CALGARY, Alberta, Aug. 03, 2023 (GLOBE NEWSWIRE) -- Essential Energy Services Ltd. (TSX: ESN) (“Essential” or the “Company”) announces second quarter financial results.
SELECTED INFORMATION
| (in thousands of dollars except per share and percentages) | For the three months ended | For the six months ended | ||||||||||
| June 30, | June 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenue | $ | 28,573 | $ | 28,642 | $ | 74,435 | $ | 66,383 | ||||
| Gross margin | 3,208 | 4,220 | 12,066 | 10,241 | ||||||||
| Gross margin % | 11 | % | 15 | % | 16 | % | 15 | % | ||||
| EBITDAS (1) | 630 | 1,920 | 6,453 | 5,535 | ||||||||
| EBITDAS % (1) | 2 | % | 7 | % | 9 | % | 8 | % | ||||
| Net loss | $ | (4,825 | ) | $ | (1,576 | ) | $ | (2,790 | ) | $ | (5,497 | ) |
| Per share - basic and diluted | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) |
| Operating hours | ||||||||||||
| Coiled tubing rigs | 6,558 | 6,205 | 16,212 | 16,221 | ||||||||
| Pumpers | 8,524 | 8,444 | 20,916 | 21,458 | ||||||||
| As at June 30, | ||||||||||||
| 2023 | 2022 | |||||||||||
| Working capital (1) | $ | 46,437 | $ | 43,065 | ||||||||
| Cash | 2,153 | 2,107 | ||||||||||
| Long-term debt | 6,250 | - | ||||||||||
(1) Non-IFRS and Other Financial Measures. Refer to “Non-IFRS and Other Financial Measures” section for further information.
INDUSTRY OVERVIEW
Commodity prices for each of oil and natural gas were significantly lower in the second quarter of 2023 compared to the same prior year quarter. The price of oil (Western Texas Intermediate “WTI”) averaged US$74 per barrel in the second quarter of 2023, compared to an average of US$108 per barrel in the second quarter of 2022. Canadian natural gas prices (“AECO”) averaged $2.39 per gigajoule during the second quarter of 2023, compared to an average of $6.83 per gigajoule during the comparative prior year quarter.
Activity in the second quarter is traditionally slower with melting snow and thawing ground-frost rendering many roadways incapable of supporting heavy equipment. In addition, wildfires in Alberta and British Columbia during the second quarter of 2023 caused some exploration and production (“E&P”) companies to shut-in production which further impacted oilfield service activity. Overall, second quarter 2023 industry well completion activity in the Western Canadian Sedimentary Basin (“WCSB”) was 15%(a) below the same prior year quarter.
HIGHLIGHTS
Essential’s revenue for the three months ended June 30, 2023 was $28.6 million, in line with the same prior year quarter. Second quarter EBITDAS(1) was $0.6 million, $1.3 million lower than the same prior year quarter.
Key operating highlights included:
- Essential Coil Well Service (“ECWS”) second quarter 2023 revenue was $17.2 million, 12% higher than the same prior year quarter due to improved customer pricing and a slight increase in activity. ECWS’s gross margin was $1.5 million, $0.5 million lower than the same prior year quarter due to higher operating costs.
- Tryton Tool Services (“Tryton”) second quarter 2023 revenue was $11.3 million, 15% lower than the same prior year quarter primarily due to lower Canadian downhole tool activity, partially offset by higher rental activity and stronger activity within Tryton’s U.S. downhole tool business. Tryton’s gross margin was $2.0 million, $0.4 million lower than the same prior year quarter due to lower revenue.
For the six months ended June 30, 2023, Essential reported revenue of $74.4 million, 12% higher than the same prior year period primarily as a result of improved customer service pricing in ECWS. For the six months ended June 30, 2023, EBITDAS(1) was $6.5 million, $0.9 million higher than the same prior year period as a result of higher revenue in ECWS during the first half of 2023, partially offset by inflation driven cost increases across the organization.
During the first half of 2023, Essential acquired and cancelled 7,640,000 common shares (“Shares”) under its Normal Course Issuer Bid (“NCIB”), 6% of the total issued and outstanding Shares at January 1, 2023, with a weighted average price of $0.36 per share for a total cost of $2.8 million. Essential is limited to a daily maximum number of 20,542 Shares that may be purchased each business day, subject to the weekly block purchase exception.
On June 29, 2023, Essential released its inaugural Environmental, Social and Governance (“ESG”) report. While Essential has been reporting its ESG accomplishments through the Company’s Annual Information Form (“AIF”) since 2019, this formalized report is a significant milestone for Essential as it demonstrates to shareholders and other stakeholders its commitment to meeting evolving ESG reporting expectations. The ESG Report can be accessed on Essential’s website at www.essentialenergy.ca.
Cash and Working Capital
At June 30, 2023, Essential continued to be in a strong financial position with long-term debt, net of cash(1) of $4.1 million and working capital(1) of $46.4 million. On August 3, 2023, Essential had $4.5 million of long-term debt, net of cash(1). Long-term debt, net of cash, remains relatively flat compared to May 4, 2023, when it was last publicly reported, largely due to spending under the NCIB and execution of the Company’s capital program.
RESULTS OF OPERATIONS
Segment Results – Essential Coil Well Service
| For the three months ended | For the six months ended | |||||||||||
| June 30, | June 30, | |||||||||||
| (in thousands of dollars, except percentages, hours and fleet data) | 2023 | 2022 | 2023 | 2022 | ||||||||
| Revenue | $ | 17,230 | $ | 15,337 | $ | 43,619 | $ | 35,016 | ||||
| Operating expenses | 15,778 | 13,362 | 36,651 | 30,265 | ||||||||
| Gross margin | $ | 1,452 | $ | 1,975 | $ | 6,968 | $ | 4,751 | ||||
| Gross margin % | 8 | % | 13 | % | 16 | % | 14 | % | ||||
| Operating hours | ||||||||||||
| Coiled tubing rigs | 6,558 | 6,205 | 16,212 | 16,221 | ||||||||
| Pumpers | 8,524 | 8,444 | 20,916 | 21,458 | ||||||||
| Active equipment fleet (i) | ||||||||||||
| Coiled tubing rigs(ii) | 9 | 12 | 9 | 12 | ||||||||
| Fluid pumpers | 9 | 11 | 9 | 11 | ||||||||
| Nitrogen pumpers | 4 | 4 | 4 | 4 | ||||||||
| Total equipment fleet (i)(iii) | ||||||||||||
| Coiled tubing rigs | 15 | 25 | 15 | 25 | ||||||||
| Fluid pumpers | 11 | 13 | 11 | 13 | ||||||||
| Nitrogen pumpers | 5 | 5 | 5 | 5 | ||||||||
(i) Fleet data represents the number of units at the end of the period.
(ii) Active equipment fleet was reduced in 2023 for one Generation I coiled tubing rig, two Generation III coiled tubing rigs and two quintuplex pumpers that were removed from service in order to optimize operational efficiency. Certain inactive equipment can be reactivated relatively quickly to meet future demand when required.
(iii) Total equipment fleet was reduced for equipment which was no longer expected to be reactivated or was sold.
Second quarter 2023 ECWS revenue was $17.2 million, a 12% increase when compared to the second quarter of 2022. Customer price increases resulted in higher revenue per operating hour when compared to the same prior year quarter. ECWS activity was 3% higher when compared to the same prior year quarter and was significantly higher than the 15%(a) decline in industry well completions. ECWS second quarter 2023 activity was impacted by wet weather, spring breakup and wildfires in Alberta and British Columbia with unusually slow activity in May.
Gross margin for the second quarter of 2023 was $1.5 million, $0.5 million lower than the same prior year quarter. Despite improved pricing and activity, the increased revenue was insufficient to cover higher costs in the quarter. As well, an unusually slow May impacted gross margin. Costs increased for the quarter as a result of crew retention, higher repairs & maintenance and inflation associated with wages and supplies. Gross margin percentage was 8%, compared to 13% in the same prior year quarter.
On a year-to-date basis, ECWS revenue was $43.6 million, an increase of 25% compared to the same prior year period due to an increase in revenue per operating hour. Revenue per operating hour was higher due to customer price increases and the nature of work performed in 2023. In the first six months of 2023, activity remained relatively flat to 2022. Gross margin was $7.0 million, $2.2 million higher than 2022 due to an increase in revenue per operating hour, partially offset by higher operating costs. Gross margin percentage was 16%, compared to 14% for the same prior year period.
Segment Results – Tryton
| (in thousands of dollars, except percentages) | For the three months ended | For the six months ended | ||||||||||
| June 30, | June 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenue | $ | 11,343 | $ | 13,305 | $ | 30,816 | $ | 31,367 | ||||
| Operating expenses | 9,317 | 10,838 | 25,108 | 25,518 | ||||||||
| Gross margin | $ | 2,026 | $ | 2,467 | $ | 5,708 | $ | 5,849 | ||||
| Gross margin % | 18 | % | 19 | % | 19 | % | 19 | % | ||||
Second quarter 2023 Tryton revenue was $11.3 million, a 15% decrease compared to the same prior year quarter primarily due to lower Canadian conventional and multi-stage fracturing system (“MSFS®”) downhole tool activity, partially offset by higher activity in Tryton’s Rental and U.S. downhole tool operations. Activity in Canada was negatively impacted by spring breakup and wet weather conditions in the quarter, as well as wildfires in Alberta which caused certain customers to delay work. In addition, demand for Tryton’s MSFS® tools was lower than the prior year quarter due to competitive pricing and completion technology preferences of certain customers. MSFS® activity has been volatile and a decreasing portion of Tryton’s revenue in the last year.
Second quarter gross margin was $2.0 million, $0.4 million lower than the same prior year quarter due to lower activity in Tryton’s Canadian downhole tool business. Gross margin percentage for the quarter was 18%, in line with the same prior year quarter of 19% due to higher activity in Tryton’s U.S. downhole tool operations and Rentals.
On a year-to-date basis, Tryton revenue was $30.8 million, slightly below the same prior year period due to lower activity in Canada, partially offset by higher U.S. activity. Gross margin was $5.7 million, similar to the same prior year period. Gross margin percentage was 19%, in line with the same prior year period.
Purchase of Property and Equipment
| (in thousands of dollars) | For the three months ended | For the six months ended | ||||||||||
| June 30, | June 30, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| ECWS | $ | 2,291 | $ | 465 | $ | 3,781 | $ | 1,030 | ||||
| Tryton | 996 | 471 | 1,462 | 1,267 | ||||||||
| Corporate | 41 | 135 | 41 | 135 | ||||||||
| Purchase of property and equipment | $ | 3,328 | $ | 1,071 | $ | 5,284 | $ | 2,432 | ||||
| Less: proceeds on disposal of equipment | (1,367 | ) | (1,343 | ) | (1,981 | ) | (1,508 | ) | ||||
| Net equipment expenditures (proceeds) (1) | $ | 1,961 | $ | (272 | ) | $ | 3,303 | $ | 924 | |||
For the three and six months ended June 30, 2023, Essential’s capital spending was entirely related to maintenance capital(1) on ECWS’s active fleet and replacement pickups in both ECWS and Tryton.
Essential’s 2023 capital budget for the purchase of property and equipment remains unchanged at $8 million and relates entirely to maintenance capital(1). Essential will continue to monitor fleet activity and industry opportunities and adjust its spending as appropriate. The 2023 capital budget is expected to be funded with cash, operational cash flow and, if needed, its credit facility.
OUTLOOK
The price of WTI has recently traded up to US$81 per barrel but natural gas prices continue to be low. It is generally expected that activity in the Canadian oilfield service sector will be similar in 2023, compared to 2022. This is a function of the relatively low ratio of Canadian E&P cash flow allocated to capital spending, which has decreased spending sensitivity to changing commodity prices. As well, Canadian natural gas-directed activity is in-part driven by natural-gas liquids economics, which are correlated with the price of WTI. For the longer-term outlook, there is optimism related to the Blueberry River First Nations Implementation Agreement and continued progress on the LNG Canada project.
Inflation has largely eased. However, supply chain constraints and labor shortages are still expected to impact 2023. Recession risk and the implications this may have on oilfield service activity remain a concern. Oilfield service activity may be somewhat resilient to recessionary concerns given ongoing reservoir declines and Canadian E&P strategic objectives. The low ratio of E&P cash flow a
