SELECTED INFORMATION | |||||
(in thousands of dollars except per share and percentages) | For the three months ended | ||||
2020 | 2019 | ||||
Revenue | $ | 41,423 | $ | 47,446 | |
Gross margin | 8,418 | 10,559 | |||
Gross margin % | 20% | 22% | |||
EBITDAS(1) | 5,884 | 7,544 | |||
Net income before impairment loss(1) | 3,744 | 1,407 | |||
Per share – basic and diluted | 0.03 | 0.01 | |||
Net (loss) income | $ | (5,025) | $ | 1,407 | |
Per share – basic and diluted | $ | (0.04) | $ | 0.01 | |
Operating hours | |||||
Coil tubing rigs | 13,013 | 13,418 | |||
Pumpers | 15,892 | 16,082 | |||
As at | |||||
2020 | 2019 | ||||
Working capital | $ | 53,514 | $ | 53,808 | |
Total assets | 183,999 | 207,704 | |||
Long-term debt | $ | 8,544 | $ | 12,827 | |
(1) Refer to “Non-IFRS Measures” section for further information. | |||||
INDUSTRY OVERVIEW
First quarter 2020 industry drilling and well completion activity remained below 2019 levels in
Near-term economic, political and social consequences of the COVID-19 pandemic and the extraordinary measures to contain its spread, started to evolve rapidly in
HIGHLIGHTS
Revenue for the three months ended
Key highlights included:
- ECWS revenue was
$24.5 million , 6% lower than the first quarter 2019, in comparison to a 9% decline in industry well completions. Management was pleased with gross margin of$5.8 million or 24%, consistent with the first quarter 2019, despite the decrease in revenue.
- Tryton revenue was
$16.9 million , 21% lower compared to the first quarter 2019. Tryton Multi-Stage Fracturing System® (“MSFS®”) sales experienced growth from both the third and fourth quarters 2019, as customers resumed spending on completion activities; however, activity remained below the first quarter 2019.
- In the face of the COVID-19 pandemic and the uncertainties surrounding it, Essential quickly adapted its operations and processes to remain focused on delivery of high-quality service to customers, in a safe work environment for employees. As the Company is deemed an essential service, staff continued to work while respecting the COVID-19 physical distancing parameters and Essential’s occupational health and safety policies, as well as recommendations of health authorities and its customers.
Essential was in a strong financial position with long-term debt net of cash of
RESULTS OF OPERATIONS
SEGMENT RESULTS – ESSENTIAL COIL WELL SERVICE | |||||
(in thousands of dollars, | For the three months ended | ||||
except percentages, hours and fleet data) | 2020 | 2019 | |||
Revenue | $ | 24,539 | $ | 26,069 | |
Operating expenses | 18,726 | 19,557 | |||
Gross margin | $ | 5,813 | $ | 6,512 | |
Gross margin % | 24% | 25% | |||
Operating hours | |||||
Coil tubing rigs | 13,013 | 13,418 | |||
Pumpers | 15,892 | 16,082 | |||
Active equipment fleet(i) | |||||
Coil tubing rigs | 16 | 16 | |||
Fluid pumpers | 12 | 19 | |||
Nitrogen pumpers | 6 | 8 | |||
Total equipment fleet(i) | |||||
Coil tubing rigs | 29 | 29 | |||
Fluid pumpers | 19 | 19 | |||
Nitrogen pumpers | 8 | 8 | |||
(i) Fleet data represents the number of units at the end of the period. | |||||
ECWS first quarter 2020 revenue was
Management was pleased with the ECWS gross margin of
SEGMENT RESULTS – TRYTON | |||||
For the three months ended | |||||
(in thousands of dollars, except percentages) | 2020 | 2019 | |||
Revenue | $ | 16,884 | $ | 21,377 | |
Operating expenses | 13,974 | 16,929 | |||
Gross margin | $ | 2,910 | $ | 4,448 | |
Gross margin % | 17% | 21% | |||
Tryton revenue – % of revenue | |||||
Tryton MSFS® | 35% | 40% | |||
Conventional Tools & Rentals | 65% | 60% | |||
Tryton first quarter 2020 revenue decreased 21% compared to the same quarter 2019. Tryton MSFS® sales experienced growth from both the third and fourth quarters 2019, as customers resumed spending on completion activities, however activity remained below the first quarter 2019. MSFS® revenue also decreased as customers opted to use lower-cost completion techniques, including Tryton’s composite bridge plugs, that generate lower revenue per job compared to Tryton’s ball & seat systems. Tryton
Gross margin in the first quarter 2020 decreased to 17% of revenue compared to 21% in the same prior year period, as fixed costs represented a greater portion of revenue.
IMPAIRMENT LOSS | |||||
For the three months ended | |||||
(in thousands of dollars) | 2020 | 2019 | |||
Impairment loss | $ | 10,293 | $ | - | |
International Financial Reporting Standards (“IFRS”) requires the Company to assess the carrying value of assets in the cash generating units when there are impairment indicators. At
EQUIPMENT EXPENDITURES | |||||
For the three months ended | |||||
(in thousands of dollars) | 2020 | 2019 | |||
ECWS | $ | 739 | $ | 314 | |
Tryton | 566 | 1,267 | |||
Corporate | - | 84 | |||
Total equipment expenditures | 1,305 | 1,665 | |||
Less proceeds on disposal of equipment | (478) | (957) | |||
Net equipment expenditures(1) | $ | 827 | $ | 708 | |
Essential classifies its equipment expenditures as growth capital(1) and maintenance capital(1):
For the three months ended | |||||
(in thousands of dollars) | 2020 | 2019 | |||
Growth capital(1) | $ | - | $ | 630 | |
Maintenance capital(1) | 1,305 | 1,035 | |||
Total equipment expenditures | $ | 1,305 | $ | 1,665 | |
Essential reduced its 2020 capital budget from
OUTLOOK
By now, the economic destruction, globally and locally, from the COVID-19 global health pandemic is well known. From an oil perspective, the combined effects of the reduction in the demand for oil due to COVID-19 and the increase in oil supply has resulted in a sharp price decline, to the point of negative WTI prices on some days in
At Essential, activity in April softened but results have come in reasonably close to management’s expectations. While it is typically a slow month due to spring breakup, the macroeconomic issues have slowed activity even further. For the remainder of the year, Essential is anticipating demand for its services will decrease relative to 2019. The extent of the decrease, however, is difficult to predict.
It became apparent in mid-March that significant cost cutting initiatives would be required to preserve positive operational cash flow generation in 2020. Despite Essential’s exceptionally low debt and financial position, early and significant cost reductions were necessary to preserve these advantages. During April and May, the following initiatives were implemented:
- A 50% reduction in
Board of Director compensation; - A 50% reduction in the salary of the President and Chief Executive Officer;
- Salary and wage reductions through most levels of the organization, with senior level staff taking more significant reductions than junior roles;
- Bonus programs and most incentive and activity-based compensation programs were suspended;
- Reduction of certain employee benefit plans;
- Staff headcount reductions including permanent and temporary layoffs; and
- Other cost saving initiatives throughout the organization, including inventory reduction initiatives.
In addition to the significant cost reductions implemented, Essential’s headcount has been reduced from 380 employees at
In mid-April, ECWS announced its intention to reduce its active fleet from 16 coil tubing and pumping packages to 8 packages. The inactive equipment will be parked but can be available to re-enter service as market demand dictates. The smaller active fleet allows ECWS to maintain a smaller group of assets and, as a result, the Company’s 2020 capital spending forecast is only
In anticipation of similar activity reductions in Tryton, wage reductions and part-time work arrangements were implemented to reduce costs and preserve the employee base. On
Essential expects to benefit from the
While the price of oil and oil-related activity has been especially hard hit, there may be a reason for optimism with natural gas-related work. The price of AECO has been trading higher, and with less volatility to-date in 2020, compared to most of 2019. As Essential’s services are suitable for oil and natural gas-related work, an improvement in natural gas activity would be a welcome change, albeit, gas-related activity has had a small role in the WCSB in recent years.
The value and importance of Essential’s low-debt strategy over the past few years has never been more apparent than it is now. At the end of March, Essential’s funded debt to bank EBITDA covenant was only 0.8x. Essential anticipates being covenant compliant through the remainder of 2020. This is an enviable position at this point in the cycle. On
The Management’s Discussion and Analysis and Financial Statements for the quarter ended
(1)Non-IFRS Measures
Throughout this news release, certain terms that are not specifically defined in IFRS are used to analyze Essential’s operations. In addition to the primary measures of net loss and net loss per share in accordance with IFRS, Essential believes that certain measures not recognized under IFRS assist both Essential and the reader in assessing performance and understanding Essential’s results. Each of these measures provides the reader with additional insight into Essential’s ability to fund principal debt repayments and capital programs. As a result, the method of calculation may not be comparable with other companies. These measures should not be considered alternatives to net loss and net loss per share as calculated in accordance with IFRS.
Bank EBITDA – Bank EBITDA is generally defined in Essential’s Credit Facility as EBITDAS, including the equity cure, excluding severance costs and excluding the impact of IFRS 16, for the most recent trailing twelve months.
EBITDAS – EBITDAS is earnings before finance costs, income taxes, depreciation, amortization, transaction costs, losses or gains on disposal, write-down of assets, impairment loss, foreign exchange gains or losses, and share-based compensation, which includes both equity-settled and cash-settled transactions. These adjustments are relevant as they provide another measure which is considered an indicator of Essential’s results from its principal business activities.
Funded debt – Funded debt is generally defined in Essential’s Credit Facility as long-term debt, including current portion of long-term debt plus deferred financing costs and bank indebtedness, net of cash. It does not include the lease liability.
Growth capital – Growth capital is capital spending which is intended to result in incremental revenue. Growth capital is considered to be a key measure as it represents the total expenditures on equipment expected to add incremental revenue to Essential.
Maintenance capital – Equipment additions that are incurred in order to refurbish, replace or extend the life of existing equipment.
Net equipment expenditures – This measure is equipment expenditures less proceeds on the disposal of equipment. Essential uses net equipment expenditures to describe net cash outflows related to managing Essential’s property and equipment.
Net income before impairment loss – This measure is net (loss) income before impairment loss, net of taxes. Management believes it is a relevant measure as it provides an indication of Essential’s results from its principal business activities.
Working capital – Working capital is calculated as current assets less current liabilities.
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in thousands of dollars) | As at 2020 | As at 2019 | |||
Assets | |||||
Current | |||||
Cash | $ | 959 | $ | 846 | |
Trade and other accounts receivable | 30,689 | 24,543 | |||
Inventory | 36,225 | 36,616 | |||
Prepayments and deposits | 1,379 | 1,789 | |||
69,252 | 63,794 | ||||
Non-current | |||||
Property and equipment | 102,768 | 111,141 | |||
Right-of-use lease asset | 11,754 | 12,600 | |||
Intangible assets | 225 | 295 | |||
- | 3,565 | ||||
114,747 | 127,601 | ||||
Total assets | $ | 183,999 | $ | 191,395 | |
Liabilities | |||||
Current | |||||
Trade and other accounts payable | $ | 11,581 | $ | 11,513 | |
Share-based compensation | 273 | 1,189 | |||
Income taxes payable | 39 | 32 | |||
Current portion of lease liability | 3,845 | 3,909 | |||
15,738 | 16,643 | ||||
Non-current | |||||
Share-based compensation | 891 | 2,740 | |||
Long-term debt | 8,544 | 6,563 | |||
Deferred tax liability | 2,197 | 2,624 | |||
Long-term lease liability | 11,246 | 12,154 | |||
22,878 | 24,081 | ||||
Total liabilities | 38,616 | 40,724 | |||
Equity | |||||
Share capital | 272,732 | 272,732 | |||
Deficit | (133,425) | (128,400) | |||
Other reserves | 6,076 | 6,339 | |||
Total equity | 145,383 | 150,671 | |||
Total liabilities and equity | $ | 183,999 | $ | 191,395 | |
CONSOLIDATED INTERIM STATEMENTS OF NET (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
For the three months ended | ||||||
(in thousands of dollars, except per share amounts) | 2020 | 2019 | ||||
Revenue | $ | 41,423 | $ | 47,446 | ||
Operating expenses | 33,005 | 36,887 | ||||
Gross margin | 8,418 | 10,559 | ||||
General and administrative expenses | 2,534 | 3,015 | ||||
Depreciation and amortization | 3,914 | 4,302 | ||||
Share-based compensation (recovery) expense | (1,680) | 446 | ||||
Impairment loss | 10,293 | - | ||||
Other (income) expense | (1,587) | 388 | ||||
Operating (loss) income | (5,056) | 2,408 | ||||
Finance costs | 394 | 496 | ||||
(Loss) income before taxes | (5,450) | 1,912 | ||||
Current income tax expense | 1 | 32 | ||||
Deferred income tax (recovery) expense | (426) | 473 | ||||
Income tax (recovery) expense | (425) | 505 | ||||
Net (loss) income | (5,025) | 1,407 | ||||
Unrealized foreign exchange (loss) gain | (269) | 33 | ||||
Comprehensive (loss) income | $ | (5,294) | $ | 1,440 | ||
Net (loss) income per share | ||||||
Basic and diluted | $ | (0.04) | $ | 0.01 | ||
Comprehensive (loss) income per share | ||||||
Basic and diluted | $ | (0.04) | $ | 0.01 | ||
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended | |||||
(in thousands of dollars) | 2020 | 2019 | |||
Operating activities: | |||||
Net (loss) income | $ | (5,025) | $ | 1,407 | |
Non-cash adjustments to reconcile net (loss) income to operating cash flow: | |||||
Depreciation and amortization | 3,914 | 4,302 | |||
Deferred income tax (recovery) expense | (426) | 473 | |||
Share-based compensation | 6 | 6 | |||
Provision for impairment of trade accounts receivable | 150 | 100 | |||
Finance costs | 394 | 496 | |||
Impairment loss | 10,293 | - | |||
Gain on disposal of assets | (168) | (145) | |||
Operating cash flow before changes in non-cash operating working capital | 9,138 | 6,639 | |||
Changes in non-cash operating working capital: | |||||
Trade and other accounts receivable before provision | (6,817) | 1,044 | |||
Inventory | 274 | 3,085 | |||
Income taxes payable | 7 | 36 | |||
Prepayments and deposits | 410 | 578 | |||
Trade and other accounts payable | 222 | 1,844 | |||
Share-based compensation | (2,765) | (387) | |||
Net cash provided by operating activities | 469 | 12,839 | |||
Investing activities: | |||||
Purchase of property, equipment and intangible assets | (1,305) | (1,665) | |||
Non-cash investing working capital in trade and other accounts payable | (154) | (1,523) | |||
Proceeds on disposal of equipment | 478 | 957 | |||
Net cash used in investing activities | (981) | (2,231) | |||
Financing activities: | |||||
Increase (decrease) in long-term debt | 1,950 | (8,593) | |||
Net finance costs paid | (130) | (199) | |||
Payments of lease liability | (1,225) | (1,246) | |||
Net cash provided by (used in) financing activities | 595 | (10,038) | |||
Foreign exchange gain on cash held in a foreign currency | 30 | 8 | |||
Net increase in cash | 113 | 578 | |||
Cash, beginning of period | 846 | 410 | |||
Cash, end of period | $ | 959 | $ | 988 | |
Supplemental cash flow information | |||||
Cash taxes (received) paid | $ | (3) | $ | 6 | |
Cash interest and standby fees paid | $ | 142 | $ | 195 | |
FORWARD-LOOKING STATEMENTS AND INFORMATION
This news release contains “forward-looking statements” and “forward-looking information” (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities legislation. Such forward-looking statements include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to a number of material factors, assumptions, risks and uncertainties, many of which are beyond the control of the Company.
Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words “expects”, “plans”, “anticipates”, “believes”, “intends”, “estimates”, “continues”, “future”, “forecasts”, “potential”, “budget”, “hope”, “outlook” and similar expressions, or are events or conditions that “will”, “would”, “may”, “likely”, “could”, “should”, “can”, “typically”, “traditionally” or “tends to” occur or be achieved. This news release contains forward-looking statements, pertaining to, among other things, the following: Essential’s capital spending forecast and expectations of how it will be funded; oil and natural gas industry and oilfield services sector activity and outlook; the Company’s capital management strategy and financial position; Essential’s outlook, activity levels, active and inactive equipment, cost cutting and its implications and outcomes and expectations for covenant compliance; the Alberta Site Rehabilitation Plan and the
The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Essential including, without limitation: that Essential will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; availability of debt and/or equity sources to fund Essential's capital and operating requirements as needed; and certain cost assumptions.
Although the Company believes that the material factors, expectations and assumptions expressed in such forward-looking statements are reasonable based on information available to it on the date such statements are made, undue reliance should not be placed on the forward-looking statements because the Company can give no assurances that such statements and information will prove to be correct and such statements are not guarantees of future performance. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties.
Actual performance and results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: known and unknown risks, including those set forth in the Company’s Annual Information Form (“AIF”) (a copy of which can be found under Essential’s profile on SEDAR at www.sedar.com); a significant expansion of COVID-19 and the impacts thereof; the risks associated with the oilfield services sector, including demand, pricing and terms for oilfield services; current and expected oil and natural gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety, market and environmental risks; integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation including, but not limited to, tax laws, royalties, incentive programs and environmental regulations; stock market volatility and the inability to access sufficient capital from external and internal sources; the ability of the Company’s subsidiaries to enforce legal rights in foreign jurisdictions; general economic, market or business conditions including those in the event of an epidemic, natural disaster or other event; global economic events; changes to Essential’s financial position and cash flow; the availability of qualified personnel, management or other key inputs; currency exchange fluctuations; changes in political and security stability; potential industry developments; and other unforeseen conditions which could impact the use of services supplied by the Company. Accordingly, readers should not place undue importance or reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive and should refer to “Risk Factors” set out in the AIF.
Statements, including forward-looking statements, contained in this news release are made as of the date they are given and the Company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Additional information on these and other factors that could affect the Company’s operations and financial results are included in reports on file with applicable securities regulatory authorities and may be accessed under Essential’s profile on SEDAR at www.sedar.com.
ABOUT ESSENTIAL
Essential provides oilfield services to oil and natural gas producers, primarily in western
MSFS® is a registered trademark of
The TSX has neither approved nor disapproved the contents of this news release.
PDF available: http://ml.globenewswire.com/Resource/Download/1246e4df-f969-4bc5-be65-c45660b98a6f
For further information, please contact:Garnet K. Amundson President and CEO Phone: (403) 513-7272 service@essentialenergy.ca
Source:
2020 GlobeNewswire, Inc., source