FIRST QUARTER HIGHLIGHTS
- Revenue for the first quarter of 2020 was
$383.9 million , a 14 percent decrease from the first quarter of 2019 revenue of$445.3 million . - Revenue by geographic area:
Canada -$97.1 million , 25 percent of total;United States -$214.6 million , 56 percent of total; and- International -
$72.2 million , 19 percent of total - Canadian drilling recorded 3,102 operating days in the first quarter of 2020, a one percent increase from 3,061 operating days in the first quarter of 2019. Canadian well servicing recorded 12,233 operating hours in the first quarter of 2020, a four percent decrease from 12,798 operating hours in the first quarter of 2019.
United States drilling recorded 5,141 operating days in the first quarter of 2020, a 23 percent decrease from 6,657 operating days in the first quarter of 2019.United States well servicing recorded 31,207 operating hours in the first quarter of 2020, a 10 percent increase from 28,365 operating hours in the first quarter of 2019.- International drilling recorded 1,438 operating days in the first quarter of 2020, an eight percent increase from 1,329 operating days recorded in first quarter of 2019.
- Adjusted EBITDA for the first quarter of 2020 was
$90.1 million , a 22 percent decrease from Adjusted EBITDA of$115.5 million for the first quarter of 2019. - Funds from operations for the first quarter of 2020 decreased 30 percent to
$84.5 million from$120.4 million in first quarter of the prior year. - Net capital expenditures for the quarter were
$22.3 million , consisting of$10.0 million in upgrade capital and$16.4 million in maintenance capital, offset by proceeds of$4.2 million . Planned capital expenditures for the 2020 year have been further reduced by 50 percent to$50 million , of which approximately$40.0 million will be maintenance capital. - General and administrative expense decreased 16 percent year over year and 12 percent quarter over quarter.
- Over the first quarter of 2020, US
$17.8 million face value of Senior Notes were repurchased by the Company in the open market for cancellation, recognizing a gain of$11.5 million . - Total debt for the first quarter of 2020 was down year-over-year by
$167.3 million to$1,643.6 million as ofMarch 31, 2020 from$1,810.9 million as atMarch 31, 2019 , despite an increase in aggregate debt of$46.4 million due to foreign exchange changes. - Due to the current business environment, the Company has suspended its quarterly dividend.
OVERVIEW
Revenue for the three months ended
Net loss attributed to common shareholders for the three months ended
On
Early in March, in response to the COVID-19 pandemic, Ensign implemented rigorous measures across its global operations to ensure the safety of its operations, the health of its people 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 allowed for the safe continuity and reliability of its operations in the field and a smooth transition to remote work for our office employees. Furthermore, Ensign has implemented regional Emergency Response Groups to respond to any incidents, rapidly and effectively. These measures continue to be in place as Ensign 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 first quarter of 2020 when compared to the first quarter of 2019 as customers quickly responded to the steep declines in commodity prices and an uncertain industry outlook by curtailing capital expenditures. The modest strengthening year-over-year of
Working capital at
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 | ||||||
2020 | 2019 | % change | ||||
Revenue | 383,891 | 445,258 | (14) | |||
Adjusted EBITDA 1 | 90,120 | 115,531 | (22) | |||
Adjusted EBITDA per common share 1 | ||||||
Basic | $ | 0.55 | $ | 0.74 | (26) | |
Diluted | $ | 0.55 | $ | 0.74 | (26) | |
Net loss attributable to common shareholders | (29,250) | (22,347) | (31) | |||
Net loss per common share | ||||||
Basic | $ | (0.18) | $ | (0.14) | (29) | |
Diluted | $ | (0.18) | $ | (0.14) | (29) | |
Cash provided by operating activities 2 | 62,732 | 85,979 | (27) | |||
Funds flow from operations 2 | 84,495 | 120,420 | (30) | |||
Funds flow from operations per common share 2 | ||||||
Basic | $ | 0.52 | $ | 0.77 | (32) | |
Diluted | $ | 0.52 | $ | 0.77 | (32) | |
Total debt | 1,643,595 | 1,810,890 | (9) | |||
Weighted average common shares - basic (000s) | 162,843 | 156,951 | 4 | |||
Weighted average common shares - diluted (000s) | 162,981 | 156,982 | 4 | |||
Drilling | 2020 | 2019 | % change | |||
Number of marketed rigs 3 | ||||||
101 | 119 | (15) | ||||
122 | 134 | (9) | ||||
International 5 | 43 | 42 | 2 | |||
Total | 266 | 295 | (10) | |||
Operating days 6 | ||||||
3,102 | 3,061 | 1 | ||||
5,141 | 6,657 | (23) | ||||
International 5 | 1,438 | 1,329 | 8 | |||
Total | 9,681 | 11,047 | (12) | |||
Well Servicing | 2020 | 2019 | % change | |||
Number of rigs | ||||||
52 | 55 | (5) | ||||
47 | 46 | 2 | ||||
Total | 99 | 101 | — | |||
Operating hours | ||||||
12,233 | 12,798 | (4) | ||||
31,207 | 28,365 | 10 | ||||
Total | 43,440 | 41,163 | — |
1. | Please refer to Adjusted EBITDA calculation in Non-GAAP Measures. |
2. | 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. |
3. | Total owned rigs for the Company Canada - 118, United Sates - 138, International - 48 (2019 owned rigs - |
4. | Excludes coring rigs. |
5. | Includes workover rigs and excludes joint venture drilling rigs. |
6. | Defined as contract drilling days, between spud to rig release. |
FINANCIAL POSITION AND CAPITAL EXPENDITURES HIGHLIGHTS
As at ($ thousands) |
|
|
|
Working capital1 | 147,353 | 279,153 | 126,987 |
Cash | 48,560 | 122,803 | 28,408 |
Long-term debt | 1,643,595 | 1,810,890 | 1,581,529 |
Total long-term financial liabilities | 1,651,477 | 1,825,733 | 1,591,047 |
Total assets | 3,640,761 | 3,862,824 | 3,470,601 |
Long-term debt to long-term debt plus equity ratio | 0.52 | 0.52 | 0.52 |
1 See Non-GAAP Measures section. |
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Capital expenditures | |||
Upgrade/growth | 9,965 | 28,545 | (65) |
Maintenance | 16,467 | 12,821 | 28 |
Proceeds from disposals of property and equipment | (4,165) | (1,722) | nm |
Net capital expenditures | 22,267 | 39,644 | (44) |
nm - calculation not meaningful |
REVENUE AND OILFIELD SERVICES EXPENSE
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Revenue | |||
97,137 | 106,422 | (9) | |
214,577 | 273,596 | (22) | |
International | 72,177 | 65,240 | 11 |
Total revenue | 383,891 | 445,258 | (14) |
Oilfield services expense | 283,979 | 317,688 | (11) |
Revenue for the three months ended
The decrease in total revenue, during the first quarter of 2020, was primarily due to the oil price and market share war between crude oil producing nations
CANADIAN OILFIELD SERVICES
The Company recorded revenue of
Although we had a modest seasonal increase in drilling operating activity, the financial results for the Company's Canadian operations decreased during the first quarter of 2020 primarily due the impact of the COVID-19 pandemic on the global oil and natural gas industry as described above.
For the three months ended
During the three months ended
Drilling days decreased by 23 percent to 5,141 drilling days in the first quarter of 2020 from 6,657 drilling days in the first quarter of 2019. Well servicing hours increased by 10 percent in the first quarter of 2020 to 31,207 operating hours from 28,365 operating hours in the first quarter of 2019.
Overall operating results for the Company's
INTERNATIONAL OILFIELD SERVICES
The Company's international operations recorded revenue of
For the three months ended
Overall international operating days and revenue increased in the first quarter of 2020 when compared to the same period of 2019, primarily as a result of the long-term contracts signed and commenced in the latter half of 2019. The extent to which the Company's international operations may be negatively impacted by the impact of the global COVID-19 pandemic is uncertain.
JOINT VENTURE OILFIELD SERVICES
Amounts below are presented at 100 percent of the value included in the statement of operations and comprehensive (loss) income for
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Revenue | 16,855 | 10,204 | 65 |
Net loss | (2,764) | (2,707) | 2 |
Drilling operating days | 221 | 123 | 80 |
For the three months ended
DEPRECIATION
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Depreciation | 89,785 | 88,167 | 2 |
Depreciation expense totaled
GENERAL AND ADMINISTRATIVE
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
General and administrative | 11,804 | 14,037 | (16) |
% of revenue | 3.1 | 3.2 |
General and administrative expenses decreased 16 percent to
In light of recent events, the Company has taken further steps to reduce overhead costs by reducing the salaries of the Company's named executive officers 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 members of our 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 and the Company will continue to consider additional means of reducing overhead and operating costs.
RESTRUCTURING
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Restructuring | 877 | 8,482 | nm |
nm - calculation not meaningful |
Restructuring expense totaled
FOREIGN EXCHANGE LOSS AND OTHER
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Foreign exchange loss and other | 9,086 | 10,360 | (12) |
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 | |||||||
($ thousands) | 2020 | 2019 | % change | ||||
Gain on repurchase of Senior Notes | (11,494) | — | nm |
nm - calculation not meaningful |
For the three months ended
Subsequent to
FINANCING CHARGES
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Interest expense | 31,743 | 34,115 | (7) |
Accretion of financing charges | 3,099 | 2,231 | 39 |
Financing charges | 34,842 | 36,346 | (4) |
Financing charges was incurred on the Company's
Financing charges decreased by
The Company's blended interest rate on its outstanding debt for the 2020 year will be approximately 7.0 percent. The current capital structure 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 | |||
($ thousands) | 2020 | 2019 | % change |
Current tax | 460 | 441 | 4 |
Deferred tax recovery | (3,424) | (11,693) | (71) |
Total tax recovery | (2,964) | (11,252) | (74) |
Effective tax rate (%) | 9.2 | 35.8 |
The effective income tax rate for the three months ended
FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL
($ thousands, except per common share amounts) | Three months ended | ||||
2020 | 2019 | % change | |||
Cash provided by operating activities 1 | 62,732 | 85,979 | (27) | ||
Funds flow from operations 1 | 84,495 | 120,420 | (30) | ||
Funds flow from operations per common share 1 | $ | 0.52 | $ | 0.77 | (32) |
Working capital 2 | 147,353 | 126,987 | 16 |
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 of |
For the three months ended
As at
INVESTING ACTIVITIES
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Purchase of property and equipment | (26,432) | (41,366) | (36) |
Proceeds from disposals of property and equipment | 4,165 | 1,722 | nm |
Acquisition of minority interest | — | (49,214) | nm |
Net change in non-cash working capital | 7,753 | 16,426 | (53) |
Cash used in investing activities | (14,514) | (72,432) | (80) |
nm - calculation not meaningful |
Net purchases of property and equipment for the first quarter of 2020 totaled
FINANCING ACTIVITIES
Three months ended | |||
($ thousands) | 2020 | 2019 | % change |
Proceeds from long-term debt | 53,126 | 1,259,136 | (96) |
Repayments of long-term debt | (55,472) | (1,185,713) | (95) |
Lease obligation principle repayments | (2,670) | (1,259) | nm |
Purchase of common shares held in trust | (1,223) | (1,076) | 14 |
Interest paid | (11,967) | (47,069) | (75) |
Cash dividends | (9,787) | (18,849) | (48) |
Net change in non-cash working capital | — | 20,680 | nm |
Cash used in financing activities | (27,993) | 25,850 | nm |
nm - calculation not meaningful |
The Company's available bank facilities consist of a
The Company's blended interest rate on its outstanding debt for the 2020 year will be approximately 7.0 percent. The current capital structure 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.
The Company may at any time and from time to time acquire Senior Notes for cancellation by means of open market repurchases, negotiated transactions or otherwise. During the three months ended
The Credit Facility
The Credit Facility agreement, available on SEDAR, requires that the Company comply with certain covenants including Consolidated Debt to Consolidated EBITDA, Consolidated Senior Debt to Consolidated EBITDA and Consolidated EBITDA to Consolidated Interest Expense.
The Credit Facility contains certain covenants that place restrictions on the Company's ability to create, incur or assume additional indebtedness; to change the Company's primary business; to enter into mergers or amalgamations; to dispose of property; and that the aggregate amount of cash on a consolidated basis or available borrowings be at least
As at
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
NEW BUILDS AND MAJOR RETROFITS
As at
OUTLOOK
Industry Overview
The outlook for the oil service industry is uncertain. The macroeconomic environment for its oil and natural gas producer customers has shifted rapidly as a result of the global COVID-19 pandemic and geopolitical events. Global COVID-19 mitigation strategies have dramatically and adversely impacted demand for oil and natural gas in the short term, exacerbating a supply surplus that has driven crude oil commodity prices to historic lows. While supply has recently been curtailed somewhat by select global oil producing nations, the outlook for crude oil prices remains challenged as a result of this current supply and demand imbalance. Oil and natural gas energy producers have adjusted to the current commodity price environment by curtailing capital expenditures and selectively curtailing production, leading to downward pressure on demand for the Company's equipment, resulting in lower utilization and revenue rates across the Company's North American fleet.
The Company has responded by further reducing its 2020 budgeted net capital expenditures to
In the short term, we expect continued uncertainty with macroeconomic conditions including crude oil commodity prices and demand for oil and natural gas and the services we provide. In the long term, while acknowledging the timing of an oil market recovery remains uncertain, the Company believes the oil price environment is likely to gradually stabilize and improve. The Company's high variable cost, low fixed cost business model enables it to be resilient and flexible during this time of uncertainty. Although future uncertainties may impact the current outlook, the Company believes it is relatively well positioned to survive the current downturn and take advantage of the new operating environment when the market rebounds.
The Company remains committed to debt retirement, balance sheet and liquidity preservation and capital efficiency. In addition, the Company continues to monitor the current macroeconomic environment and will continue to take additional steps to mitigate the negative impacts of these events and to be positioned to take advantage of positive events that may occur.
Canadian Activity
While Canadian activity has predictably slowed as operations entered the seasonal spring break-up, Canadian operations delivered a strong first quarter in 2020. Notably, the Company increased Canadian market share nearing the end of the quarter. We expect Canadian activity to remain muted through break-up, into the year's third quarter and down year-over-year. As a result, we remain focused on opportunities in diversified projects such as natural gas and gas liquids.
As of
United States Activity
As of
International Activity
International activity delivered a stable first quarter. In light of the current environment, we expect international activity to be flat to slightly down year-over-year. Although we believe market conditions in many of our international operating jurisdictions are superior to
As of
RISKS 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, 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 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 first quarter 2020 results at
Consolidated Statements of Financial Position
As at |
|
| |||
(Unaudited - in thousands of Canadian dollars) | |||||
Assets | |||||
Current Assets | |||||
Cash | $ | 48,560 | $ | 28,408 | |
Accounts receivable | 312,263 | 272,254 | |||
Inventories, prepaid and other | 50,973 | 47,292 | |||
Asset held for sale | 18,806 | 18,806 | |||
Income taxes receivable | 1,644 | 1,515 | |||
Total current assets | 432,246 | 368,275 | |||
Property and equipment | 2,940,509 | 2,855,223 | |||
Investment in joint ventures | 133,434 | 125,355 | |||
Deferred income taxes | $ | 134,572 | $ | 121,748 | |
Total assets | $ | 3,640,761 | $ | 3,470,601 | |
Liabilities | |||||
Current Liabilities | |||||
Accounts payable and accruals | $ | 260,150 | $ | 216,719 | |
Cash dividends payable | 9,787 | 9,787 | |||
Share-based compensation | — | 297 | |||
Income taxes payable | 4,716 | 4,489 | |||
Current portion of lease obligations | 10,240 | 9,996 | |||
Total current liabilities | 284,893 | 241,288 | |||
Share-based compensation | 1,610 | 6,325 | |||
Long-term debt | 1,643,595 | 1,581,529 | |||
Lease obligations | 7,882 | 9,518 | |||
Deferred income taxes | 188,269 | 163,781 | |||
Non-controlling interest | 5,601 | 5,138 | |||
Total liabilities | $ | 2,131,850 | $ | 2,007,579 | |
Shareholders' Equity | |||||
Shareholders' capital | $ | 230,981 | $ | 230,100 | |
Contributed surplus | 23,237 | 23,966 | |||
Equity component of convertible debenture | 3,193 | 3,193 | |||
Accumulated other comprehensive income | 328,545 | 243,771 | |||
Retained earnings | 922,955 | 961,992 | |||
Total shareholders' equity | 1,508,911 | 1,463,022 | |||
Total liabilities and shareholders' equity | $ | 3,640,761 | $ | 3,470,601 |
Consolidated Statements of Loss
Three months ended | ||||
|
| |||
(Unaudited - in thousands of Canadian dollars, except per common share data) | ||||
Revenue | $ | 383,891 | $ | 445,258 |
Expenses | ||||
Oilfield services | 283,979 | 317,688 | ||
Depreciation | 89,785 | 88,167 | ||
General and administrative | 11,804 | 14,037 | ||
Restructuring | 877 | 8,482 | ||
Share-based compensation | (4,500) | 1,627 | ||
Foreign exchange loss and other | 9,086 | 10,360 | ||
Total expenses | 391,031 | 440,361 | ||
(Loss) income before financing charges and other (gains) losses and income taxes | (7,140) | 4,897 | ||
Loss from investment in joint ventures | 1,658 | 2,011 | ||
Gain on repurchase of unsecured Senior Notes | (11,494) | — | ||
Financing charges | 34,842 | 36,346 | ||
Loss before income taxes | (32,146) | (33,460) | ||
Income tax (recovery) | ||||
Current tax | 460 | 441 | ||
Deferred tax recovery | (3,424) | (11,693) | ||
Total income tax recovery | (2,964) | (11,252) | ||
Net loss | $ | (29,182) | $ | (22,208) |
Net (loss) income attributable to: | ||||
Common shareholders | (29,250) | (22,347) | ||
Non-controlling interests | 68 | 139 | ||
(29,182) | (22,208) | |||
Net loss per common share | ||||
Basic | $ | (0.18) | $ | (0.14) |
Diluted | $ | (0.18) | $ | (0.14) |
Consolidated Statements of Cash Flows
Three months ended | ||||
|
| |||
(Unaudited - in thousands of Canadian dollars) | ||||
Cash provided by (used in) | ||||
Operating activities | ||||
Net loss | $ | (29,182) | $ | (22,208) |
Items not affecting cash | ||||
Depreciation | 89,785 | 88,167 | ||
Loss from investment in joint ventures | 1,658 | 2,011 | ||
Gain on repurchase of unsecured Senior Notes | (11,494) | — | ||
Share-based compensation | (4,500) | 1,627 | ||
Unrealized foreign exchange and other | 6,810 | 26,170 | ||
Accretion of deferred financing charges | 2,972 | 2,238 | ||
Interest expense | 31,870 | 34,108 | ||
Deferred income tax | (3,424) | (11,693) | ||
Funds flow from operations | 84,495 | 120,420 | ||
Net change in non-cash working capital | (21,763) | (34,441) | ||
Cash provided by operating activities | 62,732 | 85,979 | ||
Investing activities | ||||
Purchase of property and equipment | (26,432) | (41,366) | ||
Proceeds from disposals of property and equipment | 4,165 | 1,722 | ||
Acquisition of minority interest | — | (49,214) | ||
Net change in non-cash working capital | 7,753 | 16,426 | ||
Cash used in investing activities | (14,514) | (72,432) | ||
Financing activities | ||||
Proceeds from long-term debt | 53,126 | 1,259,136 | ||
Repayments of long-term debt | (55,472) | (1,185,713) | ||
Lease obligations principle repayments | (2,670) | (1,259) | ||
Purchase of common shares held in trust | (1,223) | (1,076) | ||
Interest paid | (11,967) | (47,069) | ||
Cash dividends | (9,787) | (18,849) | ||
Net change in non-cash working capital | — | 20,680 | ||
Cash (used in) provided by financing activities | (27,993) | 25,850 | ||
Net increase in cash | 20,225 | 39,397 | ||
Effects of foreign exchange on cash | (73) | (1,417) | ||
Cash | ||||
Beginning of period | 28,408 | 84,823 | ||
End of period | $ | 48,560 | $ | 122,803 |
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.
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 | |||||||
($ thousands) | 2020 | 2019 | |||||
Loss before income taxes | $ | (32,146) | $ | (33,460) | |||
Add-back/(deduct): | |||||||
Financing charges | 34,842 | 36,346 | |||||
Depreciation | 89,785 | 88,167 | |||||
Restructuring costs | 877 | 8,482 | |||||
Share-based compensation | (4,500) | 1,627 | |||||
Gain on repurchase of unsecured Senior Notes | (11,494) | — | |||||
Loss from investment in joint ventures | 1,658 | 2,011 | |||||
Foreign exchange loss and other | 9,086 | 10,360 | |||||
Adjusted EBITDA from investment in joint ventures | 2,012 | 1,998 | |||||
Adjusted EBITDA | $ | 90,120 | $ | 115,531 |
Adjusted EBITDA from investments 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 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 | ||||
($ thousands) | 2020 | 2019 | ||
Loss from investment in joint ventures | $ | (1,658) | $ | (2,011) |
Add-back/(deduct): | ||||
Depreciation | 3,430 | 3,429 | ||
Foreign exchange loss (gain) | 102 | (5) | ||
Financing charges | 10 | 314 | ||
Income taxes | — | 124 | ||
Preferred shares valuation | — | 147 | ||
Adjusted EBITDA | $ | 2,012 | $ | 1,998 |
Working Capital
Working capital defined as current assets less current liabilities as reported on the consolidated statement 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 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 MD&A, including, but not limited to, information provided in the "Funds Flow from
The forward-looking statements are based on current expectations, estimates and projections about the Company and the industries 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; 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 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 and environmental protection regulations. 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 this MD&A. Readers are cautioned that the lists of important factors contained herein are not exhaustive. Unpredictable or unknown factors not discussed in this 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.
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