CALGARY, Oct. 30, 2014 /CNW/ - Western Energy Services Corp. ("Western"
or the "Company") (TSX: WRG) is pleased to release its third quarter
2014 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, 2014 and 2013 will be available on SEDAR at www.sedar.com. All amounts are denominated in Canadian dollars (CDN$) unless
otherwise identified.
Third Quarter 2014 Highlights:
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Operating Revenue totalled $118.0 million, a $22.4 million increase (or
23%) over the same period in the prior year due to higher utilization
and improved pricing in the contract drilling and production services
segments, coupled with a larger average drilling rig fleet in Canada;
-
Utilization per operating day in the Canadian contract drilling segment
improved to 60% as compared to the CAODC industry average of 46% and
56% in the third quarter of 2013. In the United States, contract
drilling utilization per operating day remained strong at 89% as
compared to 88% in the same period of the prior year. The United
States drilling rig fleet was fully utilized in the third quarter of
2014 as drilling rig utilization per revenue day was 100%;
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Total well servicing hours in Western's production services segment
increased in the third quarter of 2014 to 33,071 hours as compared to
30,328 hours in the third quarter of 2013, a 9% increase due to
increased activity. As a result, well servicing utilization improved
to 55% as compared to 51% in the third quarter of 2013;
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Adjusted EBITDA totalled $42.8 million (36% of Operating Revenue) in the
third quarter of 2014 as compared to $30.3 million (32% of Operating
Revenue) in the same period of the prior year. The increase in
Adjusted EBITDA is mainly due to increased activity and improved
pricing in both the contract drilling and production services segments
coupled with effective cost control in all of Western's divisions;
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During the third quarter of 2014, capital expenditures totalled $31.1
million and included $24.6 million of expansion capital, $3.5 million
of maintenance capital and $3.0 million for critical spares. Capital
spending mainly relates to Western's drilling rig build program, which
totalled $18.3 million in the period incurred on the construction of
five drilling rigs.
Year to Date Highlights:
-
Operating Revenue totalled $344.9 million, an $111.6 million increase
(or 48%) over the same period in the prior year due to the increased
contribution from the production services segment following the
acquisition of IROC Energy Services Corp. ("IROC") in April 2013, as
well as increased utilization and improved pricing in both the contract
drilling and production services segments, coupled with a larger
average drilling rig fleet in Canada;
-
On a year to date basis, contract drilling utilization per operating day
in Canada averaged 58%, as compared to the CAODC industry average of
44% and 52% in the same period in the prior year. In the United
States, contract drilling utilization per operating day increased by
2,200 bps to 82% as compared to 60% in the nine months ended September
30, 2013. With the exception of downtime related to the completion of
two 1,500 hp AC pad conversions in the first half of 2014, the United
States fleet was fully utilized in the nine months ended September 30,
2014;
-
For the nine month period ended September 30, 2014, total well servicing
hours in Western's production services segment increased significantly
to 93,313 from 46,476 in the same period in the prior year. The
increase can be attributed to improved utilization, which on a year to
date basis increased to 53% in 2014 as compared to 40% in the same
period of the prior year, coupled with the increased size and scale of
Western's well servicing operations subsequent to the IROC acquisition
in April 2013;
-
Adjusted EBITDA totalled $126.4 million (37% of Operating Revenue) in
the nine months ended September 30, 2014 as compared to $73.9 million
(32% of Operating Revenue) in the same period in the prior year. The
increase in Adjusted EBITDA reflects the increased activity, improved
day rates and the larger drilling rig fleet in the contract drilling
segment, as well as improved utilization and pricing, in addition to
the increased size and scale of Western's production services segment
and effective cost control in all of Western's divisions;
-
During the nine month period ended September 30, 2014, capital
expenditures totalled $77.5 million and include $61.6 million of
expansion capital, $9.3 million of maintenance capital and $6.6 million
for critical spares. Capital spending mainly relates to the drilling
rig build program in the contract drilling segment as two drilling rigs
were commissioned in the first quarter of 2014 with an additional five
drilling rigs under construction, one of which has been commissioned
subsequent to September 30, 2014. Additionally, two 1,500 hp AC pad
conversions were completed in the United States in the second quarter
of 2014.
Selected Financial Information |
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(stated in thousands, except share and per share amounts) |
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| Three months ended Sept 30 |
| Nine months ended Sept 30 |
Financial Highlights | 2014 | 2013 | Change |
| 2014 | 2013 | Change |
Revenue
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125,225
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101,389
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24%
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368,622
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250,230
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47%
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Operating Revenue(1) |
117,960
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95,597
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23%
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344,939
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233,293
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48%
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Gross Margin(1) |
50,570
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37,547
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35%
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149,405
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94,579
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58%
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Gross Margin as a percentage of Operating Revenue
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43%
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39%
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10%
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43%
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41%
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5%
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Adjusted EBITDA(1) |
42,782
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30,297
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41%
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126,358
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73,880
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71%
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Adjusted EBITDA as a percentage of Operating Revenue
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36%
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32%
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13%
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37%
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32%
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16%
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Cash flow from operating activities
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22,975
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6,667
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245%
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133,521
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77,492
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72%
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Capital expenditures
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31,144
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31,002
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-%
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77,533
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67,705
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15%
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Net income
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14,718
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7,927
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86%
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44,614
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19,449
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129%
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-basic net income per share
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0.20
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0.11
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82%
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0.60
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0.29
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107%
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-diluted net income per share
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0.19
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0.11
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73%
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0.59
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0.28
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111%
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Weighted average number of shares
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-basic
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74,849,483
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73,351,805
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2%
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74,232,921
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67,569,459
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10%
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-diluted
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75,742,044
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73,793,367
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3%
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75,641,911
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68,587,001
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10%
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Outstanding common shares as at period end
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74,883,428
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73,366,253
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2%
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74,833,428
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73,366,253
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2%
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Dividends declared
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5,615
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5,502
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2%
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16,762
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15,478
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8%
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(1) See "Financial Measures Reconciliations" included in this press
release.
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| Three months ended Sept 30 | Nine months ended Sept 30 |
Operating Highlights | 2014
| 2013 | Change |
| 2014 | 2013 | Change |
Contract Drilling
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Canadian Operations:
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Contract drilling rig fleet:
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-Average
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49
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45
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9%
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49
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45
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9%
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-End of period
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49
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46
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7%
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49
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46
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7%
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Operating Revenue per revenue day(1) |
24,887
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23,055
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8%
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25,852
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24,294
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6%
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Operating Revenue per operating day(2) |
27,350
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25,385
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8%
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28,343
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26,918
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5%
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Drilling rig operating days(3) |
2,692
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2,335
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15%
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7,754
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6,345
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22%
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Drilling rig utilization per revenue day(4) |
66%
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62%
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6%
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64%
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57%
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12%
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Drilling rig utilization rate per operating day(5) |
60%
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56%
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7%
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58%
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52%
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12%
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CAODC industry average utilization rate(5) |
46%
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40%
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15%
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44%
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39%
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13%
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United States Operations: |
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Contract drilling rig fleet:
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-Average
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5
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5
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-%
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5
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5
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-%
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-End of period
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5
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5
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-%
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5
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5
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-%
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Operating Revenue per revenue day (US$)(1) |
26,239
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21,777
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20%
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25,385
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22,080
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15%
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Operating Revenue per operating day (US$)(2) |
29,348
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24,410
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20%
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28,905
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27,128
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7%
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Drilling rig operating days(3) |
410
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403
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2%
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1,121
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825
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36%
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Drilling rig utilization per revenue day(4) |
100%
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98%
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2%
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94%
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74%
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27%
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Drilling rig utilization per operating day(5) |
89%
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88%
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1%
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82%
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60%
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37%
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Production Services |
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Well servicing rig fleet:
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-Average
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65
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65
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-%
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65
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46
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41%
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-End of period
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65
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65
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-%
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65
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65
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-%
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Operating Revenue per service hour(2) |
804
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743
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8%
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810
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740
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9%
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Total service hours
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33,071
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30,328
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9%
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93,313
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46,476
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101%
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Service rig utilization rate(6) |
55%
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51%
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8%
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53%
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40%
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33%
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(1) Operating Revenue per revenue day is calculated using Operating
Revenue divided by operating and mobilization days.
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(2) Operating Revenue per operating day and per service hour are
calculated using Operating Revenue divided by operating days and
service hours, respectively.
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(3) Drilling rig operating days are calculated on a spud to rig release
basis.
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(4) Drilling rig utilization rate per revenue day is calculated based
on operating and mobilization days divided by total available days.
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(5) Drilling rig utilization rate per operating day is calculated on
operating days only (i.e. spud to rig release basis) divided by total
available days.
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(6) Service rig utilization rate is calculated based on actual well
servicing hours divided by available hours, being 10 hours per day per
well servicing rig, 365 days per year.
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Financial Position at (stated in thousands) | | | Sept 30, 2014 | | | Sept 30, 2013 | | | Change | | | Dec 31, 2013 | | | Change |
Working capital
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71,912
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45,862
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57%
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50,616
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42%
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Property and equipment
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816,825
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770,770
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6%
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783,225
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4%
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Total assets
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1,040,973
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947,836
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10%
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986,792
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5%
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Long term debt
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263,624
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263,050
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-%
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262,877
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-%
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Western is an oilfield service company focused on three core business
lines: contract drilling, well servicing and oilfield rental equipment
services. Western provides contract drilling services through its
division, Horizon Drilling ("Horizon") in Canada, and its wholly owned
subsidiary Stoneham Drilling Corporation ("Stoneham") in the United
States. Subsequent to the acquisition of IROC on April 22, 2013,
Western provides well servicing operations in Canada through Western
Energy Services Partnership's (the "Partnership") division, Eagle Well
Servicing ("Eagle"). Previously, well servicing operations were
conducted through Western's division, Matrix Well Servicing
("Matrix"). Western also provides oilfield rental services in Canada
through the Partnership's division, Aero Rental Services ("Aero").
Financial and operating results for Eagle and Aero from the date of the
acquisition, as well as Matrix, are included in Western's production
services segment.
Western currently has a drilling rig fleet of 55 rigs, with an average
age of approximately seven years. Western is the sixth largest
drilling contractor in Canada with a fleet of 50 rigs operating through
Horizon. Additionally, Western has five Efficient Long Reach ("ELR")
triple drilling rigs deployed in the United States operating through
Stoneham. Western is also the seventh largest well servicing company
in Canada with a fleet of 65 rigs operating through Eagle. Western's
well servicing rig fleet is one of the newest in the Western Canadian
Sedimentary Basin ("WCSB"), with an average age of approximately five
years. Western's oilfield equipment rental division, which operates
through Aero, provides oilfield rental equipment for frac services,
well completions and production work, coil tubing services and
drilling.
Crude oil prices weakened in the third quarter of 2014. The price for
light oil, such as West Texas Intermediate ("WTI"), decreased by 8% for
the three months ended September 30, 2014, as compared to the same
period in the prior year and by 6% as compared to the second quarter of
2014. The price for heavy oil, such as Western Canadian Select
("WCS"), decreased by 1% for the third quarter of 2014 as compared to
the same period of the prior year and by 6% as compared to the second
quarter of 2014. For the nine months ended September 30, 2014, WTI
increased marginally by 1% and WCS increased by 17% as compared to the
same period in 2013. Natural gas prices have improved significantly in
the three and nine months ended September 30, 2014, with the AECO
30-day spot rate increasing on average by 66% and 60% respectively,
compared to the three and nine months ended September 30, 2013, as
heating demand increased in the first quarter due to a cold winter,
resulting in decreased storage levels across North America. However,
subsequent to September 30, 2014, the commodity price environment for
crude oil and natural gas has deteriorated as compared to the third
quarter 2014 average. The demand for oil, along with an emphasis on
liquids rich natural gas, resulted in increased drilling of horizontal
wells in both conventional and unconventional resource plays.
Horizontal wells in the WCSB, as a percentage of all wells drilled,
increased in the nine month period ended September 30, 2014 to 76%
compared to 70% in the same period of 2013. This has resulted in
continued demand in the WCSB for Western's ELR drilling rigs, as
industry utilization rates for the third quarter of 2014 averaged 46%,
which is an increase over the five year average of 45% and an
improvement over the prior year when industry utilization averaged
40%. Similarly, industry utilization rates for the first nine months
of 2014 averaged 44%, which is consistent with the five year average of
43% and an improvement over the prior year when industry utilization
averaged 39%.
Outlook
Western's drilling rig fleet is specifically suited for drilling
horizontal wells of increased complexity. In total, 95% of Western's
fleet are ELR drilling rigs with depth ratings greater than 3,000
meters and all of Western's rigs are capable of drilling resource based
horizontal wells. Currently, 19 of Western's 55 drilling rigs (or 35%)
are operating under long term take-or-pay contracts, with 13 of these
contracts expiring between 2015 and 2017, providing a base level of
future revenue. These contracts typically generate 250 operating days
per year in Canada, as spring breakup restricts activity during the
second quarter, while in the United States these contracts typically
range from 330 to 365 revenue generating days per year.
Western's approved capital spending for 2014 remains unchanged totalling
approximately $170 million comprised of $130 million in expansion
capital and $40 million in maintenance capital, which includes $12
million for critical spare equipment. The majority of Western's
expansion capital budget relates to the drilling rig build program,
which in addition to the three telescopic double drilling rigs already
commissioned in Canada during 2014, one of which was commissioned
subsequent to September 30, 2014, includes two additional 5,000m
telescopic ELR double drilling rigs and two 6,000m ELR AC triple pad
drilling rigs. Expansion capital also includes two additional 1,500 hp
AC pad conversions in the United States, which were both completed in
the second quarter of 2014, the construction of a slant well servicing
rig for the production services segment as well as additional oilfield
rental equipment and ancillary drilling and well servicing equipment.
Western believes the 2014 capital budget provides a prudent use of cash
resources and ensures that it has the flexibility to execute on
strategic opportunities as they arise, or alternatively adjust downward
if necessary should there be a prolonged downturn in oilfield service
activity. Western expects approximately $45 million of its capital
spending to carry forward into 2015. With this carry forward, the
Company will have flexibility over the timing and deployment of some,
or all, of this capital. This budget demonstrates the Company's
commitment to maintaining and increasing Western's premier drilling and
well servicing rig fleet and expanding Western's strategic presence in
the oilfield rental equipment market.
While commodity prices for much of 2014 have been strong, the recent
pressure on crude oil and natural gas prices may negatively impact our
customer's cash flows and may affect their capital spending on oilfield
services into 2015. However, the impact of lower commodity prices has
been partially offset by the weakening of the Canadian dollar. Western
believes oilfield service activity for the fourth quarter of 2014 and
the first quarter of 2015 will remain steady, with less visibility
beyond spring breakup in 2015. Activity will be impacted by the
development of resource plays in Alberta and northeast British Columbia
including those related to liquefied natural gas projects, increased
crude oil transportation capacity through rail and pipeline development
and foreign investment into Canada. Currently, the largest challenges
facing the oilfield service industry are producer spending constraints
as a result of lower commodity prices, pricing differentials on
Canadian crude oil, the challenge to attract and retain skilled labour
and the potential negative impact on gas pricing caused by increased
gas production from shale plays across North America. The Company
believes Western's modern drilling and well servicing rig fleet, strong
utilization, and corporate culture will provide a distinct advantage in
retaining and attracting qualified individuals. Western's view is that
its modern fleet, strong customer base and solid reputation provide a
competitive advantage which will enable the Company to continue its
growth strategy and higher than industry average utilization.
Restricted Share Unit Plan
Western has adopted a restricted share unit plan (the "RSU Plan")
pursuant to which restricted share units ("RSU") may be granted to
directors, officers, employees and certain service providers, and has
granted RSUs under the RSU Plan. Although the TSX has accepted the
adoption of the RSU Plan, the RSU Plan and RSUs granted thereunder
prior to the receipt of shareholder approval of the RSU Plan remain
subject to shareholder ratification, which will be sought at the
Company's next annual meeting. The maximum number of shares reserved
for issuance under the RSU Plan may not exceed (i) 1% of the issued
and outstanding common shares of the Company, and (ii) when combined
with all other security based compensation arrangements of Western
(including options granted under the Company's stock option plan), 10%
of the issued and outstanding shares of the Company.
Quarterly Dividend
On October 30, 2014, Western's Board of Directors declared a quarterly
dividend of $0.075 per share, which will be paid on January 15, 2015,
to shareholders of record at the close of business on December 31,
2014. The dividends are eligible dividends for Canadian income tax
purposes. On a prospective basis, the declaration of dividends will be
determined on a quarter-by-quarter basis by the Board of Directors.
Financial Measures Reconciliations
Western uses certain measures in this press release which do not have
any standardized meaning as prescribed by International Financial
Reporting Standards ("IFRS"). These measures which are derived from
information reported in the condensed consolidated statements of
operations and comprehensive income may not be comparable to similar
measures presented by other reporting issuers. These measures have
been described and presented in this press release in order to provide
shareholders and potential investors with additional information
regarding the Company.
Operating Revenue
Management believes that in addition to revenue, Operating Revenue is a
useful supplemental measure as it provides an indication of the revenue
generated by Western's principal operating activities, excluding flow
through third party charges.
Gross Margin
Management believes that in addition to net income, Gross Margin is a
useful supplemental measure as it provides an indication of the results
generated by Western's principal operating activities prior to
considering administrative expenses, depreciation and amortization, how
those activities are financed, the impact of foreign exchange, how the
results are taxed, how funds are invested, and how non-cash items and
one-time gains and losses affect results.
The following table provides a reconciliation of revenue under IFRS, as
disclosed in the condensed consolidated statements of operations and
comprehensive income, to Operating Revenue and Gross Margin:
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| Three months ended Sept 30 | | | Nine months ended Sept 30 |
(stated in thousands) | 2014 | 2013 | | | 2014 | 2013 |
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Operating Revenue |
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Drilling
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86,735
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69,499
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255,228
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193,715
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Production Services
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31,463
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26,127
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90,957
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39,607
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Less: inter-company eliminations
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(238)
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(29)
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(1,246)
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(29)
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| 117,960 | 95,597 | | | 344,939 | 233,293 |
Third party charges
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7,265
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5,792
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23,683
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16,937
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Revenue | 125,225 | 101,389 | | | 368,622 | 250,230 |
Less: operating expenses
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(90,891)
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(77,375)
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(265,079)
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(188,079)
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Add:
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Depreciation - operating
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16,042
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13,262
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45,251
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31,785
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Stock based compensation - operating
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194
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271
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611
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643
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Gross Margin | 50,570 | 37,547 | | | 149,405 | 94,579 |
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Adjusted EBITDA
Management believes that in addition to net income, earnings before
interest and finance costs, taxes, depreciation and amortization, other
non-cash items and one-time gains and losses ("Adjusted EBITDA") is a
useful supplemental measure as it provides an indication of the results
generated by the Company's principal operating segments similar to
Gross Margin but also factors in the cash administrative expenses
incurred in the period.
Operating Earnings
Management believes that in addition to net income, Operating Earnings
is a useful supplemental measure as it provides an indication of the
results generated by the Company's principal operating segments similar
to Adjusted EBITDA but also factors in the depreciation expense charged
in the period.
The following table provides a reconciliation of net income under IFRS,
as disclosed in the condensed consolidated statements of operations and
comprehensive income, to EBITDA, Adjusted EBITDA and Operating
Earnings:
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| Three months ended Sept 30 | | | Nine months ended Sept 30 |
(stated in thousands) | 2014 | 2013 | | | 2014 | 2013 |
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Net income | 14,718 | 7,927 | | | 44,614 | 19,449 |
Add:
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Finance costs
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5,155
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4,149
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15,885
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11,903
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Income taxes
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5,525
|
3,647
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16,527
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7,698
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Depreciation - operating
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16,042
|
13,262
| | |
45,251
|
31,785
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|
Depreciation - administrative
|
448
|
347
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1,332
|
1,086
|
EBITDA | 41,888 | 29,332 | | | 123,609 | 71,921 |
Add:
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Stock based compensation - operating
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194
|
271
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611
|
643
|
|
Stock based compensation - administrative
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918
|
519
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1,754
|
1,183
|
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Other items
|
(218)
|
175
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384
|
133
|
Adjusted EBITDA | 42,782 | 30,297 | | | 126,358 | 73,880 |
Subtract:
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Depreciation - operating
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(16,042)
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(13,262)
| | |
(45,251)
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(31,785)
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|
Depreciation - administrative
|
(448)
|
(347)
| | |
(1,332)
|
(1,086)
|
Operating Earnings | 26,292 | 16,688 | | | 79,775 | 41,009 |
2014 Third Quarter Results Conference Call and Webcast
Western has scheduled a conference call and webcast to begin at 12:00
p.m. MST (2:00 p.m. EST) on Friday, October 31, 2014.
The conference call dial-in number is 1-888-231-8191.
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 one hour after the completion of the call until November
14, 2014 by dialing 1-855-859-2056 or 416-849-0833, passcode 15225905.
Forward-Looking Statements and Information
This press release contains certain statements or disclosures relating
to Western that are based on the expectations of Western as well as
assumptions made by and information currently available to Western
which may constitute forward-looking information under applicable
securities laws. All such statements and disclosures, other than those
of historical fact, which address activities, events, outcomes, results
or developments that Western anticipates or expects may, or will occur
in the future (in whole or part) should be considered forward-looking
information. In some cases forward-looking information can be
identified by terms such as "forecast", "future," "may", "will",
"expect", "anticipate,", "believe", "potential", "enable", "plan",
"continue", "contemplate", "pro forma", or other comparable
terminology.
In particular, forward-looking information in this press release
includes, but is not limited to, statements relating to future
declaration of dividends; the future demand for the Company's services
and equipment; the terms of existing and future drilling contracts in
Canada and the US and the revenues resulting therefrom; the Company's
expansion and maintenance capital plans for 2014, including the ability
of current capital resources to cover Western's financial obligations
and the 2014 capital budget; the Company's expected sources of funding
to support such capital plans; expectations as to the increase in crude
oil transportation capacity through rail and pipeline development;
expectations as to the necessary approvals for liquefied natural gas
projects being obtained; the expectation of continued foreign
investment into the Canadian oilfield industry; the expectation of
increase in oilfield services activities in general and drilling
activity in various resource plays, in particular, including the type
of drilling; the Company's expected utilization for its drilling and
well servicing divisions; strong oilfield activity levels and pricing;
increased commodity pricing; and the improving economic conditions in
North America; the Company's ability to achieve its desired return on
investment through existing or future rig build opportunities; the
continued and enhanced marketability of the Company's drilling and
servicing rigs; the Company's expected tax rate in 2014; and the
receipt of shareholder approval for the Company's restricted share unit
plan.
The material assumptions in making the forward-looking statements in
this press release include, but are not limited to, assumptions
relating to, demand levels and pricing for oilfield services;
fluctuations in the price and demand for oil and natural gas; commodity
pricing; the continued business relationship between the Company and
its one significant customer; general economic and financial market
conditions; the development of liquefied natural gas projects, crude
oil transport and pipeline approval and development; the Company's
ability to finance its operations; the effects of seasonal and weather
conditions on operations and facilities; the competitive environment to
which the various business segments are, or may be, exposed in all
aspects of their business; the ability of the Company's various
business segments to access equipment (including spare parts and new
technologies); changes in laws or regulations; currency exchange
fluctuation; the ability of the Company to attract and retain skilled
labour and qualified management; the ability to retain and attract
significant customers; and other unforeseen conditions which could
impact the use of services supplied by Western including Western's
ability to respond to such conditions.
Although Western believes that the expectations and assumptions on which
such forward-looking statements and information are based are
reasonable, undue reliance should not be placed on the forward-looking
statements and information as Western cannot give any assurance that
they 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 risk
that the demand for oilfield services will not continue to improve for
the remainder of 2014, and other general industry, economic, market and
business conditions. Readers are cautioned that the foregoing list of
risks, uncertainties and assumptions are not exhaustive. Additional
information on these and other risk factors that could affect Western's
operations and financial results are included in Western's annual
information form which may be accessed through the SEDAR website at
www.sedar.com. The forward-looking statements and information
contained in this press release are made as of the date hereof and
Western does not undertake any obligation to update publicly or revise
any forward-looking statements and information, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
SOURCE Western Energy Services Corp.
<p> <b>Alex R.N. MacAusland</b><br/> President and CEO<br/> 403.984.5932 <br/> <a href="mailto:amacausland@wesc.ca">amacausland@wesc.ca</a> </p> <p> <b>Jeffrey K. Bowers</b><br/> Senior VP Finance and CFO<br/> 403.984.5933<br/> <a href="mailto:jbowers@wesc.ca">jbowers@wesc.ca</a> </p>