CALGARY, April 30, 2020 /CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three months ended March 31, 2020. The Financial Statements and Management Discussion and Analysis ("MD&A") for the three months ended March 31, 2020 are filed on SEDAR at www.sedar.com.

Financial and Operational Highlights

Working capital (excluding debt) for March 31, 2020 has increased $5.4 million (29%) since December 31, 2019 driven by increases in accounts receivable ($3.2 million (13%)) and decreases in account payable ($2.9 million (36%)) offset by a decrease in prepaid expenses and deposits ($0.8 million (29%)). Due to the seasonality of the oilfield services business in Canada, working capital typically peaks in Q1 and drops in Q2 as accounts receivable are collected. Long-term debt (including current portion) has increased 7% from December 31, 2019 in part to fund the increase in working capital (excluding debt) required. Shareholders' equity has decreased $17.2 million (9%) since December 31, 2019 primarily due to the net loss for the quarter ended March 31, 2020 which included a charge for impairment of assets of $25.5 million partially offset by an unrealized gain on translation of foreign operations of $2.2 million.

Highlights for the Three Months Ended March 31, 2020

• The COVID-19 health pandemic and the measures put in place to slow the spread of the virus has led to significant global economic demand deterioration for nearly all goods and services, including the use of oil and gas. In addition, on March 6, 2020, OPEC and Russia could not agree on a decrease to crude oil production quotas. In response to Russia's refusal to cut back on crude oil production, Saudi Arabia increased their oil production thereby flooding the global market and decreasing the price of crude oil to uneconomic levels. Average Q1 2020 crude oil price, as measured by West Texas Intermediate ("WTI"), of US$45.57/bbl was 20% lower than the Q4 2019 average price of US$56.85/bbl (Q1 2019: US$54.87/bbl) and ended the quarter at US$20.48/bbl. The crude oil price in Canada was even more distressed as the price differential between Canadian heavy crude oil, as represented by Western Canadian Select ("WCS"), and WTI of approximately US$15.00/bbl resulted in WCS of US$4.69/bbl on March 31, 2020. Natural gas prices, as measured by AECO, decreased 18% from an average of $2.34/GJ in Q4 2019 to $1.93/GJ in Q1 2020 (Q1 2019 $2.44/GJ).
  
  
• The Company acted quickly to implement cash saving initiatives to preserve cash resources and maintain balance sheet strength as well as retaining our most valuable asset – our key employees. Annual cash saving initiatives totaling $10.3 million are anticipated to reduce full year direct operating expenses by $4.4 million, selling and administrative expenses by $3.3 million and capital expenditures by $2.6 million. The Company has reduced its head count by 43% through departures and layoffs of its employees and contractors and incurred $0.1 million in severance costs related to these layoffs in Q1 2020. CWC now has 355 employees as at April 15, 2020. In addition, the Company expects to receive approximately $1.3 million under the Canada Emergency Wage Subsidy ("CEWS").
  
  
• CWC's Canadian drilling rig utilization in Q1 2020 of 54% (Q1 2019: 47%) exceeded the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 35%. Canadian activity levels in Q1 2020 decreased 10% to 344 drilling rig operating days from seven Canadian drilling rigs (Q1 2019: 382 drilling rig operating days from nine Canadian drilling rigs). Average revenue per operating day of $22,849 resulted in revenue of $7.9 million from the Canadian drilling operations. U.S. drilling rig activity levels in Q1 2020 were 144 drilling rig operating days from two U.S. drilling rigs for a utilization of 79% (Q1 2019: nil). U.S. Contract Drilling revenue of $4.8 million represented 38% of CWC's total Contract Drilling revenue in Q1 2020 with the average revenue per operating day of US$25,139 from U.S. operations. CWC's service rig utilization in Q1 2020 of 56% (Q1 2019: 53%) was driven by 30,442 operating hours which were 1% lower than the 30,875 operating hours in Q1 2019; a result of the significant drop off in activity levels in mid-March 2020 due to COVID-19 and the corresponding steep drop in oil prices.
  
  
• Revenue of $33.5 million, an increase of $2.2 million (7%) compared to $31.3 million in Q1 2019.
  
  
• Adjusted EBITDA(1) of $5.5 million, an increase of $0.8 million (17%) compared to $4.7 million in Q1 2019.
  
  
• Net loss of $19.2 million, an increase of $19.2 million compared to a net loss of $0.05 million in Q1 2019. The increase in net loss is primarily due to a charge for impairment of assets of $25.5 million.
  
  
• During Q1 2020, 3,674,500 common shares (Q1 2019: 2,050,500) were purchased under the Normal Course Issuer Bid ("NCIB") and 3,764,000 common shares (Q1 2019: 1,792,000) were cancelled and returned to treasury.

Operational Overview

Contract Drilling

CWC Ironhand Drilling, the Company's Contract Drilling segment, has a fleet of nine telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. Eight of nine rigs have top drives and three have pad rig walking systems. All of the drilling rigs are well suited for the most active depths for horizontal drilling in the Western Canadian Sedimentary Basin ("WCSB"), including the Montney, Cardium, Duvernay and other deep basin horizons. The Company has expanded its drilling rig services into select United States basins including the Eagle Ford, Denver-Julesburg ("DJ") and Bakken. One of the Company's strategic initiatives is to continue to increase the capabilities of its existing fleet to meet the growing demands of E&P customers for deeper depths at a cost effective price while providing a sufficient internal rate of return for CWC's shareholders.

Canadian Contract Drilling revenue of $7.9 million for Q1 2020 (Q1 2019: $9.1 million) was achieved with a utilization rate of 54% (Q1 2019: 47%), compared to the CAODC industry average of 35%. CWC completed 344 Canadian drilling rig operating days with seven drilling rigs in Q1 2020, a 10% decrease from the 382 Canadian drilling rig operating days with nine drilling rigs in Q1 2019. This decrease in drilling rig operating days in Q1 2020 was solely due to two less drilling rigs in Canada as a result of moving two drilling rigs to the U.S. in May 2019.  The Q1 2020 average revenue per operating day of $22,849 was a decrease of 4% compared to $23,895 in Q1 2019.

U.S. Contract Drilling revenue of $4.8 million for Q1 2020 (Q1 2019: nil) was achieved with a utilization rate of 79% (Q1 2019: nil) with 144 U.S. drilling rig operating days. Q1 2020 average revenue per operating day in the U.S. was US$25,139. Subject to customer contracts, the Company had planned to move two additional drilling rigs to the United States by the end of 2020, however, with the combined impact of COVID-19 and depressed oil prices, the timing of such moves may be delayed. 

Production Services

With a fleet of 145 service rigs, CWC is the largest well servicing company in Canada as measured by active fleet and operating hours. CWC's service rig fleet consists of 75 single, 56 double, and 14 slant rigs providing services which include completions, maintenance, workovers and well decommissioning with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park 62 of its service rigs and focus its sales and operational efforts on the remaining 83 active service rigs due to the reduction in the number of service rigs currently required to service the WCSB, in part as a result of the Government of Alberta's mandated crude oil production curtailments.

CWC's fleet of nine coil tubing units consist of six Class I and three Class II coil tubing units having depth ratings from 1,500 to 3,200 metres. During the quarter, the Company discontinued operations of its coil tubing division and wrote down the value of the assets to their estimated disposal value. The Company will look at monetizing the coil tubing assets when market conditions in the oil and gas industry stabilize.

CWC's fleet of 12 swabbing rigs operate under the trade name CWC Swabtech. The swabbing rigs are used to remove liquids from the wellbore and allow reservoir pressures to push the commodity up the tubing. The Company has chosen to park seven of its swabbing rigs and focus its sales and operational efforts on the remaining five active swabbing rigs.

Production Services revenue was $20.9 million in Q1 2020, down $1.2 million (6%) compared to $22.1 million in Q1 2019. The revenue decrease in Q1 2020 was a direct result of the rapid decrease in crude oil prices in March 2020 as the global health solutions to slow the spread of the COVID-19 virus resulted in a significant drop in demand for crude oil.

CWC's service rig utilization in Q1 2020 of 56% (Q1 2019: 53%) was driven by 30,442 operating hours being 1% lower than the 30,875 operating hours in Q1 2019. In addition, the Q1 2020 average revenue per hour of $666 was slightly lower than the $671 per hour in Q1 2019 as a result of lower boiler revenue during the quarter. Q1 2020 average revenue per hour of $673 excluding the Company's top volume customers was $17 per hour (2%) lower than Q1 2019 average revenue per hour of $690 as CWC was able to increase its hourly rate with its largest volume customers while being more competitive at slightly lower rates offered by our competitors for its smaller volume customers.

CWC's coil tubing utilization in Q1 2020 of 11% (Q1 2019: 34%) with 486 operating hours was 72% lower than the 1,730 operating hours in Q1 2019. Average revenue per hour for coil tubing services of $545 in Q1 2020 was $10 per hour (2%) lower  than $555 in Q1 2019. As a result of the continued lower customer demand, the Company discontinued operations of its coil tubing division on March 17, 2020 and wrote down the value of these assets to their estimated disposal value. The Company will look at monetizing the coil tubing assets when market conditions in the oil and gas industry stabilize.

CWC swabbing rig utilization in Q1 2020 of 33% (Q1 2019: 32%) with 1,088 operating hours was 34% lower than the 1,655 operating hours in Q1 2019 as CWC had three less swabbing rigs active during the quarter compared to the prior year due to lower customer demand from continued low natural gas prices. Average revenue per hour for swabbing rigs of $300 in Q1 2020 was 4% higher compared to $288 in Q1 2019. In January 2020, CWC sold one of its inactive swabbing rigs for a current fleet of 12 swabbing rigs.

Capital Expenditures

Capital expenditures of $2.8 million in Q1 2020, an increase of $1.5 million (117%) compared to $1.3 million in Q1 2019.

The 2020 capital expenditure budget of $6.7 million was approved by the Board of Directors on December 12, 2019 comprised of maintenance and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rig and service rig divisions as well as information technology infrastructure and growth capital to upgrade one of the drilling rigs.  Given the current economic environment as a result of the COVID-19 health pandemic, the Company has reduced its 2020 captial expenditure budget by $2.6 million (39%) to $4.1 million. As $2.8 million of the 2020 capital expenditure budget has been incurred in Q1 2020, the Company is effectively suspending any further capital expenditures, other than those in progress, for the remainder of 2020.

Outlook

The COVID-19 health pandemic and the measures put in place to slow the spread of the virus has led to an estimated 30 million bbls/day global demand decline in crude oil from its pre COVID-19 global demand of 100 million bbls/day. To combat this demand decline, on April 12, 2020 OPEC along with Russia agreed to a record 9.7 million bbls/day crude oil reduction in production quotas for May and June 2020, reducing to 7.6 million bbls/day from July to December 2020 and then to 5.6 million bbls/day from January 2021 to April 2022.  Along with OPEC+, the Group of 20 democratic countries ("G20") energy ministers met on April 10, 2020 and acknowledged that they have already reduced or will reduce through normal market price forces an additional 5 million bbls/day of crude oil. The U.S., Canada and Brazil are expected to contribute 3.7 million bbls/day with the other G20 oil producing nations contributing 1.3 million bbls/day. Together OPEC+ and the G20 are expected to reduce the supply of global crude oil to the market by 14.7 million bbls/day to offset almost half of the 30 million bbls/day demand decline. As a result, WTI dropped below US$20/bbl and WCS remains below US$10/bbl as oil storage levels quickly fill up with the only remaining action by E&P companies is to shut in more oil wells and further reduce capital expenditures.

Under these challenging global market conditions, CWC has acted quickly to implement cash saving initiatives to preserve cash resources and maintain balance sheet strength as well as retaining our most valuable asset – our key employees. Annual cash saving initiatives totaling $10.3 million are anticipated to reduce full year direct operating expenses by $4.4 million, selling and administrative expenses by $3.3 million and capital expenditures by $2.6 million. These cash saving initiatives will be achieved through the following actions:

• Reduction in Board of Director compensation by 25%;
• Reduction in President & CEO, senior management and all salaried employee compensation, including suspension of bonus programs, by 27%;
• Reduction in service rig field employee compensation by 13%;
• Reduction in 2020 capital expenditures by 39%;
• Discontinued operations of the coil tubing division;
• Reduction and deferral of rent and property tax payments on leased facilities; and
• Deferral of Alberta Workers' Compensation Benefit ("WCB") premiums for 2020 until 2021.

The Company has reduced its head count by 43% through departures and layoffs of its employees and contractors and incurred $0.1 million in severance costs related to these layoffs in Q1 2020. CWC now has 355 employees as at April 15, 2020. In addition, the Company expects to receive approximately $1.3 million under the Canada Emergency Wage Subsidy ("CEWS").

Additionally, the Company has been in contact with its four member banking syndicate and have received positive indications that they will continue to support CWC through these turbulent times.

On April 17, 2020, the Government of Canada announced a $1.7 billion funding package to the Government of Alberta, Saskatchewan, British Columbia and the Alberta Orphan Well Association for well decommissioning and reclamation of abandoned and inactive wells. Being the largest service rig company in Canada, CWC will be a net beneficiary of this funding as the Company pivots from workover and maintenance work on producing wells to doing a greater percentage of its work on well decommissioning in its well servicing division.

Looking out to a medium and longer term, CWC is optimistic about the future of the oil and gas industry in Canada. On March 31, 2020, the Government of Alberta announced they will be investing $1.5 billion into the Keystone XL pipeline and provide a $6.0 billion loan guarantee to TC Energy to start construction of the pipeline immediately, which is expected to be operational by 2023. This pipeline will carry 830,000 bbls/day of crude oil to Gulf Coast refineries. Along with the anticipated completion of Enbridge's Line 3 pipeline in late 2020 which will carry 760,000 bbls/day to Minnesota and eastern refineries and the Trans Mountain expansion project carrying 890,000 bbls/day by late 2022 to the west coast for oversea markets, Canada should have sufficient capacity to resume growth in crude oil production. As such, CWC will remain focused on its operational and financial performance in the short-term, but recognize the need to pursue opportunities that have inevitably been created in this heavily discounted market to create medium and longer-term value for CWC's shareholders. With the support of the Board of Directors, management continues to actively pursue consolidation opportunities in North America. CWC cautions that there can be no guarantees that strategic opportunities will result in a transaction, or if a transaction is undertaken, as to its terms or timing.

About CWC Energy Services Corp.

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the WCSB and the United States with a complementary suite of oilfield services including drilling rigs, service rigs, swabbing rigs and coil tubing units. The Company's corporate office is located in Calgary, Alberta, with a U.S. office in Denver, Colorado  and operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

Forward-Looking Information

This News Release contains certain forward-looking information and statements within the meaning of applicable Canadian securities legislation. Certain statements contained in this MD&A, including most of those contained in the section titled "Outlook" and including statements which may contain such words as "anticipate", "could", "continue", "should", "seek", "may", "intend", "likely", "plan", "estimate", "believe", "expect", "will", "objective", "ongoing", "project" and similar expressions are intended to identify forward-looking information or statements. In particular, this News Release contains forward-looking statements including management's assessment of future plans and operations, planned levels of capital expenditures, expectations as to activity levels, expectations on the sustainability of future cash flow and earnings, expectations with respect to crude oil and natural gas prices, activity levels in various areas, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB and U.S. basins, expectations regarding entering into long term drilling contracts and expanding its customer base, and expectations regarding the business, operations, revenue and debt levels of the Company in addition to general economic conditions. Although the Company believes that the expectations and assumptions on which such forward-looking information and statements are based are reasonable, undue reliance should not be placed on the forward-looking information and statements because the Company can give no assurances that they will prove to be correct. Since forward-looking information and statements 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 including the implications of the COVID-19 health pandemic on the Company's business, operations and personnel. These factors and risks include, but are not limited to, the risks associated with the COVID-19 health pandemic and their implications on the demand and supply in the drilling and oilfield services sector (i.e. demand, pricing and terms for oilfield drilling and services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks), significant expansion measures to stop the spread of COVID-19 further restricting or prohibiting the operations of the Company's facilities and operations, actions to ensure social distancing due to COVID-19, the Company's cash saving initiatives, integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation, including but not limited to tax laws, royalties and environmental regulations, stock market volatility and the inability to access sufficient capital from external and internal sources. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through SEDAR at www.sedar.com. The forward-looking information and statements contained in this News Release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Any forward-looking statements made previously may be inaccurate now.

Reconciliation of Non-IFRS Measures

SOURCE CWC Energy Services Corp.

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