CWC Energy Services Corp.
TSX VENTURE : CWC

CWC Energy Services Corp.

August 10, 2015 19:19 ET

CWC Energy Services Corp. Announces Second Quarter 2015 Financial Results and Declares September 2015 Dividend

CALGARY, ALBERTA--(Marketwired - Aug. 10, 2015) - CWC Energy Services Corp. ("CWC" or the "Company") (TSX VENTURE:CWC) announces the release of its operational and financial results for the three and six months ended June 30, 2015 and the declaration of the September 30, 2015 dividend. The interim Financial Statements and Management Discussion and Analysis ("MD&A") for the six months ended June 30, 2015 and 2014 are filed on SEDAR at www.sedar.com.

Highlights for the Three Months Ended June 30, 2015

  • Revenue of $13.5 million was 34% lower compared to $20.5 million in Q2 2014. The revenue decrease is primarily due to lower E&P companies activity levels as there continues to be a downward pressure on oil and natural gas pricing resulting from the current global uncertainty over excess supply of crude oil which has increased competitive pressure.

  • Drilling rig utilization of 12% was on par with the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 13% in Q2 2015. Service rig utilization was 23% in Q2 2015 compared to 33% in Q2 2014 resulting from reduced activity levels by customers.

  • EBITDAS(1) of $0.8 million was 34% lower compared to $1.2 million in Q2 2014. The EBITDAS decrease is a direct result of the lower activity levels and lower pricing partly offset by lower costs resulting from the Company's effective cash saving initiatives. EBITDAS margin was maintained at 6%.

  • Net loss of $4.3 million was $1.1 million more than a net loss of $3.2 million in Q2 2014. The year over year increase in the net loss results primarily from the impact of lower activity levels and pricing and a one time deferred tax expense in Q2 2015 from a 2% increase in the Alberta corporate income tax rate effective July 1, 2015.

  • The Company currently has a Dividend Reinvestment Plan ("DRIP") and a Stock Dividend Program ("SDP") in place. Holders of approximately 70% of outstanding common shares elected to participate in the DRIP or SDP for the June 30, 2015 dividend resulting in a cash savings of $1.0 million.

  • In Q2 2015, the Company has amended its credit agreement with its banking syndicate to relax the financial covenants for Consolidated Debt to Consolidated EBITDA ratio to 3.5:1 for the quarters ending December 31, 2015 and March 31, 2016, reducing to 3.25:1 for quarters ending June 30, 2016 and September 30, 2016 and returning to 3.0:1 thereafter. At June 30, 2015 the Company's Consolidated Debt to Consolidated EBITDA ratio is 1.8:1. Other debt covenants remain unchanged.

(1) Please refer to the "Reconciliation of Non-IFRS Measures" section for further information.

Highlights for the Six Months Ended June 30, 2015

  • Revenue of $41.3 million was 30% lower compared to $58.9 million in the prior year with a decrease in the Production Services segment of $27.9 million being partially offset by a $10.4 million increase in revenue in the Contract Drilling segment. The Contract Drilling segment was purchased in May 2014 and as a result 2015 represents the first full fiscal period of results.

  • Year to date, Service Rig utilization is 26% versus 47% in 2014 resulting from reduced activity levels by customers. Coil tubing utilization was 45% for the six month period versus 44% in 2014 due to the successful strategy of focusing on SAGD wells as opposed to deeper wells in the other parts of the WCSB.

  • EBITDAS was $6.0 million, a decline of $4.6 million from the first six months of 2014. EBITDAS for the Production Services Segment declined $8.5 million from lower activity and pricing when compared to 2014. This decline was partially offset by a $4.0 million increase in EBITDAS for Contract Drilling segment and $0.1 million increase in Corporate costs as a result of increased costs associated with the Contract Drilling segment being incurred for six months in 2015 partially offset by cash saving initiatives.

  • $5.3 million in cash dividends has been saved through the implementation of a DRIP and SDP. Although these plans are dilutive to shareholders who elect to receive a cash dividend it has provided the Company additional financial flexibility to navigate these difficult times while continuing to provide shareholders a return on their investment.

Financial and Operational Highlights

Three months ended
June 30,
Six months ended
June 30,
$ thousands, except shares, per share amounts, margins and ratios 2015 2014(1) % Change 2015 2014(1) % Change
FINANCIAL RESULTS
Revenue
Contract drilling(1) 2,639 3,240 (19 %) 13,612 3,240 n/m(3 )
Production services 10,869 17,248 (37 %) 27,726 55,621 (50 %)
13,508 20,488 (34 %) 41,338 58,861 (30 %)
EBITDAS (2) 777 1,176 (34 %) 6,031 10,632 (43 %)
EBITDAS margin (%) (2) 6 % 6 % 15 % 18 % (3 %)
Funds from operations (2) 777 461 69 % 6,031 9,844 (39 %)
Net income (loss) (4,294 ) (3,182 ) 35 % (4,256 ) 63 n/m(3 )
Net income (loss) margin (%) (32 %) (16 %) (16 %) (10 %) 0 % (10 %)
Dividends declared 1,435 4,856 (70 %) 2,856 7,494 (62 %)
Per share information
Weighted average number of shares outstanding - basic 283,902,087 213,515,563 280,797,326 184,591,172
Weighted average number of shares outstanding - diluted 283,902,087 213,515,563 280,797,326 194,334,851
EBITDAS (1) per share - basic $ 0.00 $ 0.01 $ 0.02 $ 0.06
EBITDAS (1) per share - diluted $ 0.00 $ 0.01 $ 0.02 $ 0.05
Net income (loss) per share - basic and diluted $ (0.02 ) $ (0.01 ) $ (0.02 ) $ 0.00
Dividends declared per share $ 0.005 $ 0.0175 $ 0.01 $ 0.035
$ thousands, except margins and ratios June 30,
2015
December 31,
2014
FINANCIAL POSITION AND LIQUIDITY
Working capital (excluding debt) (2) 6,526 20,603
Working capital (excluding debt) ratio (2) 2.0:1 2.2:1
Total assets 249,544 275,353
Total Long-term debt (including current portion) 51,618 65,666
Shareholders' equity 171,100 172,705

(1) CWC entered into the contract drilling business on May 15, 2014, through the acquisition of Ironhand and results are included May 16, 2014 onward.

(2) Please refer to the "Reconciliation of Non-IFRS Measures" section for further information.

(3) Not meaningful.

Operational Overview

Contract Drilling

Ironhand was acquired on May 15, 2014 and renamed CWC Ironhand Drilling representing our Contract Drilling segment. Our Contract Drilling segment has a fleet of nine telescopic double drilling rigs with depth ratings from 3,200 to 4,500 metres, eight of nine rigs have top drives and the rig fleet has an average age of six years. In Q2 2015 Rig #3 was upgraded to include a Pad Rig Walking System. All of the drilling rigs are well suited for the most active depths for horizontal drilling in the WCSB, including the Montney, Duvernay, Cardium and other deep basin horizons.

Three months ended Six months ended
June 30, June 30,
$ thousands, except number of rigs, operating days, utilization and margins 2015 2014(1) Change % 2014 2013(1) Change %
Revenue 2,639 3,240 (19 %) 13,612 3,240 n/m(5 )
Direct operating expenses 2,093 2,334 (10 %) 8,333 2,334 n/m(5 )
Gross margin 546 906 (40 %) 5,279 906 n/m(5 )
Gross margin percentage 21 % 28 % (7 %) 39 % 28 % 11 %
Number of drilling rigs(2) 9 8 13 % 9 8 13 %
Drilling rig operating days 99 107 (7 %) 458 107 n/m(5 )
Revenue per operating day(3) $ 26,661 $ 30,258 (12 %) $ 29,721 $ 30,258 (2 %)
Drilling rig utilization(4) 12 % 29 % (17 %) 28 % 29 % (1 %)

(1) Ironhand was acquired on May 15, 2014, as such the Contract Drilling segment includes the results for the period commencing May 16, 2014.

(2) Number of drilling rigs at the end of the period.

(3) Revenue per operating day is calculated based on operating days (i.e. spud to rig release basis). New drilling rigs are added based on the first day of field service.

(4) Drilling rig utilization is calculated based on operating days (i.e. spud to rig release basis) in accordance with the methodology prescribed by the CAODC. New drilling rigs are added based on the first day of field service.

(5) Not meaningful.

Contract Drilling revenue of $2.6 million for the quarter and $13.6 million for the first half of 2015 was achieved with a utilization rate of 12% and 28% respectively comparable to the CAODC industry average of 13% and 24% for the same periods. Drilling activity levels continue to be affected by the global oversupply of oil and corresponding collapse in oil prices of greater than 50% which has led our E&P customers to reduce drilling, completions and production maintenance programs to conserve their cash resources until commodity prices improve and E&P companies increase their programs.

Production Services

CWC is the fourth largest service rig provider in the WCSB, having a modern fleet of 74 service rigs as at June 30, 2015. The Company's service rig fleet consists of 41 single, 27 double, and 6 slant rigs. CWC's fleet is amongst the newest in the WCSB. Rig services include completions, maintenance, workovers and abandonments with depth ratings from 1,500 to 5,000 metres.

CWC's Class I, II and III coil tubing units have depth ratings from 1,500 to 4,000 metres. As at June 30, 2015, the Company's fleet of nine coil tubing units consist of five Class I, three Class II and one Class III coil tubing units. The market for the Class III deep coil tubing unit has become extremely competitive with an increased supply of new deep coil tubing units over the last several years having an adverse affect on industry utilization and pricing. In light of these competitive challenges for CWC's one Class III coil tubing unit, the Company has chosen to focus its sales and operational efforts on its eight Class I and II coil tubing units which are better suited at servicing steam-assisted gravity drainage ("SAGD") wells, which are shallower in depth and more appropriate for these coil tubing units.

Three months ended Six months ended
June 30, June 30,
$ thousands, except number of units, hours, utilization and margins 2015 2014 Change % 2015 2014 Change %
Revenue 10,868 17,248 (37 %) 27,725 55,621 (50 %)
Direct operating expenses 7,618 13,342 (43 %) 19,597 38,205 (49 %)
Gross margin 3,250 3,906 (17 %) 8,128 17,416 (53 %)
Gross margin percentage 30 % 23 % 7 % 29 % 31 % (2 %)
Service Rigs
Number of units (1) 74 71 4 % 74 71 4 %
Hours worked 14,051 20,399 (31 %) 30,631 58,051 (47 %)
Revenue per hour $ 668 $ 752 (11 %) $ 723 $ 796 (9 %)
Utilization % (2) 23 % 33 % (10 %) 26 % 47 % (21 %)
Coil Tubing Units
Number of units (1) 9 7 29 % 9 7 29 %
Hours worked 2,111 1,403 50 % 6,462 6,003 8 %
Revenue per hour $ 724 $ 784 (8 %) $ 832 $ 924 (10 %)
Utilization % (3) 29 % 22 % 7 % 45 % 44 % 1 %

(1) Number of units at the end of the period - includes units which are out of service for recertification, refurbishment or otherwise unavailable in the period.

(2) Service rig utilization is calculated based on 10 hours a day, 365 days a year. New service rigs are added based on the first day of field service. Service rigs requiring their 24,000 hour recertification, refurbishment or have been otherwise removed from service for greater than 90 days are excluded from the utilization calculation until their first day back in field service.

(3) Coil tubing unit utilization is calculated based on 10 hours a day, 365 days a year. New coil tubing units are added based on the first day of field service.

Production Services revenue was $10.9 million for the quarter, $27.7 million year to date, down $6.4 million and $27.9 million respectively year over year. Service rig revenue was severely impacted by a reduction in activity levels to 23% compared to 33% in Q2 2014 and a 11% reduction in hourly rates compared to the prior period. E&P customers asked for and were given significant pricing reductions to help them become more competitive given the current commodity price environment and our competitors are working at lower rates to maintain or increase utilizations. Coil tubing utilization of 29% compared to 22% in Q2 2014 continued to be relatively strong as the focus on production work for shallower SAGD wells was resilient in the current environment. The 8% decrease in the coil tubing units' average hourly rate is a function of shallower Class I and II unit work in Q2 2015 compared Q2 2014 having experienced less pricing pressure from CWC's customers. In September 2014, the Company sold its Snubbing assets and business which contributed year to date 2014 revenue of $3.0 million and EBITDAS of $0.8 million with no corresponding amounts in year to date 2015. In March 2015, CWC suspended its non-core Well Testing business indefinitely, which contributed year to date 2014 revenue of $1.1 million and EBITDAS of ($53) thousand.

The Company completed, but has yet to put into service, two new slant service rigs, Rig #505, completed during Q1 2015 and Rig #506 completed in Q2 2015. The addition of these two new slant service rigs will bring the slant fleet to six rigs and will help CWC establish a greater market presence servicing the growing number of heavy oil and SAGD wells.

Capital Expenditures

Three months ended
June 30,
Six months ended
June 30,
$ thousands 2015 2014 2015 2014
Contract Drilling 1,492 1,805 3,262 1,805
Production Services 641 2,428 3,882 5,439
Total capital expenditures 2,133 4,233 7,144 7,244
Growth capital 321 2,157 4,153 3,444
Maintenance and infrastructure capital 1,812 2,076 2,991 3,800
Total capital expenditure 2,133 4,233 7,144 7,244

Year to date growth capital spending of $4.2 million was primarily incurred to complete slant service Rigs #505 and #506 and supporting equipment in order to further expand our growth in heavy oil and SAGD wells. Additional growth capital was incurred to complete upgrades to Drilling Rig #2. Maintenance capital spending of $3.0 million has been primarily directed at adding a Rig Walking System for Drilling Rig #3, required drilling and service rig recertification costs and upgrades, additions to field equipment for the service rig and coil tubing divisions and information technology infrastructure.

Quarterly Dividend

The Company is pleased to announce that the Board of Directors has declared a quarterly dividend of $0.0025 per common share. The dividend will be paid on October 15, 2015 to shareholders of record on September 30, 2015. The ex-dividend date is September 28, 2015. This dividend is an eligible dividend for Canadian income tax purposes. The reduction in the declared dividend from $0.02 cents per share annually to $0.01 cent per share annually will provide CWC additional flexibility to repay long term debt, invest in capital expenditures and/or acquire the Company's shares under its NCIB program.

The Company currently has a Dividend Reinvestment Plan ("DRIP") and a Stock Dividend Program ("SDP") in place. Holders of approximately 70% of outstanding common shares elected to participate in the DRIP or SDP for the June 30, 2015 dividend resulting in a cash savings of $1.0 million.

Outlook

The Canadian oil and gas industry has been negatively impacted by ongoing volatility of commodity prices and reduced capital and operating budgets of E&P companies. The timing and magnitude of a crude oil and/or natural gas price recovery continues to be uncertain as global political and economic events put pressure on the commodity supply and demand imbalance. In addition, concern over the impact of the newly elected Alberta government with significant corporate income tax and carbon tax rate increases announced in Q2 2015 and the potential outcome of an announced royalty review has created uncertainty for oil and gas and oilfield services industries' investors. In June 2015, The Canadian Association of Oilwell Drilling Contractors ("CAODC") updated its 2015 forecast to 5,531 wells drilled in western Canada, down 19% from its January 2015 estimate, highlighting the short and medium term challenges for the oilfield services industry.

The lower activity and pricing pressure in 2015 is expected to negatively impact CWC's revenue, EBITDAS and funds from operations. In 2015, CWC implemented several cash saving initiatives aimed at preserving our cash resources and maintaining our balance sheet strength as well as retaining our most valuable asset - our key employees. The Company believes cash saving initiatives are necessary to maneuver CWC through these choppy industry conditions until commodity prices recover. With the continued uncertainty, CWC remains focused on managing discretionary spending, staffing levels and critically evaluating pricing and its capital spending program. CWC also has significant tax pools to shelter corporate income taxes and does not expect to pay cash taxes until 2018.

For the remainder of 2015, CWC expects stronger than industry average drilling rig utilization to offset softer pricing as six of our nine drilling rigs are currently active. In addition, CWC anticipates that at some point in the short to medium term future, E&P customers will start increasing service rig activity for workovers and maintenance as an indefinite deferral of this type of work by our E&P customers on their producing wells will result in lower production and cash flow streams. CWC has the right equipment, employees, locations and relationships to properly position us to service this work.

About CWC Energy Services Corp.

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the Western Canadian Sedimentary Basin with a complementary suite of oilfield services including drilling rigs, service rigs, and coil tubing. The Company's corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Red Deer, Lloydminster, Provost, and Brooks, Alberta and Weyburn, Saskatchewan. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

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

This news release contains certain forward-looking information and statements within the meaning of applicable Canadian securities legislation. Certain statements contained in this news release including everything contained in the section titled "Outlook" and including statements which may contain such words as "anticipate", "could", "continue", "should", "seek", "may", "intend", "likely", "plan", "estimate", "believe", "expect", "will", "objective", "ongoing", "project" and similar expressions are intended to identify forward-looking information or statements. In particular, this news release contains forward-looking statements including management's assessment of future plans and operations, planned levels of capital expenditures, expectations as to activity levels, expectations on the sustainability of future cash flow and earnings and the ability to pay dividends, expectations with respect to oil and natural gas prices, activity levels in various areas, continuing focus on cost saving measures, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB, expectations regarding entering into long term drilling contracts and expanding its customer base, and expectations regarding the business, operations and revenue of the Company in addition to general economic conditions. Although the Company believes that the expectations and assumptions on which such forward-looking information and statements are based are reasonable, undue reliance should not be placed on the forward-looking information and statements because the Company can give no assurances that they will prove to be correct. Since forward-looking information and statements address future events and conditions, by their very nature they involve inherent risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the drilling and oilfield services sector (ie. demand, pricing and terms for oilfield drilling and services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks), integration of acquisitions, including the Ironhand Acquisition, 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 and environmental regulations, stock market volatility and the inability to access sufficient capital from external and internal sources and the inability to pay dividends. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through SEDAR at www.sedar.com. The forward-looking information and statements contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Any forward-looking statements made previously may be inaccurate now.

Reconciliation of Non-IFRS Measures

Three months ended Six months ended
June 30, June 30,
$ thousands except share and per share amounts 2015 2014 2015 2014
NON-IFRS MEASURES
EBITDAS:
Net (loss) income (4,294 ) (3,182 ) (4,256 ) 63
Add:
Depreciation 3,278 3,821 7,462 8,086
Finance costs 525 523 1,099 966
Transaction costs - 715 - 788
Income tax expense 738 (945 ) 838 205
Stock based compensation 251 357 574 637
Loss (gain) on sale of equipment 279 (113 ) 314 (113 )
EBITDAS (1) 777 1,176 6,031 10,632
EBITDAS per share - basic(1) $ 0.00 $ 0.01 $ 0.02 $ 0.06
EBITDAS per share - diluted(1) $ 0.00 $ 0.01 $ 0.02 $ 0.05
EBITDAS margin (EBITDAS/
Revenue)
(1)
6 % 6 % 15 % 18 %
Weighted average number shares outstanding - basic 283,902,087 213,515,563 280,797,326 184,591,172
Weighted average number shares outstanding - diluted 283,902,087 213,515,563 280,797,326 194,334,851
Funds from operations:
Cash flows from operating activities 5,869 5,983 23,357 12,444
Add (deduct): Change in non-cash working capital (5,092 ) (5,522 ) (17,326 ) (2,600 )
Funds from operations (2) 777 461 6,031 9,844
Gross margin:
Revenue 13,508 20,488 41,338 58,861
Less: Direct operating expenses 9,711 15,676 27,930 40,539
Gross margin (3) 3,797 4,812 13,408 18,322
Gross margin percentage (3) 28 % 23 % 32 % 31 %
$ thousands June 30, 2015 December 31, 2014
Working capital (excluding debt):
Current Assets 13,334 38,405
Less: Current Liabilities (6,991 ) (18,003 )
Add: Current portion of long term debt 183 201
Working capital (excluding debt) (4) 6,526 20,603
Working capital (excluding debt) ratio(4) 2.0:1 2.2:1
Net debt:
Long term debt 51,435 65,465
Less: Current assets (13,334 ) (38,405 )
Add: Current liabilities 6,991 18,003
Net debt (5) 45,092 45,063
  1. EBITDAS (Earnings before interest and finance costs, income tax expense, depreciation, amortization, (gain) loss on disposal of asset, transaction costs, goodwill impairment and stock based compensation) is not a recognized measure under IFRS. Management believes that in addition to net earnings, EBITDAS is a useful supplemental measure as it provides an indication of the Company's ability to generate cash flow in order to fund working capital, service debt, pay current income taxes, pay dividends, repurchase common shares under the Normal Course Issuer Bid, and fund capital programs. Investors should be cautioned, however, that EBITDAS should not be construed as an alternative to net (loss) income and comprehensive (loss) income determined in accordance with IFRS as an indicator of the Company's performance. CWC's method of calculating EBITDAS may differ from other entities and accordingly, EBITDAS may not be comparable to measures used by other entities. EBITDAS margin is calculated as EBITDAS divided by revenue and provides a measure of the percentage of EBITDAS per dollar of revenue. EBITDAS per share is calculated by dividing EBITDAS by the weighted average number of shares outstanding as used for calculation of earnings per share.

  2. Funds from operations is not a recognized measure under IFRS. Management believes that in addition to cash flow from operations, funds from operations is a useful supplemental measure as it provides an indication of the cash flow generated by the Company's principal business activities prior to consideration of changes in working capital. Investors should be cautioned, however, that funds from operations should not be construed as an alternative to cash flow from operations determined in accordance with IFRS as an indicator of the Company's performance. CWC's method of calculating funds from operations may differ from other entities and accordingly, funds from operations may not be comparable to measures used by other entities. Funds from operations is equal to cash flow from operations before changes in non-cash working capital items related to operations.

  3. Gross margin is calculated from the statement of comprehensive income as revenue less direct operating costs and is used to assist management and investors in assessing the Company's financial results from operations excluding fixed overhead costs. Gross margin percentage is calculated as gross margin divided by revenue. The Company believes the relationship between revenue and costs expressed by the gross margin percentage is a useful measure when compared over different financial periods as it demonstrates the trending relationship between revenue, costs and margins. Gross margin and gross margin percentage are non-IFRS measures and do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures provided by other companies.

  4. Working capital (excluding debt) is calculated based on current assets less current liabilities excluding the current portion of long-term debt. Working capital (excluding debt) is used to assist management and investors in assessing the Company's liquidity. Working capital (excluding debt) does not have any meaning prescribed under IFRS and may not be comparable to similar measures provided by other companies. Working capital (excluding debt) ratio is calculated as current assets divided by the difference of current liabilities less the current portion of long term debt.

  5. Net debt is not a recognized measure under IFRS and does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures provided by other companies. Management believes net debt is a useful indicator of a company's debt position.

Contact Information

  • CWC Energy Services Corp.
    610, 205 - 5th Avenue SW
    Calgary, Alberta T2P 2V7
    (403) 264-2177
    info@cwcenergyservices.com

    Duncan T. Au, CA, CFA
    President & Chief Executive Officer

    Craig Flint, CA
    Chief Financial Officer