CALGARY, AB , July 25, 2022 /CNW/ - Western Energy Services Corp. ("Western" or the "Company") (TSX: WRG) announces the release of its second quarter 2022 financial and operating results. Additional information relating to the Company, including the Company's financial statements and management's discussion and analysis as at June 30, 2022 and for the three and six months ended June 30, 2022 and 2021 will be available on SEDAR at www.sedar.com. Non-International Financial Reporting Standards ("Non-IFRS") measures and ratios, such as Adjusted EBITDA and Adjusted EBITDA as a percentage of revenue, as well as abbreviations and definitions for standard industry terms are defined later in this press release. All amounts are denominated in Canadian dollars (CDN$) unless otherwise identified.
(stated in thousands, except share and per share amounts)
Adjusted EBITDA as a percentage of revenue(1)
Cash flow from operating activities
Additions to property and equipment
– basic and diluted net income (loss) per share
Weighted average number of shares
Outstanding common shares as at period end
(1) See "Non-IFRS measures" included in this press release.
– Average active rig count
CAOEC industry average utilization – Operating Days(3)
– Average active rig count
Revenue per Operating Day (US$)
– Average active rig count
(2) See "Defined Terms" included in this press release.
(3) Source: The CAOEC monthly Contractor Summary. The CAOEC industry average is based on Operating Days divided by total available drilling days.
(4) During the first quarter of 2022, 12 drilling rigs were deregistered with the CAOEC.
Financial Position at (stated in thousands)
Western is an energy services company that provides contract drilling services in Canada and in the US and production services in Canada through its various divisions, subsidiaries, and first nations joint venture.
Western operates a fleet of 45 drilling rigs specifically suited for drilling complex horizontal wells across Canada and the US. Western is currently the fourth largest drilling contractor in Canada , based on the CAOEC registered drilling rigs3 . In the first quarter of 2022, Western deregistered 12 drilling rigs with the CAOEC, all of which can be reactivated at a later date.
Production Services provides well servicing and oilfield equipment rentals in Canada . Western operates 63 well servicing rigs and is the third largest well servicing company in Canada based on CAOEC registered well servicing rigs4 . During the fourth quarter of 2021, the Company sold three well servicing rigs that operated in the United States .
Western's contract drilling and well servicing rig fleets comprise the following:
(1) See "Defined Terms" included in this press release.
Crude oil and natural gas prices impact the cash flow of Western's customers, which in turn impacts the demand for Western's services. The following table summarizes average crude oil and natural gas prices, as well as average foreign exchange rates, for the three and six months ended June 30, 2022 and 2021.
Average crude oil and natural gas prices(1)(2)
West Texas Intermediate (US$/bbl)
Western Canadian Select (CDN$/bbl)
30 day Spot AECO (CDN$/mcf)
US dollar to Canadian dollar
(1) See "Abbreviations" included in this press release.
(2) Source: Sproule June 30, 2022 Price Forecast, Historical Prices.
West Texas Intermediate on average improved by 64% for both the three and six months ended June 30, 2022 respectively, compared to the same periods in the prior year. Similarly, pricing on Western Canadian Select crude oil increased by 82% and 79% respectively, for the three and six months ended June 30, 2022 , compared to the same periods in the prior year. In 2022, pricing increased due to the war in Ukraine which caused significant price volatility, as well as improved demand combined with tight supplies of crude oil. Natural gas prices in Canada also strengthened in 2022 due to the same factors, as the 30-day spot AECO price improved by 137% and 94% for the three and six months ended June 30, 2022 , compared to the same periods of the prior year. While commodity prices improved, the US dollar to the Canadian dollar foreign exchange rate for the three and six months ended June 30, 2022 strengthened by 4% and 2% respectively, compared to the same periods of the prior year.
3 Source: CAOEC Contractor Summary as at July 25, 2022. 4 Source: CAOEC Fleet List as at July 25, 2022.
In the United States , industry activity improved in the second quarter of 2022. As reported by Baker Hughes Company5 , the number of active drilling rigs in the United States increased by approximately 58% to 750 rigs as at June 30, 2022 , as compared to 475 rigs at June 30 , 2021. There were 177 active rigs in the WCSB at June 30, 2022 , compared to 139 active rigs as at June 30 , 2021. The CAOEC6 reported that for drilling in Canada , the total number of Operating Days in the WCSB increased by approximately 50% for the three months ended June 30, 2022 , compared to the same period in the prior year. For the six months ended June 30, 2022 , the total number of Operating Days in the WCSB were 42% higher than the same period of the prior year. Despite improved commodity prices, there remains continued service industry concerns over the prevailing customer preference to return cash to shareholders, or pay down debt, rather than grow production through the drill bit.
In the first half of 2022, crude oil prices reached their highest levels since 2014, due to recovering demand as governments eased COVID-19 restrictions, the Russian invasion of Ukraine and supply constraints. Uncertainty still persists concerning the ongoing war in Ukraine causing further volatility in crude oil prices and tight supply. The precise duration and extent of the adverse impacts of the current macroeconomic environment, including the ongoing COVID-19 pandemic on Western's customers, operations, business and global economic activity remains highly uncertain at this time. Additionally, the delayed timing of completion of construction on the Trans Mountain pipeline expansion and the threatened shutdown of Enbridge Line 5, have contributed to continued uncertainty regarding takeaway capacity. However, activity levels in 2022 are expected to be higher than 2021 levels as a result of increased capital spending by Western's customers. Controlling fixed costs, maintaining balance sheet strength and flexibility and managing through a post-pandemic market are priorities for the Company, as prices and demand for Western's services continue to improve.
Due to improved activity in the first half of 2022, as a result of the successful COVID-19 vaccine rollout, the lifting of government restrictions, and the closing of the Restructuring Transaction, Western's Board of Directors approved a capital budget for 2022 of $34 million and is comprised of $23 million of expansion capital and $11 million of maintenance capital, with $29 million allocated to the contract drilling segment and $5 million allocated to the production services segment. Substantially all of the net proceeds from the Rights Offering are being used to upgrade the Company's drilling rig fleet which will drive further improvements in both utilization and pricing through all industry cycles. Western will continue to manage its costs in a disciplined manner and make required adjustments to its capital program as customer demand changes. Currently,17 of Western's drilling rigs and 20 of Western's well servicing rigs are operating.
As at June 30, 2022 , Western had no amounts drawn on its $45.0 million Credit Facilities. As described previously, subsequent to December 31, 2021 , the Company amended the terms of its Credit Facilities, including extending the maturity date and amending its financial covenants. Western currently has $11.9 million outstanding on its HSBC Bank Canada six-year committed term non-revolving facility with the participation of Business Development Canada (the "HSBC Facility"), which matures on December 31 , 2026. Western currently has $107.7 million outstanding on its Second Lien Facility. As previously announced on May 18, 2022 , the Company closed its Rights Offering and Debt Restructuring Transaction, resulting in reduced debt levels, as well as the extension of the maturity date of the Second Lien Facility and the Credit Facilities. The Debt Restructuring Transaction resulted in a $100.0 million decrease in the principal amount owing under the Second Lien Facility, resulting from the Debt Exchange and the repayment of $10.0 million of the principal amount of the Second Lien Facility using proceeds from the Rights Offering, which will reduce the Company's finance costs on a go forward basis. The remaining net proceeds from the Rights Offering are being invested in capital upgrades on its drilling rig fleet.
Oilfield service activity in Canada will be affected by the continued development of resource plays in Alberta and northeast British Columbia which will be impacted by continued pipeline construction, environmental regulations, and the level of investment in Canada. In the short term, the largest challenges facing the oilfield service industry are a lack of qualified field personnel and the restrained growth in customer drilling activity due to the continuing preference to return cash to shareholders through share buybacks, increased dividends and repayment of debt, rather than grow production. If commodity prices remain high for an extended period and as customers strengthen their balance sheets and satisfy shareholders, we expect that drilling activity will continue to increase. In the medium term, Western's rig fleet is well positioned to benefit from the LNG Canada liquefied natural gas project now under construction in British Columbia. It remains Western's view that its upgraded drilling rigs and modern well servicing rigs, reputation for quality, and disciplined cash management provides Western with a competitive advantage.
5 Source: Baker Hughes Company, 2022 Rig Count monthly press releases. 6 Source: CAOEC, monthly Contractor Summary.
Western uses certain financial measures in this press release which do not have any standardized meaning as prescribed by International Financial Reporting Standards ("IFRS"). These measures and ratios, which are derived from information reported in the condensed consolidated financial statements, may not be comparable to similar measures presented by other reporting issuers. These measures and ratios have been described and presented in this press release in order to provide shareholders and potential investors with additional information regarding the Company. The non-IFRS measure and ratio used in this press release is identified and defined as follows:
Earnings before interest and finance costs, taxes, depreciation and amortization, other non-cash items and one-time gains and losses ("Adjusted EBITDA") is a useful supplemental measure as it is used by management and other stakeholders, including current and potential investors, to analyze the Company's principal business activities. Adjusted EBITDA provides an indication of the results generated by the Company's principal operating segments, which assists management in monitoring current and forecasting future operations, as certain non-core items such as interest and finance costs, taxes, depreciation and amortization, and other non-cash items and one-time gains and losses are removed. The closest IFRS measure would be net income (loss) for consolidated results.
Adjusted EBITDA as a percentage of revenue is a non-IFRS financial ratio which is calculated by dividing Adjusted EBITDA by revenue for the relevant period. Adjusted EBITDA as a percentage of revenue is a useful supplemental measure as it is used by management and other stakeholders, including current and potential investors, to analyze the profitability of the Company's principal operating segments.
The following table provides a reconciliation of net income (loss), as disclosed in the condensed consolidated statements of operations and comprehensive income, to Adjusted EBITDA:
Income (loss) before income taxes
Average active rig count (contract drilling): Calculated as drilling rig utilization multiplied by the average number of drilling rigs in the Company's fleet for the period.
Average active rig count (production services): Calculated as service rig utilization multiplied by the average number of service rigs in the Company's fleet for the period.
Drilling rig utilization: Calculated based on Operating Days divided by total available days.
Operating Days: Defined as contract drilling days, calculated on a spud to rig release basis.
Service Hours: Defined as well servicing hours completed.
Service rig utilization: Calculated as total Service Hours divided by 217 hours per month per rig multiplied by the average rig count for the period as defined by the CAOEC industry standard.
Cardium class rig: Defined as any contract drilling rig which has a total hookload less than or equal to 399,999 lbs (or 177,999 daN).
Montney class rig: Defined as any contract drilling rig which has a total hookload between 400,000 lbs (or 178,000 daN) and 499,999 lbs (or 221,999 daN).
Duvernay class rig: Defined as any contract drilling rig which has a total hookload equal to or greater than 500,000 lbs (or 222,000 daN).
This press release contains certain forward-looking statements and forward-looking information (collectively, "forward-looking information") within the meaning of applicable Canadian securities laws, as well as other information based on Western's current expectations, estimates, projections and assumptions based on information available as of the date hereof. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information, and words and phrases such as "may", "will", "should", "could", "expect", "intend", "anticipate", "believe", "estimate", "plan", "predict", "potential", "continue", or the negative of these terms or other comparable terminology are generally intended to identify forward-looking information. Such information represents the Company's internal projections, estimates or beliefs concerning, among other things, an outlook on the estimated amounts and timing of additions to property and equipment, anticipated future debt levels and revenues or other expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. This forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information.
In particular, forward-looking information in this press release includes, but is not limited to, statements relating to: commodity pricing; the future demand for the Company's services and equipment, in particular, the expectation of improved activity levels in 2022 as a result of increased capital spending by Western's customers; the potential impact of the ongoing COVID-19 pandemic on Western's customers, operations, business and global economic activity; the potential impact of the current conflict in Ukraine on commodity prices and the demand for Western's services; the pricing for the Company's services and equipment; the Company's expected total capital budget for 2022, including the allocation of such budget; the Company's liquidity needs including the ability of current capital resources to cover Western's financial obligations; the use, availability and sufficiency of the Company's Credit Facilities; the Company's ability to maintain certain covenants under its Credit Facilities; the repayment of the Company's debt; maturities of the Company's contractual obligations with third parties; the Consolidation, including the expected timing of completion, the consolidation ratio, the timing of the common shares trading on the TSX on a consolidated basis, and the anticipated benefits to the Company; the use of proceeds from the Rights Offering; expectations as to the benefits of the LNG Canada natural gas project in British Columbia on the Company and its rig fleet; the potential impact of changes to laws, governmental and environmental regulations, and the price on carbon emissions; the expectation of continued investment in the Canadian crude oil and natural gas industry; the development of Alberta and British Columbia resource plays; expectations relating to producer spending and activity levels for oilfield services; the Company's ability to maintain a competitive advantage; and the Company's ability to find and maintain enough field crew members.
The material assumptions that could cause results or events to differ from current expectations reflected in the forward-looking information in this press release include, but are not limited to: demand levels and pricing for oilfield services; demand for crude oil and natural gas and the price and volatility of crude oil and natural gas; pressures on commodity pricing; the continued business relationships between the Company and its significant customers; crude oil transport, pipeline and LNG export facility approval and development; liquidity and the Company's ability to finance its operations; the effectiveness of the Company's cost structure and capital budget; the effects of seasonal and weather conditions on operations and facilities; the competitive environment to which the various business segments are, or may be, exposed in all aspects of their business and the Company's competitive position therein; the ability of the Company's various business segments to access equipment (including spare parts and new technologies); global economic conditions and the accuracy of the Company's market outlook expectations for 2022 and in the future; the impact, direct and indirect, of the COVID-19 pandemic and geo-political events, including the war in Ukraine on Western's business, customers, business partners, employees, supply chain, other stakeholders and the overall economy; changes in laws or regulations; currency exchange fluctuations; the ability of the Company to attract and retain skilled labour and qualified management; the ability to retain and attract significant customers; the ability to maintain a satisfactory safety record; the conditional approval by the TSX of matters relating to the Consolidation; that there are no unforeseen events preventing the performance of contracts and general business, economic and market conditions.
Although Western believes that the expectations and assumptions on which such forward-looking information is based on are reasonable, undue reliance should not be placed on the forward-looking information as Western cannot give any assurance that such will prove to be correct. By its nature, forward-looking information is subject to 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 ongoing impact of the COVID-19 pandemic and geo-political events, including the war in Ukraine on global demand and prices for oil and gas, including the impact on demand for Western's services; volatility in market prices for crude oil and natural gas and the effect of this volatility on the demand for oilfield services generally; reduced exploration and development activities by customers and the effect of such reduced activities on Western's services and products; political, economic, and environmental conditions in Canada , the United States , Ukraine and globally; supply and demand for oilfield services relating to contract drilling, well servicing and oilfield rental equipment services; changes to laws, regulations and policies; failure of counterparties to perform or comply with their obligations under contracts; regional competition and the increase in new or upgraded rigs; the Company's ability to attract and retain skilled labour; Western's ability to obtain debt or equity financing and to fund capital operating and other expenditures and obligations; the potential need to issue additional debt or equity and the potential resulting dilution of shareholders; the Company's ability to comply with the covenants under the Credit Facilities, HSBC Facility and the Second Lien Facility and the restrictions on its operations and activities if it is not compliant with such covenants; Western's ability to protect itself from "cyber-attacks" which could compromise its information systems and critical infrastructure; disruptions to global supply chains; and other general industry, economic, market and business conditions. Readers are cautioned that the foregoing list of risks, uncertainties and assumptions are not exhaustive. Additional information on these and other risk factors that could affect Western's operations and financial results are discussed under the headings "Risk Factors" in Western's annual information form for the year ended December 31, 2021 , which may be accessed through the SEDAR website at www.sedar.com. The forward-looking statements and information contained in this news release are made as of the date hereof and Western does not undertake any obligation to update publicly or revise any forward-looking statements and information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
SOURCE Western Energy Services Corp.
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