CWC Energy Services Corp. Announces Third Quarter 2017 Operational and Financial Results

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CWC Energy Services Corp. Announces Third Quarter 2017 Operational and Financial Results

Canada NewsWire

CALGARY, Nov. 1, 2017 /CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three and nine months ended September 30, 2017. The interim Financial Statements and Management Discussion and Analysis ("MD&A") for the three months and nine ended September 30, 2017 are filed on SEDAR at www.sedar.com.

Highlights for the Three Months Ended September 30, 2017

  • CWC's drilling rig utilization of 63% in Q3 2017 (Q3 2016: 37%) exceeded the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 28% (2016:17%). The increased activity level in Q3 2017 compared to Q3 2016 reflects increased year-over-year industry activity, focused marketing efforts on E&P companies with ongoing drilling programs and the high quality and efficiency of our drilling rigs and field employees. CWC's Q3 2017 utilization of 63% was achieved on 522 drilling rig operating days (Q3 2016: 301 drilling rig operating days). In addition, the upgrades to Drilling Rig #4 to a high specification rig capable of racking over 6,500 metres of drill pipe was completed in the quarter.

  • CWC's service rig utilization of 47% in Q3 2017 (Q3 2016: 38%) from 28,320 operating hours was 24% higher than the 22,927 operating hours in Q3 2016 and outperformed the CAODC Q3 2017 industry utilization of 32% (Q3 2016: 26%). CWC maintained its industry market share of 10% with only 7% of the total active CAODC registered rig fleet despite experiencing project delays caused by unusually wet weather conditions in September 2017 and the change in ownership of land and wells amongst two of our largest E&P customers in our most active operating region.

  • CWC's coil tubing utilization of 22% in Q3 2017 (Q3 2016: 29%) with 1,783 operating hours declined from 2,160 operating hours in Q3 2017. Operating hours were negatively impacted by the extremely low natural gas prices and lower crude oil prices throughout much of Q3 2017 causing delays in allocation and commitment of capital by our E&P customers, particularly in steam-assisted gravity drainage ("SAGD") wells. These capital allocation delays were further impacted by abnormally wet weather conditions in September 2017 and change of ownership in land and well positions among some of CWC's key customers.

  • Revenue of $27.2 million, an increase of $8.7 million (47%) compared to $18.5 million in Q3 2016. The increase from Q3 2016 is driven primarily from increased drilling and service rig activity, offset by lower coil tubing operating hours. In addition, higher day and hourly rates in all business segments contributed to the higher revenue. CWC has been successful in modestly increasing pricing in Q3 2017 supported by strong customer demand.

  • Adjusted EBITDA (1) of $4.1 million, an increase of $2.4 million (133%) compared to $1.7 million in Q3 2016. The increased Adjusted EBITDA is a direct result of higher drilling rig activity at day rates 15% higher than Q3 2016 and an increase in service rig activity at modestly higher hourly rates. CWC has achieved 17 continuous quarters of positive Adjusted EBITDA since Q2 2013 demonstrating management's superior ability to reduce costs to offset lower revenue from reduced pricing and activity since the beginning of this industry downturn three years ago.

  • Net loss of $0.6 million, an improvement of $1.4 million (70%) compared to a net loss of $2.0 million in Q3 2016. The year-over-year change is primarily due to increased Adjusted EBITDA partially offset by an increase in depreciation and amortization.

  • During Q3 2017, 1,402,000 (Q3 2016: nil) common shares were purchased under CWC's Normal Course Issuer Bid ("NCIB") and 1,441,500 common shares were cancelled and returned to treasury.

  • On August 4, 2017, CWC and its syndicated lenders completed an extension of its credit facilities and certain other amendments to provide financial security and flexibility to July 31, 2020. The amendments further provide the Company access to another equity cure under the same terms and conditions, a reduction in the minimum liquidity from $10.0 million to $5.0 million, and quarterly financial covenant for Consolidated Debt to Consolidated EBITDA ratio as follows:

For the Quarter Ended

Previously

Currently

September 30, 2017

4.50 : 1

4.50:1

December 31, 2017

4.00 : 1

4.00:1

Thereafter

3.50 : 1

4.00:1

 

Highlights for the Nine Months Ended September 30, 2017

  • CWC's drilling rig utilization of 49% in the first nine months of 2017 (2016: 25%) exceeded the CAODC industry average of 29%. Activity levels in 2017 have increased 117% compared to 2016 reflecting increased year-over-year industry activity, focused marketing efforts on E&P companies with ongoing drilling programs and the high quality and efficiency of our drilling rigs and field employees. Year-to-date 2017 operating days of 1,209 (2016: 557 operating days) is the most since the acquisition of Ironhand Drilling Inc. in May 2014.

  • CWC's service rig utilization was 45% for the first nine months of 2017 (2016: 38%). Activity levels in 2017 have increased 19% to 81,364 hours (2016: 68,117 hours). The increased activity reflects strong well servicing demand and optimism experienced in Q1 2017 from higher commodity prices, partially offset by lower Q2 2017 operating hours from a normal spring break up compared to the unusually dry weather conditions in Q2 2016 further bolstered by a strong Q3 2017 where activity levels were 24% higher than in Q3 2016. CWC's outperformance in service rig utilization compared to its CAODC industry peers is attributed to the modern fleet of 74 service rigs, exceptional sales and operational management, and experienced rig crews performing work safely and efficiently.

  • Revenue of $74.8 million, an increase of $22.7 million (44%) compared to $52.1 million for the first nine months of 2016. The increase is predominately due to significantly higher activity and pricing in all three business units.

  • Adjusted EBITDA (1) of $9.4 million, an increase of $4.1 million (78%) compared to $5.3 million for the first nine months of 2016. The increased Adjusted EBITDA is consistent with the increase in activity levels and pricing.

  • Net loss of $3.7 million, an improvement of $2.1 million (36%) compared to a net loss of $5.8 million for the first nine months of 2016. The lower net loss in 2017 is primarily due to the increase in Adjusted EBITDA offset by higher stock based compensation and depreciation and amortization, and lower deferred income tax recoveries.

  • For the nine months ended September 30, 2017, the Company purchased 3,088,500 (2016: nil) common shares under its NCIB which were cancelled and returned to treasury.

(1) Please refer to the "Reconciliation of Non-IFRS Measures" section for further information. 

 

Subsequent Events

On October 30, 2017, CWC announced the following transactions:

  • CWC has entered into a definitive agreement to acquire the service and swabbing rig assets and ongoing operations of C&J Production Services-Canada Ltd. ("C&J Canada") from C&J Energy Services, Inc. ("C&J Parent") for total consideration of $37.5 million in cash (the "Transaction"). The Transaction is expected to close on or about November 6, 2017. The combination of CWC's premier well servicing fleet of 74 service rigs and C&J Canada's 75 service rigs will create the largest active service rig fleet in Canada based on reported operating hours in 2016 and year-to-date 2017 by the CAODC with a Canadian service rig market share of approximately 15%.

  • CWC and its syndicated lenders have agreed to the Company's exercise of the accordion feature to expand its credit facilities from $65 million to $100 million. The expanded credit facilities provide financial security and flexibility to July 31, 2020. The syndicate lenders have also provided consent to permit the acquisition of the C&J Canada assets with the expanded credit facilities. The expanded credit facilities will initially be used to complete the Transaction and upon the successful completion of the Rights Offering, will subsequently be available to assist the Company in completing further acquisitions, financing capital expenditures and for general working capital purposes.

  • To repay a portion of the debt incurred to complete the Transaction, CWC will be offering rights (the "Rights") to holders of its common shares (the "Common Shares") of record at the close of business on November 15, 2017 (the "Record Date"). The Rights issued under the Rights Offering will expire on December 11, 2017 (the Rights Expiry Date"). Each registered shareholder of Common Shares on the Record Date will receive one (1) Right for each Common Share held by such shareholder. Three (3) Rights plus the sum of $0.20 will entitle the Rights holder to subscribe for one Common Share. Eligible shareholders are entitled to subscribe for additional Common Shares, subject to certain limitations set out in the Company's rights offering circular (the "Rights Offering Circular"). Registered shareholders wishing to exercise their Rights must forward the completed Rights Certificates, together with the applicable funds to Computershare Trust Company of Canada, the rights agent of the Company, on or before the Rights Expiry Date. Shareholders who own their Common Shares through an intermediary, such as a bank, trust company, securities dealer or broker, will receive materials and instructions from their intermediary. Brookfield Capital Partners Ltd. and certain of its affiliates (collectively, "Brookfield"), the Company's significant shareholder which controls approximately 72.7% of the outstanding Common Shares, has indicated to the Company that provided that the Transaction is completed, it intends to participate in the Rights Offering to the fullest extent possible. A fully subscribed Rights Offering is expected to generate gross proceeds of approximately $26 million.

For further information regarding the Transaction, please refer to the Press Release dated October 30, 2017 as filed on SEDAR.

Financial and Operational Highlights





Three months ended

 September 30,

Nine months ended

 September 30,

$ thousands, except shares,  per share
amounts, and margins

2017

2016

Change

%

2017

2016

 Change

%

FINANCIAL RESULTS














Revenue








Contract drilling

10,130

5,071

100%

24,308

10,604

129%


Production services

17,043

13,435

27%

50,487

41,526

22%


27,173

18,506

47%

74,795

52,130

43%








Adjusted EBITDA (1)

4,055

1,741

133%

9,433

5,297

78%

Adjusted EBITDA margin (%) (1)

15%

9%


13%

10%









Funds from operations

4,055

1,741

133%

9,433

5,297

78%








Net loss and comprehensive loss

(638)

(2,042)

(69%)

(3,683)

(5,751)

(36%)

Net loss and comprehensive loss margin (%)

(2%)

(11%)

9%

(5%)

(11%)

6%








Per share information








Weighted average number of shares outstanding – basic and diluted

392,935,814

390,319,009


392,604,720

336,130,388



Adjusted EBITDA (1) per share – basic and diluted

$0.01

$0.00


$0.02

$0.02



Net loss per share - basic and diluted

$0.00

($0.01)


($0.01)

($0.02)


 




$ thousands, except ratios

September 30, 2017

December 31, 2016




FINANCIAL POSITION AND LIQUIDITY



Working capital (excluding debt) (1)

14,567

11,333

Working capital (excluding debt) ratio (1)

2.7:1

2.5:1

Total assets

208,355

210,750

Total long-term debt (including current portion)

34,404

33,142

Shareholders' equity

151,833

155,482

(1) Please refer to the "Reconciliation of Non-IFRS Measures" section for further information.

 

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 two have pad rig walking systems. The drilling rig fleet has an average age of eight years. All of the drilling rigs are well suited for the most active depths for horizontal drilling in the WCSB, including the Montney, Cardium, Duvernay and other deep basin horizons. In Q3 2017, the Company completed the upgrades to Drilling Rig #4 to a high specification rig capable of racking over 6,500 metres of drill pipe.  The upgrade is part of the Company's strategic initiatives 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.




Three months ended

OPERATING HIGHLIGHTS

Sep. 30,
2017

Jun. 30,
2017

Mar. 31,
2017

Dec. 31,
2016

Sep. 30,
2016

Jun. 30,
2016

Mar. 31,
2016

Dec. 31,
2015

Drilling Rigs










Active drilling rigs, end of period

9

9

9

9

9

8

8

9


Inactive drilling rigs, end of period

-

-

-

-

-

1

1

-


Total drilling rigs, end of period

9

9

9

9

9

9

9

9











Revenue per operating day (1)

$19,424

$19,575

$20,942

$20,623

$16,835

$21,754

$21,565

$24,996


Drilling rig operating days

522

155

532

257

301

65

191

191


Drilling rig utilization % (2)

63%

19%

66%

31%

37%

9%

26%

23%


CAODC industry average utilization %

29%

17%

40%

24%

17%

7%

20%

20%











Wells drilled

29

17

41

21

21

5

14

16


Average days per well

18.0

9.1

13.0

12.2

14.3

13.0

13.6

11.9


Meters drilled (thousands)

112.2

45.6

151.8

82.0

70.0

19.5

56.0

59.9


Meters drilled per day

215

294

285

319

232

300

293

314


Average meters per well

3,869

2,684

3,702

3,906

3,332

3,903

4,000

3,741

(1)

Revenue per operating day is calculated based on operating days (i.e. spud to rig release basis). New or inactive drilling rigs are added based on the first day of field service.

(2)

Drilling rig utilization is calculated based on operating days (i.e. spud to rig release basis) in accordance with the methodology prescribed by the CAODC.

 

Contract Drilling revenue of $10.1 million for Q3 2017 (Q3 2016: $5.1 million) was achieved with a utilization rate of 63% (Q3 2016: 37%), compared to the CAODC industry average of 29%. CWC achieved 522 drilling rig operating days in Q3 2017, a 73% increase from Q3 2016 reflecting increased year-over-year industry activity, focused marketing efforts on E&P companies with ongoing drilling programs and the high quality and efficiency of our drilling rigs and field employees. Q3 2017 revenue was 100% higher compared to Q3 2016 as increased activity was combined with a 15% increase in revenue per operating day.

Contract Drilling revenue of $24.3 million for the nine months ended September 30, 2017 (2016: $10.6 million) was realized as a result of a 117% increase in drilling rig operating days to 1,209 days (2016: 557). CWC's utilization rate of 49% continues to exceed the CAODC industry average of 29% and has increased from 25% for the nine months ended September 30, 2016 when CWC marketed only 8 of 9 drilling rigs for the first half of the year. Increased activity was complemented by average revenue per operating day of $20,106 in the first nine months of 2017, 6% higher than the same period in 2016. Improved financial performance for the first nine months of 2017 reflect higher industry activity due to higher average crude oil prices, despite experiencing a modest pull back in Q2 2017 and Q3 2017, and to CWC's modern, relevant, well maintained and cost effective drilling rigs as well as a solid reputation for safe and efficient operations, exceptional management and experienced drilling rig crews.

Production Services

CWC is the second largest service rig provider in the WCSB, based on our modern fleet of 74 service rigs as at September 30, 2017 which consists of 41 single, 27 double, and 6 slant rigs. At an average age of ten years, CWC's fleet is amongst the newest in the WCSB and provides services which include completions, maintenance, workovers and abandonments with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park seven of its service rigs and focus its sales and operational efforts on the remaining 67 active service rigs with one temporarily taken out of service in the first nine months of 2017 to complete its Level IV recertification.

CWC's Class I, II and III coil tubing units have depth ratings from 1,500 to 4,000 metres. As at September 30, 2017, the Company's fleet of ten coil tubing units consists of six Class I, three Class II and one Class III coil tubing units. In light of competitive challenges for CWC's Class III coil tubing unit, the Company has chosen to focus its sales and operational efforts on its nine Class I and II coil tubing units which are better suited at servicing SAGD wells, which are shallower in depth and more appropriate for these coil tubing operations.




Three months ended

OPERATING HIGHLIGHTS

Sep. 30,

2017

Jun. 30,

2017

Mar. 31,

2017

Dec. 31,

2016

Sep. 30,

2016

Jun. 30,

2016

Mar. 31,

2016

Dec. 31,

2015

Service Rigs










Active service rigs, end of period

66

66

66

67

66

65

65

64


Inactive service rigs, end of period

8

8

8

7

8

9

9

10


Total service rigs, end of period

74

74

74

74

74

74

74

74











Operating hours

28,320

20,047

32,997

27,091

22,927

21,724

23,466

21,008


Revenue per hour

$559

$551

$584

$536

$543

$548

$580

$615


Service rig utilization % (1)

47%

33%

56%

45%

38%

37%

40%

36%










Coil Tubing Units










Active coil tubing units, end of period

9

9

9

8

8

8

8

8


Inactive coil tubing units, end of period

1

1

1

2

1

1

1

1


Total coil tubing units, end of period

10

10

10

10

9

9

9

9











Operating hours

1,783

1,557

4,243

2,349

2,160

1,147

3,034

1,665


Revenue per hour

$688

$657

$491

$507

$458

$508

$662

$657


Coil tubing units utilization % (2)

22%

19%

52%

32%

29%

16%

42%

23%











(1)

Service rig utilization is calculated based on 10 hours a day, 365 days a year. New service rigs are added based on the first day of field service. Service rigs requiring their 24,000 hour recertification, refurbishment or have been otherwise removed from service for greater than 90 days are excluded from the utilization calculation until their first day back in field service.

(2)

Coil tubing unit utilization is calculated based on 10 hours a day, 365 days a year. New coil tubing units are added based on the first day of field service.

 

Production Services revenue was $17.0 million in Q3 2017, up $3.6 million (27%) compared to $13.4 million in Q3 2016 primarily as a result of service rig utilization of 47% in Q3 2017 (Q3 2016: 38%) with 28,320 operating hours, 24% higher than the 22,927 operating hours in Q3 2016.  During Q3 2017, approximately 2,616 operating hours (Q3 2016:  5,000 operating hours) were lost due to unusually wet weather. In addition, project delays caused by crew shortages in our key operating areas and the change in ownership of land and wells amongst two of our largest E&P customers in our most active operating region contributed to what would otherwise have been an extremely busy quarter. 

CWC's coil tubing utilization of 22% in Q3 2017 (Q3 2016: 29%) with 1,783 operating hours declined from 2,160 operating hours in Q3 2016. Operating hours were negatively impacted by the extremely low natural gas prices and lower crude oil prices throughout much of Q3 2017 causing delays in allocation and commitment of capital by our E&P customers, particularly in SAGD wells. These capital allocation delays were further impacted by abnormally wet weather conditions in September 2017 and change of ownership in land and well positions among some of CWC's key customers. Average revenue per hour for coil tubing units of $688 in Q3 2017 is 50% higher than $458 in Q3 2016 which reflects some modest price improvements, but is primarily due to a higher mix of deeper Class II units generating revenue in Q3 2017 compared to lower priced, shallow Class I units generating revenue in Q3 2016.

For the nine months ended September 30, 2017, Production Services revenue of $50.5 million was 22% higher than the $41.5 million achieved in the same nine month period in 2016 driven by service rig utilization of 45% (2016: 38%) with 81,364 service rig operating hours in the first nine months of 2017; a 19% increase to the 68,117 operating hours for the same period in 2016. In addition for the first nine months of 2017, coil tubing unit operating hours increased 20% to 7,583 operating hours (2016: 6,341 operating hours) which helped contribute to the increased Production Services revenue year-to-date in 2017 compared to 2016. Strong Q1 2017 well servicing demand and optimism from improved commodity prices was partially offset by lower Q2 2017 service rig operating hours driven by normal spring breakup compared to the unusually dry weather which allowed equipment and field employees to return to work earlier than normal in Q2 2016.  The year-to-date 2017 results were further bolstered by a strong Q3 2017 where service rig activity levels were 24% higher than in Q3 2016, which experienced unusually wet weather having a significantly negative impact on operating hours and revenue in Q3 2016.

Capital Expenditures







Three months ended


Nine months ended



September 30,


September 30,


$ thousands

2017

2016

Change
$

Change
%

2017

2016

Change $

Change
%

Contract drilling

1,504

65

1,439

n/m(1)

2,788

359

2,429

677%

Production services

1,040

198

839

424%

2,829

538

2,291

425%

Corporate

-

-

-

n/m(1)

9

7

2

71%

Total capital expenditures

2,544

263

2,281

867%

5,626

904

4,722

522%










Growth capital

1,363

-

1,363

n/m(1)

1,735

-

1,735

n/m(1)

Maintenance and infrastructure capital

1,181

263

918

349%

3,891

904

2,987

330%

Total capital expenditures

2,544

263

2,281

867%

5,626

904

4,722

522%

(1) Not meaningful.

 

Capital expenditures for the first nine months of 2017 of $5.6 million are $4.7 million higher than $0.9 million in the first nine months of 2016 and primarily consist of drilling rig upgrades, recertification costs, replacement components and leased vehicles. This compares to the first nine months of 2016 capital expenditures consisting of recertification costs and one leased vehicle. Growth capital of $1.4 million in Q3 2017 included a well control upgrade for Drilling Rig #7 and upgrades to Drilling Rig #4, which were completed in Q3 2017 at a total cost of approximately $1.1 million. The Drilling Rig #4 upgrades increased the hook load, racking capacity, and pumping power as well as an improvement to its well control such that it has the ability to drill to total lengths of over 6,500 metres.

The 2017 capital expenditure budget of $5.9 million was approved by the Board of Directors on December 6, 2016 comprised of $5.4 million of maintenance and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rigs, service rigs and coil tubing divisions as well as for information technology and $0.5 million of growth capital. The upgrades to Drilling Rig #4 were not included in the original 2017 capital expenditure budget.

Outlook

The optimism built up in Q1 2017 over improved crude oil prices as a result of the November 30, 2016 decision by OPEC to curtail production, turned to uncertainty in Q2 2017 as U.S. drilling activity, production and inventory levels increased to offset the OPEC production cuts resulting in continued oversupply of global crude oil inventory.  In Q3 2017, some optimism returned for crude oil prices as the steady decline since April 2017 in U.S. crude oil inventory storage levels finally dropped to within the upper band of the five year range of 340 to 470 million bbl at the end of Q3 2017. Crude oil, as represented by WTI, averaged US$48.18/bbl in Q3 2017, consistent with the Q2 2017 average price of US$48.15/bbl, and a 7% increase from the Q3 2016 average price of US$44.99/bbl.  Natural gas prices were particularly volatile as AECO, averaged $1.36/GJ in Q3 2017; a decrease of 48% from the Q2 2017 average price of $2.64/GJ and a decrease of 39% from the Q3 2016 average price of $2.22/GJ as Canadian natural gas storage levels increased from slightly above the five year average at the start of Q3 2017 to the upper band of the five year range of between 580 to 750 bcf at the end of Q3 2017. Despite the uncertainty over commodity prices, on October 31, 2017, the Petroleum Services Association of Canada ("PSAC") announced its forecast of 7,900 wells to be drilled in 2018; an increase of 5% from the 7,550 wells forecast to be drilled in 2017.

CWC is experiencing continued strong utilization in its drilling rig and service rig business units well above the CAODC industry averages.  The Company currently has seven drilling works working and expects to have eight of its nine (89%) drilling rigs working until Q2 2018 spring breakup.  Similar to CWC's drilling rigs, the Company's service rigs continue to see strong industry demand with a modest price increase of approximately 5% in Q4 2017.  Aggressive pricing from competitors will continue to limit the ability to raise day and hourly rates substantially in the near term.  Given the industry's competitive pricing pressures on our day and hourly rates, CWC has sustainably positioned itself as a low cost contractor for its E&P customers providing the highest quality service from the highest quality people at reasonable prices. The Company has been able to do this by carefully managing fixed and discretionary costs on its relatively modern fleet of equipment with ongoing repairs and maintenance capital being low and predictable. As a result, CWC has demonstrated an ability to consistently generate positive Adjusted EBITDA and cash flow in each of its last 17 quarters, despite significantly reduced customer pricing over the last 2.75 years.

While CWC continues to maintain focus on its operational and financial performance, it also recognizes the need to pursue opportunities that create long-term shareholder value. On May 4, 2017, CWC announced a process to review strategic alternatives with a view to maximizing shareholder value by capitalizing on CWC's strong financial and operational performance, market share and attractive fleet of modern assets. This strategic alternatives review process has resulted in the announcement on October 30, 2017 of CWC's purchase of C&J Canada's service and swabbing rig assets to become the largest service rig company in Canada by operating hours, according to the CAODC, with 110 active service rigs and approximately 15% of the Canadian service rig market share.  The Transaction is expected to be accretive to CWC on an Adjusted EBITDA, cash flow and earnings per share basis.  The Company anticipates closing of the Transaction on or about November 6, 2017.  CWC will continue to pursue further opportunities to consolidate the North American drilling and well servicing industry as such other opportunities were revealed in its review of strategic alternatives.  CWC cautions that there are no guarantees that other 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 with a complementary suite of oilfield services including drilling rigs, service rigs and coil tubing units. The Company's corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Red Deer, 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 MD&A 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 MD&A 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 and the ability to pay dividends, expectations with respect to crude oil and natural gas prices, activity levels in various areas, continuing focus on cost saving measures, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB, expectations regarding entering into long term drilling contracts and expanding its customer base, and expectations regarding the business, operations and revenue of the Company in addition to general economic conditions. Additionally, this MD&A contains forward-looking statements involving the anticipated timing for the completion of the Transaction, the anticipated timing for the completion of the Rights Offering, including the amount of funds to be raised pursuant to the Rights Offering and the intended use of proceed of the Rights Offering, Brookfield's intentions to participate to the fullest extent possible in the Rights Offering provided that the Transaction is completed, Brookfield's share ownership following the Rights Offering and management's assessment of future plans and operations 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. These include, but are not limited to, the risks associated with the drilling and oilfield services sector (ie. 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), 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 and the inability to pay dividends. 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 MD&A 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





Three months ended

Nine months ended


September 30,

September 30,

$ thousands except share and per share amounts

2017

2016

2017

2016

NON-IFRS MEASURES










Adjusted EBITDA:






Net loss and comprehensive loss

(638)

(2,042)

(3,683)

(5,751)

Add:






Depreciation

4,512

3,705

12,292

10,515


Finance costs

333

596

1,448

2,013


Deferred income tax recovery

(203)

(699)

(1,143)

(1,994)


Stock based compensation

165

132

591

351


Loss (gain) on sale of equipment

(114)

49

(72)

163

Adjusted EBITDA (1)

4,055

1,741

9,433

5,297

Adjusted EBITDA per share – basic and diluted(1)

$0.01

$0.01

$0.02

$0.02

Adjusted EBITDA margin (Adjusted EBITDA/Revenue) (1)

15%

9%

13%

10%

Weighted average number  shares outstanding - basic and diluted

392,935,814

324,840,096

392,604,720

308,738,337











Gross margin:





Revenue

27,173

18,506

74,795

52,130


Less: Direct operating expenses

19,959

13,959

55,741

37,961

Gross margin (2)

7,214

4,547

19,054

14,169

Gross margin percentage (2)

27%

25%

25%

27%

 




$ thousands

September 30, 2017

December 31, 2016




Working capital (excluding debt):



Current assets

23,061

18,692


Less: Current liabilities

(8,673)

(7,535)


Add: Current portion of long term debt

179

176

Working capital (excluding debt) (3)

14,567

11,333

Working capital (excluding debt) ratio (3)

2.7

2.5




Net debt:



Long term debt

34,225

32,966


Less: Current assets

(23,061)

(18,692)


Add: Current liabilities

8,673

7,535

Net debt (4)

19,837

21,809

 

(1)

Adjusted EBITDA (Earnings before interest and finance costs, income tax expense (recovery), depreciation, amortization, gain or loss on disposal of asset, goodwill impairment, stock based compensation and other one-time gains and losses) is not a recognized measure under IFRS. Management believes that in addition to net earnings, Adjusted EBITDA is a useful supplemental measure as it provides an indication of the Company's ability to generate cash flow in order to fund working capital, service debt, pay current income taxes, pay dividends, repurchase common shares under the Normal Course Issuer Bid, and fund capital programs. Investors should be cautioned, however, that Adjusted EBITDA should not be construed as an alternative to net income (loss) and comprehensive income (loss) determined in accordance with IFRS as an indicator of the Company's performance. CWC's method of calculating Adjusted EBITDA may differ from other entities and accordingly, Adjusted EBITDA may not be comparable to measures used by other entities. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by revenue and provides a measure of the percentage of Adjusted EBITDA per dollar of revenue. Adjusted EBITDA per share is calculated by dividing Adjusted EBITDA by the weighted average number of shares outstanding as used for calculation of earnings per share.



(2)

Gross margin is calculated from the statement of comprehensive income as revenue less direct operating costs and is used to assist management and investors in assessing the Company's financial results from operations excluding fixed overhead costs. Gross margin percentage is calculated as gross margin divided by revenue. The Company believes the relationship between revenue and costs expressed by the gross margin percentage is a useful measure when compared over different financial periods as it demonstrates the trending relationship between revenue, costs and margins. Gross margin and gross margin percentage are non-IFRS measures and do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures provided by other companies.



(3)

Working capital (excluding debt) is calculated based on current assets less current liabilities excluding the current portion of long-term debt. Working capital (excluding debt) is used to assist management and investors in assessing the Company's liquidity. Working capital (excluding debt) does not have any meaning prescribed under IFRS and may not be comparable to similar measures provided by other companies. Working capital (excluding debt) ratio is calculated as current assets divided by the difference of current liabilities less the current portion of long term debt.



(4)

Net debt is not a recognized measure under IFRS and does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures provided by other companies. Management believes net debt is a useful indicator of a company's debt position.

 

SOURCE CWC Energy Services Corp.

View original content: http://www.newswire.ca/en/releases/archive/November2017/01/c3003.html

Copyright CNW Group 2017

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