Calgary, Alberta, May 12, 2022 (GLOBE NEWSWIRE) — Essential Energy Services Ltd. (TSX: ESN) (“Essential” or the “Company”) announces first quarter financial results .
Industry drilling and completions activity in the Western Canada Sedimentary Basin (“WCSB”) in the first quarter of 2022 was higher than the same period a year earlier, driven by higher commodity prices leading to higher exploration and production (“E&P”) company spending.
West Texas Intermediate (“WTI”) averaged $94.82 per barrel in the first quarter of 2022, exceeding $110 per barrel in early March 2022, compared to the average price of a barrel in the first quarter of 2021 $58. Canadian natural gas prices (“AECO”) averaged $4.54 per gigajoule in the first quarter of 2022, compared to an average of $3.00 per gigajoule in the same period last year.
Canada’s inflation rate in the first quarter of 2022 was the highest since the early 1990s(a), adding to the overall cost structure.Oilfield services prices show modest signs of improvement; but rising costs remain a concern.The oilfield services industry suffered from labor shortages in the first quarter as retaining and attracting talent remained challenging.
Revenue for the three months ended March 31, 2022 was $37.7 million, an increase of 25% over the same period last year, due to increased activity due to improved industry conditions.In the first quarter of 2022, Essential recorded $200,000 in funding from the government subsidy program (b), compared to $1.6 million in the first quarter of 2021.EBITDAS(1) for the first quarter was $3.6 million, a decrease of $1.3 million from the same period last year.Higher activity was offset by higher operating costs and lower funding from government subsidy programs.
During the first quarter of 2022, Essential acquired and cancelled 1,659,516 shares of common stock at a weighted average price of $0.42 per share for a total cost of $700,000.
As of March 31, 2022, Essential continued to have a strong financial position with cash, net of long-term debt (1) $1.1 million and working capital (1) $45.2 million.On May 12, 2022, Essential had $1.5 million in cash.
(i) Fleet figures represent the number of units at the end of the period.The manned equipment is less than the equipment in service.(ii) In January 2022, another five-cylinder fluid pump was commissioned.(iii) In the third quarter of 2021, the reduction in the total equipment count of shallow coiled tubing rigs and low-volume pumps is expected to reactivate for a longer period of time.
ECWS revenue for the first quarter of 2022 was $19.7 million, an increase of 24% compared to the same period last year.Improved industry conditions resulted in a 14% increase in operating hours compared to the first quarter of 2021.Revenue per business hour was higher than a year earlier, primarily due to the nature of the work performed and a revenue surcharge for fuel, which allowed ECWS to offset some of the inflationary cost increase.
Gross margin for the first quarter of 2022 was $2.8 million, which was $0.9 million lower than the same period last year due to higher inflation costs and the absence of funding from government subsidy programs.Cost inflation was significant in the first quarter of 2022, resulting in increased operating costs related to wages, fuel and maintenance (“R&M”).ECWS has no government subsidy program benefits in the first quarter of 2022, compared to $900,000 in funding in the previous quarter.Although revenue per operating hour increased during the quarter, it was not enough to compensate for higher operating costs and lower government funding.Compared to Tryton, the government subsidy program has a greater impact on financial results as the ECWS workforce increases.Gross profit margin for the period was 14%, compared to 23% in the same period last year.
Tryton’s revenue for the first quarter of 2022 was $18.1 million, an increase of 26% compared to the same period last year.Traditional tool activity in Canada and the U.S. improved from a year earlier as stronger industry conditions led to higher customer spending on production and scrap work.Tryton Multi-Stage Fracturing System (“MSFS®”) activity was consistent with 2021 as rig delays at some customers resulted in slower-than-expected MSFS® activity.Pricing continued to be competitive during the quarter.
Gross margin for the first quarter was $3.4 million, up $0.2 million from the prior-year period due to increased activity, offset by lower funding from the government subsidy program and higher operating costs related to inventory and payroll.Tryton received $200,000 in funding from the U.S. Employee Retention Tax Credit Program in the first quarter of 2022, compared with $500,000 in government subsidy program benefits in the same period last year.With pricing still competitive this quarter, Tryton was unable to recoup the increased operating costs from customers through higher prices.Gross margin for the quarter was 19%, compared to 22% a year earlier.
Essential classifies its purchases of property and equipment as growth capital (1) and maintenance capital (1):
During the three months ended March 31, 2022, Essential’s maintenance capital expenditures were primarily used for costs incurred in maintaining the ECWS active fleet and replacing Tryton’s pickup trucks.
Essential’s 2022 capital budget remains unchanged at $6 million, with a focus on purchasing property and equipment for maintenance activities, as well as replacing pickup trucks for the ECWS and Tryton.Essential will continue to monitor activity and industry opportunities and adjust its spending as appropriate.The 2022 capital budget is expected to be funded by cash, operating cash flow and, if required, its line of credit.
Commodity prices continued to strengthen in the first quarter of 2022, with forward curve expectations improving from December 31, 2021.The outlook for industry drilling and completions activity in 2022 and beyond is quite positive due to strong commodity prices.The company expects strong commodity prices, coupled with the continued degradation effects of well declines, to drive higher drilling and completion spending for the remainder of 2022 and herald the start of a strong multi-year performance cycle.
Through 2022, E&P companies’ surplus cash flow is generally used to reduce debt and return money to shareholders through dividends and share repurchases.Industry consensus estimates suggest that as E&P companies continue to significantly reduce debt, capital investment is likely to increase as they shift their focus to incremental growth and spending on drilling and completions.
Cost inflation in Canada was significant in the first quarter of 2022 and continues to impact expenses such as wages, fuel, inventory and R&M.Supply chain disruptions could further increase costs for the oilfield services industry for the remainder of 2022.Canada’s oilfield services industry is experiencing a labor shortage, and retaining and attracting talent into the oilfield services industry is a challenge in today’s marketplace.
ECWS has one of the largest active and total deep coiled tubing fleets in the industry.ECWS’ active fleet includes 12 coiled tubing rigs and 11 fluid pumps.ECWS does not crew the entire active fleet.Maintaining an active fleet above the current crew size enables customers to obtain preferred high-efficiency equipment to meet different completion techniques and formation/well pad needs.As the industry continues to recover, ECWS has additional equipment available for reactivation.The expected shift in E&P capital spending in the second half of 2022 and beyond, coupled with the tightening of available manned equipment, is expected to drive demand for ECWS services into the second half of 2022.
Tryton MSFS® activity has been slower than expected through 2022, mainly due to rig delays for some customers.Tryton expects demand for its MSFS® completion downhole tools to increase later in 2022 as exploration and production companies expect higher drilling and completion spending.Tryton’s traditional downhole tool business in Canada and the U.S. is expected to benefit from increased activity as E&P companies seek growth through increased production.Tryton’s ability to expand in a strengthening industry environment may also be affected by a tight labor market, but this is not currently expected to be a limiting factor.
In the first quarter of 2022, the pricing of the Essential service will not be sufficient to offset the increased cost of inflation.For ECWS, a dialogue is currently underway with key E&P customers regarding future pricing and service commitment requirements.ECWS targets price increases with a premium that exceeds the cost of inflation.So far, ECWS’ key customers have responded positively to the price increase.These price increases will take effect in the second quarter, and the expected benefit will be reflected in ECWS results for the third and subsequent quarters.Additionally, service requests from non-prime customers are expected to be further priced starting in May.The ECWS price hike strategy is expected to boost gross margins in the second half of 2022.Unfortunately for Tryton, intense competition in the downhole tool and rental market is expected to prevent Tryton from implementing service price hikes in the near term.
Essential is well-positioned to benefit from the expected recovery cycle in the oilfield services industry.Essential’s strengths include a well-trained workforce, an industry-leading coiled tubing fleet, value-added downhole tool technology, and a solid financial foundation.As industry activity improves, Essential will focus on obtaining appropriate pricing for its services.Essential is committed to meeting the growing needs of its key customers, continuing to focus on environmental, social and governance initiatives, maintaining its strong financial position and growing its cash flow-generating business.On May 12, 2022, Essential had $1.5 million in cash.Essential’s continued financial stability is a strategic advantage as the industry continues to transition into its expected growth period.
The Management’s Discussion and Analysis (“MD&A”) and financial statements for the first quarter of 2022 are available on Essential’s website at www.essentialenergy.ca and SEDAR’s at www.sedar.com.
Certain specific financial measures in this press release, including “EBITDAS,” “EBITDAS %,” “growth capital,” “maintenance capital,” “net equipment expenditures,” “cash, net of long-term debt,” and “working capital,” Does not have a standardized meaning under International Financial Reporting Standards (“IFRS”).These measures should not be used as a substitute for IFRS measures as they may not be comparable to similar financial measures used by other companies.These specific financial measures used by Essential are further explained in the MD&A’s Non-IFRS and Other Financial Measures section (available in the company profile on SEDAR at www.sedar.com), which is incorporated herein by reference.
EBITDAS and EBITDAS % – EBITDAS and EBITDAS % are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other companies.Management believes that in addition to net loss (the most directly comparable measure of IFRS), EBITDAS is a useful measure to help investors consider how to fund these activities, how to tax the results and how to Results of key operating activities are known before results were impacted by non-cash charges.EBITDAS is generally defined as earnings before finance costs, income taxes, depreciation, amortization, transaction costs, losses or gains on disposals, write-downs, impairment losses, foreign exchange gains or losses, and share-based compensation, including equity-settled and Cash-settled transactions.These adjustments are relevant because they provide another measure of what is considered to be an indicator of the results of Essential’s main business activities.EBITDAS % is a non-IFRS ratio calculated as EBITDAS divided by total revenue.It is used by management as a supplemental financial measure to assess cost efficiency.
Consolidated Statement of Interim Net Loss and Consolidated Loss of Basic Energy Services Limited (Unaudited)
ESSENTIAL ENERGY SERVICES LTD. Consolidated Interim Statement of Cash Flows (Unaudited)
This press release contains “forward-looking statements” and “forward-looking information” within the meaning of applicable securities legislation (collectively, “forward-looking statements”).Such forward-looking statements include, but are not limited to, projections, estimates, expectations and objectives for future operations, which are subject to a number of material factors, assumptions, risks and uncertainties, many of which are beyond the scope of the company’s range of control.
Forward-looking statements are statements that are not historical facts and are usually, but not always, identified by words such as “anticipate,” “anticipate,” “believe,” “forward,” “intend,” “estimate,” “continue,” “future” , “outlook”, “opportunity”, “budget”, “in progress” and similar expressions, or events or conditions that are “will”, “will”, “may”, “may”, “may” , “usually”, “traditionally” or “tends to” occur or occur.This press release contains forward-looking statements, including the following: Essential’s capital expenditure budget and expectations for how it will be funded; oil and gas prices; oil and gas industry outlook, industry drilling and completion activities and prospects, and oilfield services industry activity and outlook; E&P surplus cash flow, cash flow deployment and the impact of E&P capital expenditures; the company’s capital management strategy and financial position; Essential’s pricing, including timing and benefits of price increases; Essential’s commitment, strategic position, strengths, priorities, Outlook, activity levels, effects of inflation, supply chain effects, active and inactive equipment, market share and crew size; demand for Essential’s services; labor market; Essential’s financial stability is a strategic advantage.
The forward-looking statements contained in this press release reflect several important factors and expectations and assumptions of Essential, including, but not limited to: the potential impact of the COVID-19 pandemic on Essential; supply chain disruptions; oil and gas industry exploration and development; and The geographic area of such activities; Essential will continue to operate in a manner consistent with past operations; The general continuation of current or, where applicable, assumed industry conditions; Availability of sources of debt and/or equity to capitalize Essential as needed and operational needs; and certain cost assumptions.
Although the Company believes that the material factors, expectations and assumptions expressed in such forward-looking statements are reasonable based on information available on the date such statements are made, undue reliance should not be placed on forward-looking statements as the Company cannot guarantee such Such statements and information will prove to be correct and such statements are not guarantees of future performance.Because forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties.
Actual performance and results may differ materially from current expectations due to a variety of factors and risks.These include, but are not limited to: known and unknown risks, including those listed in the Company’s Annual Information Form (“AIF”) (a copy of which can be found in SEDAR’s Profile at Essential at www.sedar.com); COVID-19 -19 Significant expansion of the pandemic and its impact; risks associated with the oilfield services sector, including oilfield services demand, pricing and terms; current and projected oil and gas prices; exploration and development costs and delays; reserves discoveries and declines pipeline and transportation capacity; weather, health, safety, market, climate and environmental risks; integration acquisitions, competition and uncertainty due to potential delays or changes in acquisitions, development projects or capital expenditure plans and legislative changes, including but not limited to Not limited to tax laws, royalties, incentive programs and environmental regulations; stock market volatility and inability to obtain adequate funding from external and internal sources; ability of corporate subsidiaries to exercise legal rights in foreign jurisdictions; general economic, market or business conditions , including conditions in the event of an epidemic, natural disaster or other event; global economic events; changes in Essential’s financial condition and cash flows, and a higher degree of uncertainty associated with estimates and judgements made in preparing the financial statements; qualified availability of personnel, management, or other critical inputs; increased costs of critical inputs; exchange rate fluctuations; changes in political and security stability; potential industry developments; and other unforeseen circumstances that may affect the use of the services provided by the Company.Accordingly, readers should not place undue weight on or rely on forward-looking statements.Readers are reminded that the above list of factors is not exhaustive and should refer to the “Risk Factors” listed in the AIF.
The statements contained in this press release, including forward-looking statements, are made as of the date of their publication, and the company disclaims any intention or obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, unless Applicable securities law requirements.The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
Additional information regarding these and other factors that may affect the Company’s operations and financial results is included in reports filed with applicable securities regulators and can be accessed in Essential’s profile on SEDAR at www.sedar.com.
Essential provides oilfield services primarily to oil and gas producers in Western Canada.Essential provides completion, production and wellsite recovery services to a diverse customer base.Services provided include coiled tubing, fluid and nitrogen pumping, and sales and rental of downhole tools and equipment.Essential supplies one of the largest coiled tubing fleets in Canada.For more information, visit www.essentialenergy.ca.
(a) Source: Bank of Canada – Consumer Price Index (b) Government subsidy programs including the Canada Emergency Wage Subsidy, the Canada Emergency Rent Subsidy, and the Employee Retention Tax Credit and Paycheck Protection Program in the United States (collectively, the “Government Subsidy Programs”). ” “)