SELECTED INFORMATION
(in thousands of dollars except per share and percentages) | For the three months ended | |||||||||
2021 | 2020 | |||||||||
Revenue | $ | 30,150 | $ | 41,423 | ||||||
Gross margin | 6,738 | 8,418 | ||||||||
Gross margin % | 22% | 20% | ||||||||
EBITDAS (1) | 4,888 | 5,884 | ||||||||
EBITDAS % | 16% | 14% | ||||||||
Net loss⁽ⁱ⁾ | $ | (2,593) | $ | (5,025) | ||||||
Per share - basic and diluted | $ | (0.02) | $ | (0.04) | ||||||
Operating hours | ||||||||||
Coil tubing rigs | 8,629 | 13,013 | ||||||||
Pumpers | 11,603 | 15,892 | ||||||||
As at | ||||||||||
2021 | 2020 | |||||||||
Working capital (1) | $ | 47,638 | $ | 53,514 | ||||||
Cash | 6,251 | 959 | ||||||||
Long-term debt | 53 | 8,544 |
(i) The three months ended
1 Refer to “Non-IFRS Measures” section for further information. |
INDUSTRY OVERVIEW
First quarter 2021 industry drilling and well completion activity was below the same prior year period, as the first quarter of 2020 was largely unaffected by the disruptive impact of the COVID-19 pandemic and the impact of lower oil prices on customer spending prevalent during most of 2020. Well completions, a key indicator of industry activity in the
Although industry activity in the first quarter remained below the same prior year period, commodity prices have improved. The price of West Texas Intermediate (“WTI”) oil was
HIGHLIGHTS
Revenue for the three months ended
First quarter EBITDAS(1) was
Cash and long-term debt
At
RESULTS OF OPERATIONS
Segment Results – Essential Coil Well Service
For the three months ended | ||||||||||
(in thousands of dollars, except percentages, hours and fleet data) | 2021 | 2020 | ||||||||
Revenue | $ | 15,856 | $ | 24,539 | ||||||
Operating expenses | 12,147 | 18,726 | ||||||||
Gross margin | $ | 3,709 | $ | 5,813 | ||||||
Gross margin % | 23% | 24% | ||||||||
Operating hours | ||||||||||
Coil tubing rigs | 8,629 | 13,013 | ||||||||
Pumpers | 11,603 | 15,892 | ||||||||
Active equipment fleet (i) | ||||||||||
Coil tubing rigs | 12 | 16 | ||||||||
Fluid pumpers | 9 | 12 | ||||||||
Nitrogen pumpers | 4 | 6 | ||||||||
Total equipment fleet (i) | ||||||||||
Coil tubing rigs | 29 | 29 | ||||||||
Fluid pumpers | 19 | 19 | ||||||||
Nitrogen pumpers | 8 | 8 | ||||||||
(i) Fleet data represents the number of units at the end of the period. Crewed equipment is less than active equipment.
Essential Coil Well Service (“ECWS”) revenue for the first quarter of 2021 was
Gross margin for the first quarter of 2021 was
Segment Results – Tryton
(in thousands of dollars, except percentages) | For the three months ended | |||||||||
2021 | 2020 | |||||||||
Revenue | $ | 14,294 | $ | 16,884 | ||||||
Operating expenses | 11,106 | 13,974 | ||||||||
Gross margin | $ | 3,188 | $ | 2,910 | ||||||
Gross margin % | 22% | 17% | ||||||||
Tryton revenue - % of revenue | ||||||||||
Tryton MSFS® | 34% | 35% | ||||||||
Conventional Tools & Rentals | 66% | 65% | ||||||||
First quarter 2021 Tryton revenue was
First quarter 2021 gross margin was
Equipment Expenditures
(in thousands of dollars) | For the three months ended | |||||||||
2021 | 2020 | |||||||||
ECWS | $ | 2,180 | $ | 739 | ||||||
Tryton | 64 | 566 | ||||||||
Corporate | - | - | ||||||||
Total equipment expenditures | 2,244 | 1,305 | ||||||||
Less proceeds on disposal of equipment | $ | (303) | $ | (478) | ||||||
Net equipment expenditures(1) | $ | 1,941 | $ | 827 |
Essential classifies its equipment expenditures as growth capital(1) and maintenance capital(1):
(in thousands of dollars) | For the three months ended | |||||||
2021 | 2020 | |||||||
Growth capital (1) | $ | 1,663 | $ | - | ||||
Maintenance capital (1) | 581 | 1,305 | ||||||
Total equipment expenditures | $ | 2,244 | $ | 1,305 |
During the first quarter, Essential acquired two quintuplex pumpers, which will be refurbished and are expected to go into service early in the second half of 2021. The remaining equipment expenditures were focused on maintenance activities on the active fleet.
Essential’s 2021 capital budget remains at
OUTLOOK
Current and near-term expected oil and natural gas commodity prices are supportive of improved oilfield services activity in the WCSB. With the increasing distribution of COVID-19 vaccines in the coming months, general economic activity is also expected to improve. That, combined with the extension of ongoing government subsidies and support programs, is expected to have a positive impact on the demand for oilfield services in the second half of 2021.
The price of WTI has been trading near, or higher than,
Commodity price-driven E&P cash flow increases are significant and have generally been applied to strengthen balance sheets, return cash to shareholders and facilitate mergers and acquisitions. This is expected to continue in the near-term. E&P capital reinvestment ratios (capital spending as a percentage of cash flow) are setting up to be much lower in 2021 than the past ten years. Given the current and anticipated strength of commodity prices in 2021 compared to the severe oil price weakness in April to
Low service prices continue to be an issue for the oilfield services sector. The current business landscape is such that E&P customers are reluctant to support pricing increases despite recent rising costs, and years of depressed oilfield service pricing since the commencement of the downturn in 2015. At current industry drilling and completion levels, sufficient crewed equipment and inventory is typically available. As industry conditions improve in the second half of the year, however, and into 2022, current oilfield service pricing may not be sufficient to support the expansion of active equipment and crews. Essential is optimistic that a portion of improved E&P cash flow will translate into improved pricing for oilfield services, which can then be re-invested into equipment upgrades and fleet expansion, crew additions and important environmental, social and governance (“ESG”) initiatives.
ECWS added to its total fleet with the acquisition of two used quintuplex fluid pumpers in
Tryton expects to experience ongoing improvement in conventional downhole tool activity related to the federally funded site rehabilitation programs in the remainder of 2021 and into 2022. Combined with E&P funded work and programs for the
Essential is in a strong financial position. On
The Management’s Discussion and Analysis and Financial Statements for the first quarter ended
(1)Non-IFRS Measures
Throughout this news release, certain terms that are not specifically defined under International Financial Reporting Standards (“IFRS”) are used to analyze Essential’s operations. In addition to the primary measures of net loss and net loss 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 loss and net loss per share as calculated in accordance with IFRS.
EBITDAS – EBITDAS is earnings before finance costs, income taxes, depreciation, amortization, transaction costs, losses or gains on disposal, write-down of assets, impairment loss, foreign exchange gains or losses, and share-based compensation, which includes both equity-settled and cash-settled transactions. These adjustments are relevant as they provide another measure which is considered an indicator of Essential’s results from its principal business activities.
Growth capital – Growth capital is capital spending which is intended to result in incremental revenue.
Maintenance capital – Maintenance capital is capital spending that is incurred in order to refurbish, replace or extend the life of existing equipment.
Net equipment expenditures – This measure is equipment expenditures less proceeds on the disposal of equipment. Essential uses net equipment expenditures to describe net cash outflows related to managing Essential’s property and equipment.
Working capital – Working capital is calculated as current assets less current liabilities.
CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited)
As at | As at | |||||||||
(in thousands of dollars) | 2021 | 2020 | ||||||||
Assets | ||||||||||
Current | ||||||||||
Cash | $ | 6,251 | $ | 6,082 | ||||||
Trade and other accounts receivable | 26,799 | 22,026 | ||||||||
Inventory | 31,587 | 32,157 | ||||||||
Prepayments and deposits | 1,456 | 1,625 | ||||||||
66,093 | 61,890 | |||||||||
Non-current | ||||||||||
Property and equipment | 87,469 | 89,460 | ||||||||
Right-of-use lease asset | 7,721 | 8,513 | ||||||||
95,190 | 97,973 | |||||||||
Total assets | $ | 161,283 | $ | 159,863 | ||||||
Liabilities | ||||||||||
Current | ||||||||||
Trade and other accounts payable | $ | 12,444 | $ | 8,905 | ||||||
Share-based compensation | 1,714 | 1,369 | ||||||||
Income taxes payable | 25 | 25 | ||||||||
Current portion of lease liability | 4,272 | 4,089 | ||||||||
18,455 | 14,388 | |||||||||
Non-current | ||||||||||
Share-based compensation | 4,364 | 3,443 | ||||||||
Long-term debt | 53 | 53 | ||||||||
Long-term lease liability | 6,758 | 7,801 | ||||||||
11,175 | 11,297 | |||||||||
Total liabilities | 29,630 | 25,685 | ||||||||
Equity | ||||||||||
Share capital | 272,732 | 272,732 | ||||||||
Deficit | (147,803) | (145,210) | ||||||||
Other reserves | 6,724 | 6,656 | ||||||||
Total equity | 131,653 | 134,178 | ||||||||
Total liabilities and equity | $ | 161,283 | $ | 159,863 | ||||||
CONSOLIDATED INTERIM STATEMENTS OF NET LOSS AND COMPREHENSIVE LOSS
(Unaudited)
For the three months ended | ||||||||||
(in thousands of dollars, except per share amounts) | 2021 | 2020 | ||||||||
Revenue | $ | 30,150 | $ | 41,423 | ||||||
Operating expenses | 23,412 | 33,005 | ||||||||
Gross margin | 6,738 | 8,418 | ||||||||
General and administrative expenses | 1,850 | 2,534 | ||||||||
Depreciation and amortization | 4,813 | 3,914 | ||||||||
Share-based compensation expense | 2,309 | (1,680) | ||||||||
Impairment loss | - | 10,293 | ||||||||
Other expense (income) | 127 | (1,587) | ||||||||
Operating loss | (2,361) | (5,056) | ||||||||
Finance costs | 231 | 394 | ||||||||
Loss before taxes | (2,592) | (5,450) | ||||||||
Current income tax expense | 1 | 1 | ||||||||
Deferred income tax recovery | - | (426) | ||||||||
Income tax expense (recovery) | 1 | (425) | ||||||||
Net loss | (2,593) | (5,025) | ||||||||
Unrealized foreign exchange gain (loss) | 66 | (269) | ||||||||
Comprehensive loss | $ | (2,527) | $ | (5,294) | ||||||
Net loss per share | ||||||||||
Basic and diluted | $ | (0.02) | $ | (0.04) | ||||||
Comprehensive loss per share | ||||||||||
Basic and diluted | $ | (0.02) | $ | (0.04) | ||||||
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended | ||||||||||
(in thousands of dollars) | 2021 | 2020 | ||||||||
Operating Activities: | ||||||||||
Net loss | $ | (2,593) | $ | (5,025) | ||||||
Non-cash adjustments to reconcile net loss to operating cash flow: | ||||||||||
Depreciation and amortization | 4,813 | 3,914 | ||||||||
Deferred income tax recovery | - | (426) | ||||||||
Share-based compensation | 2 | 6 | ||||||||
(Recovery) provision for impairment of trade receivable | (50) | 150 | ||||||||
Finance costs | 231 | 394 | ||||||||
Impairment loss | - | 10,293 | ||||||||
Gain on disposal of assets | (29) | (168) | ||||||||
Funds flow | 2,374 | 9,138 | ||||||||
Changes in non-cash operating working capital: | ||||||||||
Trade and other accounts receivable before provision | (4,638) | (6,817) | ||||||||
Inventory | 556 | 274 | ||||||||
Income taxes payable | - | 7 | ||||||||
Prepayments and deposits | 168 | 410 | ||||||||
Trade and other accounts payable | 3,490 | 222 | ||||||||
Share-based compensation | 1,265 | (2,765) | ||||||||
Net cash provided by operating activities | 3,215 | 469 | ||||||||
Investing Activities: | ||||||||||
Purchase of property, equipment and intangible assets | (2,244) | (1,305) | ||||||||
Non-cash trade and other accounts payable in working capital | 51 | (154) | ||||||||
Proceeds on disposal of equipment | 303 | 478 | ||||||||
Net cash used in investing activities | (1,890) | (981) | ||||||||
Financing Activities: | ||||||||||
Increase in long-term debt | - | 1,950 | ||||||||
Finance costs paid | (61) | (130) | ||||||||
Payments of lease liability | (1,081) | (1,225) | ||||||||
Net cash (used in) provided by financing activities | (1,142) | 595 | ||||||||
Foreign exchange (loss) gain on cash held in a foreign currency | (14) | 30 | ||||||||
Net increase in cash | 169 | 113 | ||||||||
Cash, beginning of period | 6,082 | 846 | ||||||||
Cash, end of period | $ | 6,251 | $ | 959 | ||||||
FORWARD-LOOKING STATEMENTS AND INFORMATION
This news release contains “forward-looking statements” and “forward-looking information” (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities legislation. Such forward-looking statements include, without limitation, forecasts, estimates, expectations and objectives for future operations that are subject to a number of material factors, assumptions, risks and uncertainties, many of which are beyond the control of the Company.
Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by the words “expects”, “plans”, “anticipates”, “believes”, “intends”, “estimates”, “continues”, “future”, “outlook” and similar expressions, or are events or conditions that “will”, “would”, “may”, “likely”, “could”, “should”, “can”, “typically”, “traditionally” or “tends to” occur or be achieved. This news release contains forward-looking statements, pertaining to, among other things, the following: Essential’s capital spending budget, expectations of how it will be funded and in-service timing; the current and potential impacts of the COVID-19 pandemic; general economic activity; oil and natural gas industry and oilfield services sector activity and outlook, including the impact of E&P cashflow increases, the potential for E&P capital spending increases and the potential benefits to Essential; oilfield service pricing, including the potential for improvement and the implications; the Company’s capital management strategy and financial position; the impact of governmental and Company measures implemented in response to the COVID-19 pandemic; Essential’s outlook, activity levels, cost structure, active and inactive equipment, crew counts, cost cutting measures and their implications; benefits under the federally funded site rehabilitation programs, including the anticipated work for Tryton arising from the programs and the timing of the same; and Essential’s credit capacity, liquidity and ability to meet its financial needs through to the end of 2021.
The forward-looking statements contained in this news release reflect several material factors and expectations and assumptions of Essential including, without limitation: the COVID-19 pandemic, unprecedented economic slow down and low oil prices, and the duration and impact thereof; that Essential will continue to conduct its operations in a manner consistent with past operations; the general continuance of current or, where applicable, assumed industry conditions; availability of debt and/or equity sources to fund Essential's capital and operating requirements as needed; 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 to it on the date such statements are made, undue reliance should not be placed on the forward-looking statements because the Company can give no assurances that such statements and information will prove to be correct and such statements are not guarantees of future performance. Since forward-looking statements 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 Company’s Annual Information Form (“AIF”) (a copy of which can be found under Essential’s profile on SEDAR at www.sedar.com); a significant expansion of COVID-19 pandemic and the impacts thereof; the risks associated with the oilfield services sector, including 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, market 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 including those in the event of an epidemic, natural disaster or other event; global economic events; changes to Essential’s financial position and cash flow, and the higher degree of uncertainty related to the estimates and judgements made in the preparation of financial statements; the availability of qualified personnel, management or other key inputs; currency exchange fluctuations; changes in political and security stability; potential industry developments; and other unforeseen conditions which could impact the use of services supplied by the Company. Accordingly, readers should not place undue importance or reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive and should refer to “Risk Factors” set out in the AIF.
Statements, including forward-looking statements, contained in this news release are made as of the date they are given and the Company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
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 under Essential’s profile on SEDAR at www.sedar.com.
ABOUT ESSENTIAL
Essential provides oilfield services to oil and natural gas producers, primarily in western
MSFS® is a registered trademark of
The TSX has neither approved nor disapproved the contents of this news release.
PDF available: http://ml.globenewswire.com/Resource/Download/b6a4fe5a-fb5d-4622-bc89-9ba48fb5bd39
For further information, please contact: Garnet K. Amundson President and CEO Phone: (403) 513-7272 service@essentialenergy.ca
Source:
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