Mr. Daniel Halyk reports

TOTAL ENERGY SERVICES INC. ANNOUNCES Q2 2023 RESULTS

Total Energy Services Inc. has released its consolidated financial results for the three and six months ended June 30, 2023.

Total Energy's results for the second quarter ended June 30, 2023, represent record second quarter financial results that were underpinned by stable industry conditions and the deployment of equipment upgraded pursuant to the company's 2022 capital expenditure program.

CDS (contract drilling services) segment revenue during the second quarter of 2023 was higher compared with the previous-year quarter as lower consolidated operating days were more than offset by increased pricing. The deployment of upgraded equipment in response to improving customer demand contributed to increased year-over-year second quarter revenue per operating day and utilization in Canada. Negatively impacting utilization in the United States was the transfer of a drilling rig to Canada during the second quarter of 2023 and a general slowdown in industry activity, which was offset by higher pricing. The removal of a drilling rig from service during the second quarter of 2023 for recertification and upgrades resulted in lower year-over-year utilization in Australia. Lower Australian utilization was partially offset by higher revenue per operating day as compared with the second quarter of 2022 due to rate increases arising from previous rig upgrades and fewer standby days due to wet weather in 2023 compared with 2022.

Second quarter revenue in the RTS (rentals and transportation services) segment increased as compared with the same period in 2022 due to higher equipment utilization and improved pricing. Increased equipment utilization, improved pricing and this segment's significant leverage to higher equipment utilization given its relatively high-fixed-cost structure contributed to a year-over-year increase in second quarter segment EBITDA (earnings before interest, taxes, depreciation and amortization) and EBITDA margin. A significant number of underutilized rental pieces were disposed of in Canada during the second quarter of 2023.

The year-over-year increase in the CPS (compression and process services) segment's second quarter revenue was due primarily to higher U.S. fabrication sales, increased equipment overhaul activity and increased utilization of the compression rental fleet. Excluding $7.4-million of contract cancellation revenue included in the second quarter of 2022, improved pricing on fabrication sales, increased overhead absorption due to higher production levels and higher rental fleet utilization all contributed to a year-over-year improvement in second quarter segment adjusted EBITDA and EBITDA margin, with second quarter adjusted EBITDA and EBITDA margin increasing 64 per cent and 22 per cent, respectively, for 2023 as compared with 2022. The fabrication sales backlog increased to $185.6-million, compared with the $181.7-million backlog at June 30, 2022. Sequentially, the quarter-end backlog decreased $41.8-million as the conversion of quoting activity to sales moderated somewhat during the second quarter with no corresponding decrease in production activity.

Second quarter activity in the Canadian WS (well servicing) segment was negatively impacted by reduced well abandonment activity following the conclusion of government incentive programs. Negatively impacting second quarter activity in Australia was the removal of a service rig from operation for recertification and upgrades. Partially offsetting lower activity in Canada and Australia was higher year-over-year activity in the U.S. Year-over-year increases in second quarter revenue per service hour in all jurisdictions also partially offset lower consolidated activity levels.

Corporate

During the second quarter of 2023, Total Energy remained focused on the safe and efficient operation of its business and the execution of its 2023 capital expenditure program. After financing working capital requirements, $12.7-million of capital expenditures, and $3.6-million of required debt, lease and interest payments, Total Energy generated $18.1-million of free cash flow during the quarter that was directed toward $10.0-million of additional debt reduction, $3.3-million of share repurchases and $3.2-million of dividends.

Total Energy exited the second quarter of 2023 with $108.6-million of positive working capital, including $29.9-million of cash and $115-million of available credit under its $175-million of revolving bank credit facilities. The weighted average interest rate on the company's outstanding debt at June 30, 2023, was 5.09 per cent.

Outlook

Despite a decline in commodity prices during the second quarter of 2023, industry conditions remained relatively stable. While oil prices have increased thus far during the third quarter of 2023, producers continue to be disciplined in their capital investment programs. In this environment, Total Energy remains focused on the safe and efficient operation of its business, the disciplined deployment of capital, and opportunities to enhance shareholder value.

In Australia, the drilling rig removed from service during the second quarter of 2023 for recertification and upgrades returned to service in July, 2023. The Australian service rig removed from service in the second quarter is currently undergoing recertification and upgrades, and is expected to return to service later this year. In Canada, the triple drilling rig moved from the United States to Canada during the second quarter commenced drilling in early July following recertification and retrofitting.

Total Energy's board of directors has approved a $6.0-million increase to the company's 2023 capital expenditure budget to $72.1-million, of which $42.5-million has been expended to June 30, 2023. This increase is directed toward continued equipment upgrades and recertifications in the CDS, RTS and WS segments in direct response to customer demand. Total Energy intends to finance the remaining $29.6-million of its remaining 2023 capital expenditure program with cash on hand, cash flow and proceeds from the disposition of underutilized equipment.

Conference call

At 9 a.m. Mountain Time on Aug. 11, 2023, Total Energy will conduct a conference call and webcast to discuss its second quarter financial results. Daniel Halyk, president and chief executive officer, will host the conference call. A live webcast of the conference call will be accessible on Total Energy's website by selecting webcasts. Persons wishing to participate in the conference call may do so by calling 800-319-4610 or 416-915-3239. Those who are unable to listen to the call live may listen to a recording of it on Total Energy's website. A recording of the conference call will also be available until Sept. 11, 2023, by dialling 855-669-9658 (passcode 0318).

Selected financial information

Selected financial information relating to the three and six months ended June 30, 2023, and June 30, 2022, is included in this news release. This information should be read in conjunction with the condensed interim consolidated financial statements of Total Energy and the notes thereto, as well as management's discussion and analysis, to be issued in due course and in the company's 2022 annual report.

Total Energy provides contract drilling services, equipment rentals and transportation services, well servicing, and compression and process equipment and service to the energy and other resource industries from operation centres in North America and Australia. The common shares of Total Energy are listed and trade on the Toronto Stock Exchange under the symbol TOT.

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