Enseco Energy Services Corp.
TSX VENTURE : ENS

Enseco Energy Services Corp.

November 30, 2009 22:33 ET

Enseco Energy Services Corp. Announces Results for the Three and Six Months Ended September 30, 2009

CALGARY, ALBERTA--(Marketwire - Nov. 30, 2009) - Enseco Energy Services Corp. ("Enseco" or "the Company") announces its consolidated financial results for the three and six months September 30, 2009.

HIGHLIGHTS

- On October 2, 2009, Enseco closed the remaining $0.4 million of its previously announced $2.0 million convertible debenture financing. With the closing of this financing, Enseco's lender increased its long-term debt facility by $2.0 million which was immediately advanced to and used by the Company for working capital purposes.

- On October 28, 2009, the Company announced that Mr. Lane Roberts was appointed as the new President and Chief Executive Officer of Enseco Energy Services Corp. Mr. Roberts brings an extensive background of managing operations in international markets and a wealth of senior level oilfield services experience, both of which should prove to be a tremendous asset to Enseco as it moves into new geographic regions in order to grow and diversify its revenue stream.

- On November 12, 2009, the Company announced the signing of a definitive agreement to acquire all of the outstanding common shares of a private directional services company with operations in the United States and Canada. This acquisition will provide Enseco with the necessary scale required to compete effectively in this market by increasing its directional equipment fleet from 6 directional kits prior to the acquisition to 24 directional kits in the combined entity. It is anticipated that this acquisition will also improve the financial results of the combined entity by providing access to a larger suite of motors and ancillary equipment, as well as the elimination of redundant costs between the two companies.

- For the three months ended September 30, 2009, Enseco's Directional Drilling division achieved a 40% increase in revenues to $2.1 million as compared to $1.5 million for the same period in the prior year. This revenue increase was accomplished despite one of the worst periods of drilling activity in Western Canada.



Financial Highlights
($000's except per share data)

Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
Sep 30, Sep 30, Sep 30, Sep 30,
2009 2008 % 2009 2008 %
(unaudited) (unaudited) change (unaudited) (unaudited) change
--------------------------------------------------------------
Revenue from
continuing
ops (1) $ 5,955 $ 7,499 (21%) $ 9,104 $11,226 (19%)

Operating
loss from
continuing
ops (1) (2,086) (999) (109%) (5,421) (3,462) (57%)
Operating
loss from
discontinued
ops (1) - (695) 100% - (1,622) 100%
--------------------------------------------------------------
Total (2,086) (1,694) (23%) (5,421) (5,084) (7%)


EBITDA (1)
from
continuing
ops (772) (417) (85%) (2,855) (1,963) (45%)
EBITDA (1)
from
discontinued
ops - (405) 100% - (1,043) 100%
--------------------------------------------------------------
Total (772) (822) 6% (2,855) (3,006) 5%

Cashflow
(1) from
continuing
ops (943) (120) (686%) (3,112) (1,771) (76%)
Cashflow (1)
from
discontinued
ops - (383) 100% - (999) 100%
--------------------------------------------------------------
Total (943) (503) (87%) (3,112) (2,770) (12%)

Net loss
from
continuing
ops(1) (2,096) (1,271) (65%) (5,475) (3,821) (43%)
Net loss
from
discontinued
ops (1) - (711) 100% - (1,638) 100%
--------------------------------------------------------------
Total (2,096) (1,982) (6%) (5,475) (5,459) -

Per Share
Data
EBITDA (1) $ (0.02) $ (0.02) - $ (0.06) $ (0.07) 14%
Cashflow (1) $ (0.02) $ (0.01) (100%) $ (0.07) $ (0.06) (14%)
Net loss $ (0.05) $ (0.05) - $ (0.12) $ (0.12) -


March 31
September 30 2009
2009 (audited) % change
------------ ------------ ------------
Financial Position
Total assets $ 43,661 $ 48,059 (9%)
Working capital (2) (18,012) (16,112) (12%)
Shareholders' equity 17,783 23,671 (25%)


The first three quarters of calendar 2009 continued to reflect a weak global economy and resulting low energy commodity prices. While the economy has begun to show signs of stabilization and oil pricing has recovered somewhat, there remains considerable demand uncertainty for both oil and natural gas and this has triggered low underlying customer demand for oilfield services. At the end of the quarter these conditions persist as the fundamentals for natural gas continued to show weakness as a result of record high storage levels in Canada and the United States. The supply capacity was delivered through drilling activity peaking in 2008 in many regions within the United States, especially unconventional resource plays in Texas and Louisiana. A significant portion of these wells, and the associated gas production gains, are subject to high depletion rates and the recent steep decline in drilling is beginning to show in recently reported production levels.

As a result of lower activity levels industry wide, Enseco has experienced significant losses and negative cashflow, and as at September 30, 2009 has a working capital deficit of $19.5 million. As at September 30, 2009 Enseco had approved access to $17.4 million of the total $20.0 million credit facility, but has drawn $19.9 million as of that date and has not been able to pay all of its accounts payable when due. The Company's working capital ratio is less than 1.10:1 as required by its lender pursuant to the terms of the credit facility. The Company's ability to continue its operations is dependent upon curing the breach in the credit facility, curing the current working capital deficiency, curing the breach of the working capital covenant with its lender, generating sufficient cash flow to cover its operating costs, renegotiating the credit facility with the lender, the continued financial support of its lender and raising additional equity. The Company has taken steps to generate additional cash flow including reducing general and administrative costs including layoffs and terminations of employees and wage reductions, entering into operating lease agreements for fixed asset purchases in order to increase working capital flexibility, and is seeking alternative sources of financing. The Company completed a private placement of $2.0 million in 14% interest per annum convertible debentures as of October 2, 2009. Upon closing, the Company's lender increased its long-term debt facility by $2.0 million from $14.0 million to $16.0 million. This amount was immediately drawn and used by the Company for working capital purposes.

Enseco has filed its unaudited financial statements as at and for the three and six months ended September 30, 2009, and the accompanying Management's Discussion and Analysis. These filings are available under Enseco's SEDAR profile at www.sedar.com.

OUTLOOK

The global economic recession reduced liquidity in the capital markets and low natural gas prices continue to have a negative impact on the oilfield services industry. The drilling sector in both Canada and the United States is experiencing a period of significant decline in utilization. According to industry sources, as at November 17, 2009, the United States active land drilling rig count was down by approximately 45% from the same period in the prior year while the Canadian drilling rig count was down by approximately 30%. With decreasing utilization, the competitive pressure on all of Enseco's service offerings intensified resulting in lower rates for services. Enseco expects this trend to continue into the fourth quarter of calendar 2009 and longer depending on commodity prices. With the recession negatively impacting energy demand, the United States natural gas storage levels are currently 9% higher than storage volumes a year ago. Canada exports over half its natural gas production to the United States and Enseco's oilfield service businesses are highly dependent on associated customer economics. The view that North America has an oversupply of natural gas has driven gas prices lower. The recent increase in United States natural gas production, concerns over the declines in industrial gas consumption and the prospect of higher liquefied natural gas ("LNG") imports has overshadowed lower Canadian imports and the drop in active North American drilling rig count. Subject to demand clarity and LNG imports, Enseco anticipates the supply decline from reduced drilling may begin to outpace demand reductions in late 2010, providing the catalyst for improved fundamentals to support a recovery in drilling activity.
Despite the challenging macro issues facing the oilfield services industry, Enseco has recently taken a number of aggressive measures to ensure its future success. The first was the recent appointment of Mr. Lane Roberts as Enseco's new President and CEO. Mr. Roberts' numerous years of industry experience in downhole drilling technologies and his extensive international contact base should prove to be a significant asset to the Company as it moves forward with its growth initiatives. In conjunction with Mr. Roberts appointment, the Company completed a common share private placement with Mr. Roberts in exchange for a mortgage valued at $850,000 which is expected to be converted to cash during the first quarter of 2010. The second key measure was the strategic acquisition of a private directional services company which will increase Enseco's inventory of directional drilling kits from 6 to 24. With the increased focus on horizontal well technology, this acquisition represents a very solid and significant step forward in Enseco's corporate evolution. The private directional services company has a strong operational track record and a consistent history of profitable results, which immediately positions Enseco with cash flow positive operating results and a solid foundation for future growth. In addition, the founders of the private directional services company have agreed to join Enseco in various capacities to provide the Company with sufficient management depth to execute Enseco's strategic plan. Enseco's near term strategy is to significantly expand its presence in the directional services market in the United States. This is being accomplished through the setup of new sales office located in Houston, Texas. Enseco also expects to realize significant cost savings from its acquisition of the private directional services company by better utilizing existing assets, streamlining operational and senior management roles and responsibilities, and rationalizing its existing geographic footprint by reducing the number of operating facilities that Company works out of. Enseco's strategic direction is now clearly focused on Resource Play environments, the majority of which require non-vertical wells in order to access the potential resource, as well as higher pressure tanks and testing vessels in order to handle the ever increasing pressures and volumes associated with new fracturing techniques.

Enseco is a premier supplier of energy related services operating throughout the Western Canadian Sedimentary Basin and select markets in the United States, with operational centres in Red Deer, Whitecourt, Edmonton, Beaverlodge, Grande Prairie, Fort St. John, Midale, Saskatchewan and Minot, North Dakota, as well as a corporate and sales office located in Calgary. Enseco is led by an experienced management team currently offering well swabbing, production testing, open hole logging, and directional drilling services with a focus on continued value creation through accretive acquisitions and organic growth.

(1) Operating loss is loss before impairment loss on intangible assets, impairment loss on goodwill, gain (loss) on sale of equipment and income taxes. EBITDA means earnings before interest, taxes, depreciation and amortization and is equal to earnings before income taxes plus interest on long-term debt plus other interest expense plus depreciation plus amortization plus (gain)/loss on disposal of assets minus foreign exchange gain plus impairment loss on intangible assets, plus impairment loss on goodwill. Cashflow means cash flows provided by operations before changes in non-cash working capital items. Operating loss, EBITDA and cashflow are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). Management believes that in addition to net earnings, operating loss, EBITDA and cashflow are useful supplemental measures as they provide an indication of the results generated by Enseco's primary business activities prior to consideration of how those activities are financed, amortized or how the results are taxed in various jurisdictions as well as the cash generated by Enseco's primary business activities. Readers should be cautioned, however, that operating loss, EBITDA and cashflow should not be construed as an alternative to net earnings determined in accordance with GAAP as an indicator of Enseco's performance. Enseco's method of calculating operating loss, EBITDA and cashflow may differ from other organizations and, accordingly, these figures may not be comparable to those disclosed by other organizations.

(2) Working capital equals current assets minus current liabilities.

FORWARD-LOOKING STATEMENTS

Certain information and statements contained in this press release constitute forward-looking information, including expectations regarding the closing of the acquisition, the benefits to be derived from the acquisition including, expectations regarding revenue, cash-flow and operating income, growth opportunities, synergies and economies of scale as a result of the acquisition and the impact on the additions to Enseco's management team as a result of the acquisition, expectations regarding the conversion of the mortgage from Mr. Roberts to cash and the timing thereof, Enseco's ongoing focus and business plans, including expansion in the directional services market in the United States and industry conditions including utilization rates and demand for oilfield services and, statements as to future economic and operating conditions, which are provided by Management to enable investors to better understand our business, and such information may not be appropriate for other purposes. These forward-looking statements are based upon the opinions, expectations and estimates of management as at the date the statements are made including the Company's current budget (which is subject to change), expectations regarding the Company's ability to continue its operations, the continued support of the Company's lender and the Company's ability to raise additional equity, expectations relating to future economic and operating conditions and statements relating to Enseco's marketing, operational and business plans, the competitive environment and opinions of third-party analysts respecting anticipated economic and operating conditions.
These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. Such factors include, but are not limited to, fluctuations in the market for oil and gas and related products and services, political and economic conditions, the demand for services provided by Enseco, industry competition and Enseco's ability to attract and retain both customers and key personnel and the Company's ability to continue its operations, the continued support of the Company's lender and Enseco's ability to raise additional equity. Enseco has made assumptions regarding, but not limited to, commodity prices, foreign exchange rates, interest rates, the availability of skilled labour, and the timing and amount of capital expenditures. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Enseco's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits that Enseco will derive therefrom. Enseco disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Enseco Energy Services Corp.
    Lane Roberts
    President and CEO
    (403) 806-0088
    or
    Enseco Energy Services Corp.
    Aly Khan Musani
    Senior Vice President and CFO
    (403) 806-0088