its operations from year-end 2016 into the first quarter of 2017. Although pricing increases have been moderate, incremental revenue from increased activity is expected to generate improved margins as fixed costs are absorbed by a larger revenue base. Higher revenue and the flattening of Essential's organization structure will generate greater positive EBITDAS (earnings before finance costs, income taxes, depreciation, amortization, transaction costs, losses or gains on disposal of equipment, writedown of assets, impairment loss, foreign exchange gains or losses, and share-based compensation, which includes both equity-settled and cash-settled transactions) in 2017. Although the first two months of the first quarter have shown improved activity, the timing of spring breakup and the operational performance in the month of March are still an important unknown factor. Beyond the first quarter 2017, early indications from customers suggest that the second quarter 2017 could see demand for Essential's services increase over the second quarter 2016, provided weather and road conditions allow operations to proceed. Some of Essential's completion work is on multiwell pad locations, which can continue in the second quarter if the equipment is able to reach the well pad.

ECWS is experiencing strong customer demand for coil tubing and pumping. During the first quarter, ECWS has experienced days where demand has exceeded crewed equipment, resulting in some customer requests being declined. To date in the quarter, ECWS has operated up to 13 coil tubing rigs and associated pumps on peak days. ECWS's crewed equipment supply is constrained by the ability to recruit and train qualified employees. Although an active recruiting program commenced in late 2016, competition for skilled and experienced field personnel is intense. Increased activity and constrained crewed equipment supply have naturally led to pricing discussions with customers and implementation of pricing increases of up to 10 per cent. Higher pricing is required to achieve reasonable margins and offset increases in variable input costs, including costs to retain, attract and train employees.

The acquisition of incremental coil tubing and pumping assets in December, 2016, has proved to be well timed. Essential added four Generation III coil tubing rigs and three associated fluid pumpers to its fleet. The equipment is in good working order with typical capital spending required to recertify and prepare the equipment for service. One acquired coil tubing rig and one fluid pumper have been put into service in the first quarter. The remaining acquired coil tubing rigs and pumpers are expected to be in service for the start of the third quarter. Essential's Generation III coil tubing rigs continue to experience high customer demand in the first quarter 2017.

DT&R (drilling tools and remedial) is also experiencing increased activity in the first quarter of 2017, primarily with its Tryton MSFS products in Canada. In addition to its ball and seat MSFS product, modifications to the Tryton Viking shifting sleeve product have resulted in successes in the oil plays in Southern Saskatchewan. DT&R has expanded its labour pool by 30 per cent since the third quarter 2016. January, 2017, revenue was the best month for DT&R since January, 2015, due to MSFS and rental revenue driven by increased industry activity. Similar to ECWS, although activity is increasing, pricing remains a challenge.

Final arguments in the Packers Plus lawsuit will be heard this week, and the judge is expected to render his decision within the next six months. Given the appeal rights of the parties and, if applicable, the process to quantify damages, final determination of the implications to Essential will most likely not be known for another 16 months to two years. Essential continues to believe that the case is without merit.

As the industry recovers, Essential is financially well positioned to meet the anticipated incremental cash flow demands for operating and capital spending. Essential's 2017 capital budget of $11-million is primarily maintenance capital to refresh and expand the in-service fleet. Working capital (1) and debt are expected to grow in the short term as the company incurs costs to hire and train new personnel and carry customer receivables from services provided. Essential has a unique advantage with its low debt position on March 8, 2017, of $14.6-million.

Management's discussion and analysis and financial statements are available on Essential's website and on SEDAR.

            CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS
                (in thousands of dollars, except per-share amounts)     
                                                                       For the years ended 
                                                                             Dec. 31,     
                                                                         2016         2015

Revenue                                                             $  97,527     $147,664
Operating expenses                                                     89,740      120,064
                                                                     --------     --------
Gross margin                                                            7,787       27,600
General and administrative expenses                                    12,202       12,904
Onerous lease contract expense                                          4,754            -
Depreciation and amortization                                          17,110       21,168
Share-based compensation                                                2,758          839
Impairment (loss)                                                      51,241       11,114
Other expenses                                                          2,510           77
                                                                     --------     --------
Operating (loss) from continuing operations                           (82,788)     (18,502)
Finance costs                                                           1,263        1,340
                                                                     --------     --------
(Loss) before income taxes from continuing operations                 (84,051)     (19,842)
Current income tax recovery                                            (6,780)      (3,460)
Deferred income tax (recovery) expense                                (14,649)       2,652
                                                                     --------     --------
Income tax recovery                                                   (21,429)        (808)
                                                                     --------     --------
Net (loss) from continuing operations                                 (62,622)     (19,034)
                                                                     --------     --------
(Loss) from discontinued operations, net of tax                       (15,012)      (3,451)
(Loss) on sale of discontinued operations, net of tax                 (12,995)           -
                                                                     --------     --------
Net (loss) from discontinued operations                               (28,007)      (3,451)
Net (loss)                                                            (90,629)     (22,485)
                                                                     --------     --------
Unrealized foreign exchange (loss) gain from continuing operations        (40)         418
Unrealized foreign exchange loss from discontinued operations             (39)           -
                                                                     --------     --------
Other comprehensive (loss) income                                         (79)         418
                                                                     --------     --------
Comprehensive (loss)                                                $ (90,708)    $(22,067)
                                                                     --------     --------
Net (loss) per share from continuing operations,
basic and diluted                                                   $   (0.48)    $  (0.15)
Net (loss) per share,
basic and diluted                                                   $   (0.70)    $  (0.18)
Comprehensive (loss) per share,
basic and diluted                                                   $   (0.70)    $  (0.18)
                                                                     --------     --------

Fourth quarter and year-end 2016 results conference call and webcast

Essential has scheduled a conference call and webcast at 10 a.m. MT (12 p.m. ET) on March 9, 2017.

The conference call dial-in numbers are 416-340-2217 or 866-696-5910, passcode 9845626.

An archived recording of the conference call will be available approximately one hour after completion of the call until March 23, 2017, by dialling 905-694-9451 or 800-408-3053, passcode 9251556.

A live webcast of the conference call will be accessible on Essential's website by selecting investors and events and presentations. Shortly after the live webcast, an archived version will be available for approximately 30 days.

About Essential Energy Services Ltd.

Essential provides oil field services to oil and natural gas producers, primarily in Western Canada. Essential offers completion, production and abandonment services to a diverse customer base. Services are offered with coil tubing, fluid and nitrogen pumping, and the sale and rental of downhole tools and equipment. Essential offers the largest coil tubing fleet in Canada.

(1) A non-international financial reporting standard measure.

We seek Safe Harbor.

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