Western Energy Services Corp. Releases Third Quarter 2021 Financial and Operating Results

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Western Energy Services Corp. Releases Third Quarter 2021 Financial and Operating Results

by ahnationtalk on October 26, 202125 Views

CALGARY, ALBERTA – Western Energy Services Corp. (“Western” or the “Company”) (TSX: WRG) announces the release of its third quarter 2021 financial and operating results. Additional information relating to the Company, including the Company’s financial statements and management’s discussion and analysis (“MD&A”) as at and for the three and nine months ended September 30, 2021 and 2020 will be available on SEDAR at www.sedar.com. Non‐International Financial Reporting Standards (“Non‐IFRS”) measures, such as Adjusted EBITDA, and 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.

Third Quarter 2021 Operating Results:

  • Third quarter revenue increased by $19.6 million (or 145%) to $33.0 million in 2021 as compared to $13.4 million in the third quarter of 2020. In the contract drilling segment, revenue totalled $19.5 million in the third quarter of 2021, an increase of $14.1 million (or 259%) compared to $5.4 million in the third quarter of 2020. In the production services segment, revenue totalled $13.7 million for the three months ended September 30, 2021, as compared to $8.1 million in the same period of the prior year, an increase of $5.6 million (or 69%). While the ongoing COVID‐19 pandemic continues to impact the contract drilling and production services segments in the third quarter of 2021, demand improved compared to 2020 as described below:

o Drilling rig utilization in Canada averaged 18% in the third quarter of 2021, compared to 5% in the third quarter of 2020 due to the COVID‐19 pandemic. The increase in activity in the third quarter of 2021 was mainly attributable to the improved demand resulting from the ongoing COVID‐19 vaccination rollouts and the lifting of government restrictions which re‐opened the economy, compared to the third quarter of 2020 when the COVID‐19 pandemic caused demand destruction across the industry. The Canadian Association of Energy Contractors (“CAOEC”) industry average utilization of 27%1 for the third quarter of 2021 represented an increase of 1,800 basis points (“bps”) compared to the CAOEC industry average of 9% in the third quarter of 2020. Western’s market share, represented by the Company’s Operating Days as a percentage of the CAOEC’s total Operating Days in the Western Canadian Sedimentary Basin (“WCSB”), improved to 6.7% for the third quarter of 2021, as compared to 5.3% in the same period of 2020. Revenue per Operating Day averaged $20,999 in the third quarter of 2021, a decrease of 3% compared to the same period of the prior year, mainly due to a higher proportion of operating days with current market rates compared to long term contracted rates in the prior quarter;

o In the United States (“US”), drilling rig utilization averaged 13%, as two rigs worked in the third quarter of 2021, compared to 1% Drilling Rig Utilization in the third quarter of 2020, with Operating Days improving from 9 days in 2020 to 98 days in 2021. Revenue per Operating Day for the third quarter of 2021 was US$17,419, a 14% decrease compared to US$20,224 in the same period of the prior year, mainly due to changes in average rig mix; and

o In Canada, service rig utilization of 29% in the third quarter of 2021 was higher than 19% in the same period of the prior year, mainly due to improved commodity prices positively impacting demand for well reactivations in 2021, as 2020 activity was impacted significantly by the COVID‐19 pandemic when a number of customers shut in wells entirely. Revenue per Service Hour of $727 in the third quarter of 2021 was 11% higher than the third quarter of 2020, as a result of increased labour and fuel charges being passed through to the customer. Higher utilization led to production services revenue totaling $13.7 million in the third quarter of 2021, an increase of $5.6 million (or 69%), as compared to the same period in the prior year.

  • Administrative expenses increased by $0.7 million (or 35%) to $2.7 million in the third quarter of 2021, as compared to $2.0 million in the third quarter of 2020, mainly due to lower amounts received related to the Canada Emergency Wage Subsidy (“CEWS”) from the Government of Canada and higher employee related costs.
  • The Company incurred a net loss of $10.4 million in the third quarter of 2021 ($0.11 per basic common share) as compared to a net loss of $10.5 million in the same period in 2020 ($0.12 per basic common share). The change can mainly be attributed to a $3.2 million decrease in income tax recovery and a $1.4 million increase in finance costs, offset partially by a $2.7 million increase in Adjusted EBITDA, a $1.3 million decrease in depreciation expense due to certain assets being fully depreciated in the period and a $0.6 million increase in other items which mainly consisted of foreign exchange gains and the sale of assets.
  • Third quarter Adjusted EBITDA in 2021 was higher than the same period of the prior year and totalled $5.0 million, compared to $2.3 million in the third quarter of 2020. Adjusted EBITDA was higher due to improved activity in Canada and the US, offset partially by a decrease of $1.0 million in CEWS received.
  • Third quarter 2021 additions to property and equipment of $1.3 million compared to $0.2 million incurred in the third quarter of 2020 and consist of $0.4 million of expansion capital and $0.9 million of maintenance capital.
  • Source: CAOEC, monthly Contractor Summary.

Year to Date 2021 Operating Results:

  • Revenue for the nine months ended September 30, 2021, increased by $14.3 million (or 19%) to $90.3 million as compared to $76.0 million for the nine months ended September 30, 2020. Contract drilling revenue totalled $51.7 million in 2021, an increase of $5.0 million (or 11%) as compared to $46.7 million in 2020. Production services revenue totalled $39.1 million for the nine months ended September 30, 2021, as compared to $29.5 million in the same period of the prior year, an increase of $9.6 million (or 32%). The ongoing COVID‐19 pandemic continues to impact revenue in the contract drilling and production services segments as described below:

o Drilling rig utilization in Canada averaged 16% for the nine months ended September 30, 2021, compared to 10% for the nine months ended September 30, 2020, a 600 bps increase. The increase in activity in 2021 was mainly attributable to the improved demand resulting from the ongoing COVID‐19 vaccination rollouts and the lifting of government restrictions which re‐opened the economy, compared to 2020 when the COVID‐19 pandemic caused demand destruction across the industry. The CAOEC industry average of 23%2 for nine months ended September 30, 2021, represented an increase of 700 bps compared to the CAOEC industry average of 16% for the nine months ended September 30, 2020, mainly due to higher demand. Western’s market share, represented by the Company’s Operating Days as a percentage of the CAOEC’s total Operating Days in the WCSB, improved to 7.2% for the nine months ended September 30, 2021, as compared to 6.3% in the same period of 2020. Revenue per Operating Day decreased by 15% for the nine months ended September 30, 2021, as compared to the same period of the prior year, as current market rates weakened in the period;

o In the United States, drilling rig utilization averaged 13%, as two rigs worked in 2021, compared to 7% in the same period of 2020, reflecting an 82% increase in Operating Days. Revenue per Operating Day for the nine months ended September 30, 2021, decreased by 37% to US$15,404, as compared to the same period of the prior year, as current spot market rates weakened in the period; and

o In Canada, service rig utilization of 28% for the nine months ended September 30, 2021 was higher than the same period of the prior year due to improved industry demand. Lower production and completion activity was offset by increased abandonment work as a result of government incentives. Revenue per Service Hour of $717 for the nine months ended September 30, 2021 was 3% higher than the same period of 2020. Improved utilization led to production services revenue totaling $39.1 million for the nine months ended September 30, 2021, an increase of $9.6 million (or 32%), as compared to the same period in the prior year.

  • Administrative expenses increased by $0.2 million (or 3%) to $8.1 million for the nine months ended September 30, 2021, as compared to $7.9 million in the same period of the prior year, mainly due to a decrease in the CEWS received related to administrative costs.
  • The Company incurred a net loss of $29.8 million for the nine months ended September 30, 2021 ($0.33 per basic common share) as compared to a net loss of $33.9 million in the same period in 2020 ($0.37 per basic common share). The change can mainly be attributed to the 2020 impairment of $11.5 million and a $5.2 million decrease in depreciation expense due to certain assets being fully depreciated in the period, as well as the impact to depreciation of asset impairments in previous quarters, which were offset partially by a $9.4 million decrease in income tax recovery, a $1.4 million decrease in other items, and a $0.6 million decrease in Adjusted EBITDA.
  • Adjusted EBITDA for the nine months ended September 30, 2021 was lower than the same period of the prior year and totalled $14.1 million, compared to $14.7 million in the same period of 2020. Adjusted EBITDA in 2021 was lower due to US$5.0 million of shortfall commitment revenue received in 2020 with none in 2021, which was partially offset by improved activity in Canada and the US, and an increase in the CEWS of $3.9 million due to 2021 including nine months of the CEWS, compared to only five months in 2020.
  • Year to date 2021 additions to property and equipment of $4.8 million compared to $1.0 million incurred in the same period of 2020 and consist of $1.1 million of expansion capital and $3.7 million of maintenance capital.

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