Enseco Energy Services Corp.
TSX VENTURE : ENS

Enseco Energy Services Corp.

August 24, 2015 09:10 ET

Enseco Energy Services Corp. Announces Results for the Three and Six Months Ended June 30, 2015

CALGARY, ALBERTA--(Marketwired - Aug. 24, 2015) - ENSECO ENERGY SERVICES CORP (TSX VENTURE:ENS) ("Enseco" or the "Company") (August 24, 2015) announces its financial results for the three and six months ended June 30, 2015.

Summary of results

Three months ended June 30, Six months ended June 30,
($ thousands, except per share amounts) 2015 2014 2015 2014
Revenue $ 4,936 $ 12,750 $ 16,218 $ 35,785
Gross margin $ (115 ) $ (59 ) $ 1,983 $ 4,591
Gross margin % -2 % 0 % 12 % 13 %
Adjusted gross margin(1) $ 1,575 $ 1,563 $ 5,175 $ 7,848
Adjusted gross margin % 32 % 12 % 32 % 22 %
EBITDAS (1) $ (1,064 ) $ (2,212 ) $ (937 ) $ 220
EBITDAS % -22 % -17 % -6 % 1 %
Net income (loss) before tax $ (14,283 ) $ (4,454 ) $ (15,162 ) $ (3,979 )
Per common share - basic $ (0.64 ) $ (0.20 ) $ (0.68 ) $ (0.18 )
Per common share - diluted $ (0.64 ) $ (0.20 ) $ (0.68 ) $ (0.18 )
Net income (loss) $ (14,971 ) $ (4,454 ) $ (15,496 ) $ (3,979 )
Per common share - basic $ (0.67 ) $ (0.20 ) $ (0.69 ) $ (0.18 )
Per common share - diluted $ (0.67 ) $ (0.20 ) $ (0.69 ) $ (0.18 )
Cash flow before changes in non-cash working capital(1) $ (1,490 ) $ (2,369 ) $ (855 ) $ 120
Cash flow from (used in) operating activities $ 5,197 $ 5,841 $ 12,122 $ 598
1See definition within the Non-IFRS Measures section of this MD&A

Takeaways for the three and six months ended June 30, 2015

  • On August 19, 2015, Enseco signed a Forbearance Extension Agreement with it lender for coverage of the breaches of its current ratio and debt service coverage ratio covenants until August 31, 2015.
  • Drilling and completion activities in all of the Company's operating segments remained slow as weak commodity prices continued through the second quarter of 2015. For the three-month period ended June 30, 2015 the Company generated consolidated revenue of $4.9 million, which was 61 percent lower than the $12.75 million generated in the 2014 period. EBITDA loss for the quarter improved year over year as a result of cost reduction initiatives from a negative $2.2 million in Q2 2014 to a negative $1.1 million in the current year.
  • Due to current and anticipated market conditions and results to date, the Company has recognized impairment losses of $5.4 million and $5.5 million, respectively for its oilfield service equipment from its Canadian Production Testing and Canadian Directional Drilling divisions.
  • Strict cost management enabled the Company to improve adjusted gross margin percentage for both the quarter and the year as compared to last year.
  • SG&A declined by $1.2 million in comparable quarters and by $1.6 million in comparable year-to- date. Further reductions in SG&A are expected as the Company continues to adjust to anticipated continued low activity level for the remainder of 2015 and 2016.
  • Management continued to focus on initiatives to reduce costs, improve margins and to better position the Company's product offering in the current market.

Outlook

So far in 2015, the US dollar has seen significant gains against the Canadian dollar and differentials rate have improved from the same period last year but the average price of oil has remained substantially lower than for the same period-to-date last year. Average rig count for the six months ended June 30, 2015 was down 45% in Canada and 36% in the US for a combined weighted average decrease of 38%. In the second quarter oil prices initially appeared to be stabilizing but oil prices have continued to drop since. Despite an increase in the average rig count through July, in Canada, the level is still lower than the lowest average month for 2014 and activity levels for the remainder of this year are still very uncertain. Activity declines and service pricing reductions will continue to put downward pressure on our revenues for the remainder of 2015 and likely into 2016.

By the start of the second quarter many of our cost reduction programs implemented in the first quarter had been completed and are fully reflected in the second quarter "SG&A" dollar amounts with a reduction of over $1 million compared to both the same quarter and the year-to-date last year. The wage roll-backs, Director fee suspension, benefit and matching program changes and job sharing programs were in place for all of the second quarter and are expected to remain for at least the remainder of the year. With the results of the second quarter and third quarter to date, further cost reductions are being examined.

The Company had an operating loss of $2.8 million for the second quarter or $4.2 million for the first six months of 2015 and a working capital deficit at June 30, 2015 of $14.5 million. The Company was not in compliance with its financial covenants under its credit agreements with its lender and anticipates continued violations, all of which are more fully described in the "MD&A" and Enseco's unaudited condensed consolidated interim financial statements.

On August 19, 2015, Enseco entered into a Forbearance Extension Agreement with its lender, a copy of which has been filed on SEDAR. The agreement is in effect until August 31, 2015. The Company continues to explore various options to improve its financing terms and reduce its debt through the downturn.

Enseco remains focused on realigning it cost structure in this challenging commodity cycle, while maintaining a key personnel base and implementing improvements to be more efficient and cost effective when activity levels improve.

Board Update

Enseco also announces Mr. Stan Grad has resigned as a member of the Company's Board of Directors. The Company would like to thank Mr. Grad for his service to the Company and its shareholders over the past years.

Filings

Enseco has filed with Canadian securities regulatory authorities its unaudited consolidated financial statements for the three and six months ended June 30, 2015 and accompanying management's discussion and analysis ("MD&A"). These filings are available under Enseco's SEDAR profile at www.sedar.com.

About Enseco Energy Services Corp.

Enseco is a premier supplier of directional drilling, production testing and frac flowback services operating throughout the Western Canadian Sedimentary Basin and select markets in the United States, Our corporate office is located in Calgary and sales offices are located in both Calgary and Denver. Enseco is led by an experienced management team with a focus on continued value creation through accretive acquisitions and organic growth.

Forward-Looking Statements

Certain information and statements contained in this press release constitute forward-looking information, including, but not limited to: statements concerning Enseco's future business strategy, focus, marketing and other plans; expectations regarding financial results including future revenues, cash flow, gross margins, EBITDAS, efficiencies and cost reductions, continued financial covenant breaches, plans to improve its financing terms and reduce debt levels and industry activity l. Although management of the Company believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Accordingly, readers should not place undue reliance upon any of the forward-looking information set out in this press release. Readers should review the cautionary statement respecting forward-looking information that appears below. All of the forward looking statements of the Company contained in this press release are expressly qualified, in their entirety, by this cautionary statement.

The information and statements contained in this press release that are not historical facts are forward- looking statements. Forward-looking statements (often, but not always, identified by the use of words such as "seek", "plan", "continue", "estimate", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "expect", "may", "ant icipate" or "will" and similar expressions) may inc lude plans, expectations, opinions, or guidance that are not statements of fact. Forward-looking statements are based upon the opinions, expectations and estimates of management as at the date the statements are made and 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. These factors include, but are not limited to, such things as: changes (including continued declines) in industry conditions and activity levels, the continued cooperation of the Company's lender, the Company's ability to reduce or refinance its debt and or continue as a going concern, the credit risk to which the Company is exposed in the conduct of its business, fluctuations in prevailing commodity prices or currency and interest rates, the competitive environment to which the various business divisions are, or may be, exposed in all aspects of their business, the ability of the Company's various business divisions to access equipment (including parts) and new technologies and to maintain relationships with key suppliers and customers, the ability of the Company's various business divisions to attract and maintain key personnel and other qualified employees, various environmental risks to which the Company's business divisions are exposed in the conduct of their operations, inherent risks associated with the conduct of the businesses in which the Company's business divisions operate, timing and costs associated with the acquisition of capital equipment, the impact of weather and other seasonal factors that affect business operations, availability of financial resources or third-party financing and the impact of new laws or changes in administrative practices on the part of regulatory authorities.

Forward-looking information concerning the nature and timing of growth within the various business divisions is based on the current budget of the Company (which is subject to change), factors that affected the historical growth of such business divisions, sources of historic growth opportunities and expectations relating to future economic and operating conditions. Forward-looking information concerning the future competitive position of the Company's business divisions is based upon the current competitive environment in which those business divisions operate, expectations relating to future economic and operating conditions, current and announced programs and expansion plans of other organizations that operate in the energy service business. Forward-looking information concerning the financing of future business activities is based upon the financing sources on which the Company has historically relied and expectations relating to the continued cooperation of the Company's lender and future economic and operating conditions. Forward-looking information concerning future economic and operating conditions is based upon historical economic and operating conditions, and opinions of third- party analysts respecting anticipated economic and operating conditions.

With respect to forward-looking statements contained in this press release, Enseco has made assumptions regarding commodity prices and royalty regimes, availability of skilled labor, timing and amount of capital expenditures, future foreign exchange rates, interest rates, the impact of increasing competition, conditions in general economic and financial markets, effects of regulation by governmental agencies, and future operating costs.

Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide shareholders with a more complete perspective on Enseco's future operations and such information may not be appropriate for other purposes. Enseco's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Enseco will derive there from. Readers are cautioned that the foregoing lists of factors are not exhaustive. These forward-looking statements are made as of the date of in this press release and Enseco disclaims any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Non-IFRS Measures

EBITDAS means earnings before interest, taxes, depreciation and amortization, and stock-based compensation and is equal to earnings before income taxes from continuing operations plus interest on debt, other charges and interest expense, depreciation and amortization, stock-based compensation, unrealized foreign exchange loss, and loss on sale of equipment. Adjusted gross margin from continuing operations equals gross margin, plus interest on debt, other charges and interest expense, depreciation and amortization, stock-based compensation, impairment loss/recovery, and loss on sale of equipment. Cash flow means cash flows provided by continuing operations before changes in non-cash working capital items.

EBITDAS, adjusted gross margin from continuing operations, and cash flows from continuing operations before changes in non-cash working capital items are not recognized measures under International Financial Reporting Standards ("IFRS"). Management believes that in addition to net losses, EBITDAS and cash flows, are useful supplemental measures as they provide an indication of the results generated by the Company'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 the Company's primary business activities. Readers should be cautioned, however, that EBITDAS and cash flows from continuing operations before changes in non-cash working capital items should not be construed as an alternative to net losses determined in accordance with IFRS as an indicator of Enseco's performance. Enseco's method of calculating operating losses, EBITDAS and cash flows from continuing operations before changes in non-cash working capital items may differ from other organizations and, accordingly, such measures may not be comparable to measures used by other organizations. For reconciliation to the appropriate IFRS measure, see our MD&A.

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.
    Kent Devlin
    CEO
    403-806-0088

    Enseco Energy Services Corp.
    Blair Layton
    CFO
    403-806-0088
    Info@enseco.com