06:23:04 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Western Energy Services Corp (3)
Symbol WRG
Shares Issued 92,304,538
Close 2018-10-24 C$ 0.68
Market Cap C$ 62,767,086
Recent Sedar Documents

Western Energy loses $10.10-million in Q3 2018

2018-10-24 20:53 ET - News Release

Mr. Alex MacAusland reports

WESTERN ENERGY SERVICES CORP. RELEASES THIRD QUARTER 2018 FINANCIAL AND OPERATING RESULTS

Western Energy Services Corp. has released its third-quarter 2018 financial and operating results. Additional information relating to the Company, including the Company's financial statements and management's discussion and analysis as at and for the three and nine months ended September 30, 2018 and 2017 will be available on SEDAR at www.sedar.com. Non-International Financial Reporting Standards ("Non-IFRS") measures and abbreviations for standard industry terms are included in this press release. All amounts are denominated in Canadian dollars (CDN$) unless otherwise identified.

Third Quarter 2018 Operating Results:

Third quarter Operating Revenue improved by $3.0 million to $54.1 million in 2018 as compared to $51.1 million in 2017. In the contract drilling segment, Operating Revenue totalled $42.0 million in the third quarter of 2018, an increase of $3.3 million (or 9%) as compared to $38.7 million in the third quarter of 2017. In the production services segment, Operating Revenue totalled $12.1 million for the three months ended September 30, 2018, as compared to $12.4 million in the three months ended September 30, 2017, a decrease of $0.3 million (or 3%). While activity was lower in the production services segment, improved pricing in Canada, as well as higher activity in the contract drilling segment impacted Operating Revenue as described below:

While Canadian crude oil differentials have increased, absolute prices for Canadian crude oil have improved. As such, drilling rig utilization - Operating Days ("Drilling Rig Utilization") in Canada averaged 38% in the third quarter of 2018 compared to an average of 36% in the third quarter of 2017, reflecting a 200 basis points ("bps") increase. The increase in activity is attributable to improved demand for Western's Cardium and Duvernay class rigs, in addition to Western's already well utilized Montney class rigs. As a result, third quarter 2018 Drilling Rig Utilization of 38% represented a premium of 800 bps to the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 30%, an increase as compared to the third quarter of 2017 when Drilling Rig Utilization of 36% represented a premium of 700 bps to the industry average. Pricing continued to increase and resulted in a 7% improvement in Operating Revenue per Billable Day in the third quarter of 2018, as compared to the same period in the prior year. The increase in pricing is a result of the Company being successful in steadily raising rates over the last twelve months as the energy industry continues to recover from a multi-year downturn;

In the United States, improved West Texas Intermediate ("WTI") prices led to five of the Company's six drilling rigs operating during the quarter, three of which were working on long term contracts. As a result, Operating Days increased by 2% in the third quarter of 2018 as compared to the same period in the prior year. While activity increased, Drilling Rig Utilization decreased to 50% in the third quarter of 2018, compared to 59% in the same period of the prior year, due to an increased rig fleet as one Cardium class drilling rig from the Canadian fleet was transferred to the United States fleet in late 2017. Operating Revenue per Billable Day was relatively consistent during the third quarter of 2018, decreasing by 1% as compared to the third quarter of 2017, as day rate increases on contracted rigs offset changes in the average rig mix; and

Service rig utilization was 25% in the third quarter of 2018 compared to 27% in the same period of the prior year. The decrease is due to lower demand in a number of areas where the Company operates as customers deferred work amid widening crude oil differentials, lack of available crews, and wet weather in the latter part of the quarter which impacted customer programs. Hourly rates improved during the third quarter of 2018, increasing by 4% as compared to the same period in the prior year, due to the Company actively increasing hourly rates and changes in the average rig mix. Lower utilization, offset partially by improved pricing, led to a $0.5 million (or 5%) decrease in well servicing Operating Revenue in the period.

Third quarter Adjusted EBITDA increased by $0.8 million (or 12%) to $7.7 million in the third quarter of 2018 as compared to $6.9 million in the third quarter of 2017. The year over year change in Adjusted EBITDA is due to improved pricing in Canada, as well as higher activity in the contract drilling segment, which was partially offset by lower activity in the production services segment.

Administrative expenses, excluding depreciation and stock based compensation, decreased by $1.1 million (or 20%) to $4.3 million, as compared to $5.4 million in the third quarter of 2017, mainly due to lower employee related costs.

The Company incurred a net loss of $10.1 million in the third quarter of 2018 ($0.11 per basic common share) as compared to a net loss of $11.5 million in the same period in 2017 ($0.16 per basic common share). The change can be attributed to the following:

  • A $0.9 million decrease in finance costs, due to lower total debt levels;
  • A $0.8 million increase in Adjusted EBITDA, mainly due to improved pricing in Canada and increased activity in the contract drilling segment; and
  • A $0.1 million decrease in other items, which include gains and losses on foreign exchange and asset sales.

Offsetting the above mentioned items was a $0.5 million decrease in income tax recovery due to improved earnings before taxes.

Third quarter 2018 capital expenditures of $3.8 million included $1.6 million of expansion capital and $2.2 million of maintenance capital. In total, capital spending in the third quarter of 2018 decreased by $2.5 million from the $6.3 million incurred in the third quarter of 2017. The Company incurred expansion capital mainly related to drilling rig upgrades, as well as required maintenance capital, in the third quarter of 2018.

Year to Date 2018 Operating Results:

Operating Revenue for the nine month period ended September 30, 2018 decreased by $1.7 million (or 1%) to $158.0 million as compared to $159.7 million for the nine month period ended September 30, 2017. However, after normalizing for $6.4 million of shortfall commitment revenue recognized in the first quarter of 2017, Operating Revenue for the nine months ended September 30, 2018 improved by $4.7 million (or 3%). In the contract drilling segment, Operating Revenue totalled $121.2 million for the nine months ended September 30, 2018, which after normalizing for $6.4 million of shortfall commitment revenue recognized in 2017, resulted in Operating Revenue improving by $6.8 million (or 6%). In the production services segment, Operating Revenue totalled $37.1 million for the nine months ended September 30, 2018, as compared to $39.1 million in the same period of the prior year, a decrease of $2.0 million (or 5%). While on a year to date basis activity was lower in Canada, pricing in all divisions improved which impacted Operating Revenue as described below:

Drilling Rig Utilization in Canada for the nine month period ended September 30, 2018 averaged 35%, compared to an average of 36% for the nine month period ended September 30, 2017, reflecting a 100 bps decrease. The decrease in activity is due to some of Western's customers deferring their drilling plans amid high differentials on Canadian crude oil and low natural gas prices. Drilling Rig Utilization of 35% in 2018 represented a premium of 600 bps to the CAODC industry average of 29%, whereas for the nine months ended September 30, 2017, Drilling Rig Utilization of 36% represented a 700 bps premium to the industry average. The decrease in the Company's utilization premium to the industry average in 2018 is a function of a smaller industry rig fleet, as rigs continue to be decommissioned or moved out of the Western Canadian Sedimentary Basin ("WCSB"). Western's market share, represented by the Company's Operating Days as a percentage of the CAODC's total Operating Days in the WCSB, remained relatively consistent at 9.9% in the nine months ended September 30, 2018, as compared to 10.4% in the same period of 2017. While utilization decreased during the nine months ended September 30, 2018, pricing continued to increase and resulted in a 9% improvement in Operating Revenue per Billable Day in 2018, as compared to the same period in the prior year. The increase in pricing is due to the Company steadily raising rates over the last twelve months, as the energy industry continues to recover from a multi-year downturn;

In the United States, improved WTI prices led to five of the Company's six drilling rigs operating during the period. As a result, Operating Days increased by 9% for the nine months ended September 30, 2018, as compared to the same period in the prior year. While activity increased, Drilling Rig Utilization decreased to 44% for the nine months ended September 30, 2018, as compared to 48% in the same period of the prior year, due to an increased rig fleet as one Cardium class drilling rig from the Canadian fleet was transferred to the United States fleet in late 2017. Operating Revenue per Billable Day in the United States improved by 4% in the nine months ended September 30, 2018, as compared to the same period of the prior year, as the Company has been able to raise day rates as commodity prices improve in the United States; and

Service rig utilization of 24% for the nine months ended September 30, 2018 compared to 26% in the same period of the prior year. The decrease is due to customers deferring work amid widening crude oil differentials, lack of available crews, and wet weather in the latter part of the third quarter of 2018. Hourly rates improved for the nine months ended September 30, 2018, increasing by 4% as compared to the same period in the prior year, due to changes in the average rig mix and the Company working to increase rates across all areas. Lower utilization, partially offset by improved pricing, led to a $1.6 million (or 5%) decrease in well servicing Operating Revenue in 2018.

Adjusted EBITDA for the nine months ended September 30, 2018 decreased by $1.9 million (or 8%) to $23.7 million as compared to $25.6 million for the nine months ended September 30, 2017. However, after normalizing for the $6.4 million in shortfall commitment revenue recognized in the first quarter of 2017, Adjusted EBITDA improved by $4.5 million (or 23%), as compared to the same period in the prior year. The year over year decrease in Adjusted EBITDA is due to lower activity and shortfall commitment revenue in Canada, offset by improved pricing in all divisions and increased activity in the United States.

Administrative expenses, excluding depreciation and stock based compensation, for the nine month period ended September 30, 2018 decreased by $2.6 million (or 16%) to $14.2 million, as compared to $16.8 million in the same period of the prior year, mainly due to lower employee related costs.

The Company incurred a net loss of $31.5 million for the nine months ended September 30, 2018 ($0.34 per basic common share) as compared to a net loss of $32.5 million in the same period in 2017 ($0.44 per basic common share). The change can be attributed to the following:

  • A $1.9 million decrease in Adjusted EBITDA, mainly due to lower shortfall commitment revenue; and
  • A $1.7 million decrease in income tax recovery due to improved earnings before taxes.

Offsetting the above mentioned items was:

  • A $2.1 million positive change in other items, of which $1.6 million related to transaction costs incurred in the prior period, coupled with gains and losses on foreign exchange and asset sales;
  • A $1.9 decrease in finance costs, due to lower total debt levels; and
  • A $0.5 million decrease in stock based compensation expense.

Year to date capital expenditures of $13.9 million included $7.3 million of expansion capital and $6.6 million of maintenance capital. In total, capital spending for the nine months ended September 30, 2018 increased by $1.7 million from the $12.2 million incurred in the same period of the prior year. The Company incurred expansion capital mainly related to drilling rig upgrades, as well as required maintenance capital, in 2018.

On January 31, 2018, the Company completed the one time draw of $215.0 million on its 7.25% second lien secured term loan facility (the "Second Lien Facility"). The proceeds from the Second Lien Facility draw, along with cash on hand and funds available under the $70.0 million syndicated revolving credit facility (the "Revolving Facility") and the $10.0 million committed operating facility (the "Operating Facility" and together the "Credit Facilities") were used to redeem the $265.0 million 7?% senior unsecured notes (the "Senior Notes") at their par value of $265.0 million on February 1, 2018.

                               Selected Financial Information
               (stated in thousands, except share and per share amounts)
                                              
                                        Three months ended September 30Nine months ended September 30
Financial Highlights                                    2018       2017     2018        2017
Revenue                                                 58,879     54,131   173,277     171,660
Operating Revenue(1)                                    54,071     51,111   158,012     159,733
Gross Margin(1)                                         12,025     12,299   37,858      42,424
Gross Margin as a percentage of Operating Revenue       22%        24%      24%         27%
Adjusted EBITDA(1)                                      7,691      6,882    23,700      25,628
Adjusted EBITDA as a percentage of Operating Revenue    14%        13%      15%         16%
Cash flow from operating activities                     (1,968)    1,609    28,209      25,441
Capital expenditures                                    3,776      6,349    13,858      12,220
Net loss                                                (10,108)   (11,478) (31,530)    (32,471)
-basic net loss per share                               (0.11)     (0.16)   (0.34)      (0.44)
-diluted net loss per share                             (0.11)     (0.16)   (0.34)      (0.44)

(1)  See "Non-IFRS measures" included in this press release.  

                                                     
                                                                                                                   
                                Three months ended September 30Nine months ended September 30
Operating Highlights(1)                                2018        2017    2018         2017
Contract Drilling
Canadian Operations:
Contract drilling rig fleet:
-Average active rig count                              20.6        20.2    19.6         20.3
-End of period                                         50          51      50           51
Operating Revenue per Billable Day                     17,961      16,825  18,704       17,109(3)
Operating Revenue per Operating Day                    19,712      18,604  20,680       18,862(3)
Operating Days                                         1,729       1,681   4,841        5,027
Drilling rig utilization - Billable Days               41%         40%     39%          40%
Drilling rig utilization - Operating Days              38%         36%     35%          36%
CAODC industry average utilization - Operating Days(2) 30%         29%     29%          29%

United States Operations:
Contract drilling rig fleet:
-Average active rig count                              3.4         3.3     2.9          2.8
-End of period                                         6           5       6            5
Operating Revenue per Billable Day (US$)               19,634      19,801  20,493       19,763
Operating Revenue per Operating Day (US$)              21,951      21,832  22,812       22,850
Operating Days                                         278         272     718          656
Drilling rig utilization - Billable Days               56%         65%     49%          56%
Drilling rig utilization - Operating Days              50%         59%     44%          48%

Production Services
Well servicing rig fleet:
-Average active rig count                              16.3        17.7    15.8         17.3
-End of period                                         66          66      66           66
Service rig Operating Revenue per Service Hour         653         629     690          661
Service Hours                                          15,026      16,328  43,090       47,296
Service rig utilization                                25%         27%     24%          26%

(1)See "Non-IFRS measures" included in this press release.
(2)Source:  The Canadian Association of Oilwell Drilling Contractors ("CAODC").
   The CAODC industry average is based on Operating Days divided by total available days.
(3)Excludes shortfall commitment revenue from take or pay contracts of $6.4 million for the
   nine months ended September 30, 2017.

Western is an oilfield service company focused on three core business lines: contract drilling, well servicing and oilfield rental equipment services.

WTI on average improved in the third quarter of 2018 as compared to the second quarter of 2018, increasing by 2%, and was 45% higher compared to the same period in the prior year. Similarly, WTI on average improved in the nine months ended September 30, 2018 by 36% as compared to the same period in the prior year. For Western's Canadian customers, the impact of the US dollar when translating WTI into the Canadian dollar equivalent, resulted in a 51% and 34% increase respectively, for the three and nine months ended September 30, 2018, as compared to the same periods in the prior year. Canadian heavy crude pricing weakened in the third quarter of 2018, as Western Canadian Select ("WCS") on average decreased by 16% as compared to the second quarter of 2018, however improved by 15% as compared to the same period of the prior year. Similarly, WCS improved by 11% in the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017. Natural gas prices declined in the three and nine months ended September 30, 2018, as the 30 day spot AECO price decreased by 24% and 37% respectively, over the same periods of the prior year, however third quarter 2018 average AECO prices improved marginally by 3% as compared to the second quarter of 2018.

Improved market conditions in 2018 have led to a corresponding increase in the demand for oilfield services in the United States. As reported by Baker Hughes, a GE Company, the average number of active drilling rigs in the United States increased approximately 11% and 18% respectively, for the three and nine months ended September 30, 2018 as compared to the same periods in the prior year. Market conditions in Canada have not improved to the same extent. Higher WTI prices have been largely offset by increased differentials on Canadian crude oil and lower natural gas prices, combined with continued industry concerns over market access, increased regulation, and the prevailing customer preference to return cash to shareholders, or pay down debt, rather than grow production. These factors have resulted in a decrease in industry activity in Canada. The CAODC reported that for drilling in Canada, the total number of Operating Days in the WCSB increased by approximately 12% and 1% respectively, for the three and nine months ended September 30, 2018, as compared to the same periods in the prior year.

Outlook

Currently, 31 of Western's drilling rigs are operating. Six of Western's 56 drilling rigs (or 11%) are under long term take or pay contracts, with one expected to expire in 2018, two expected to expire in 2019, two expected to expire in 2020 and one expected to expire in 2021. These contracts each typically generate between 250 and 350 Billable Days per year.

Western's capital budget for 2018 remains unchanged and is expected to total $20 million with $8 million allocated for expansion capital and $12 million for maintenance capital. Western believes the 2018 capital budget provides a prudent use of cash resources and will allow it to maintain its premier drilling and well servicing rig fleets, while remaining responsive to customer requirements. Western will continue to manage its operations in a disciplined manner and make required adjustments to its capital program as customer demand changes.

Weak natural gas prices in Canada are expected to persist through 2018. While WTI prices are much improved, increased differentials on Canadian crude oil and lower natural gas prices have resulted in the capital budgets for Western's Canadian customers remaining relatively unchanged in 2018 compared to 2017. As such, year over year activity levels for the remainder of 2018 are expected to remain relatively consistent with 2017. Improving gross margin continues to be a priority for the Company and, as has been demonstrated over the last six quarters, Western is working to implement higher rates with each rig that is awarded work. Prices for Western's services remain below historical levels and will continue to impact Adjusted EBITDA and cash flow from operating activities in the near term. However, Western's variable cost structure and a prudent capital budget will aid in preserving balance sheet strength. As at September 30, 2018, Western had $12.0 million drawn on its $80.0 million Credit Facilities, which mature on December 17, 2020 and currently has $213.9 million outstanding on its Second Lien Facility, which matures on January 31, 2023.

Oilfield service activity in Canada will be affected by the development of resource plays in Alberta and northeast British Columbia which will be impacted by pipeline construction, environmental regulations including the implementation of a price on carbon emissions in Alberta, and the level of investment in Canada. Currently, the largest challenges facing the oilfield service industry are limited take away capacity, continued customer spending constraints relative to historical levels, as a result of low natural gas prices and differentials on Canadian crude oil, and the increasing challenge of staffing field crews, particularly in the well servicing division. Western's rig fleet is well positioned to benefit from the proposed liquefied natural gas expansion in British Columbia. It is also Western's view that its modern drilling and well servicing rig fleets, reputation, and disciplined cash management provide a competitive advantage which will enable the Company to manage through the current oilfield service environment.

2018 Third Quarter Financial and Operating Results Conference Call and Webcast

Western has scheduled a conference call and webcast to begin promptly at 9:00 a.m. MT (11:00 a.m. ET) on Thursday, October 25, 2018.

The conference call dial-in number is 1-888-390-0546.

A live webcast of the conference call will be accessible on Western's website at www.wesc.ca by selecting "Investors", then "Webcasts". Shortly after the live webcast, an archived version will be available for approximately 14 days.

An archived recording of the conference call will also be available approximately two hours after the completion of the call until November 8, 2018 by dialing 1-888-390-0541, passcode 314867.

We seek Safe Harbor.

© 2024 Canjex Publishing Ltd. All rights reserved.