Ensign Energy Services Inc. Reports 2020 Third Quarter Results

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Ensign Energy Services Inc. Reports 2020 Third Quarter Results

Canada NewsWire

CALGARY, AB, Nov. 5, 2020 /CNW/ -

THIRD QUARTER HIGHLIGHTS

  • Revenue for the third quarter of 2020 was $156.9 million, a 60 percent decrease from the third quarter of 2019 revenue of $393.4 million.
  • Revenue by geographic area:
    • Canada - $21.8 million, 14 percent of total;
    • United States - $83.3 million, 53 percent of total; and
    • International - $51.8 million, 33 percent of total.
  • Canadian drilling recorded 686 operating days in the third quarter of 2020, a 71 percent decrease from 2,354 operating days in the third quarter of 2019. Canadian well servicing recorded 5,556 operating hours in the third quarter of 2020, a 52 percent decrease from 11,574 operating hours in the third quarter of 2019.
  • United States drilling recorded 1,437 operating days in the third quarter of 2020, a 77 percent decrease from 6,382 operating days in the third quarter of 2019. United States well servicing recorded 21,682 operating hours in the third quarter of 2020, a 26 percent decrease from 29,416 operating hours in the third quarter of 2019.
  • International drilling recorded 790 operating days in the third quarter of 2020, a 44 percent decrease from 1,403 operating days recorded in third quarter of 2019.
  • Adjusted EBITDA for the third quarter of 2020 was $39.5 million, a 60 percent decrease from Adjusted EBITDA of $97.9 million for the third quarter of 2019.
  • Funds flow from operations for the third quarter of 2020 decreased 65 percent to $29.8 million from $85.5 million in the third quarter of the prior year.
  • During the third quarter of 2020, the Company completed the acquisition of Halliburton's 40 percent ownership interest of the Trinidad Drilling International ("TDI") joint venture. The 40 percent ownership interest, inclusive of working capital of $20.2 million in the TDI joint venture, was purchased with the Company's cash on hand for US $33.4 million. With this acquisition, the Company now owns 100 percent of TDI.
  • During the third quarter of 2020, the Company received a $4.2 million Canada Emergency Wage Subsidy ("CEWS") payment from the Government of Canada and a $3.2 million wage subsidy from the Government of Australia. The wage subsidies received partially offset the decrease in Adjusted EBITDA and net loss attributable to common shareholders.
  • During the third quarter of 2020, the Company recognized $5.6 million of idle but contracted rig revenue and $8.7 million of contract cancellation or early termination fees. As the Company moves through the remainder of 2020 and into 2021 the amount of such fees and idle but contracted revenue will reduce quarter-over-quarter.
  • Net capital purchases for the third quarter of 2020 were $3.2 million consisting $5.5 million in maintenance capital, offset by proceeds of $2.3 million from disposals. Planned capital expenditures for the 2020 year remain at $50.0 million, of which approximately $40.0 million will be maintenance capital.
  • General and administrative expense decreased 21 percent to $9.2 million for the third quarter of 2020 from $11.6 million for the third quarter of 2019.
  • Over the third quarter of 2020, US $51.2 million face value of our Senior Notes were repurchased by the Company in the open market for cancellation, recognizing a gain of $40.1. million. Subsequent to September 30, 2020, the Company repurchased US $26.1 million face value of the Senior Notes, in the open market, for cancellation. A gain on the repurchase of $21.8 million (US $16.4 million) will be recognized in the fourth quarter of 2020.
  • Total debt for the third quarter of 2020 decreased year-over-year by $159.4 million to $1,474.3 million as of September 30, 2020 from $1,633.7 million as of September 30, 2019. The decrease in aggregate debt was partially offset by $10.0 million due to foreign currency exchange fluctuations.
  • The Company's available liquidity consisting of cash and available borrowings under its revolving credit facility was $181.4 million at September 30, 2020.
  • Subject to market conditions during the remainder of 2020, it is likely that the Company will be required to enter into discussions with its Credit Facility syndicate to amend covenants under the Credit Facility which otherwise may be susceptible to breach in the last quarter of 2020.

OVERVIEW 

Revenue for the third quarter of 2020 was $156.9 million, a decrease of 60 percent from revenue for the third quarter of 2019 of $393.4 million. Revenue for the nine months ended September 30, 2020 was $735.6 million, a decrease of 40 percent from revenue for the nine months ended September 30, 2019 of $1,215.9 million.

Adjusted EBITDA totaled $39.5 million ($0.24 per common share) in the third quarter of 2020, 60 percent lower than Adjusted EBITDA of $97.9 million ($0.62 per common share) in the third quarter of 2019. For the first nine months of 2020, Adjusted EBITDA totaled $188.8 million ($1.16 per common share), 40 percent lower than Adjusted EBITDA of $317.1 million ($2.01 per common share) in the first nine months of 2019.

Net loss attributable to common shareholders for the third quarter of 2020 was $36.1 million ($0.23 per common share) compared to a net loss attributable to common shareholders of $37.6 million ($0.24 per common share) for the third quarter of 2019. Net loss attributable to common shareholders for the nine months ended September 30, 2020 was $82.4 million ($0.51 per common share), compared to net loss attributable to common shareholders of $91.3 million ($0.58 per common share) for the nine months ended September 30, 2019.

During the third quarter of 2020, the Company completed the acquisition of Halliburton's 40 percent ownership interest of the Trinidad Drilling International ("TDI") joint venture. The 40 percent ownership interest, inclusive of working capital of $20.2 million in the TDI joint venture, was purchased with the Company's cash on hand for US $33.4 million. With this acquisition, the Company now owns 100 percent of TDI.

During the third quarter of 2020, the Company received a $4.2 million Canada Emergency Wage Subsidy ("CEWS") from the Government of Canada and a $3.2 million wage subsidy from the Government of Australia. For nine months of 2020, the Company received a $7.8 million CEWS from the Government of Canada and $4.7 million wage subsidy from the Government of Australia. For three and nine month ending September 30, 2020, the wage subsidies received partially offset the decrease in Adjusted EBITDA and net loss attributable to common shareholders.

Funds flow from operations decreased 65 percent to $29.8 million ($0.18 per common share) in the third quarter of 2020 compared to $85.5 million ($0.54 per common share) in the third quarter of the prior year. Funds flow from operations decreased 50 percent to $140.6 million ($0.86 per common share) in the first nine months of 2020 compared to $282.7 million ($1.78 per common share) in the first nine months of the prior year.

On March 11, 2020, the World Health Organization ("WHO") declared the novel coronavirus ("COVID-19") a global pandemic due to the sustained risk of worldwide spread of the virus. Governments and health authorities around the world implemented a wide variety of measures to combat the spread of the virus, including travel restrictions, business closures, social distancing, public gathering restrictions, stay-at-home orders and event cancellations. The impact of these measures led to a significant slow-down in global economic activity that subsequently reduced the demand for crude oil and natural gas. The significant reduction in demand contributed to a steep and rapid decline in global crude oil and natural gas prices earlier this year. Furthermore, the demand decline further challenged commodity prices already reeling from a market share and oil price war between certain crude oil producing nations. The full magnitude and duration of the impact of these events on global economies and the oil and natural gas industry remains uncertain.

Over the course of the third quarter, stay-at-home related restrictions continued to ease globally, increasing the demand for crude oil and natural gas over the quarter. OPEC+ nations curtailed crude oil supply in addition to producer led production curtailments resulted in improved supply and demand fundamentals over the quarter. Improved fundamentals resulted in relatively stabilized crude oil commodity prices over the third quarter. As a result, drilling and completions activity stabilized and improved modestly.

Over the short term, there is a high degree of uncertainty regarding the macroeconomic conditions that will impact our business that include the pathway of the COVID-19 pandemic, COVID-19 mitigation strategies, such as stay-at-home orders and lockdown related restrictions, the degree and impact of COVID-19 mitigation strategies and other factors on demand for crude oil and natural gas, commodity prices and the demand for oilfield services. 

Early in March 2020, in response to the COVID-19 pandemic, the Company implemented rigorous measures across its global operations to ensure the safety of its operations, the health of its employees and the continuity of its business. These measures include, but are not limited to, remote work where possible, fitness for work screening for employees, contractors and any third parties on site, restricted travel policies and aggressive hygiene practices and disinfecting protocols in accordance with WHO and local jurisdiction guidelines. Across the Company's global operations, these proactive measures have facilitated the safe continuity and reliability of its operations in the field and an orderly transition to remote work for our office employees. Furthermore, the Company has implemented regional Emergency Response Groups to respond to any incidents. These measures continue to be in place as the Company monitors local government recommendations and public health guidelines, prioritizing the health and safety of its workforce.

The Company's operating days were lower in the third quarter of 2020 when compared to the same period in 2019 as the significant impacts of the COVID-19 pandemic, subsequent restrictions and impact on global crude oil demand resulted in severe downward pressure on the short-term demand for the Company's services. Customers continue to respond to the fluid environment by curtailing capital expenditures and cautiously revisiting drilling programs.

The strengthening year-over-year of the United States dollar against the Canadian dollar partially offset the decrease in the financial results on translation to Canadian dollars. The average United States dollar exchange rate was $1.35 for the first nine months of 2020 (2019 - $1.33) versus the Canadian dollar, an increase of two percent, compared to the same period of 2019. The acquisition of Halliburton's 40 percent ownership interest in TDI, with the effective date of July 16, 2020, also partially offset the decrease in financial and operational results. 

Working capital at September 30, 2020 was a surplus of $80.2 million, compared to a surplus of $127.0 million at December 31, 2019. The Company's available liquidity, consisting of cash and available borrowings under its $900.0 million revolving credit facility (the "Credit Facility"), was $181.4 million at September 30, 2020. 

This news release contains "forward-looking information and statements" within the meaning of applicable securities legislation. For a full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Advisory Regarding Forward-Looking Statements" later in this news release. This news release contains references to Adjusted EBITDA and Adjusted EBITDA per common share. These measures do not have any standardized meaning prescribed by IFRS and accordingly, may not be comparable to similar measures used by other companies. The non-GAAP measures included in this news release should not be considered as an alternative to, or more meaningful than, the IFRS measure from which they are derived or to which they are compared. See "Non-GAAP Measures" later in this news release.

FINANCIAL AND OPERATING HIGHLIGHTS

(Unaudited, in thousands of Canadian dollars, except per common share data and operating information)


Three months ended September 30

Nine months ended September 30

2020

2019

% change

2020

2019

% change

Revenue 1

$

156,933

$

393,412

(60)

$

735,553

$

1,215,928

(40)

Adjusted EBITDA 1,2

39,476

97,943

(60)

188,783

317,064

(40)

Adjusted EBITDA per common share 1,2







Basic

$0.24

$0.62

(61)

$1.16

$2.01

(42)

Diluted

$0.24

$0.62

(61)

$1.16

$2.01

(42)

Net loss attributable to common shareholders

(36,094)

(37,770)

4

(82,421)

(91,290)

10

Net loss per common share







Basic

$(0.23)

$(0.24)

4

$(0.51)

$(0.58)

12

Diluted

$(0.23)

$(0.24)

4

$(0.51)

$(0.58)

12

Cash provided by operating activities 1

39,417

109,421

(64)

229,581

277,020

(17)

Funds flow from operations 1

29,802

85,523

(65)

140,635

282,722

(50)

Funds flow from operations per common share 1







Basic

$0.18

$0.54

(67)

$0.86

$1.78

(52)

Diluted

$0.18

$0.54

(67)

$0.86

$1.78

(52)

Total long term debt

1,474,307

1,633,736

(10)

1,474,307

1,633,736

(10)

Weighted average common shares - basic (000s)

162,728

158,667

3

162,629

158,513

3

Weighted average common shares - diluted (000s)

162,957

158,738

3

162,901

158,621

3

Drilling

2020

2019

% change

2020

2019

% change

Number of marketed rigs 3







Canada 4

101

118

(14)

101

118

(14)

United States

122

134

(9)

122

134

(9)

International 5

48

43

12

48

43

12

   Total

271

295

(8)

271

295

(8)








Operating days 6







Canada 4

686

2,354

(71)

4,165

6,732

(38)

United States

1,437

6,382

(77)

8,791

19,489

(55)

International 5

790

1,403

(44)

2,922

3,928

(26)

   Total

2,913

10,139

(71)

15,878

30,149

(47)

Well Servicing

2020

2019

% change

2020

2019

% change

Number of rigs







Canada

52

55

(5)

52

55

(5)

United States

47

47

47

47

   Total

99

102

(3)

99

102

(3)

Operating hours







Canada

5,556

11,574

(52)

21,383

35,072

(39)

United States

21,682

29,416

(26)

72,252

86,741

(17)

   Total

27,238

40,990

(34)

93,635

121,813

(23)

1.

Comparative revenue, Adjusted EBITDA, Adjusted EBITDA per common share, cash provided by operating activities, funds flow from operations and funds flow from operations per common share have been revised to conform with current year's presentation.

2.

Refer to Adjusted EBITDA calculation in Non-GAAP Measures

3.

Total owned rigs: Canada - 118, United States - 138, International - 53 (2019 Total owned rigs: Canada - 135, United States - 152, International - 48)

4.

Excludes coring rigs.

5.

Includes workover rigs and former TDI joint venture drilling rigs, effective July 16, 2020.

6.

Defined as contract drilling days, between spud to rig release.

FINANCIAL POSITION AND CAPITAL EXPENDITURES HIGHLIGHTS

As at ($ thousands)

September 30 2020

September 30 2019

December 31 2019

Working capital1

80,194

140,087

126,987

Cash

56,973

36,540

28,408

Long-term debt

1,474,307

1,633,736

1,581,529

Total long-term financial liabilities

1,481,795

1,651,674

1,591,047

Total assets

3,242,768

3,668,970

3,470,601

Long-term debt to long-term debt plus equity ratio

0.51

0.51

0.52

1 See Non-GAAP Measures section.

 


Three months ended September 30

Nine months ended September 30

($ thousands)

2020

2019

% change

2020

2019

% change

Capital expenditures







   Upgrade/growth

32,695

nm

10,013

86,345

(88)

   Maintenance

5,539

5,659

(2)

35,197

25,287

39

   Proceeds from disposals or property and equipment

(2,308)

(3,295)

(30)

(23,458)

(32,915)

(29)

Net capital expenditures

3,231

35,059

(91)

21,752

78,717

(72)

nm - calculation not meaningful


REVENUE AND OILFIELD SERVICES EXPENSE


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Revenue 1








Canada

21,838

65,158

(66)


135,987

222,178

(39)

United States

83,263

252,683

(67)


426,401

787,227

(46)

International

51,832

75,571

(31)


173,165

206,523

(16)

Total revenue 1

156,933

393,412

(60)


735,553

1,215,928

(40)









Oilfield services expense 1

108,716

285,928

(62)


521,493

867,868

(40)

1.    Comparative revenue and oilfield services expense have been revised to conform with current year's presentation.

Revenue for the three months ended September 30, 2020 totaled $156.9 million, a decrease of 60 percent from the third quarter of 2019 of $393.4 million. Revenue for the nine months ended September 30, 2020 totaled $735.6 million, a 40 percent decrease from the nine months ended September 30, 2019.

The decrease in total revenue during the first nine months of 2020 was due to the oil price and market share war between certain crude oil producing nations followed by the significant and adverse impact of the COVID-19 pandemic on the oil and natural gas industry. The fallout from the pandemic led to a significant drop in demand for crude oil and natural gas, further challenging an already over-supplied commodity market. The steep declines in demand and continued oversupply have resulted in a significant activity slowdown for oilfield services, particularly in the United States and Canadian operating regions.

The financial results from the Company's United States and international operations were positively impacted on currency translation, as the United States dollar strengthened relative to the Canadian dollar in the first nine months of 2020. 

CANADIAN OILFIELD SERVICES

Revenue decreased 66 percent to $21.8 million for the three months ended September 30, 2020 from $65.2 million for the three months ended September 30, 2019. The Company recorded revenue of $136.0 million in Canada for the nine months ended September 30, 2020, a decrease of 39 percent from $222.2 million recorded for the nine months ended September 30, 2019.

Canadian revenues accounted for 14 percent of the Company's total revenue in the third quarter of 2020 (2019 - 17 percent) and 18 percent (2019 - 18 percent) for the nine months ended September 30, 2020. During the third quarter of 2020, the Company recognized $1.1 million of idle but contracted rig revenue (2019 -$ nil).  

The Company's Canadian drilling operations recorded 686 operating days in the third quarter of 2020, compared to 2,354 operating days for the third quarter of 2019, a decrease of 71 percent. For the nine months ended September 30, 2020, the Company recorded 4,165 operating days compared to 6,732 drilling days for the nine months ended September 30, 2019, a decrease of 38 percent. Canadian well servicing hours decreased by 52 percent to 5,556 operating hours in the third quarter of 2020 compared to 11,574 operating hours in the corresponding period of 2019. For the nine months ended September 30, 2020, well servicing hours decreased by 39 percent to 21,383 operating hours compared with 35,072 operating hours for the nine months ended September 30, 2019.

The operating and financial results for the Company's Canadian operations were significantly and negatively impacted during the first nine months of 2020 due to the macroeconomic and industry conditions seen since March of this year including but not limited to, the impact of the COVID-19 pandemic and subsequent lockdown related restrictions resulting in decreased demand for crude oil and increased market supply.  

UNITED STATES OILFIELD SERVICES

The Company's United States operations recorded revenue of $83.3 million in the third quarter of 2020, a decrease of 67 percent from the $252.7 million recorded in the corresponding period of the prior year. During the nine months ended September 30, 2020, revenue of $426.4 million was recorded, a decrease of 46 percent from the $787.2 million recorded in the corresponding period of the prior year.

The Company's United States operations accounted for 53 percent of the Company's revenue in the third quarter of 2020 (2019 - 64 percent) and 58 percent of the Company's revenue in the first nine months of 2020 (2019 - 65 percent). In the United States, the Company recognized US $2.9 million of idle but contracted rig revenue and US $6.4 million of contract early termination or cancellation fees in the third quarter of 2020 (2019 - $ nil). The Company recognized US $7.0 million of idle but contracted rig revenue and US $19.6 million of contract cancellation fees in the first nine months of 2020 (2019 - $ nil).

Drilling rig operating days decreased to 1,437 operating days in the third quarter of 2020 from 6,382 operating days in the third quarter of 2019, and to 8,791 operating days in first nine months of 2020 from 19,489 operating days in the first nine months of 2019. Well servicing activity, expressed in operating hours, decreased by 26 percent in the third quarter of 2020 to 21,682 operating hours from 29,416 operating hours in the third quarter of 2019. For the nine months ended September 30, 2020 well servicing activity decreased 17 percent to 72,252 operating hours from 86,741 operating hours in the first nine months of 2019.

The operating and financial results for the Company's United States operations were also significantly and negatively impacted during the first nine months of 2020 due to the macroeconomic and industry conditions seen this year.

INTERNATIONAL OILFIELD SERVICES

The Company's international operations recorded revenue of $51.8 million in the third quarter of 2020, a 31 percent decrease from the  $75.6 million recorded in the corresponding period of the prior year. International revenues for the nine months ended September 30, 2020, decreased 16 percent to $173.2 million from $206.5 million recorded in the nine months ended September 30, 2019.

The Company's international operations contributed 33 percent of the total revenue in the third quarter of 2020 (2019 - 19 percent) and 24 percent of the Company's revenue in the first nine months of 2020 (2019 - 17 percent). During the first three and nine months of 2020 the Company's international operations recognized US $0.4 million (2019 - $ nil) and US $7.5 million (2019 - $ nil) of idle but contracted rig revenue respectively.

International operating days for the three months ended September 30, 2020, totaled 790 operating days compared to 1,403 operating days in the same period of 2019, a decrease of 44 percent. For the nine months ended September 30, 2020, international operating days totaled 2,922 operating days compared to 3,928 operating days for the nine months ended September 30, 2019, a decrease of 26 percent.

Similar to our North American operations, international operating and financial results were also negatively impacted by industry conditions seen this year. The acquisition of TDI joint venture during the quarter partially offset the declines in operating activity.

JOINT VENTURE

During the third quarter of 2020, the Company completed the acquisition of Halliburton's 40 percent ownership interest in the TDI joint venture. The 40 percent ownership interest, inclusive of working capital of $20.2 million in TDI joint venture, was purchased with the Company's cash on hand for US $33.4 million. With this acquisition, the Company now owns 100 percent of TDI. The acquisition was accounted for as a business combination using the acquisition method whereby the net assets and liabilities assumed are recorded at fair value.

The preliminary purchase price allocation is based on management's best estimates of the fair value of TDI's assets and liabilities as at the Effective Acquisition Date of July 16, 2020, although future adjustments to estimates may be required. If new information is obtained within one year from the acquisition date about facts and circumstances that existed as at the Effective Acquisition Date and which reasonably requires adjustments to above amounts, or any additions to provisions that existed at the Effective Acquisition Date, then the accounting at acquisition will be revised.

Amounts below are presented at 100 percent of the value included in the statement of operations and comprehensive (loss) income for TDI joint venture up to the date of acquisition by the Company. Prior to July 16, 2020, the Company owned 60 percent of the shares of TDI joint venture and each of the parties had equal voting rights. The former joint venture had been considered to be a financial asset and fair valued the instrument through the consolidated statement of loss (income).


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Revenue

2,858

17,589

(84)


38,514

40,973

(6)

Net income

704

(4,537)

nm


(2,247)

(3,376)

(33)

Drilling operating days

48

216

(78)


535

421

27

nm - calculation not meaningful

In the three months ended September 30, 2020, up to the date of the acquisition of July 16, 2020, TDI joint venture recorded revenue of $2.9 million (2019 - $17.6 million) and operating days totaled 48 (2019 - 216).  For the nine months ended September 30, 2020, TDI joint venture recorded revenue of $38.5 million (2019 - $41.0 million). For the nine months of 2020, TDI joint venture operating days totaled 535 (2019 - 421). The decrease in revenue and operating days during the period was due to the acquisition of the remaining 40 percent interest in TDI joint venture, which effective July 16, 2020, is consolidated within the financial and operating results of the Company.

DEPRECIATION


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Depreciation

96,417

92,410

4


278,367

269,607

3

Depreciation expense totaled $96.4 million for the third quarter of 2020 compared with $92.4 million for the third quarter of 2019, an increase of four percent. Depreciation expense for the nine months ended September 30, 2020 increased by three percent, to $278.4 million compared with $269.6 million in nine months of 2019. The increase to depreciation expense was the result of depreciating newly acquired property and equipment and a higher foreign exchange rate on United States dollar denominated property and equipment values.

GENERAL AND ADMINISTRATIVE


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

General and administrative

9,207

11,587

(21)


31,752

41,602

(24)

% of revenue

5.9

2.9



4.3

3.4


General and administrative expenses decreased 21 percent to $9.2 million (5.9 percent of revenue) for the third quarter of 2020 compared to $11.6 million (2.9 percent of revenue) for the third quarter of 2019. For the nine months ended September 30, 2020, general and administrative expense totaled $31.8 million (4.3 percent of revenue) compared to $41.6 million (3.4 percent of revenue) for the nine months ended September 30, 2019. General and administrative expenses decreased as a result of cost saving initiatives, the wage subsidy received from the Government of Canada and organizational restructuring. The decrease was partially offset by $0.5 million in accounts receivable write-offs recorded in the nine months ending September 30, 2020 (2019 -$ nil).

In light of the current operating environment, the Company took further steps to reduce overhead costs by reducing the salaries of employees. The Company's named executive officers' salaries were reduced by 40 percent for the Chairman, 20 percent for the President and Chief Operating Officer and 12.5 percent for the other named executive officers, all effective April 1, 2020. In addition, the annual base cash and equity retainers for independent members of the Board of Directors have been reduced, also effective April 1, 2020, by 20 and 40 percent respectively. Such reductions reflect the Company's belief in the importance of continued cost control in light of the current oilfield services industry outlook. The Company has and will continue to consider additional means of reducing overhead and operating costs.

RESTRUCTURING


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Restructuring

4,208

1,692

nm


11,594

11,089

5

nm - calculation not meaningful

Restructuring expense totaled $4.2 million for the third quarter of 2020 (2019 - $1.7 million). For the nine months ended September 30, 2020, restructuring costs were $11.6 million (2019 - $11.1 million). Restructuring expense consists of costs relating to the organizational restructuring of the Company due to the significant decline in activity. Additional costs are expected to be incurred in subsequent quarters as the Company continues to adjust to the current operating environment.

FOREIGN EXCHANGE AND OTHER (GAIN) LOSS 


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Foreign exchange and other (gain) loss

(1,598)

13,670

nm


3,062

20,753

(85)

nm - calculation not meaningful

Included in this amount is the impact of foreign currency fluctuations in the Company's subsidiaries that have functional currencies other than the Canadian dollar.

GAIN ON REPURCHASE OF UNSECURED SENIOR NOTES


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Gain on repurchase of unsecured
Senior Notes

(40,072)

(920)

nm


(103,589)

(650)

nm

nm - calculation not meaningful

For the three months ended September 30, 2020, the Company repurchased US $51.2 million (2019 - US $19.0 million) of face value unsecured Senior Notes ("Senior Notes"), in the open market, for cancellation and recorded a gain on repurchase of $40.1 million (US $30.3 million) (2019 - $0.9 million).

For nine months ended September 30, 2020, the Company repurchased US $126.0 million (2019 - US $37.5 million) of face value Senior Notes, in the open market, for cancellation and recorded a gain on repurchase of $103.6 million (US $75.6 million) (2019 - $1.6 million).

Subsequent to September 30, 2020, the Company repurchased US $26.1 million face value of the Senior Notes, in the open market, for cancellation. A gain on the repurchase of $21.8 million (US $16.4 million) will be recognized in the fourth quarter of 2020.

LOSS (GAIN) ON ASSET SALE


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Loss (gain) on asset sale

nm


3,437

(9,824)

nm

nm - calculation not meaningful

During the second quarter of 2020, the Company finalized the sale of the land and building that was classified on its balance sheet as an asset held for sale. The net proceeds received were $15.4 million, resulting in a loss of $3.4 million (2019 - gain of $9.8 million) before taxes. 

FINANCING CHARGES


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Interest expense

24,292

32,058

(24)


83,138

100,528

(17)

Accretion of deferred financing charges

2,972

2,812

6


8,915

11,347

(21)

Financing charges

27,264

34,870

(22)


92,053

111,875

(18)

Financing charges were incurred on the Company's Credit Facility, the United States dollar denominated Senior Notes, $37.0 million of subordinate convertible debentures (the "Convertible Debentures") and capital lease obligations. Included in interest expense is the amortization of deferred financing costs associated with refinancing the Company's debt, which totaled $3.0 million and $8.9 million respectively for the three and nine months ended September 30, 2020 (2019 - $2.8 million and $11.3 million respectively). Included within interest expense are $2.3 million and $4.4 million respectively for the three and nine months ended September 30, 2020 (2019 - $0.8 million and $1.1 million respectively) of accrued interest relating to the Senior Notes, paid in cash as part of the repurchase of the Senior Notes.   

Financing charges decreased by $7.6 million for the third quarter of 2020 compared to the third quarter of 2019 and decreased by $19.8 million for the first nine months of 2020 compared to the same period of 2019. The decrease is the result of a decrease in overall borrowing level. Offsetting the decrease is the negative translational impact of the United States dollar denominated debt.

The Company's blended interest rate on its outstanding debt for the 2020 year will be approximately seven percent. The current capital structure primarily consisting of the Credit Facility and the Senior Notes allows the Company to utilize funds flow generated to reduce debt in the near term with greater flexibility than a more non-callable weighted capital structure.

INCOME TAXES (RECOVERY)


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Current tax income

640

550

16


1,089

1,451

(25)

Deferred tax income (recovery)

(10,012)

(10,274)

(3)


(20,867)

(12,725)

64

Total income tax (recovery)

(9,372)

(9,724)

(4)


(19,778)

(11,274)

75

Effective income tax rate (%)

20.6

20.1

2


19.6

10.9

80

The effective income tax rate for the three months ended September 30, 2020 was 20.6 percent compared to 20.1 percent for the three months ended September 30, 2019. The effective income tax rate for the nine months ended September 30, 2020 was 19.6 percent compared to 10.9 percent for the nine months ended September 30, 2019. The effective tax rate in the first nine months of the current year was higher than the effective tax rate in the first nine months of 2019 due to the impact of the of the accelerated provincial income tax rate reduction in Alberta, Canada, capital gains on Senior Notes and the impact of foreign tax rates. 

FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL

($ thousands, except per common share data)

Three months ended September 30


Nine months ended September 30

2020

2019

% change


2020

2019

% change

Cash provided by operating activities 1

39,417

109,421

(64)


229,581

277,020

(17)

Funds flow from operations 1

29,802

85,523

(65)


140,635

282,722

(50)

Funds flow from operations per common share 1

$0.18

$0.54

(67)


$0.86

$1.78

(52)

Working capital 2

80,194

126,987

(37)


80,194

126,987

(37)

1 Comparative cash provided by operating activities, funds flow from operations and funds flow from operations per common share have been revised to conform with current year's presentation.

2 Comparative figure as at December 31, 2019

During the three months ended September 30, 2020, the Company generated funds flow from operations of $29.8 million ($0.18 per common share) compared to funds flow from operations of $85.5 million ($0.54 per common share) for the three months ended September 30, 2019, a decrease of 65 percent. For the nine months ended September 30, 2020, the Company generated funds flow from operations of $140.6 million ($0.86 per common share) a decrease of 50 percent from $282.7 million ($1.78 per common share) for the nine months ended September 30, 2019. The decrease in funds flow from operations for three and nine months ended September 30, 2020 compared to the same periods of 2019 is due to decrease in activity as a result of the oil and natural gas industry's current business environment.

At September 30, 2020, the Company's working capital was a surplus of $80.2 million, compared to a working capital surplus of $127.0 million at December 31, 2019. The Company currently expects funds generated by operations, combined with current and future credit facilities to fully support the Company's current operating and capital requirements. The Company's Credit Facility provides for total borrowings of $900.0 million, of which $124.4 million was undrawn and available at September 30, 2020.

INVESTING ACTIVITIES


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Purchase of property and equipment

(5,539)

(38,354)

(86)


(45,210)

(111,632)

(60)

Proceeds from disposals of property and equipment

2,308

3,295

(30)


23,458

32,915

(29)

Acquisition of joint venture and minority interest net of cash

(31,885)

nm


(31,885)

(49,214)

(35)

Net change in non-cash working capital

(3,666)

(6,515)

(44)


583

4,485

(87)

Cash used in investing activities

(38,782)

(41,574)

(7)


(53,054)

(123,446)

(57)

nm - calculation not meaningful

Net purchases of property and equipment for the third quarter of 2020 totaled $3.2 million (2019  - $35.1 million). Net purchases of property and equipment during the first nine months of 2020 totaled $21.8 million (2019 - $78.7 million). The purchase of property and equipment for the first nine months of 2020 consists of $35.2 million in maintenance capital and $10.0 million in upgrade capital.

FINANCING ACTIVITIES


Three months ended September 30


Nine months ended September 30

($ thousands)

2020

2019

% change


2020

2019

% change

Proceeds from long-term debt

14,280

10,000

43


108,569

2,234,231

(95)

Repayments of long-term debt

(43,309)

(53,251)

(19)


(148,786)

(2,305,358)

(94)

Lease obligation principal

repayments

(1,777)

(2,380)

(25)


(7,404)

(5,996)

23

Interest paid

(14,360)

(14,546)

(1)


(75,504)

(96,275)

(22)

Purchase of common shares held in trust

(169)

(373)

(55)


(725)

(896)

(19)

Cash dividends

(11,298)

nm


(19,574)

(41,735)

(53)

Net change in non-cash working capital

2,719

nm


20,368

nm

Cash used in financing activities

(45,335)

(69,129)

(34)


(143,424)

(195,661)

(27)

nm - calculation not meaningful

The Company's available bank facilities consist of a $900.0 million Credit Facility, which matures November 26, 2021, of which $124.4 million was available and undrawn as of September 30, 2020. In addition, the Company also has available US $50.0 million secured letter of credit facility, of which US $19.7 million was available as at September 30, 2020.

The Company may at any time and from time-to-time acquire additional Senior Notes for cancellation by means of open market purchases, negotiated transactions or otherwise. As previously noted, the Company has repurchased US $126.0 million of face value Senior Notes, in the open market, for cancellation during the first nine months of 2020. The Company repurchased a further US $26.1 million of face value Senior Notes in open market, for cancellation subsequent to September 30, 2020.

Covenants

The following is a list of the Company's currently applicable covenants and the calculations as at September 30, 2020:


Covenant

September 30, 2020

The Credit Facility



      Consolidated Total Debt to Consolidated EBITDA1

≤ 5.00

4.59

      Consolidated EBITDA to Consolidated Interest Expense1,2

≥ 2.50

2.82

      Consolidated Senior Debt to Consolidated EBITDA1,3

≤ 2.50

2.38

1 Please refer to Non-GAAP Measures for Consolidated EBITDA definition.

2 Consolidated Interest Expense is defined as all interest expense calculated on twelve month rolling consolidated basis excluding amortized finance cost and interest expense on capital building lease.

3 Consolidated Senior Debt is defined as Consolidated Total Debt minus Subordinated Debt.

As at September 30, 2020 the Company was in compliance with all covenants related to the Credit Facility.

The Credit facility

The Credit Facility agreement, available on SEDAR, requires that the Company comply with certain covenants including Consolidated Total Debt to Consolidated EBITDA, Consolidated Senior Debt to Consolidated EBITDA and Consolidated EBITDA to Consolidated Interest Expense as detailed above.

The Credit Facility contains certain covenants that place restrictions on the Company's ability to create, incur or assume additional indebtedness; change the Company's primary business; enter into mergers or amalgamations; and to dispose of property.

Subject to market conditions during the remainder of 2020, it is likely that the Company will be required to enter into discussions with its Credit Facility syndicate to amend covenants under the Credit Facility which otherwise may be susceptible to breach in the last quarter of 2020.

The Senior Notes 

The indenture governing the Senior Notes, available on SEDAR, contains certain restrictions and exemptions on the Company's ability to pay dividends, purchase and redeem shares and subordinated debt of the Company, and make certain restricted investments. Limitations on these restrictions are tempered by the existence of a number of exceptions to the general prohibition, including baskets allowing for restricted payments.

The indenture also restricts the ability to incur additional indebtedness if the Fixed Charge Coverage Ratio determined on a pro forma basis for the most recently ended four fiscal quarter period for which internal financial statements are available is not at least 2.0 to 1.0.  As at September 30, 2020, the Company has not incurred additional indebtedness that would require the Fixed Charge Coverage Ratio to be calculated. As is the case with restricted payments, there are a number of exceptions to this prohibition on the incurrence of indebtedness, including the incurrence of debt under credit facilities up to the greater of $900.0 million or 22.5 percent of the Company's consolidated tangible assets and of additional secured debt subordinated to the credit facilities up to the greater of US $125.0 million or 4.0 percent of the Company's consolidated tangible assets.

NEW BUILDS AND MAJOR RETROFITS

Through the acquisition of the remaining 40% interest in the TDI joint venture, the Company added five drilling rigs, of which it previously had a 60 percent ownership interest. The Company is currently directing capital expenditures primarily to maintenance capital items.

OUTLOOK

Industry Overview 

The outlook for the oilfield service industry continues to evolve. The operating environment for the oil and natural gas industry remains challenged by the tenuous recovery of crude oil and natural gas demand, continuing concerns regarding the pathway of the COVID-19 pandemic, high crude oil inventories, and the market dynamics of OPEC+ production and the supply of crude oil.

Global economies generally remained committed, where possible, to avoiding lock-down restrictions related to COVID-19 during the third quarter. As a result, recovered demand for crude oil and natural gas remained steady and outpaced global supply over the third quarter resulting in crude oil inventory draws. In addition, global commodity prices were relatively stable over the third quarter with the benchmark price of West Texas Intermediate ("WTI") averaged US $40.71/bbl in July, US $42.34/bbl in August, US $39.63/bbl in September and averaging US $39.43/bbl in October.

For the remainder of the year, continued uncertainty over the pathway of COVID-19 and the recovery of oil and natural gas demand has reinforced conservatism in capital expenditures for oil and natural gas producers. Without further and sustainable improvements to commodity prices, we expect producers will continue to direct focus on maintaining production levels and cash preservation. We also expect producers to modestly revisit drilling programs through the remainder of 2020 and into 2021 as legacy wells may decline in production, demand recovery may stabilize, and global inventories may decline.

In the short term, we expect continued uncertainty with the macroeconomic conditions including the pathway of the COVID-19 pandemic, the potential reinstatement of COVID-19 mitigation strategies, such as stay-at-home orders and lockdown related restrictions, the degree and impact of COVID-19 mitigation strategies on demand for crude oil and natural gas, commodity prices and the demand for oilfield services.

During the third quarter, the Company acquired the remaining 40 percent ownership in the TDI with the Company's cash on hand for US $33.4 million. TDI joint venture owns and operates five drilling rigs located in Kuwait (two rigs), Mexico (two rigs) and Bahrain (one rig). The Company views this as a strategic and opportunistic transaction, given the asset value, exposure to key basins and contracted revenue with active and long-term contracts in Kuwait and Bahrain.

The Company has continued to adapt to the current operating environment with strict capital allocation, debt retirement and significant, structural and on-going cost reductions. The Company's expected total capital expenditures for 2020 remain at $50.0 million.

Canadian Activity  

Canadian activity, representing 14 percent of our business, modestly improved through the third quarter with relatively stable commodity prices. We expect activity to increase, perhaps with some pressure to revenue rates, into the fourth quarter as we enter the winter drilling season.

Of our 101 marketed Canadian drilling rigs, approximately 23 percent are engaged under term contracts of various terms. Approximately 35 percent of our contracted rigs have a remaining term of six months or longer, although they may be subject to early terminations.   

United States Activity 

United States activity, representing 53 percent of our business, plateaued over the third quarter and improved modestly exiting the quarter as commodity prices stabilized. We expect activity to remain flat for the remainder of the year as producers seemingly remain reluctant to rampup drilling programs without further and sustained improvements to commodity prices.    

Of 122 marketed United States drilling rigs, approximately 26 percent are engaged under term contracts of various terms. Approximately 32 percent of our contracted rigs have a remaining term of six months or longer, although they may be subject to early terminations.

International Activity  

International activity, representing 33 percent of our business, stabilized over the third quarter. Operations in Argentina are expected to remain flat at current levels with one rig running throughout the fourth quarter. In the Middle East, our operations in Bahrain and Kuwait remain steady with a total of four rigs running under long-term contracts. Australian operations remained steady over the third quarter and are expected to modestly improve over the remainder of the year. 

Of 48 marketed international drilling rigs, including the former five TDI joint venture drilling rigs now wholly owned, approximately 26 percent are engaged under term contracts of various terms. Approximately 83 percent of our contracted rigs have a remaining term of six months or longer, although they may be subject to early terminations. 

RISK AND UNCERTAINTIES

This document contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties. The factors that could cause results to differ materially include, but are not limited to, the impact of the COVID-19 virus, political, the potential reinstatement COVID-19 mitigation strategies, such as stay-at-home orders and lockdown related restrictions, economic and market conditions, crude oil and natural gas prices, foreign currency fluctuations, weather conditions, the Company's defense of lawsuits and the ability of oil and gas companies to pay accounts receivable balances and raise capital or other unforeseen conditions which could ongoing impact on the use of the services supplied by the Company. For a more detailed description of the risk factors and uncertainties that face the Company and the industry in which it operates, refer to the "Risks and Uncertainties" section of our current Management's Discussion & Analysis and the section titled "Risk Factors" in our current Annual Information Form.

CONFERENCE CALL

A conference call will be held to discuss the Company's third quarter 2020 results at 10:00 a.m. MDT (12:00 p.m. EDT) on Thursday, November 5, 2020. The conference call number is 1-647-427-7450 (in Toronto) or 1-888-231-8191 (outside Toronto). A taped recording will be available until August 17, 2020 by dialing 1-416-849-0833 (in Toronto) or 1-855-859-2056 (outside Toronto) and entering the reservation number 6789671. A live broadcast may be accessed through the Company's web site at www.ensignenergy.com/presentations.

Ensign Energy Services Inc. is an international oilfield services contractor and is listed on the Toronto Stock Exchange under the trading symbol ESI.

Ensign Energy Services Inc.
Consolidated Statements of Financial Position

As at

September 30
2020


December 31
2019

(Unaudited - in thousands of Canadian dollars)




Assets




Current Assets




Cash

$

56,973


$

28,408

Accounts receivable

149,334


272,254

Inventories, prepaid and other

52,869


47,292

Asset held for sale


18,806

Income taxes receivable


1,515

Total current assets

259,176


368,275

Property and equipment

2,841,179


2,855,223

Deferred income taxes

142,413


121,748

Investment in joint ventures


125,355

Total assets

$

3,242,768


$

3,470,601





Liabilities




Current Liabilities




Accounts payable and accruals

$

161,032


$

216,719

Cash dividends payable


9,787

Share-based compensation

135


297

Income taxes payable

9,152


4,489

Current portion of lease obligation

8,663


9,996

Total current liabilities

178,982


241,288





Share-based compensation

1,722


6,325

Long-term debt

1,474,307


1,581,529

Lease obligations

7,488


9,518

Deferred income taxes

167,774


163,781

Non-controlling interest

5,069


5,138

Total liabilities

1,835,342


2,007,579





Shareholders' Equity




Shareholders' capital

230,598


230,100

Contributed surplus

23,710


23,966

Equity component of convertible debenture

3,193


3,193

Accumulated other comprehensive income

280,141


243,771

Retained earnings

869,784


961,992

Total shareholders' equity

1,407,426


1,463,022

Total liabilities and shareholders' equity

$

3,242,768


$

3,470,601

Ensign Energy Services Inc.
Consolidated Statements of Loss


Three months ended


Nine months ended


September 30
2020

September 30
2019


September 30
2020

September 30
2019

(Unaudited - in thousands of Canadian dollars, except per common share data)






Revenue

$

156,933

$

393,412


$

735,553

$

1,215,928

Expenses






Oilfield services 

108,716

285,928


521,493

867,868

Depreciation

96,417

92,410


278,367

269,607

General and administrative

9,207

11,587


31,752

41,602

Restructuring

4,208

1,692


11,594

11,089

Share-based compensation

(1,272)

(673)


(2,893)

2,214

Foreign exchange and other (gain) loss

(1,598)

13,670


3,062

20,753

Total expenses

215,678

404,614


843,375

1,213,133

(Loss) income before financing charges and other (gains) losses and income taxes

(58,745)

(11,202)


(107,822)

2,795







Gain (loss) from investment in joint ventures

(436)

2,207


1,349

1,911

Gain on repurchase of unsecured Senior Notes

(40,072)

(920)


(103,589)

(1,570)

(Loss) gain on asset sale


3,437

(9,824)

Financing charges

27,264

34,870


92,053

111,875

Loss before income taxes

(45,501)

(47,359)


(101,072)

(99,597)

Income tax (recovery)






Current income tax

640

550


1,089

1,451

Deferred income tax (recovery)

(10,012)

(10,274)


(20,867)

(12,725)

Total income tax (recovery)

(9,372)

(9,724)


(19,778)

(11,274)

Net loss from continuing operations

(36,129)

$

(37,635)


(81,294)

(88,323)







Loss from discontinued operations

(73)

$

(931)


(1,327)

(4,162)

Net loss

$

(36,202)

$

(38,566)


$

(82,621)

$

(92,485)

Net loss attributable to:






Common shareholders

(36,094)

(37,770)


(82,421)

(91,290)

Non-controlling interests

(108)

(796)


(200)

(1,195)


(36,202)

(38,566)


(82,621)

(92,485)







Net loss attributable to common shareholders per common share






Basic

$

(0.23)

$

(0.24)


$

(0.51)

$

(0.58)

Diluted

$

(0.23)

$

(0.24)


$

(0.51)

$

(0.58)

Ensign Energy Services Inc.
Consolidated Statements of Cash Flows


Three months ended


Nine months ended


September
30 2020

September 30
2019


September 30
2020

September 30
2019

(Unaudited - in thousands of Canadian dollars)






Cash provided by (used in)






Operating activities






Net loss

$

(36,202)

$

(38,566)


$

(82,621)

$

(92,485)

Items not affecting cash






Depreciation

96,417

92,410


278,367

269,607

(Gain) loss from investment in joint ventures

(436)

2,207


1,349

1,911

Gain (loss) on asset sale


3,437

(9,824)

Gain on purchase of unsecured Senior Notes

(40,072)

(920)


(103,589)

(1,570)

Share-based compensation

(1,272)

(673)


(2,893)

2,214

    Unrealized foreign exchange and other

(5,885)

6,469


(24,601)

13,719

Accretion of deferred financing charges

2,972

2,812


8,915

11,347

Interest expense

24,292

32,058


83,138

100,528

Deferred income tax

(10,012)

(10,274)


(20,867)

(12,725)

Funds flow from operations

29,802

85,523


140,635

282,722

Net change in non-cash working capital

9,615

23,898


88,946

(5,702)

Cash provided by operating activities

39,417

109,421


229,581

277,020

Investing activities






Purchase of property and equipment

(5,539)

(38,354)


(45,210)

(111,632)

Proceeds from disposals of property and equipment

2,308

3,295


23,458

32,915

Acquisition of joint venture and minority interest net of cash

(31,885)


(31,885)

(49,214)

Net change in non-cash working capital

(3,666)

(6,515)


583

4,485

Cash used in investing activities

(38,782)

(41,574)


(53,054)

(123,446)







Financing activities






Proceeds from long-term debt

14,280

10,000


108,569

2,234,231

Repayments of long-term debt

(43,309)

(53,251)


(148,786)

(2,305,358)

Lease obligation principal repayments

(1,777)

(2,380)


(7,404)

(5,996)

Interest paid

(14,360)

(14,546)


(75,504)

(96,275)

Purchase of common shares held in trust

(169)

(373)


(725)

(896)

Cash dividends

(11,298)


(19,574)

(41,735)

Net change in non-cash working capital

2,719


20,368

Cash used in financing activities

(45,335)

(69,129)


(143,424)

(195,661)

Net (decrease) increase in cash

(44,700)

(1,282)


33,103

(42,087)

Effects of foreign exchange on cash

(983)

(1,880)


(4,538)

(6,196)

Cash – beginning of period

102,656

39,702


28,408

84,823

Cash – end of period

$

56,973

$

36,540


$

56,973

$

36,540

Ensign Energy Services Inc.

Non-GAAP Measures

Adjusted EBITDA, Adjusted EBITDA per common share and Consolidated EBITDA. These measures do not have any standardized meaning prescribed by IFRS and accordingly, may not be comparable to similar measures used by other companies. The non-GAAP measures included in this press release should not be considered as an alternative to, or more meaningful than, the IFRS measure from which they are derived or to which they are compared.

Adjusted EBITDA is used by management and investors to analyze the Company's profitability based on the Company's principal business activities prior to how these activities are financed, how assets are depreciated and amortized and how the results are taxed in various jurisdictions. Additionally, in order to focus on the core business alone, amounts are removed related to foreign exchange, share-based payment expense, impairment expenses, the sale of assets, restructuring costs, gain on repurchase of unsecured Senior Notes and fair value adjustments on financial assets and liabilities, as the Company does not deem these to relate to its core drilling and well services business. Adjusted EBITDA also takes into account the Company's portion of the principal activities of the joint venture arrangements by removing the loss (gain) from investments in joint ventures and including Adjusted EBITDA from investments in joint ventures. Adjusted EBITDA is not intended to represent net loss as calculated in accordance with IFRS.

ADJUSTED EBITDA

Three months ended
September 30

Nine months ended
September 30

($ thousands)

2020

2019

2020

2019

Loss before income taxes 1

(45,501)

(47,359)

(101,072)

(99,597)

Add-back/(deduct):





   Financing charges

27,264

34,870

92,053

111,875

   Depreciation

96,417

92,410

278,367

269,607

   Restructuring

4,208

1,692

11,594

11,089

   Gain (loss) from investment in joint ventures

(436)

2,207

1,349

1,911

   Share-based compensation

(1,272)

(673)

(2,893)

2,214

   Loss (gain) on asset sale

3,437

(9,824)

   Gain on repurchase of unsecured Senior Notes 2

(40,072)

(920)

(103,589)

(1,570)

   Foreign exchange and other (gain) loss

(1,598)

13,670

3,062

20,753

   Adjusted EBITDA from investment in joint ventures

466

2,046

6,475

10,606

Adjusted EBITDA

39,476

97,943

188,783

317,064

1 Comparative loss before income taxes have been revised to conform with current year's presentation.

See "Financing Charges" section for definition of Senior Notes.

Adjusted EBITDA from investment in joint ventures is used by management and investors to analyze the results generated by the Company's joint venture operations prior to how these activities are financed, how assets are depreciated and amortized and how the results are taxed in various jurisdictions. Additionally, in order to focus on its core drilling and well services business, amounts related to foreign exchange, dividend expense, dividend re-class, impairment adjustments to property and equipment, as well as preferred share valuation and the sale of assets are removed. Lastly, amounts recorded for the revaluation on the investment of the former TDI joint venture are removed as these are non-cash items and unrelated to the operations of the business. Adjusted EBITDA from investments in joint ventures is not intended to represent net loss as calculated in accordance with IFRS. 

Adjusted EBITDA from investment in joint ventures is calculated below:


Three months ended
September 30

Nine months ended
September 30

($ thousands)

2020

2019

2020

2019

(Loss) gain from investment in joint ventures

436

(2,207)

(1,349)

(1,911)

Add-back/(deduct):





   TDI fair value adjustment

(25)

625

   Depreciation

3,396

7,185

10,051

   Foreign exchange and other loss (gain)

(11)

(46)

229

(70)

   Financing charge

41

474

62

1,168

   Income taxes

442

283

584

   Preferred shares valuation

12

159

Adjusted EBITDA from investment in joint ventures

466

2,046

6,475

10,606

Consolidated EBITDA 

Consolidated EBITDA, as defined in the Company's Credit Facility agreement, is used in determining the Company's compliance with its covenants. The Consolidated EBITDA is substantially similar to Adjusted EBITDA, except that Adjusted EBITDA from the TDI joint venture is only included into Consolidated EBITDA for the purpose of the Company's Credit Facility when Adjusted EBITDA earned in the TDI joint venture is distributed up to the Company. Consolidated EBITDA is calculated on a rolling twelve-month basis. 

Working Capital

Working capital is defined as current assets less current liabilities as reported on the consolidated statements of financial position.

ADVISORY REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this document constitute forward-looking statements or information (collectively referred to herein as "forward-looking statements") within the meaning of applicable securities legislation. Forward-looking statements generally can be identified by the words "believe", "anticipate", "expect", "plan", "estimate", "target", "continue", "could", "intend", "may", "potential", "predict", "should", "will", "objective", "project", "forecast", "goal", "guidance", "outlook", "effort", "seeks", "schedule" or other expressions of a similar nature suggesting future outcome or statements regarding an outlook.

Disclosure related to expected future commodity pricing or trends, revenue rates, equipment utilization or operating activity levels, operating costs, capital expenditures and other prospective guidance provided throughout this document, including, but not limited to, information provided in the "Funds Flow from Operations and Working Capital" section regarding the Company's expectation that funds generated by operations combined with current and future credit facilities will support current operating and capital requirements, information provided in the "New Builds and Major Retrofits" section, information provided in the "Financial Instruments" section regarding Venezuela and information provided in the "Outlook" section regarding the general outlook for the remainder of 2020, are examples of forward-looking statements. These statements are not representations or guarantees of future performance and are subject to certain risks and unforeseen results. The reader should not place undue reliance on forward-looking statements as there can be no assurance that the plans, initiatives, projections, anticipations or expectations upon which they are based will occur.

The forward-looking statements are based on current expectations, estimates and projections about the Company and the industries and environments in which the Company operates, which speak only as of the date such statements were made or as of the date of the report or document in which they are contained. They are subject to known and unknown risks, uncertainties and other factors that could cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risk factors include, among others: general economic and business conditions which will, among other things, impact demand for and market prices of the Company's services and the ability of the Company's customers to pay accounts receivable balances; volatility of and assumptions regarding crude oil and natural gas commodity prices; fluctuations in currency and interest rates; economic conditions in the countries and regions in which the Company conducts business; political uncertainty and civil unrest; the Company's ability to implement its business strategy; impact of competition; the Company's defence of lawsuits; availability and cost of labour and other equipment, supplies and services; the Company's ability to complete its capital programs; operating hazards and other difficulties inherent in the operation of the Company's oilfield services equipment; availability and cost of financing and insurance; the Company's ability to amend covenants under the Credit Facility with its Credit Facility syndicate; timing and success of integrating the business and operations of acquired companies; actions by governmental authorities; government regulations and the expenditures required to comply with them (including safety and environmental laws and regulations and the impact of climate change initiatives on capital and operating costs); the adequacy of the Company's provision for taxes; the Company's response to the global COVID-19 pandemic and the impact thereof upon the business environments in which the Company is or may become engaged; and other circumstances affecting the Company's business, revenues and expenses.

The Company's operations and levels of demand for its services have been, and at times in the future may be, affected by political risks and developments, such as expropriation, nationalization, or regime change, and by national, regional and local laws and regulations such as changes in taxes, royalties and other amounts payable to governments or governmental agencies, environmental protection regulations, the global COVID-19 pandemic, the potential reinstatement COVID-19 mitigation strategies, such as stay-at-home orders and lockdown related restrictions, and the impact thereof upon the Company, its customers and its business. Should one or more of these risks or uncertainties materialize, or should any of the Company's assumptions prove incorrect, actual results may vary in material respects from those expressed or implied by the forward-looking statements. The impact of any one factor on a particular forward-looking statement is not determinable with certainty as such factors are interdependent upon other factors, and the Company's course of action would depend upon its assessment of the future considering all information then available.

For additional information refer to the "Risk and Uncertainties" section of the MD&A. Readers are cautioned that the lists of important factors contained herein are not exhaustive. Unpredictable or unknown factors not discussed in the MD&A could also have material adverse effects on forward-looking statements.

Although the Company believes the expectations conveyed by the forward-looking statements are reasonable based on information available to it on the date such forward-looking statements are made, no assurances can be given as to future results, levels of activity and achievements. Except as required by law, the Company assumes no obligation to update forward-looking statements should circumstances or its projections, anticipations, estimates or opinions change.

SOURCE Ensign Energy Services Inc.

Cision View original content: http://www.newswire.ca/en/releases/archive/November2020/05/c9822.html

Copyright CNW Group 2020

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