Essential Energy Services Ltd.

TSX : ESN


Essential Energy Services Ltd.

May 06, 2014 20:11 ET

Essential Energy Services Announces First Quarter Results and Declares Quarterly Dividend

CALGARY, ALBERTA--(Marketwired - May 6, 2014) - Essential Energy Services Ltd. (TSX:ESN) ("Essential" or the "Company") announces first quarter earnings.

SELECTED INFORMATION
For the three months ended March 31,
(Thousands of dollars, except per share, percentages and fleet data) 2014 2013
Revenue $ 103,730 $ 120,519
Gross margin 27,327 37,832
Gross margin % 26% 31%
EBITDA(1) from continuing operations 22,507 33,426
EBITDA %(1) 22% 28%
Net income attributable to shareholders of Essential 10,149 18,627
Per share - basic and diluted 0.08 0.15
Total assets 439,745 436,301
Total long-term debt 50,821 35,603
Utilization
Deep coil tubing rigs 77% 110%
Service rigs 66% 69%
Equipment fleet
Masted deep coil tubing rigs 16 14
Conventional deep coil tubing rigs 12 11
Service rigs 55 56

1 Refer to "Non-IFRS Measures" section for further information.

At $103.7 million and $22.5 million, respectively, Essential's first quarter 2014 revenue and EBITDA(1) were lower than the prior year and below management's expectations. A slow start to the quarter and periods of unusually cold weather disrupted the ability to provide services to customers, reducing revenue and contributing to higher costs as a percentage of revenue. Essential also experienced inconsistency in sales during the quarter due to variances in customer activity and increased competition. Two of Essential's three primary service lines were adversely impacted by these factors.

Masted deep coil tubing utilization was 109%, below the prior quarter of 148%, due to the factors noted above and new equipment delivery issues. The masted deep coil tubing fleet increased by two rigs compared to the first quarter of 2013 with the addition of two Generation III masted deep coil tubing rigs. These two new rigs contributed less than expected due to delivery timing and new equipment commissioning time. Delays in the delivery of two Generation IV masted deep coil tubing rigs resulted in gross margin reductions due to the absence of revenue and increased costs for manpower related to hiring additional crews in anticipation of delivery. These two rigs are expected to be delivered in the second quarter.

Essential's first quarter 2014 coil well service results are anticipated to be a temporary circumstance caused by delivery delays of new masted deep coil tubing rigs, adverse weather conditions and unique competitive circumstances. Management continues to be optimistic about the future of its masted deep coil tubing, fluid and nitrogen pumping operations as new equipment is delivered and commissioned. The incremental costs associated with coil well service in the first quarter 2014 are expected to be temporary and management expects margins will improve for the remainder of the year once new equipment is delivered and working at expected utilization.

Service rigs performed well in the quarter despite the unusual cold winter weather. With utilization at 66%, service rigs were less affected by the weather events in the quarter than the other service lines.

Conventional downhole tools and rentals activity increased over the prior quarter resulting in higher revenue. Demand for production-related and abandonment tool products, Essential's service locations, which are strategically positioned in active oil-related basins, across western Canada, and growth in the rentals business all contributed to this success. This increase was more than offset by reduced sales of the Tryton Multi-stage Fracturing System ("Tryton MSFS®") compared to the first quarter of 2013. Management believes the revenue decline was primarily the result of some customers choosing to broaden their choice of completion techniques. Competitive bidding practices and service bundling practices also affected Tryton MSFS® revenue in the quarter. Essential has faced these types of competitive industry pressures in the past and expects to overcome them in the future. Gross margin was negatively impacted by the Tryton MSFS® revenue decline and the United States operations.

INDUSTRY OVERVIEW

Industry activity in the first quarter was comparable to the first quarter of 2013. Drilling rig utilization increased three percentage points, well completion count was flat and the number of wells drilled decreased by 4%. These are indicators of overall oilfield activity in the Western Canadian Sedimentary Basin ("WCSB").

Well service activity in the WCSB continues to be driven by horizontal drilling, completion and stimulation of oil and liquids-rich natural gas wells. Horizontal wells typically require more investment capital and increased rig time per well due to their depth and complexity compared to conventional vertical wells. The first quarter of 2014 saw a slight shift towards natural gas drilling activity away from oil.

SEGMENT RESULTS - WELL SERVICING
Three months ended
March 31,
(Thousands of dollars, except percentages, fleet and hours) 2014 2013
Revenue
Coil Well Service (i) $ 41,499 $ 49,621
Service Rigs 32,499 33,556
Total revenue 73,998 83,177
Operating expenses 54,261 56,042
Gross margin $ 19,737 $ 27,135
Gross margin % 27% 33%
Utilization (ii)
Deep coil tubing rigs
Utilization 77% 110%
Operating hours 19,131 24,765
Service rigs
Utilization 66% 69%
Operating hours 32,616 34,364
Equipment fleet (iii)
Masted deep coil tubing rigs 16 14
Conventional deep coil tubing rigs 12 11
Service rigs 55 56
Nitrogen pumpers 14 13
Fluid pumpers 18 18

(i) Includes revenue from coil tubing rigs, nitrogen and fluid pumpers and other ancillary equipment.

(ii) Utilization is calculated using a 10 hour day.

(iii) Fleet data represents the number of units at the end of the period.

Essential's masted deep coil tubing utilization was down quarter-over-quarter at 109% compared to 148% in 2013. The decrease in utilization was driven by a slow start at the beginning of the quarter, lower activity from certain customers, unusually cold weather hindering the ability for equipment to work at certain times and increased competition. The masted deep coil tubing fleet increased by two rigs compared to the first quarter of 2013 with the addition of two Generation III masted deep coil tubing rigs. These two new rigs contributed less revenue than expected due to delivery timing and new equipment commissioning time.

Conventional deep coil tubing utilization was down quarter-over-quarter at 35% compared to 62% in 2013. Revenue was below the prior quarter due to lower activity from certain customers, the impact of specialty work completed in the prior quarter that did not recur in the first quarter of 2014 and increased competition in the less technical two inch conventional coil tubing market.

Service rig utilization was 66% compared to 69% in the prior quarter, performing well compared to the CAODC service rig industry utilization of 55%. Utilization was particularly strong in the Grande Prairie and Fort St. John areas as well as for the rigs working in SAGD operations.

Gross margin percentage for well servicing in the first quarter of 2014 was negatively impacted by lower utilization and higher operating costs as a percentage of revenue. Revenue per hour for coil well service and service rigs was consistent with the prior quarter. Coil well service operating expenses were impacted by incremental labour costs incurred to retain employees during periods of lower utilization and costs to hire additional crews in anticipation of the delivery of the new deep masted coil tubing rigs.

Service rigs incurred higher repairs and maintenance costs in the first quarter of 2014 compared to 2013. Coil well service and service rigs were both impacted by higher fuel costs.

SEGMENT RESULTS - DOWNHOLE TOOLS & RENTALS
Three months ended
March 31,
(Thousands of dollars, except percentages) 2014 2013
Revenue $ 30,286 $ 37,342
Operating expenses 21,228 24,374
Gross margin $ 9,058 $ 12,968
Gross margin % 30% 35%
Downhole Tools & Rentals Revenue- revenue % of total
Tryton MSFS® 39% 60%
Conventional Tools & Rentals 61% 40%

Conventional Canadian downhole tools and rentals revenue increased by 14% over the prior quarter. Demand for production-related and abandonment tool products, Essential's service locations, which are strategically positioned in active oil-related basins across western Canada, and growth in the rentals business all contributed to this success. Canadian conventional tool revenue for the three months ended March 31, 2014 was one of the best quarters for this business despite adverse cold weather that disrupted revenue in other areas of Essential's operations. Rentals revenue increased compared to the prior quarter from an expanded offering of specialty heavy-weight range three drill pipe and a broadening of the customer base through enhanced sales initiatives.

Tryton MSFS® revenue declined quarter-over-quarter by approximately $10.6 million, to $11.8 million, which was significantly below management's expectations. Management believes this revenue decline was primarily the result of some customers choosing to broaden their choice of completion techniques. Competitive bidding practices and service bundling practices also affected Tryton MSFS® revenue in the quarter. Similar to industry events adversely impacting Essential's well servicing businesses, Tryton MSFS® revenue was reduced by a slow start at the beginning of the quarter and unusually cold weather at certain times. New competing technologies, competitor practices and adverse industry conditions have all been experienced in previous quarters since the introduction of the Tryton MSFS® in 2009. Essential has faced these types of competitive industry pressures in the past and expects to overcome them in the future.

Gross margin and gross margin percentage were lower in the current quarter primarily due to lower Tryton MSFS® revenue and Essential's United States downhole tools operation. Price per job for Tryton MSFS® products experienced moderate declines quarter-over-quarter as the industry continued to respond to customer demand for lower cost completion technologies. Essential's United States conventional downhole tool business, which started operations in the third quarter of 2013, continued to realize quarterly revenue growth during the first quarter of 2014, however, this operation continued to generate negative gross margin as it further established a customer base and increased sales.

On April 30, 2014, Essential acquired all of the issued and outstanding shares of Sam's Packer & Supply LLC, a private downhole tool company that operates in Norman, Oklahoma and Liberal, Kansas. Sam's Packer & Supply LLC has been in business for more than 30 years and provides conventional tool sales, rentals and services to a diversified customer base in Oklahoma, Kansas and Texas. The purchase price was US$5.1 million plus possible incremental future performance payments of up to US$0.5 million in the next two years, and working capital adjustments.

GENERAL AND ADMINISTRATIVE
Three months ended
March 31,
(Thousands of dollars, except percentages) 2014 2013
General and administrative expenses $ 4,820 $ 4,406
As a % of revenue 5% 4%

General and administrative expenses are comprised of wages, professional fees, office space and other administrative costs incurred at corporate and operational levels. The increase compared to the prior quarter is due to higher employee costs, additional facility lease costs and higher legal fees.

OTHER EXPENSE
Three months ended
March 31,
(Thousands of dollars) 2014 2013
Other expense (income) $ 755 $ (133 )

Other expense in the first quarter of 2014 relates to losses on assets sold and retired assets, compared to the first quarter of 2013, when a gain on the sale of fixed assets was realized.

INCOME TAXES
Three months ended
March 31,
(Thousands of dollars) 2014 2013
Current income tax expense $ 2,782 $ 4,425
Deferred income tax expense 952 2,166
Total income tax expense $ 3,734 $ 6,591

During the first quarter of 2014, income tax expense decreased compared to the first quarter of 2013 due to lower reported earnings before income taxes.

FINANCIAL RESOURCES AND LIQUIDITY
WORKING CAPITAL
As at As at
March 31 December 31
(Thousands of dollars, except ratios) 2014 2013
Current assets $ 121,390 $ 107,945
Current liabilities, excluding current portion of long-term debt (41,810 ) (45,419 )
Working capital $ 79,580 $ 62,526
Working capital ratio 2.9:1 2.4:1

EQUIPMENT EXPENDITURES AND FLEET ADDITIONS
Three months ended
March 31,
(Thousands of dollars) 2014 2013
Well Servicing $ 6,807 $ 6,142
Downhole Tools & Rentals 3,716 444
Corporate 525 238
Total equipment expenditures 11,048 6,824
Less proceeds on disposal of property
and equipment (865 ) (540 )
Net equipment expenditures(1) $ 10,183 $ 6,284

During the first quarter, one Generation III rig was commissioned and put into service. During the second quarter, two Generation IV rigs are expected to be delivered and will be put into service in the third quarter of 2014.

Essential classifies its equipment expenditures as growth capital(1) and maintenance capital(1):

Three months ended
March 31,
(Thousands of dollars) 2014 2013
Growth capital(1) $ 8,539 $ 4,766
Maintenance capital(1) 2,509 2,048
Total equipment expenditures $ 11,048 $ 6,824

Essential's 2014 capital budget of $53 million is comprised of $36 million in growth capital and $17 million of maintenance capital. This includes $3 million of carry-in from 2013. Growth capital consists primarily of seven masted deep coil tubing rigs and rental equipment. The capital budget was updated to include an investment in rental equipment offset by the cancellation of the previously announced rod rig and fluid pumper.

The Company believes that it has access to sufficient funds through internally generated cash flows and from the credit facility to meet current spending needs.

The following table shows the expected dates of the major equipment being built over the remainder of 2014 and early 2015:

Expected Dates
Quantity 2014 /2015
Deep masted coil tubing rigs 6 Q2(2),Q3,Q4,Q1'15,Q2'15

OUTLOOK

With the delayed spring breakup in the WCSB, some equipment continued to work into the beginning of April 2014. Essential expects that oilfield service activity following breakup will return to a more typical post-spring breakup level as compared to the same period in 2013, which was extremely wet and prolonged. Unlike a year ago, some customers are providing positive indications for work programs and plans after breakup.

The Petroleum Association of Canada continues to forecast consistent activity expectations year-over-year compared to 2013. Generally speaking, exploration and production ("E&P") capital budgets for 2014 are consistent with 2013. Essential believes there are reasons for optimism in the second half of the year including: a weaker Canadian dollar which would increase E&P cash flows, improved access to equity capital markets for E&P companies, improved natural gas prices and oil prices that have been relatively strong.

The longer term outlook remains positive for the development of proposed liquefied natural gas ("LNG") projects in British Columbia. Development of the Montney, Horn River and Duvernay basins for LNG export is expected to increase the demand for oilfield services, including the demand for Essential's deep coil tubing and downhole tools & rentals.

Essential's $53 million equipment expansion program for 2014 will add significant growth to Essential's masted deep coil tubing fleet. Essential expects to put into service two Generation IV masted deep coil tubing rigs in the third quarter and take delivery of one Generation III and one Generation IV rig in the remainder of 2014. These rigs have industry leading large diameter coil-carrying capacity making them uniquely capable of working on long-reach horizontal wells.

Essential has a strong balance sheet with $47.2 million of debt outstanding on May 6, 2014 and a debt to EBITDA ratio of 0.9x.

QUARTERLY DIVIDEND

The cash dividend for the period April 1, 2014 to June 30, 2014 has been set at $0.03 per share. The dividend will be paid on July 15, 2014 to shareholders of record on June 30, 2014. The ex-dividend date is June 26, 2014.

The Management's Discussion and Analysis and Financial Statements are available on Essential's website at www.essentialenergy.ca and on SEDAR at www.sedar.com.

(1)Non-IFRS Measures

Throughout this news release, certain terms that are not specifically defined in International Financial Reporting Standards ("IFRS") are used to analyze Essential's operations. In addition to the primary measures of net earnings and net earnings 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, capital programs and pay dividends. As a result, the method of calculation may not be comparable with other companies. These measures should not be considered alternatives to net earnings and net earnings per share as calculated in accordance with IFRS.

EBITDA (Earnings before finance costs, income taxes, depreciation, amortization, transaction costs, non- controlling interest earnings, losses or gains on disposal of equipment, results of discontinued operations and share-based compensation, which includes both equity-settled and cash-settled transactions) - This measure is considered an indicator of Essential's ability to generate funds flow in order to fund required working capital, service debt, fund capital programs and pay dividends.

EBITDA % - This measure is considered an indicator of Essential's ability to generate funds flow as calculated by EBITDA divided by revenue.

Working capital - Working capital is calculated as current assets less current liabilities.

Growth capital - Growth capital is capital spending which is intended to result in incremental increases in revenue. Growth capital is considered to be a key measure as it represents the total expenditures on equipment expected to add incremental revenues and funds flow to Essential.

Maintenance capital - Equipment additions that are incurred in order to refurbish or replace previously acquired equipment less proceeds on the disposal of retired equipment. Such additions do not provide incremental increases in revenue. Maintenance capital is a key component in understanding the sustainability of Essential's business as cash resources retained within Essential must be sufficient to meet maintenance capital needs to replenish the assets for future cash generation.

Net equipment expenditures - This measure is equipment expenditures less proceeds on the disposal of equipment. Essential uses net equipment expenditures to assess net cash flows related to the financing of Essential's oilfield services equipment.

SUMMARY OF QUARTERLY DATA
(Thousands of dollars, except per share Mar 31, Dec 31, Sept 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30,
amounts, percentages and fleet data) 2014 2013 2013 2013 2013 2012 2012 2012
Well Servicing:
Coil Well Service 41,499 36,150 33,037 9,433 49,621 41,228 33,857 18,697
Service Rigs 32,499 25,593 23,870 14,732 33,556 26,012 20,552 15,564
Other (i) - - - - - 786 2,762 1,069
Total well servicing 73,998 61,743 56,907 24,165 83,177 68,026 57,171 35,330
Downhole Tools & Rentals 30,286 31,560 28,185 14,252 37,342 27,989 26,342 15,540
Inter-segment eliminations (554 ) (480 ) (582 ) - - - - -
Total revenue 103,730 92,823 84,510 38,417 120,519 96,015 83,513 50,870
Gross margin 27,327 25,332 21,414 (1,310 ) 37,832 27,039 23,012 3,904
Gross margin % 26% 27% 25% (3 )% 31% 28% 28% 8%
EBITDA(1) 22,507 20,705 17,132 (5,171 ) 33,426 22,368 19,261 (42 )
EBITDA %(1) 22% 22% 20% (13 )% 28% 23% 23% 0%
Continuing operations
Net income (loss) 10,149 9,478 4,292 (8,958 ) 19,205 8,050 8,343 (5,453 )
Per share - basic and diluted $ 0.08 $ 0.07 $ 0.03 $ (0.07 ) $ 0.15 $ 0.06 $ 0.07 $ (0.04 )
Net income (loss) attributable
to shareholders of Essential 10,149 11,126 3,843 (11,501 ) 18,627 678 8,660 (5,923 )
Per share - basic and diluted $ 0.08 $ 0.09 $ 0.03 $ (0.09 ) $ 0.15 $ 0.01 $ 0.07 $ (0.05 )
Total assets 439,745 423,963 409,613 380,728 436,301 406,853 415,653 393,377
Total long-term debt 50,821 39,027 40,484 14,592 35,603 35,563 50,474 41,198
Utilization (ii)
Deep coil tubing rigs 77% 74% 73% 18% 110% 95% 79% 32%
Pumpers 69% 55% 47% 14% 73% 57% 50% 33%
Service rigs 66% 53% 50% 28% 69% 54% 45% 34%
Operating Hours
Deep coil tubing rigs 19,131 18,257 17,724 4,125 24,765 22,777 18,301 7,262
Pumpers 19,995 16,612 14,418 4,241 20,481 15,328 11,919 7,504
Service rigs 32,616 26,557 25,084 14,234 34,364 27,310 22,632 16,183
Downhole Tools & Rentals - revenue % of total
Tryton MSFS® 39% 55% 55% 40% 60% 51% 52% 40%
Conventional Tools & Rentals 61% 45% 45% 60% 40% 49% 48% 60%
Equipment fleet (iii)
Masted deep coil tubing rigs 16 15 15 14 14 16 16 16
Conventional deep coil tubing rigs 12 12 12 11 11 11 10 9
Coil tubing rigs - other 18 18 18 19 19 19 19 20
Service rigs 55 55 54 56 56 55 55 53
Nitrogen pumpers 14 14 15 15 13 13 10 10
Fluid pumpers 18 18 18 18 18 18 16 16
Rod rigs 13 13 12 14 14 14 14 14

(i) Other revenue included revenue from Essential's drilling operation until its disposal in November 2012.

(ii) Utilization is calculated using a 10 hour day.

(iii) Fleet data represents the number of units at the end of the period.

ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
As at As at
March 31 December 31
(Thousands) 2014 2013
Assets
Current
Trade and other accounts receivable $ 89,573 $ 76,640
Inventories 29,134 27,979
Prepayments 2,683 3,326
121,390 107,945
Non-current
Property and equipment 233,563 230,292
Intangible assets 29,778 30,712
Goodwill 55,014 55,014
318,355 316,018
Total assets $ 439,745 $ 423,963
Liabilities
Current
Bank indebtedness $ 4,025 $ 2,112
Trade and other accounts payable 33,487 36,161
Dividends payable 3,768 3,765
Income taxes payable 530 3,381
Current portion of long-term debt 14,096 7,603
55,906 53,022
Non-current
Long-term debt 36,725 31,424
Deferred tax liabilities 27,312 26,360
64,037 57,784
Total liabilities 119,943 110,806
Equity
Share capital 262,394 262,177
Retained earnings 53,003 46,622
Other reserves 4,405 4,358
Total equity 319,802 313,157
Total liabilities and equity $ 439,745 $ 423,963

ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended
March 31
(Thousands, except per share amounts) 2014 2013
Revenue $ 103,730 $ 120,519
Operating expenses 76,403 82,687
Gross margin 27,327 37,832
General and administrative expenses 4,820 4,406
22,507 33,426
Depreciation and amortization 6,785 7,044
Share-based compensation 651 343
Other expense (income) 755 (133 )
Operating profit from continuing operations 14,316 26,172
Finance costs 433 376
Net income before income tax from continuing operations 13,883 25,796
Current income tax expense 2,782 4,425
Deferred income tax expense 952 2,166
Total income tax expense 3,734 6,591
Net income from continuing operations 10,149 19,205
Loss from discontinued operations, net of tax - (607 )
Net income 10,149 18,598
Unrealized foreign exchange loss from continuing operations (86 ) -
Unrealized foreign exchange loss from discontinued operations - (31 )
Other comprehensive loss (86 ) (31 )
Comprehensive income $ 10,063 $ 18,567
Net income (loss) attributable to:
Shareholders of Essential $ 10,149 $ 18,627
Non-controlling interest - (29 )
$ 10,149 $ 18,598
Comprehensive income (loss) attributable to:
Shareholders of Essential $ 10,063 $ 18,597
Non-controlling interest - (30 )
$ 10,063 $ 18,567
Net income per share from continuing operations
Basic and diluted, attributable to shareholders of Essential $ 0.08 $ 0.15
Net income per share
Basic and diluted, attributable to shareholders of Essential $ 0.08 $ 0.15
Comprehensive income per share
Basic and diluted, attributable to shareholders of Essential $ 0.08 $ 0.15

ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
March 31
(Thousands) 2014 2013
Operating activities:
Net income from continuing operations $ 10,149 $ 19,205
Non-cash adjustments to reconcile net income for the period to operating cash flow:
Depreciation and amortization 6,785 7,044
Deferred income tax expense 952 2,166
Share-based compensation 211 343
Provision for impairment of trade accounts receivable 225 250
Finance costs 433 376
Loss (gain) on disposal and retirement of assets 1,046 (106 )
Operating cash flow before changes in working capital 19,801 29,278
Change in non-cash operating working capital:
Trade and other accounts receivable before provision (13,276 ) (31,159 )
Inventories (1,155 ) (762 )
Prepayments 643 658
Trade and other accounts payable 1,141 6,201
Current taxes payable (2,851 ) 1,795
Net cash provided by operating activities from continuing operations 4,303 6,011
Investing activities:
Purchase of property, equipment and intangibles (11,048 ) (6,824 )
Non-cash investing working capital in trade and other accounts payable (3,815 ) 1,061
Proceeds on disposal of equipment 865 540
Net cash used in investing activities from continuing operations (13,998 ) (5,223 )
Financing activities:
Issuance of long-term debt 11,794 40
Proceeds from exercise of share options 140 88
Repurchase of shares - (8 )
Dividends paid (3,765 ) (3,100 )
Finance costs (433 ) (376 )
Net cash from (used in) financing activities from continuing operations 7,736 (3,356 )
Foreign exchange loss on cash held in a foreign currency 46 -
Net increase in bank indebtedness (1,913 ) (2,568 )
Bank indebtedness, beginning of period (2,112 ) (1,835 )
Bank indebtedness, end of period $ (4,025 ) $ (4,403 )
Supplemental cash flow information
Cash taxes paid $ 5,650 $ 2,630
Cash interest and standby fees paid 386 328

2014 FIRST QUARTER EARNINGS CONFERENCE CALL AND WEBCAST

Essential has scheduled a conference call and webcast at 10:00 am MT (12:00 pm ET) on May 7, 2014.

The conference call dial in numbers are 416-340-2217 or 866-696-5910, passcode 3606107.

An archived recording of the conference call will be available approximately one hour after completion of the call until May 23, 2014 by dialing 905-694-9451 or 800-408-3053, passcode 7279612.

A live webcast of the conference call will be accessible on Essential's website at www.essentialenergy.ca by selecting "Investors" and "Events and Presentations". Shortly after the live webcast, an archived version will be available for approximately 30 days.

ABOUT ESSENTIAL

Essential is a growth-oriented, dividend paying corporation that provides oilfield services to producers in western Canada for producing wells and new drilling activity. Essential operates the largest coil tubing well service fleet in Canada with 46 coil tubing rigs and a fleet of 55 service rigs. Essential also sells, rents and services downhole tools and equipment including the Tryton MSFS®. Further information can be found at www.essentialenergy.ca.

FORWARD-LOOKING STATEMENTS AND INFORMATION

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "budget", "scheduled", "forecast" and similar expressions are intended to identify forward-looking information or statements. In particular, this news release contains forward-looking statements, including expectations regarding: capital spending, in-service timing of new equipment, demand for new equipment, future cash flow and earnings, access to sufficient funding, the future areas of development in the WCSB, the level and type of drilling activity, completion activity, work-over activity, production activity and required oilfield services in the WCSB, the business, operations and revenues of the Company in addition to general economic conditions, Essential's ability to meet the changing needs of the WCSB market, the capital spending programs of E&P companies, Essential's positioning for the future, the temporary nature of the first quarter 2014 coil well service results and the future of the coil well service operations and Essential's ability to overcome competitive industry pressure for the multi-stage fracturing system. In addition, this news release contains forward looking statements, including expectations regarding: the Company's outlook for the second half of 2014 including: a weaker Canadian dollar increasing E&P cash flows, improving access to equity capital markets for E&P companies and improving natural gas prices and relatively strong oil prices, development of proposed LNG projects in British Columbia, development of the Montney, Horn River and Duvernay basins for LNG export increasing the demand for oilfield services (including the demand for Essential's deep coil tubing and downhole tools & rentals), oilfield service activity following breakup and any financial resource or liquidity issues restricting Essential's future operating, investing or financing activities.

Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that such statements and information will prove to be correct. Since forward-looking statements and information 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 Annual Information Form (a copy of which can be found under Essential's profile on SEDAR at www.sedar.com), the risks associated with the oilfield services sector (e.g. 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 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; 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; risks and uncertainty related to distribution and pipeline constraints; and other unforeseen conditions which could impact the use of services supplied by the Company. Accordingly, readers should not place undue reliance on the forward-looking statements and forward-looking information. 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 operations and financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website at www.sedar.com for the Company. The forward-looking statements and information 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 statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

The TSX has neither approved nor disapproved the contents of this news release.

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