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Western Energy Services Corp. releases first quarter 2018 financial and operating results

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Western Energy Services Corp. releases first quarter 2018 financial and operating results

Canada NewsWire

CALGARY, April 25, 2018 /CNW/ - Western Energy Services Corp. ("Western" or the "Company") (TSX:WRG) announces the release of its first quarter 2018 financial and operating results. Additional information relating to the Company, including the Company's financial statements and management's discussion and analysis as at and for the three months ended March 31, 2018 and 2017 will be available on SEDAR at www.sedar.com. Non-International Financial Reporting Standards ("Non-IFRS") measures and abbreviations for standard industry terms are included in this press release.  All amounts are denominated in Canadian dollars (CDN$) unless otherwise identified.

First Quarter 2018 Operating Results:

  • While first quarter Operating Revenue decreased by $5.2 million (or 7%) to $73.0 million in 2018 as compared to $78.2 million in 2017, after normalizing for $6.4 million of shortfall commitment revenue recognized in the first quarter of 2017, Operating Revenue in the first quarter of 2018 improved by $1.2 million (or 2%).  In the contract drilling segment, Operating Revenue totalled $57.4 million in the first quarter of 2018, which after normalizing for $6.4 million of shortfall commitment revenue recognized in the prior period, resulted in Operating Revenue improving by $4.6 million (or 9%).  In the production services segment, Operating Revenue totalled $15.7 million for the three months ended March 31, 2018, as compared to $19.0 million in the same period of the prior year, a decrease of $3.3 million (or 17%).  While activity was lower in the contract drilling and production services segments in Canada, improved pricing in Canada and higher utilization in the United States impacted Operating Revenue as described below:
    • Drilling rig utilization – Operating Days ("Drilling Rig Utilization") in Canada averaged 52% in the first quarter of 2018 compared to an average of 54% in the first quarter of 2017, reflecting a 200 basis points ("bps") decrease.  The decrease is attributable to activity slowing in the latter part of the quarter as some of Western's customers ended their winter drilling programs early, due to economic factors.  First quarter 2018 Drilling Rig Utilization of 52% represented a premium of 1,100 bps to the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 41%, whereas in the first quarter of 2017, Drilling Rig Utilization of 54% represented a 1,400 bps premium to the industry average.  The decrease in the Company's utilization premium to the industry average in the first quarter of 2018 is a function of a smaller industry rig fleet, as rigs continue to be decommissioned or moved out of the Western Canadian Sedimentary Basin ("WCSB").  Western's market share, represented by the Company's Operating Days as a percentage of the CAODC's total Operating Days in the WCSB, remained constant at 10.3% in the first quarter of 2018, as compared to 10.7% in the first quarter of 2017.  While utilization decreased during the quarter, pricing continued to increase and resulted in an 11% improvement in Operating Revenue per Billable Day in the first quarter of 2018, as compared to the same period in the prior year, as the Company steadily raised rates and diversified its customer base as the energy industry continues to recover from a multi-year downturn.  Similarly, when comparing to the fourth quarter of 2017, Operating Revenue per Billable Day in the first quarter of 2018 improved by 1%;
    • In the United States, four of the Company's six drilling rigs operated during the quarter, two of which were working on long term contracts, resulting in Drilling Rig Utilization of 51% in the first quarter of 2018, as compared to 39% in the same period of the prior year.  While day rates have generally improved, Operating Revenue per Billable Day in the United States was consistent in the first quarter of 2018, as compared to the first quarter of 2017, mainly due to changes in the average rig mix, as rigs running on lower day rates worked more during the first quarter of 2018.  Compared to the fourth quarter of 2017, Operating Revenue per Billable Day improved by 10% due to changes in rig mix and contract rate increases that took effect in the first quarter of 2018; and
    • Well servicing utilization was 31% in the first quarter of 2018 compared to 38% in the same period of the prior year, due to customers deferring work amid widening crude oil differentials.  Hourly rates improved during the first quarter of 2018, increasing by 2% as compared to the same period in the prior year, due to changes in the average rig mix.  Lower utilization, partially offset by improved pricing, led to a $2.5 million (or 16%) decrease in well servicing Operating Revenue in the period.
  • First quarter Adjusted EBITDA decreased by $3.5 million (or 19%) to $15.1 million in 2018 as compared to $18.6 million in the first quarter of 2017.  However, after normalizing for the $6.4 million in shortfall commitment revenue recognized in the first quarter of 2017, Adjusted EBITDA improved by $2.9 million (or 24%), as compared to the same period in the prior year.  The year over year change in Adjusted EBITDA is due to improved pricing in Canada and higher activity in the United States, which was offset by decreased well servicing activity and lower shortfall commitment revenue.      
  • Administrative expenses, excluding depreciation and stock based compensation, decreased by $0.6 million (or 10%) to $5.2 million, as compared to $5.8 million in the first quarter of 2017, mainly due to lower employee related costs.
  • The Company incurred a net loss of $5.9 million in the first quarter of 2018 ($0.06 per basic common share) as compared to a net loss of $4.4 million in the same period in 2017 ($0.06 per basic common share).  The change can be attributed to the following:
    • A $3.5 million decrease in Adjusted EBITDA, mainly due to lower shortfall commitment revenue and decreased well servicing activity, partially offset by improved pricing in Canada and higher activity in the United States; offset by:
    • A $1.8 million positive change in other items, of which $1.6 million related to prior period transaction costs on the unsuccessful acquisition of Savanna Energy Services Corp. ("Savanna") in 2017, coupled with gains and losses on foreign exchange and asset sales; and
    • A $0.3 million decrease in stock based compensation expense as fewer unvested stock options and equity settled restricted share units were outstanding in the quarter.
  • First quarter 2018 capital expenditures of $4.7 million included $1.8 million of expansion capital and $2.9 million of maintenance capital.  In total, capital spending in the first quarter of 2018 increased by $2.3 million from the $2.4 million incurred in the first quarter of 2017.  The Company incurred expansion capital mainly related to drilling rig upgrades in the first quarter of 2018, as well as necessary maintenance capital.
  • On January 31, 2018, the Company completed the one time draw of $215.0 million on its 7.25% second lien secured term loan facility (the "Second Lien Facility").  The proceeds from the Second Lien Facility draw, along with cash on hand and funds available under the $70.0 million syndicated revolving credit facility (the "Revolving Facility") and the $10.0 million committed operating facility (the "Operating Facility" and together the "Credit Facilities") were used to redeem the $265.0 million 7⅞% senior unsecured notes (the "Senior Notes") at their par value of $265.0 million on February 1, 2018.

Selected Financial Information

(stated in thousands, except share and per share amounts)


                      Three months ended March 31

Financial Highlights

2018

2017

Change

Revenue

81,257

84,222

(4%)

Operating Revenue(1)

72,965

78,153

(7%)

Gross Margin(1)

20,271

24,458

(17%)

Gross Margin as a percentage of Operating Revenue

28%

31%

(10%)

Adjusted EBITDA(1)

15,112

18,625

(19%)

Adjusted EBITDA as a percentage of Operating Revenue

21%

24%

(13%)

Cash flow from operating activities

3,864

3,173

22%

Capital expenditures

4,656

2,436

91%

Net loss

(5,947)

(4,365)

36%


-basic net loss per share

(0.06)

(0.06)

-


-diluted net loss per share

(0.06)

(0.06)

-

Weighted average number of shares





-basic

92,177,048

73,795,944

25%


-diluted

92,177,048

73,795,944

25%

Outstanding common shares as at period end

92,177,098

73,795,944

25%

(1)  See "Non-IFRS measures" included in this press release.



                                   Three months ended March 31

Operating Highlights(1)

2018

2017

 Change

Contract Drilling




Canadian Operations:



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