Essential Energy Services Ltd.
TSX : ESN

Essential Energy Services Ltd.

November 09, 2011 21:10 ET

Essential Energy Services Announces Record Third Quarter 2011 Results

CALGARY, ALBERTA--(Marketwire - Nov. 9, 2011) - Essential Energy Services Ltd. (TSX:ESN) ("Essential" or the "Company") announces a record third quarter with EBITDA(1) of $27.3 million compared to $7.2 million in the third quarter of 2010. On a year-to-date basis, EBITDA(1) was $40.6 million compared to $18.1 million in the same period of 2010. These results reflect robust industry activity and highlight the earning capability of Essential with the assets that were acquired with Technicoil Corporation ("Technicoil").

THIRD QUARTER HIGHLIGHTS

  • The deep coil tubing fleet reported 104% utilization. Essential's fleet of 23 deep coil tubing rigs was servicing the growing demand from horizontal drilling and resource play development.
  • The Tryton Multi-Stage Fracturing System ("Tryton MSFS") produced record results, due to strong activity and demand from horizontal drilling.
  • Service rigs operated at 54% utilization, an increase from 40% in the third quarter of 2010.
  • Six new fluid pumpers and one new nitrogen pumper went into service in the third quarter bringing the count to 12 fluid pumpers and 11 nitrogen pumpers. The expanded pumper fleet supports the deep coil tubing operations and reduces Essential's reliance on third party pumping.
  • Successful integration and realization of cost savings and synergies from the Technicoil acquisition.

To date, oilfield service activity continues to be strong in the fourth quarter with exploration and production companies continuing to focus on oil and liquids-rich natural gas and horizontal well development.

SELECTED FINANCIAL INFORMATION

The increased size and nature of the Company's operations due to the completion of the acquisition of Technicoil (the "Technicoil Acquisition") on May 31, 2011 impacts the results for 2011 compared to 2010. Except where otherwise noted, Essential's results for the three and nine months ended September 30, 2011 include the results for Technicoil for the period June 1, 2011 to September 30, 2011.

Three months ended Nine months ended
($Thousands, except per share September 30 , September 30 ,
amounts) 2011 2010 2011 2010
Revenue 99,416 41,244 206,311 112,658
Gross margin 31,100 10,186 50,829 26,716
Gross margin % (1) 31 % 25 % 25 % 24 %
EBITDA(1) 27,293 7,246 40,557 18,114
EBITDA %(1) 27 % 18 % 20 % 16 %
Funds flow from operations (1) 23,857 7,178 34,584 18,228
Per share – basic and diluted (1) $ 0.19 $ 0.10 $ 0.36 $ 0.27
Net income attributable to shareholders of Essential 13,678 2,657 13,563 5,876
Per share – basic and diluted $ 0.11 $ 0.04 $ 0.14 $ 0.09
Total assets 411,204 160,797 411,204 160,797
Total long-term debt 79,230 471 79,230 471

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

ACQUISITION OF TECHNICOIL CORPORATION

To assist the reader in understanding the current operations of Essential, management has provided the combined results for Essential assuming the Technicoil Acquisition had occurred on January 1, 2011.

Essential and Technicoil Operations Combined as of January 1, 2011
Three Months Ended Nine Months Ended
March 31 , June 30 , September 30 , September 30 ,
(Thousands) 2011 2011 2011 2011
Revenue $ 101,176 $ 48,471 $ 99,416 $ 249,063
Gross margin 29,135 1,324 31,100 61,559
Gross margin %(1) 29 % 3 % 31 % 25 %
EBITDA(1) 24,849 (2,506 ) 27,293 49,636
EBITDA %(1) 25 % (5 )% 27 % 20 %
Utilization - Canada
Deep coil tubing rigs 122 % 35 % 104 % 86 %
Service rigs 65 % 28 % 54 % 49 %

Management has also provided the following reconciliation between the results from the table above to the financial results for Essential for the nine months ended September 30, 2011.

(Thousands) Revenue EBITDA(1 )
Combined results $ 249,063 $49,636
Less: results from Technicoil for the period January 1 to May 31, 2011 (42,752 ) (9,079 )
Essential Consolidated Financial Statements $ 206,311 $40,557

OVERVIEW OF ESSENTIAL
EQUIPMENT FLEET
As at September 30, 2011 Canada Colombia Total
Coil Tubing Rigs
Deep 23 - 23
Shallow/Intermediate 25 2 27
48 2 50
Service Rigs
Singles 37 - 37
Doubles 20 1 21
57 1 58
Pumpers
Nitrogen 9 2 11
Fluid 12 - 12
21 2 23

CANADA

Coil tubing rigs

Essential operates the largest coil tubing well servicing fleet in the Western Canadian Sedimentary Basin ("WCSB"). There are two distinct operating categories within Essential's coil tubing rig fleet, deep coil tubing rigs and shallow/intermediate coil tubing rigs.

  • Deep coil tubing rigs include both masted and conventional coil tubing rigs that have a depth capacity up to 6,600 meters. The deep coil tubing rigs primarily provide completion, fracture stimulation and workover services on long reach horizontal wells. These rigs are supported by a fleet of nitrogen and fluid pumpers, which broadens Essential's services to include acid and chemical treatments. The deep coil tubing rig fleet is primarily focused on providing services on oil and liquids-rich natural gas resource plays.
  • Shallow/intermediate coil tubing rigs are conventional coil tubing rigs that have a depth capacity up to 2,500 meters. These rigs primarily provide workover services on existing wells; the shallow rigs are focused on natural gas while the intermediate rigs are more oil focused.

The diversity of the equipment in Essential's coil tubing fleet enables the Company to service the wide variety of well types that are present in the WCSB.

Service rigs

Essential's service rig fleet consists of 37 single and 20 double service rigs. The fleet operates from eight service locations across western Canada and provides well completion and production/workover services in all major resource plays across the WCSB. Service rigs are used primarily to repair, re-complete and stimulate existing oil and natural gas wells and perform completions on new wells.

Downhole tools

Essential provides a wide range of downhole tools and rental services to assist with the completion and production operations of oil and natural gas wells. These services offer a full range of downhole tools, including the Tryton MSFS.

COLOMBIA

Essential services producing wells from its operating base in Barrancabermeja, Colombia. The current operational fleet in Colombia consists of one double service rig, two coil tubing rigs, two nitrogen pumpers and three rod rigs.

INDUSTRY OVERVIEW

CANADA

Well service activity in the WCSB was strong during the third quarter with service rig utilization, as reported by Canadian Association of Oilwell Drilling Contractors ("CAODC"), the highest since 2006. Well service activities were driven by horizontal well drilling, stimulation and completion work focused on oil and liquids-rich natural gas plays on the relative strength of those commodity prices. The focus on horizontal wells contributed to increased demand for oilfield service equipment, including deep coil tubing rigs and multi-stage completion services.

General economic activity in western Canada and the increasing demand for services in the WCSB continued to create labour constraints and cost escalations in the oilfield services sector during the quarter.

COLOMBIA

Production levels in Colombia reached record highs during the third quarter and the Colombian government continues to target significant production increases over the next several years. Colombia currently produces 0.9 million barrels of oil equivalent per day. This level represents a 28% increase over 2009 levels and production is expected to increase to 1.5 million bbl/d by 2015. A significant portion of Colombia's anticipated production increase is expected to come from increasing production of existing wells through extensive stimulation and workover programs.

OPERATING HIGHLIGHTS - ESSENTIAL

CANADA

Essential had record results during the third quarter, building on its strong results from the first half of the year. This was the first quarter of operating results with Technicoil included for the entire quarter.

On a quarter over quarter basis, Essential's results show significant improvement over 2010 due to:

  • inclusion of Technicoil's operating results in 2011;
  • strong utilization across all core services; and
  • higher demand from horizontal well drilling for stimulation and completion work utilizing Essential's deep coil rigs and downhole tools.

The Technicoil Acquisition and Essential's capital program increased the depth capacity of the coil tubing fleet and expanded Essential's ability to meet the growing demand for deep coil tubing rigs in the key resource plays within the WCSB. Operating margins improved as the Company's expanded pumper fleet reduced its reliance on third party contractor equipment.

COLOMBIA

Operations continue to grow in Colombia with Essential recording its first positive cash flow month as more of the Company's Colombian equipment fleet worked during the quarter. Essential has secured work programs through the balance of 2011 for the service rig and has entered into a one-year contract at the beginning of the fourth quarter for one of its three rod rigs. Management believes these services, plus the continued use of its coil tubing and nitrogen equipment will be in high demand through the remainder of 2011 and into 2012 as Essential continues to broaden its customer base and pursue additional opportunities.

RESULTS OF OPERATIONS
Three months ended Nine months ended
(Thousands, except per share September 30 , September 30 ,
amounts) 2011 2010 2011 2010
Revenue $ 99,416 $ 41,244 $ 206,311 $ 112,658
Operating expenses 68,316 31,058 155,482 85,942
Gross margin 31,100 10,186 50,829 26,716
Gross margin %(1) 31 % 25 % 25 % 24 %
General and administrative expenses 3,807 2,940 10,272 8,602
EBITDA(1) 27,293 7,246 40,557 18,114
EBITDA %(1) 27 % 18 % 20 % 16 %
Depreciation and amortization 6,492 3,193 14,047 9,447
Share-based compensation 374 169 1,088 560
Equity taxes - - 478 -
Other (income) expense 266 25 1,494 (107 )
Operating income 20,161 3,859 23,450 8,214
Transaction costs 608 - 3,004 -
Finance costs 822 83 1,314 643
Income before income tax 18,731 3,776 19,132 7,571
Current income tax expense 3,012 - 3,251 -
Deferred income tax expense 2,102 1,119 2,619 1,695
Net income $ 13,617 $ 2,657 $ 13,262 $ 5,876
Net income (loss) attributable to:
Shareholders of Essential $ 13,678 $ 2,657 $ 13,563 $ 5,876
Non-controlling interests (61 ) - (301 ) -
$ 13,617 $ 2,657 $ 13,262 $ 5,876
Net income per share
Basic and diluted, attributable to shareholders of Essential $ 0.11 $ 0.04 $ 0.14 $ 0.09
SEGMENT RESULTS - WELL SERVICING - CANADA
Three months ended Nine months ended
September 30, September 30,
(Thousands) 2011 2010 2011 2010
Revenue
Coil tubing rigs* $ 36,349 $ 8,859 $ 60,351 $ 22,305
Service rigs 20,969 12,796 54,448 40,524
Other 7,148 2,454 12,880 7,664
Total revenue 64,466 24,109 127,679 70,493
Operating expenses 40,412 17,739 94,165 52,682
Gross margin $ 24,054 $ 6,370 $ 33,514 $ 17,811
Gross margin %(1) 37 % 26 % 26 % 25 %
Utilization
Deep coil tubing rigs 104 % 93 % 90 % 79 %
Service rigs 54 % 40 % 49 % 40 %
* Includes revenue from nitrogen and fluid pumpers and other ancillary equipment.

Coil tubing rig revenue increased significantly in the third quarter and for the year-to-date compared to the same periods in 2010. This is a direct result of the Technicoil Acquisition and Essential's capital program which increased the depth capacity of the coil tubing fleet and expanded Essential's ability to meet the growing demand for deep coil tubing rigs in the Bakken, Viking, Cardium and Montney resource plays. Average coil tubing service pricing improved as a result of additional deep coil tubing rigs and increased pricing for the Technicoil deep coil rigs to bring their rates in line with Essential's pricing. These pricing improvements, increased activity levels and reduced third party pumper and nitrogen charges, all contributed to improved gross margins during the third quarter.

Service rig revenue increased during the third quarter over the prior year as nine service rigs were added through the Technicoil Acquisition and there was an overall increase in service rig utilization across the WCSB. Essential's focus on oil-based and liquids-rich natural gas activity across the WCSB contributed to the increased activity during the third quarter. Essential's operations in northern Alberta were particularly busy as producers in that region began to reinstate programs that were delayed as a result of the forest fires during the second quarter of 2011.

SEGMENT RESULTS - DOWNHOLE SERVICES & RENTALS - CANADA
Three months ended Nine months ended
September 30 , September 30 ,
(Thousands) 2011 2010 2011 2010
Revenue
Tryton MSFS $ 16,459 $ 6,005 $ 32,877 $ 11,470
Conventional downhole tools and rentals 13,778 8,537 35,439 22,623
Downhole tools and rentals 30,237 14,542 68,316 34,093
Wireline services 3,079 2,593 8,321 8,072
Total revenue 33,316 17,135 76,637 42,165
Operating expenses 23,428 12,075 54,857 30,399
Gross margin $ 9,888 $ 5,060 $ 21,780 $ 11,766
Gross margin %(1) 30 % 30 % 28 % 28 %

During the third quarter, activity in the Downhole Services & Rentals segment continued to exceed management's expectations as the number of Tryton MSFS jobs and conventional downhole tools and rentals operations surpassed targets. This segment continued its rapid pace of growth and has nearly doubled its operating results on both a quarter and year-to-date basis compared to the prior year.

Essential's downhole tools and rentals operations continued to be the primary contributor to the significant increase in operating results over the prior year. Results from the Tryton MSFS and conventional downhole tool operations continue to improve as the market for servicing horizontal wells grew and activity levels in the WCSB increased. Essential's tubular and pipe rentals business, which primarily offer products related to conventional oil and gas drilling, continued to benefit from higher drilling activity over the prior year.

GENERAL AND ADMINISTRATIVE
Three months ended Nine months ended
September 30 , September 30 ,
(Thousands) 2011 2010 2011 2010
General and administrative expenses $ 3,807 $ 2,940 $ 10,272 $ 8,602
As a % of revenue 4 % 7 % 5 % 8 %

General and administrative costs have declined as a percentage of revenue due to integration efficiencies and from the increased size of the Company's operations after the Technicoil Acquisition. General and administrative expenses are comprised of wages, professional fees, office space and other administrative costs incurred at the corporate and operations level. General and administrative expenses increased in absolute dollars primarily due to additional administrative costs associated with the Technicoil field operations.

TRANSACTION COSTS
Three months ended Nine months ended
September 30 , September 30 ,
(Thousands) 2011 2010 2011 2010
Transaction costs $ 608 $ - $ 3,004 $ -

Transaction costs for the current year of $3.0 million represents the costs incurred by Essential to complete the Technicoil Acquisition and is comprised primarily of credit facility, legal and consulting fees.

INCOME TAXES
Three months ended Nine months ended
September 30 , September 30 ,
(Thousands) 2011 2010 2011 2010
Current income tax expense $ 3,012 $ - $ 3,251 $ -
Deferred income tax expense $ 2,102 $ 1,119 $ 2,619 $ 1,695

The current income tax expense during the third quarter is a result of certain operating entities being taxable on both a quarter and year-to-date basis.

The increased deferred income tax expense for the three and nine month periods ending September 30, 2011 is a result of improved operating results during the current year.

WORKING CAPITAL
September 30 , September 30 ,
(Thousands) 2011 2010
Current assets $ 98,314 $ 46,398
Current liabilities, excluding current portion of long-term debt (39,166 ) (16,337 )
Working capital $ 59,148 $ 30,061
Working capital ratio 2.5:1 2.8:1

CREDIT FACILITY

Essential's Credit Facility (the "Credit Facility") with its banking syndicate is comprised of a $20 million revolving operating loan and a $80 million revolving term loan facility with a $35 million accordion feature. The $20 million revolving operating loan matures on May 31, 2012, is renewable annually at the lender's consent and is limited to 75% of Essential's accounts receivable less specific items. The $80 million revolving term loan facility matures on May 31, 2012, is renewable annually at the lender's consent and is limited to 60% of Essential's carrying value of property and equipment less certain indebtedness as defined in the Credit Facility agreement. To the extent the revolving term loan facility is not renewed, debt payments would be required over a two year period based on a three year amortization schedule. At September 30, 2011, the maximum of $100 million was available to Essential.

As at September 30, 2011, all financial debt covenants were satisfied and all banking requirements were up to date. Essential does not anticipate any financial resource or liquidity issues to restrict its future operating, investing or financing activities. On November 9, 2011, Essential had long-term debt outstanding of $70.0 million.

EQUIPMENT EXPENDITURES
Three months ended Nine months ended
September 30 , September 30 ,
(Thousands) 2011 2010 2011 2010
Canada
Well Servicing $ 13,946 $ 1,266 $ 24,881 $ 7,759
Downhole Services & Rentals 1,534 668 4,663 1,354
Corporate 246 119 671 747
15,726 2,053 30,215 9,860
Colombia
Well Servicing 299 762 3,286 762
299 762 3,286 762
Total equipment expenditures 16,025 2,815 33,501 10,622
Less proceeds on disposal of property and equipment (578 ) (107 ) (2,929 ) (877 )
Net equipment expenditures(1) $ 15,447 $ 2,708 $ 30,572 $ 9,745

Capital expenditures during the third quarter related primarily to completion of six fluid pumpers and progress payments on the deep coil rigs, nitrogen pumpers and service rig build programs and continued improvements to the existing fleet. The increased expenditures over 2010 further improve and expand Essential's equipment fleet to better service deeper and horizontal well activity.

Essential classifies its equipment expenditures as growth capital(1), maintenance capital(1), and infrastructure capital(1); the latter category includes information systems, operational facilities and leasehold improvements. Comparative equipment expenditures are as follows:

Three months ended Nine months ended
September 30 , September 30 ,
(Thousands) 2011 2010 2011 2010
Canada
Growth capital(1) $ 8,424 $ 643 $ 18,168 $ 6,064
Maintenance capital(1) 7,188 1,193 10,853 2,928
Infrastructure capital(1) 114 217 1,194 868
15,726 2,053 30,215 9,860
Colombia
Growth capital(1) 293 150 2,814 150
Maintenance capital(1) 6 612 472 612
299 762 3,286 762
$ 16,025 $ 2,815 $ 33,501 $ 10,622

OUTLOOK

Essential's fourth quarter has continued at a similar pace of high activity that was experienced in the third quarter. Activity levels are being driven by relatively strong oil prices, the continued focus on horizontal well drilling and the demand it creates for completion and stimulation services.

High demand for Essential's deep coil tubing fleet is expected to continue until at least spring breakup 2012, as the increased depth capacity of the fleet makes these rigs ideal for providing services on horizontal wells. In addition, the Tryton MSFS remains a strong performer for Essential as it supports the fracturing operations that are in high demand with the increase in horizontal well activity.

Essential continues with its previously announced capital spending program, focusing on deep coil tubing rigs and support equipment. The fluid pumper build program is now complete with 15 pumpers being added in 2011. These pumpers support the deep coil tubing fleet. A deep coil tubing rig is nearing completion and is expected to go into service at the beginning of 2012.

As an indicator for future activity beyond spring break-up of 2012, Essential looks to the capital budgets announced by the exploration and production companies, which are based on available funding and commodity prices. Those capital budgets, in many cases, are announced in the latter part of the fourth quarter. At this point, Essential believes the winter drilling season will be busy. However, given the current global economic uncertainty and the impact this may have on a longer term basis on the demand for energy and commodity prices, it is difficult to have certainty about the demand for oilfield service activity beyond the winter drilling season.

As resource development activity in the industry is expected to continue at an increased pace through the winter drilling season, Essential remains well positioned with its high demand, core businesses of coil tubing, downhole tools and service rigs, to meet its customers' needs.

Essential's Management's Discussion & Analysis and Financial Statements will be available on Sedar at www.sedar.com and on Essential's website at www.essentialenergy.ca

(1)Non-IFRS Measures

Throughout this news release, certain terms that are not specifically defined in 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 and capital programs. As a result, the method of calculation may not be comparable with other companies. These measures should not be considered alternatives to net earnings and net earnings per share as calculated in accordance with IFRS.

Gross margin % – This measure is considered a primary indicator of operating performance as calculated by gross margin divided by revenue.

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

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

Funds flow or funds flow from operations – This measure is an indicator of Essential's ability to generate funds flow in order to fund working capital, principal debt repayments and capital programs. Funds flow or funds flow from operations is defined as cash flow from operations before changes in non-cash operating working capital. This measure is useful in assessing Essential's operational cash flow as it provides cash generated in the period excluding the timing of non-cash operating working capital. This reflects the ability of the operations of Essential to meet the above noted funding requirements.

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.

Infrastructure capital – Additions that are incurred in order to maintain the Company's business systems and operating facilities. Such additions do not provide incremental increases in revenue.

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.

ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(unaudited)
As at As at
September 30 December 31
(Thousands) 2011 2010
Assets
Current
Cash $ - $ 2,392
Trade and other receivables 79,761 40,160
Inventories 14,726 10,587
Prepayments 3,827 2,677
98,314 55,816
Non-current
Property and equipment 209,829 109,830
Intangible assets 45,381 3,122
Goodwill 56,725 -
Deferred tax assets 955 5,155
312,890 118,107
Total assets $ 411,204 $ 173,923
Liabilities
Current
Bank indebtedness $ 2,932 $ -
Trade and other payables 33,847 23,444
Income taxes payable 2,272 -
Current portion of long-term debt 10,723 333
Current portion of equity taxes 115 -
49,889 23,777
Non-current
Long-term debt 68,507 63
Equity taxes 287 -
Deferred tax liability 20,631 -
89,425 63
Total liabilities 139,314 23,840
Equity
Share capital 257,729 150,798
Retained earnings (accumulated deficit) 11,232 (2,223 )
Other reserves 2,720 1,205
Equity attributable to shareholders of Essential 271,681 149,780
Non-controlling interest 209 303
Total equity 271,890 150,083
Total liabilities and equity $ 411,204 $ 173,923
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
For the three months ended For the nine months ended
(Thousands, except per share September 30 , September 30 ,
amounts) 2011 2010 2011 2010
Revenue $ 99,416 $ 41,244 $ 206,311 $ 112,658
Operating expenses 68,316 31,058 155,482 85,942
Gross margin 31,100 10,186 50,829 26,716
General and administrative expenses 3,807 2,940 10,272 8,602
27,293 7,246 40,557 18,114
Depreciation and amortization 6,492 3,193 14,047 9,447
Share-based compensation 374 169 1,088 560
Equity taxes - - 478 -
Other (income) expense 266 25 1,494 (107 )
Operating profit 20,161 3,859 23,450 8,214
Transaction costs 608 - 3,004 -
Finance costs 822 83 1,314 643
Net income before income tax 18,731 3,776 19,132 7,571
Income taxes
Current expense 3,012 - 3,251 -
Deferred expense 2,102 1,119 2,619 1,695
Total income tax expense 5,114 1,119 5,870 1,695
Net income for the period 13,617 2,657 13,262 5,876
Other comprehensive income:
Unrealized foreign exchange gain on foreign operations 199 - 886 -
Deferred income tax on unrealized foreign exchange 117 - (226 ) -
Total other comprehensive income for the period 316 - 660 -
Comprehensive income $ 13,933 $ 2,657 $ 13,922 $ 5,876
Net income (loss) attributable to:
Shareholders of Essential $ 13,678 $ 2,657 $ 13,563 $ 5,876
Non-controlling interests (61 ) - (301 ) -
$ 13,617 $ 2,657 $ 13,262 $ 5,876
Comprehensive income (loss) attributable to:
Shareholders of Essential $ 13,930 $ 2,657 $ 14,124 $ 5,876
Non-controlling interests 3 - (202 ) -
$ 13,933 $ 2,657 $ 13,922 $ 5,876
Earnings per share
Basic and diluted, attributable to shareholders of Essential $ 0.11 $ 0.04 $ 0.14 $ 0.09
ESSENTIAL ENERGY SERVICES LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
For the nine months ended
September 30 ,
(Thousands) 2011 2010
Operating activities:
Net income for the period $ 13,262 $ 5,876
Non-cash adjustments to reconcile net income for the period to net cash flow:
Depreciation and amortization 14,047 9,447
Deferred income tax expense 2,619 1,695
Share-based compensation 1,088 560
Provision for impairment of trade receivables 341 114
Finance costs 1,314 643
(Gain) loss on disposal of assets 1,913 (107 )
Operating cash flow before changes in working capital 34,584 18,228
Working capital adjustments:
Increase in trade and other accounts receivable before provision (26,221 ) (8,898 )
Increase in inventories (1,840 ) (426 )
Increase in prepayments (963 ) (308 )
Decrease in current taxes 2,856 -
Increase (decrease) in trade and other accounts payable (4,532 ) 6,912
Increase in equity taxes 402 -
Net cash flows from operating activities 4,286 15,508
Investing activities:
Purchase of property and equipment (33,501 ) (10,622 )
Business acquisition (56,582 ) -
Proceeds on disposal of equipment 2,929 877
Net cash flows used in investing activities (87,154 ) (9,745 )
Financing activities:
Increase (decrease) in long-term debt 78,608 (17,130 )
Issuance of share capital, net of costs 261 13,867
Finance costs (1,314 ) (643 )
Net cash flows from (used in) financing activities 77,555 (3,906 )
Foreign exchange gain on cash held in a foreign currency (11 ) -
Change in cash (bank indebtedness) (5,324 ) 1,857
Cash, beginning of the period 2,392 1,080
Cash (bank indebtedness), end of period $ (2,932 ) $ 2,937

ABOUT ESSENTIAL

Essential is a growth-oriented corporation that provides oilfield services to oil and gas producers in western Canada and Colombia for servicing producing wells and new drilling activity. Services are provided through its Well Servicing and Downhole Services & Rentals divisions. Essential operates the largest coil tubing well service fleet in Canada and has 50 coil tubing rigs and a fleet of 58 service rigs. Essential sells, rents and services downhole tools and equipment including the Tryton Multi-Stage Fracturing System. Further information about Essential can be found at www.essentialenergy.ca.

FORWARD-LOOKING STATEMENT 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" 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 dates of new equipment, expectations regarding the impact of recent equipment purchases, expectations of future cash flow and earnings, expectations with respect to the demand for and price of oil and liquids-rich natural gas, expectations regarding the level and type of drilling and production activity in the Western Canadian Sedimentary Basin, expectations regarding the demand for services, expectations regarding the business, operations and revenues of the Company in addition to general economic conditions, expectations regarding the customer demand for services and equipment in Colombia, expectations regarding production in Colombia, expectations that the royalty structure in Colombia will continue to support further exploration and development and expectations that Colombia's anticipated production increase will come from increasing production of current wells through stimulation and workover programs.

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 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 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; the availability of qualified personnel, management or other key inputs; currency exchange fluctuations; changes in political and security stability; risks associated with government regulations and environmental health and safety matters and other unforeseen conditions which could impact the use of equipment and services supplied by Essential in Colombia; 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. 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 the SEDAR website (www.sedar.com) for each of the Company and Essential Energy Services Trust. 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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