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Western Energy Services Corp. Releases Second Quarter 2018 Financial and Operating Results

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Western Energy Services Corp. Releases Second Quarter 2018 Financial and Operating Results

Canada NewsWire

CALGARY, July 25, 2018 /CNW/ - Western Energy Services Corp. ("Western" or the "Company") (TSX:WRG) announces the release of its second 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 and six months ended June 30, 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.

Second Quarter 2018 Operating Results:

  • Second quarter Operating Revenue improved by $0.5 million to $31.0 million in 2018 as compared to $30.5 million in 2017. In the contract drilling segment, Operating Revenue totalled $21.8 million in the second quarter of 2018, a decrease of $1.0 million (or 4%) as compared to $22.8 million in the second quarter of 2017, while in the production services segment, Operating Revenue totalled $9.2 million for the three months ended June 30, 2018, as compared to $7.7 million in the three months ended June 30, 2017, an increase of $1.5 million (or 20%). While activity was lower in the contract drilling segment, improved pricing in all divisions, as well as higher utilization in the production services segment impacted Operating Revenue as described below:
    • Drilling rig utilization – Operating Days ("Drilling Rig Utilization") in Canada averaged 17% in the second quarter of 2018 compared to an average of 19% in the second quarter of 2017, reflecting a 200 basis points ("bps") decrease. The decrease in activity is attributable to some of Western's customers deferring their drilling programs in the second quarter of 2018 to the latter half of 2018. Second quarter 2018 Drilling Rig Utilization of 17% was consistent with the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 17%, whereas in the second quarter of 2017, Drilling Rig Utilization of 19% represented a premium of 100 bps to the industry average. The decrease in the Company's utilization premium to the industry average in the second 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 relatively consistent at 8.0% in the second quarter of 2018, as compared to 8.4% in the second quarter of 2017. While utilization decreased during the quarter, pricing continued to increase and resulted in a 12% improvement in Operating Revenue per Billable Day in the second quarter of 2018, as compared to the same period in the prior year. The increase in pricing is a result of the Company being successful in steadily raising rates over the last twelve months as the energy industry continues to recover from a multi-year downturn;
    • In the United States, two of the Company's six drilling rigs operated throughout the quarter on long term contracts, resulting in Drilling Rig Utilization of 30% in the second quarter of 2018, as compared to 46% in the same period of the prior year. The decrease in Drilling Rig Utilization is mainly due to one rig being out of service during the second quarter of 2018 as upgrades were completed. This rig began work near the end of the second quarter of 2018 on a long term contract. Operating Revenue per Billable Day improved during the second quarter of 2018 by 17% as compared to the second quarter of 2017, mainly due to changes in the average rig mix, higher day rates and standby revenue earned during the quarter on a third drilling rig that began operating on a long term contract near the end of the second quarter; and
    • Well servicing utilization was 16% in the second quarter of 2018 compared to 14% in the same period of the prior year, due to increased demand in a number of areas where the Company operates. Hourly rates improved during the second quarter of 2018, increasing by 11% as compared to the same period in the prior year, due to the Company actively increasing hourly rates and changes in the average rig mix. Higher utilization and improved pricing, led to a $1.4 million (or 25%) increase in well servicing Operating Revenue in the period.
  • Second quarter Adjusted EBITDA increased by $0.8 million (or 641%) to $0.9 million in the second quarter of 2018 as compared to $0.1 million in the second quarter of 2017. The year over year change in Adjusted EBITDA is due to improved pricing in all divisions, as well as higher well servicing activity, which was partially offset by lower Drilling Rig Utilization.
  • Administrative expenses, excluding depreciation and stock based compensation, decreased by $0.8 million (or 15%) to $4.7 million, as compared to $5.5 million in the second quarter of 2017, mainly due to lower employee related costs.
  • The Company incurred a net loss of $15.5 million in the second quarter of 2018 ($0.17 per basic common share) as compared to a net loss of $16.6 million in the same period in 2017 ($0.23 per basic common share). The change can be attributed to the following:
    • A $0.9 million decrease in finance costs, due to lower total debt levels;
    • A $0.8 million increase in Adjusted EBITDA, mainly due to improved pricing in all divisions;
    • A $0.2 million decrease in stock based compensation expense as fewer unvested stock options and equity settled restricted share units were outstanding in the quarter; and
    • A $0.1 million positive change in other items, which include gains and losses on foreign exchange and asset sales.

Offsetting the above mentioned items was a $1.0 million decrease in income tax recovery due to improved earnings before taxes.

  • Second quarter 2018 capital expenditures of $5.4 million included $3.8 million of expansion capital and $1.6 million of maintenance capital. In total, capital spending in the second quarter of 2018 increased by $2.0 million from the $3.4 million incurred in the second quarter of 2017. The Company incurred expansion capital mainly related to drilling rig upgrades, as well as required maintenance capital, in the second quarter of 2018.

Year to Date 2018 Operating Results:

  • Operating Revenue for the six month period ended June 30, 2018 decreased by $4.7 million (or 4%) to $103.9 million as compared to $108.6 million for the six month period ended June 30, 2017. However, after normalizing for $6.4 million of shortfall commitment revenue recognized in the first quarter of 2017, Operating Revenue for the six months ended June 30, 2018 improved by $1.7 million (or 2%). In the contract drilling segment, Operating Revenue totalled $79.1 million for the six months ended June 30, 2018, which after normalizing for $6.4 million of shortfall commitment revenue recognized in 2017, resulted in Operating Revenue improving by $3.5 million (or 5%). In the production services segment, Operating Revenue totalled $25.0 million for the six months ended June 30, 2018, as compared to $26.7 million in the same period of the prior year, a decrease of $1.7 million (or 6%). While on a year to date basis activity was lower in Canada, pricing in all divisions improved which impacted Operating Revenue as described below:
    • Drilling Rig Utilization in Canada for the six month period ended June 30, 2018 averaged 34%, compared to an average of 36% for the six month period ended June 30, 2017, reflecting a 200 bps decrease. The decrease in activity in the first half of 2018 is due to some of Western's customers ending their winter drilling programs early and deferring their drilling plans to later in 2018. Drilling Rig Utilization of 34% in 2018 represented a premium of 500 bps to the CAODC industry average of 29%, whereas in the first six months of 2017, Drilling Rig Utilization of 36% represented a 700 bps premium to the industry average. The decrease in the Company's utilization premium to the industry average in 2018 is a function of a smaller industry rig fleet, as rigs continue to be decommissioned or moved out of the 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 relatively consistent at 9.6% in the first half of 2018, as compared to 10.0% in the first half of 2017. While utilization decreased during the six months ended June 30, 2018, pricing continued to increase and resulted in an 11% improvement in Operating Revenue per Billable Day in 2018, as compared to the same period in the prior year. The increase in pricing is due to changes in the average rig mix and the Company steadily raising rates over the last twelve months, as the energy industry continues to recover from a multi-year downturn;
    • In the United States, four of the Company's six drilling rigs operated during the period, two of which were working throughout the period on long term contracts, resulting in Operating Days increasing by 15% for the six months ended June 30, 2018, as compared to the same period in the prior year. While activity increased, Drilling Rig Utilization decreased to 40% for the six months ended June 30, 2018, as compared to 42% in the same period of the prior year, due to an increased rig fleet as a Cardium class drilling rig from the Canadian fleet was transferred to the United States fleet in late 2017. Operating Revenue per Billable Day in the United States improved by 7% in the first six months of 2018, as compared to the same period of the prior year, as the Company has been able to raise day rates as commodity prices improve in the United States. Additionally, day rates were aided by standby revenue earned in the second quarter of 2018 on a third drilling rig that began operating on a long term contract near the end of the second quarter; and
    • Well servicing utilization of 23% for the six months ended June 30, 2018 compared to 26% in the same period of the prior year, due to customers deferring work amid widening crude oil differentials in the first quarter of 2018, as activity in the second quarter improved year over year. Hourly rates improved for the six months ended June 30, 2018, increasing by 5% as compared to the same period in the prior year, due to changes in the average rig mix and the Company working to increase rates across all areas. Lower utilization, partially offset by improved pricing, led to a $1.1 million (or 5%) decrease in well servicing Operating Revenue in 2018.
  • Adjusted EBITDA for the six months ended June 30, 2018 decreased by $2.7 million (or 15%) to $16.0 million as compared to $18.7 million for the six months ended June 30, 2017. However, after normalizing for the $6.4 million in shortfall commitment revenue recognized in the first quarter of 2017, Adjusted EBITDA improved by $3.7 million (or 30%), as compared to the same period in the prior year. The year over year change in Adjusted EBITDA is due to improved pricing in all divisions and increased activity in the United States, offset by decreased activity in Canada and lower shortfall commitment revenue.
  • Administrative expenses, excluding depreciation and stock based compensation, for the six month period ended June 30, 2018 decreased by $1.6 million (or 14%) to $9.8 million, as compared to $11.4 million in the same period of the prior year, mainly due to lower employee related costs.
  • The Company incurred a net loss of $21.4 million for the six months ended June 30, 2018 ($0.23 per basic common share) as compared to a net loss of $21.0 million in the same period in 2017 ($0.28 per basic common share). The change can be attributed to the following:
    • A $2.7 million decrease in Adjusted EBITDA, mainly due to lower shortfall commitment revenue and decreased activity in Canada, partially offset by improved pricing in all divisions and increased activity in the United States; and
    • A $1.2 million decrease in income tax recovery due to improved earnings before taxes.

Offsetting the above mentioned items was:

    • A $1.9 million positive change in other items, of which $1.6 million related to transaction costs incurred in the prior period, coupled with gains and losses on foreign exchange and asset sales;
    • A $0.9 decrease in finance costs, due to lower total debt levels; and
    • A $0.5 million decrease in stock based compensation expense as fewer unvested stock options and equity settled restricted share units were outstanding in the quarter.
  • Year to date capital expenditures of $10.1 million included $5.6 million of expansion capital and $4.5 million of maintenance capital. In total, capital spending for the six months ended June 30, 2018 increased by $4.2 million from the $5.9 million incurred in the same period of the prior year. The Company incurred expansion capital mainly related to drilling rig upgrades, as well as required maintenance capital, in 2018.
  • 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 June 30


Six months ended June 30

Financial Highlights

2018

2017

   Change


2018

2017

Change

Revenue

33,141

33,307

-


114,398

117,529

(3%)

Operating Revenue(1)

30,976

30,469

2%


103,941

108,622

(4%)

Gross Margin(1)

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