ESSENTIAL ENERGYRVICES SELECTED INFORMATION
| (in thousands of dollars except per share and percentages) | For the three months ended | For the nine months ended | ||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Revenue | $ | 19,241 | $ | 39,278 | $ | 71,619 | $ | 113,810 | ||||
| Gross margin | 5,314 | 8,873 | 14,608 | 23,039 | ||||||||
| Gross margin % | 28% | 23% | 20% | 20% | ||||||||
| EBITDAS (1) | 4,033 | 6,294 | 9,425 | 15,246 | ||||||||
| Net (loss) income before impairment loss (1) | (1,529) | 1,555 | (3,763) | 1,605 | ||||||||
| Per share - basic and diluted | (0.01) | 0.01 | (0.03) | 0.01 | ||||||||
| Net (loss) income | (1,529) | 1,555 | (12,584) | 1,605 | ||||||||
| Per share - basic and diluted | (0.01) | 0.01 | (0.09) | 0.01 | ||||||||
| Operating hours | ||||||||||||
| Coil tubing rigs | 5,348 | 11,098 | 21,421 | 31,642 | ||||||||
| Pumpers | 7,131 | 13,449 | 26,735 | 38,879 | ||||||||
| As at | As at | |||||||||||
| 2020 | 2019 | |||||||||||
| Working capital | $ | 46,706 | $ | 54,378 | ||||||||
| Total assets | 163,188 | 202,503 | ||||||||||
| Cash | 6,625 | 1,020 | ||||||||||
| Long-term debt | 145 | 10,782 | ||||||||||
| 1 Refer to “Non-IFRS Measures” section for further information. | ||||||||||||
INDUSTRY OVERVIEW
Third quarter 2020 drilling and well completion activity remained significantly below the same prior year period due to the continued disruptive impact of the COVID-19 pandemic, low oil prices and drastic spending cuts by exploration and production (“E&P”) companies. Well completions, a key indicator of industry activity in the
During the third quarter, the oilfield services sector experienced modest improvements since the exceptionally slow second quarter of 2020. The price of Western Texas Intermediate (“WTI”) hovered around
HIGHLIGHTS
Revenue for the three months ended
EBITDAS(1) was
At
For the nine months ended
RESULTS OF OPERATIONS
Segment Results – Essential Coil Well Service
| For the three months ended | For the nine months ended | |||||||||||
| (in thousands of dollars, except percentages, hours and fleet data) | 2020 | 2019 | 2020 | 2019 | ||||||||
| Revenue | $ | 9,909 | $ | 22,609 | $ | 40,564 | $ | 64,684 | ||||
| Operating expenses | 6,505 | 16,815 | 29,849 | 49,889 | ||||||||
| Gross margin | $ | 3,404 | $ | 5,794 | $ | 10,715 | $ | 14,795 | ||||
| Gross margin % | 34% | 26% | 26% | 23% | ||||||||
| Operating hours | ||||||||||||
| Coil tubing rigs | 5,348 | 11,098 | 21,421 | 31,642 | ||||||||
| Pumpers | 7,131 | 13,449 | 26,735 | 38,879 | ||||||||
| Active equipment fleet (i) | ||||||||||||
| Coil tubing rigs | 10 | 16 | 10 | 16 | ||||||||
| Fluid pumpers | 9 | 12 | 9 | 12 | ||||||||
| Nitrogen pumpers | 4 | 6 | 4 | 6 | ||||||||
| Total equipment fleet (i) | ||||||||||||
| Coil tubing rigs | 29 | 29 | 29 | 29 | ||||||||
| Fluid pumpers | 19 | 19 | 19 | 19 | ||||||||
| Nitrogen pumpers | 8 | 8 | 8 | 8 | ||||||||
(i) Fleet data represents the number of units at the end of the period. Crewed equipment is less than active equipment.
ECWS revenue for the three months ended
In the third quarter of 2020, ECWS generated gross margin of
After an exceptionally slow second quarter, ECWS experienced more consistent levels of activity in the third quarter which supported the reactivation of two coil tubing rigs and one fluid pumper.
On a year-to-date basis, ECWS revenue was
Segment Results – Tryton
| (in thousands of dollars, except percentages) | For the three months ended | For the nine months ended | ||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| Revenue | $ | 9,332 | $ | 16,669 | $ | 31,055 | $ | 49,126 | ||||
| Operating expenses | 6,943 | 13,048 | 26,002 | 39,722 | ||||||||
| Gross margin | $ | 2,389 | $ | 3,621 | $ | 5,053 | $ | 9,404 | ||||
| Gross margin % | 26% | 22% | 16% | 19% | ||||||||
| Tryton revenue - % of revenue | ||||||||||||
| Tryton MSFS® | 40% | 29% | 36% | 30% | ||||||||
| Conventional Tools & Rentals | 60% | 71% | 64% | 70% | ||||||||
Tryton revenue for the third quarter of 2020 was
For the three months ended
On a year-to-date basis, Tryton revenue was
Equipment Expenditures
| (in thousands of dollars) | For the three months ended | For the nine months ended | ||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||
| ECWS | $ | 191 | $ | 1,651 | $ | 1,001 | $ | 2,769 | ||||
| Tryton | 27 | 443 | 605 | 2,569 | ||||||||
| Corporate | 19 | 47 | 49 | 138 | ||||||||
| Total equipment expenditures | 237 | 2,141 | 1,655 | 5,476 | ||||||||
| Less proceeds on disposal of equipment | $ | (723) | $ | (574) | $ | (2,034) | $ | (2,403) | ||||
| Net equipment (proceeds) expenditures (1) | $ | (486) | $ | 1,567 | $ | (379) | $ | 3,073 | ||||
Essential classifies its equipment expenditures as growth capital(1) and maintenance capital(1):
| (in thousands of dollars) | For the three months ended | For the nine months ended | ||||||
| 2020 | 2019 | 2020 | 2019 | |||||
| Growth capital (1) | $ | - | $ | 79 | $ | - | $ | 798 |
| Maintenance capital (1) | 237 | 2,062 | 1,655 | 4,678 | ||||
| Total equipment expenditures | $ | 237 | $ | 2,141 | $ | 1,655 | $ | 5,476 |
Essential’s 2020 capital forecast remains unchanged at
OUTLOOK
The issues faced by the oil industry since
Looking into 2021, some industry analysts and associations are projecting E&P spending in the WCSB will be similar to, or modestly higher than, 2020. While the current forward strip for WTI is only slightly higher than the current price, natural gas prices have been trending stronger and there may be a more constructive outlook for natural gas-related activity. Essential’s services are equally suited for oil and natural gas-related work. The outlook for 2021 will become clearer as E&P capital budgets are released. The federal government recently extended the CEWS program to
For Essential, activity levels experienced in September continued into October. However, activity is expected to slow as the fourth quarter progresses and customers complete their 2020 capital programs. With more consistent activity in the third quarter, relative to the second quarter, ECWS reactivated two more coil tubing rigs and one fluid pumper. The active fleet now includes 10 coil tubing rigs and nine fluid pumpers. This ensures suitable equipment is available for differing customer and regional needs. There are fewer crewed packages than active. The active and crewed fleet can be adjusted to meet changing customer requirements.
Tryton has submitted applications to provide downhole tool work under the Site Rehabilitation Programs to restore and decommission inactive wells. Government approvals for work under these programs has been slow and complex. Tryton has received some approvals and started work under the
During this challenging time, Essential has managed to a net cash position, with cash exceeding long-term debt by
The value and importance of Essential’s low-debt strategy over the past few years has never been more apparent than it is now. When industry activity increases, Essential expects to have the credit capacity to fund working capital requirements. Essential’s credit facility is expected to provide sufficient liquidity and financial flexibility to meet financial needs through to the end of 2021.
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 under International Financial Reporting Standards (“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.
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.
Growth capital – Growth capital is capital spending which is intended to result in incremental revenue.
Maintenance capital – Maintenance capital is capital spending that is 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 (loss) 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. For the nine months ended
Working capital – Working capital is calculated as current assets less current liabilities.
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)
| As at | As at | |||||||
| (in thousands of dollars) | 2020 | 2019 | ||||||
| Assets | ||||||||
| Current | ||||||||
| Cash | $ | 6,625 | $ | 846 | ||||
| Trade and other accounts receivable | 18,372 | 24,543 | ||||||
| Inventory | 32,704 | 36,616 | ||||||
| Prepayments and deposits | 2,031 | 1,789 | ||||||
| 59,732 | 63,794 | |||||||
| Non-current | ||||||||
| Property and equipment | 92,991 | 111,141 | ||||||
| Right-of-use lease asset | 10,254 | 12,600 | ||||||
| Intangible assets | 211 | 295 | ||||||
| - | 3,565 | |||||||
| 103,456 | 127,601 | |||||||
| Total assets | $ | 163,188 | $ | 191,395 | ||||
| Liabilities | ||||||||
| Current | ||||||||
| Trade and other accounts payable | $ | 8,968 | $ | 11,513 | ||||
| Share-based compensation | 488 | 1,189 | ||||||
| Income taxes payable | - | 32 | ||||||
| Current portion of lease liability | 3,570 | 3,909 | ||||||
| 13,026 | 16,643 | |||||||
| Non-current | ||||||||
| Share-based compensation | 1,794 | 2,740 | ||||||
| Long-term debt | 145 | 6,563 | ||||||
| Deferred tax liability | - | 2,624 | ||||||
| Long-term lease liability | 10,062 | 12,154 | ||||||
| 12,001 | 24,081 | |||||||
| Total liabilities | 25,027 | 40,724 | ||||||
| Equity | ||||||||
| Share capital | 272,732 | 272,732 | ||||||
| Deficit | (140,984) | (128,400) | ||||||
| Other reserves | 6,413 | 6,339 | ||||||
| Total equity | 138,161 | 150,671 | ||||||
| Total liabilities and equity | $ | 163,188 | $ | 191,395 | ||||
CONSOLIDATED INTERIM STATEMENTS OF NET (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
| For the three months ended | For the nine months ended | |||||||||||
| (in thousands of dollars, except per share amounts) | 2020 | 2019 | 2020 | 2019 | ||||||||
| Revenue | $ | 19,241 | $ | 39,278 | $ | 71,619 | $ | 113,810 | ||||
| Operating expenses | 13,927 | 30,405 | 57,011 | 90,771 | ||||||||
| Gross margin | 5,314 | 8,873 | 14,608 | 23,039 | ||||||||
| General and administrative expenses | 1,281 | 2,579 | 5,183 | 7,793 | ||||||||
| Depreciation and amortization | 4,845 | 3,876 | 14,412 | 12,068 | ||||||||
| Share-based compensation expense (recovery) | 636 | 142 | (429) | 1,026 | ||||||||
| Impairment loss | - | - | 10,293 | - | ||||||||
| Other expense (income) | 267 | (92) | (804) | 493 | ||||||||
| Operating (loss) income | (1,715) | 2,368 | (14,047) | 1,659 | ||||||||
| Finance costs | 310 | 429 | 1,158 | 1,355 | ||||||||
| (Loss) income before taxes | (2,025) | 1,939 | (15,205) | 304 | ||||||||
| Current income tax expense | 1 | - | 3 | 67 | ||||||||
| Deferred income tax (recovery) expense | (497) | 384 | (2,624) | (1,368) | ||||||||
| Income tax (recovery) expense | (496) | 384 | (2,621) | (1,301) | ||||||||
| Net (loss) income | (1,529) | 1,555 | (12,584) | 1,605 | ||||||||
| Unrealized foreign exchange gain (loss) | 114 | (21) | 57 | 44 | ||||||||
| Comprehensive (loss) income | $ | (1,415) | $ | 1,534 | $ | (12,527) | $ | 1,649 | ||||
| Net (loss) income per share | ||||||||||||
| Basic and diluted | $ | (0.01) | $ | 0.01 | $ | (0.09) | $ | 0.01 | ||||
| Comprehensive (loss) income per share | ||||||||||||
| Basic and diluted | $ | (0.01) | $ | 0.01 | $ | (0.09) | $ | 0.01 | ||||
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
| For the nine months ended | ||||||||||
| (in thousands of dollars) | 2020 | 2019 | ||||||||
| Operating Activities: | ||||||||||
| Net (loss) income | $ | (12,584) | $ | 1,605 | ||||||
| Non-cash adjustments to reconcile net (loss) income to operating cash flow: | ||||||||||
| Depreciation and amortization | 14,412 | 12,068 | ||||||||
| Deferred income tax recovery | (2,624) | (1,368) | ||||||||
| Share-based compensation | 17 | 58 | ||||||||
| Provision for impairment of trade receivable | 700 | 450 | ||||||||
| Finance costs | 1,158 | 1,355 | ||||||||
| Impairment loss | 10,293 | - | ||||||||
| Gain on disposal of assets | (317) | (141) | ||||||||
| Funds flow | 11,055 | 14,027 | ||||||||
| Changes in non-cash operating working capital: | ||||||||||
| Trade and other accounts receivable before provision | 5,353 | 2,545 | ||||||||
| Inventory | 3,703 | 3,418 | ||||||||
| Income taxes payable (receivable) | (34) | 35 | ||||||||
| Prepayments and deposits | (242) | 3 | ||||||||
| Trade and other accounts payable | (2,285) | (667) | ||||||||
| Share-based compensation | (1,647) | 25 | ||||||||
| Net cash provided by operating activities | 15,903 | 19,386 | ||||||||
| Investing Activities: | ||||||||||
| Purchase of property, equipment and intangible assets | (1,655) | (5,476) | ||||||||
| Non-cash investing working capital in trade and other accounts payable | (261) | (665) | ||||||||
| Proceeds on disposal of equipment | 2,034 | 2,403 | ||||||||
| Net cash provided by (used in) investing activities | 118 | (3,738) | ||||||||
| Financing Activities: | ||||||||||
| Decrease in long-term debt | (6,433) | (10,700) | ||||||||
| Finance costs paid | (479) | (468) | ||||||||
| Payments of lease liability | (3,336) | (3,879) | ||||||||
| Net cash used in financing activities | (10,248) | (15,047) | ||||||||
| Foreign exchange gain on cash held in a foreign currency | 6 | 9 | ||||||||
| Net increase in cash | 5,779 | 610 | ||||||||
| Cash, beginning of period | 846 | 410 | ||||||||
| Cash, end of period | $ | 6,625 | $ | 1,020 | ||||||
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”, “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; near-term impacts from the COVID-19 pandemic; oil and natural gas industry and oilfield services sector activity and outlook; the Company’s capital management strategy and financial position; the impact of governmental and Company measures implemented in response to the COVID-19 pandemic; Essential’s outlook, activity levels, active and inactive equipment, crew counts, cost cutting and its implications; benefits under the Site Rehabilitation Programs, including the anticipated work for Essential and Tryton arising from the programs and the timing of the same; benefits under the CEWS program and the timing of the same; benefits under the PPP Loans; Essential’s belief that it has right-sized the Company for this prolonged downturn; and Essential’s credit capacity, liquidity and ability to meet its financial needs through to the end of 2021.
The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Essential including, without limitation: the COVID-19 pandemic, unprecedented economic slow down and low oil prices, and the duration and impact thereof; 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 pandemic 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, and the higher degree of uncertainty related to the estimates and judgements made in the preparation of financial statements; 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/a08c867c-b96c-4f85-878e-8957d94e0d17
For further information, please contact: Garnet K. Amundson President and CEO Phone: (403) 513-7272 service@essentialenergy.ca
2020 GlobeNewswire, Inc., source