CWC Energy Services Corp. Announces Third Quarter 2019 Financial and Operational Results

CALGARY, Nov. 1, 2019 /CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three and nine months ended September 30, 2019. The Financial Statements and Management's Discussion and Analysis ("MD&A") for the three and nine months ended September 30, 2019 are filed on SEDAR at www.sedar.com.

Financial Highlights

Highlights for the Three Months Ended September 30, 2019

• Average Q3 2019 crude oil pricing, as measured by WTI, of US$56.40/bbl was 6% lower than the Q2 2019 average price of US$59.89/bbl (Q3 2018: US$69.61/bbl). The price differential in Q3 2019 between Canadian heavy crude oil, as represented by WCS, and WTI maintained a differential in the range of US$10.00/bbl to US$15.00/bbl as the Government of Alberta mandated crude oil production curtailment was reduced from 175,000 bbls/day at the start of Q3 2019 to 125,000 bbls/day by the end of Q3 2019. Additionally, on August 20, 2019 the Government of Alberta announced adjustments to the production curtailment including moving the curtailment end date to December 31, 2020 and effectively reducing the number of Alberta E&P companies affected by the production curtailment by increasing the exemption limit from 10,000 to 20,000 bbls/day starting October 1, 2019.  Natural gas prices, as measured by AECO, decreased 8% from an average of $1.06/GJ in Q2 2019 to $0.97/GJ in Q3 2019 (Q3 2018 $1.20/GJ), remaining very low in historical terms.
  
  
• CWC's Canadian drilling rig utilization in Q3 2019 of 19% (Q3 2018: 60%) was below the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 23%, as CWC's customers continued to reduce or delay their drilling programs in the quarter. Canadian activity levels in Q3 2019 decreased 74% to 130 drilling rig operating days from seven  Canadian drilling rigs (Q3 2018: 500 drilling rig operating days from nine Canadian drilling rigs).  U.S. drilling rig activity level in Q3 2019 was 155 drilling rig operating days from two U.S. drilling rigs for a utilization of 84% (Q3 2018: nil). U.S Contract Drilling revenue of $5.6 million represented 68% of CWC's total Contract Drilling revenue for the quarter with the average revenue per operating day from U.S. operations being US$36,097 as CWC realized its first full quarter of U.S. drilling operations. CWC's service rig utilization in Q3 2019 of 52% (Q3 2018: 63%) was driven by 29,528 operating hours being 30% lower than the 42,316 operating hours in Q3 2018, which was a Company record for Q3 activity. The significant drop in Q3 2019 activity level for both the drilling rigs and our production-oriented service rigs was a direct result of wet weather conditions combined with a lower crude oil price during the quarter, compared to a year ago. In addition, the Government of Alberta mandated production curtailment continued to temporarily slow down the need for newly drilled wells and workover and maintenance work on producing wells. These lower activity levels resulted in lower revenue, Adjusted EBITDA⁽¹⁾ and net loss in Q3 2019 compared to Q3 2018.
  
  
• Revenue of $27.8 million, a decrease of $10.3 million (27%) compared to $38.1 million in Q3 2018.
  
  
• Adjusted EBITDA⁽¹⁾ of $3.9 million, a decrease of $2.1 million (36%) compared to $6.0 million in Q3 2018. CWC has achieved 25 consecutive quarters of positive Adjusted EBITDA⁽¹⁾ since Q2 2013.
  
  
• Net loss of $0.2 million, a decrease of $0.5 million compared to net income of $0.3 million in Q3 2018.
  
  
• On September 27, 2019, CWC and its syndicated lenders completed an extension of its credit facilities and certain other amendments to provide financial security and flexibility to July 31, 2022. At the request of the Company, the credit facilities were reduced from $75 million to $60 million to reduce borrowing costs and standby charges. The amendments further provide the Company access to another equity cure under the same terms and conditions and a reduction in the minimum liquidity from $10.0 million to $5.0 million. Additionally, the amendments exclude the Mortgage Loan from the consolidated debt definition used in calculating the quarterly financial covenants. The covenant for Consolidated Debt to EBITDA ratio is as follows:

• During Q3 2019, 405,000 common shares (Q3 2018: 1,175,500) were purchased under the Normal Course Issuer Bid ("NCIB") and 524,500 common shares (Q3 2018: 1,309,000) were cancelled and returned to treasury.

Highlights for the Nine Months Ended September 30, 2019

• CWC's Canadian drilling rig utilization in the first nine months of 2019 of 23% (2018: 46%) exceeded the CAODC industry average of 22% (2018: 29%). CWC's U.S. drilling rig utilization in the first nine months of 2019 was 82% (Q3 2018: n/a) as CWC started its U.S. drilling operations in mid-June 2019. CWC's service rig utilization in the first nine months of 2019 was 48% compared to 61% in the same period in 2018. Activity levels in both the drilling rig and service rig divisions dropped in 2019 as a result of CWC's exploration and production ("E&P") customers reducing or delaying their drilling and well maintenance programs as a result of lower crude oil prices and the Government of Alberta mandated production curtailment temporarily slowing down the need for newly drilled wells and workover and maintenance work on producing wells.
  
  
• Revenue of $77.8 million, a decrease of $31.5 million (29%) compared to $109.3 million in the first nine months of 2018.
  
  
• Adjusted EBITDA⁽¹⁾ of $8.7 million, a decrease of $4.8 million (36%) compared to $13.5 million in the first nine months of 2018.
  
  
• Net loss of $0.8 million, a decrease of $0.7 million (47%) compared to $1.5 million in the first nine months of 2018.
  
  
• For the nine months ended September 30, 2019, the Company purchased 3,078,500 common shares (2018: 3,593,000) under its NCIB and 3,060,500 common shares (2018: 3,563,000) were cancelled and returned to treasury.

Operational Overview

Contract Drilling

CWC Ironhand Drilling, the Company's Contract Drilling segment, has a fleet of nine telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. Eight of nine rigs have top drives and three have pad rig walking systems. All of the drilling rigs are well suited for the most active depths for horizontal drilling in the Western Canadian Sedimentary Basin ("WCSB"), including the Montney, Cardium, Duvernay and other deep basin horizons. The Company has expanded its drilling rig services into select United States basins including the Permian, Eagle Ford, Denver-Julesburg ("DJ") and Bakken. One of the Company's strategic initiatives is to continue to increase the capabilities of its existing fleet to meet the growing demands of E&P customers for deeper depths at a cost effective price while providing a sufficient internal rate of return for CWC's shareholders.

Canadian Contract Drilling revenue of $2.7 million for Q3 2019 (Q3 2018: $10.6 million) was achieved with a utilization rate of 19% (Q3 2018: 60%), compared to the CAODC industry average of 23%, as CWC's customers continued to reduce or delay their drilling programs in the quarter. CWC completed 130 Canadian drilling rig operating days with seven drilling rigs in Q3 2019, a 74% decrease from the 500 Canadian drilling rig operating days with nine drilling rigs in Q3 2018. The Q3 2019 average revenue per operating day of $20,685 was a decrease of 3% from $21,263 in Q3 2018. The significant reduction in Q3 2019 activity level was a direct result of wet weather conditions combined with a lower crude oil price during the quarter, compared to a year ago, and the Government of Alberta mandated production curtailment, which continued to temporarily slow down the need for newly drilled wells. CWC estimates that 53 Canadian drilling rig operating days (Q3 2018: 57 Canadian drilling rig operating days) of lost activity were due to wet weather conditions in Q3 2019 out of a possible total 644 Canadian drilling rig operating days (Q3 2018:  828).

U.S. Contract Drilling revenue of $5.6 million for Q3 2019 (Q3 2018: nil) was achieved with a utilization rate of 84% (Q3 2018: nil) with 155 U.S. drilling rig operating days completed. Q3 2019 average revenue per operating day in the U.S. was US$36,097. CWC intends to move two more drilling rigs into the United States by the end of 2020, subject to obtaining contracts with U.S. customers.

Production Services

With a fleet of 148 service rigs, CWC is the largest well servicing company in Canada as measured by active fleet and operating hours. CWC's service rig fleet consists of 77 single, 57 double, and 14 slant rigs providing services which include completions, maintenance, workovers and abandonments with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park 64 of its service rigs and focus its sales and operational efforts on the remaining 84 active service rigs due to the reduction in the number of service rigs currently required to service the WCSB, in part as a result of the Government of Alberta's mandated crude oil production curtailments.

CWC's fleet of nine coil tubing units consist of six Class I and three Class II coil tubing units having depth ratings from 1,500 to 3,200 metres. While the Company continues to service steam-assisted gravity drainage ("SAGD") wells that are shallower in depth and more appropriate for coil tubing operations, it has recently shifted its sales and operational focus on decommissioning of abandoned wells.

CWC's fleet of 13 swabbing rigs operate under the trade name CWC Swabtech. The swabbing rigs are used to remove liquids from the wellbore and allow reservoir pressures to push the commodity up the tubing. The Company has chosen to park eight of its swabbing rigs and focus its sales and operational efforts on the remaining five active swabbing rigs.

Production Services revenue was $19.5 million in Q3 2019, down $8.0 million (29%) compared to $27.5 million in Q3 2018. The significant drop in Q3 2019 activity level for our production-oriented service rigs was a direct result of wet weather conditions combined with a lower crude oil price during the quarter, compared to a year ago. CWC estimates that 6,704 service rig operating hours (Q3 2018: 4,024 operating hours) of lost activity were due to wet weather conditions in Q3 2019 out of a total 56,693 operating hours. In addition, the Government of Alberta mandated production curtailment continued to temporarily slow down the need for workover and maintenance work on producing wells. During the quarter, CWC chose to park an additional eight service rigs due to the lower industry demand. Should demand improve and rig crews are available, CWC would be able to activate 19 of the 64 inactive service rigs with minimal capital expenditure resulting in a 103 active service rig fleet.

CWC's service rig utilization in Q3 2019 of 52% (Q3 2018: 63%) was driven by 29,528 operating hours being 30% lower than the 42,316 operating hours in Q3 2018. However, the Q3 2019 average revenue per hour of $644 increased $16 per hour (3%) over the $628 per hour in Q3 2018 suggesting the loss in CWC's service rig operating hours in Q3 2019 compared to Q3 2018 were primarily from CWC's top volume customers who were the most affected by the Government of Alberta's mandated production curtailment. Q3 2019 average revenue per hour excluding the top volume customers of $660 was $4 per hour (1%) lower than Q3 2018 average revenue per hour of $664 suggesting that CWC has been successful in maintaining service rig pricing with its customers despite significantly lower rates being offered by some of CWC's competitors.

CWC's coil tubing utilization in Q3 2019 of 6% (Q3 2018: 17%) with 318 operating hours was 65% lower than the 898 operating hours in Q3 2018. Average revenue per hour for coil tubing services of $730 in Q3 2019 is relatively unchanged from $731 in Q3 2018. The lower utilization reflects the continuing challenge of low natural gas prices and lower crude oil prices during the quarter, compared to a year ago, as well as the Government of Alberta mandated production curtailments temporarily slowing down the need for work on SAGD wells.

CWC swabbing rig utilization in Q3 2019 of 19% (Q3 2018: 15%) with 865 operating hours was 2% lower than the 881 operating hours in Q3 2018 as CWC parked three more swabbing rigs during the quarter due to lower customer demand as a result of the continuing challenge of low natural gas prices during the quarter compared to a year ago. Average revenue per hour for swabbing rigs of $284 in Q3 2019 is 4% higher than $273 in Q3 2018 as CWC has been successful in maintaining swabbing rig pricing with its customers despite the depressed natural gas price.

Capital Expenditures

Capital expenditures of $1.0 million in Q3 2019, a decrease of $1.7 million (64%) compared to $2.7 million in Q3 2018.

Capital expenditures of $4.2 million for the nine months ended September 30, 2019, a decrease of $5.6 million (57%) compared to $9.8 million in the same period in 2018.

The 2019 capital expenditure budget of $5.4 million was approved by the Board of Directors on January 16, 2019 and is comprised entirely of maintenance and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rigs, service rigs and coil tubing divisions as well as information technology infrastructure.

Outlook

Crude oil, as represented by WTI, averaged US$56.40/bbl in Q3 2019, a decrease of 6% compared to Q2 2019 average price of US$59.89/bbl (Q3 2018: US$69.61/bbl). Natural gas prices, as measured by AECO, decreased 8% from an average of $1.06/GJ in Q2 2019 to $0.97/GJ in Q3 2019 (Q3 2018 $1.20/GJ), which remains very low in historical terms. The price differential in Q3 2019 between Canadian heavy crude oil, as represented by WCS, and WTI maintained a differential in the range of US$10.00/bbl to US$15.00/bbl as the Government of Alberta mandated crude oil production curtailment was reduced from 175,000 bbls/day at the start of Q3 2019 to 125,000 bbls/day by the end of Q3 2019. Additionally, on August 20, 2019 the Government of Alberta announced adjustments to the production curtailment including moving the curtailment end date to December 31, 2020 and effectively reducing the number of Alberta E&P companies affected by the production curtailment by increasing the exemption limit from 10,000 to 20,000 bbls/day starting October 1, 2019. These reductions in the production curtailment will allow CWC's E&P customers to increase their production capacity, which in turn will gradually increase CWC's activity levels for both its Contract Drilling and Production Services segments.

With the recent re-election of the Liberal government in Canada, we now have clarity that the regulatory environment in Canada for the energy industry will likely be similar to before the election.  The new Liberal minority government reconfirmed they will continue to move forward with the construction of the Trans Mountain pipeline expansion project. This expansion will help ease the egress problems facing our Canadian E&P customers, providing additional capacity to ship crude oil to tidewater on the west coast. Additional capacity will allows the E&Ps to increase their drilling and well servicing activities, which in turn may increase CWC's contract drilling and production services utilization.

As we move into Q4 2019, CWC is seeing utilization of both drilling rigs and service rigs increasing and believe that although we will continue to operate in a challenging environment, the outlook for Q4 2019 through to Q1 2020 spring breakup is better than recent quarters.

While Canadian oilfield service activity currently remains muted and the United States energy industry has slowed down from its exponential growth experienced in recent years, CWC continues to believe that more profitable opportunities for its drilling rig fleet will be in the United States. CWC established a U.S. drilling rig presence in mid-June 2019 when it began operations in the Eagle Ford basin in Texas and DJ basin in Wyoming. Since the completion of the drilling program in October 2019 for a multi-national E&P company in Texas, CWC has now moved this drilling rig to Wyoming to begin another drilling program for another customer. Currently, the two U.S. drilling rigs are in Wyoming and the Bakken basin in North Dakota.  It is the Company's intent to move an additional two drilling rigs to the U.S. in 2020 subject to signing customer contracts such that CWC positions up to four of its nine drilling rig fleet (44%) in the U.S. CWC believes these moves will help the Company achieve higher utilization, revenue and Adjusted EBITDA⁽¹⁾ for its Contract Drilling segment over a longer-term period.

While CWC remains focused on its operational and financial performance, it also recognizes the need to pursue opportunities that create long-term shareholder value. With the support of the Board of Directors, management continues to actively pursue business combinations in North America and globally in the drilling and well servicing industry. CWC cautions that there are no guarantees that strategic opportunities will result in a transaction, or if a transaction is undertaken, as to its terms or timing.

About CWC Energy Services Corp.

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the WCSB and the United States with a complementary suite of oilfield services including drilling rigs, service rigs, swabbing rigs and coil tubing units. The Company's corporate office is located in Calgary, Alberta, with a U.S. office in Houston, Texas and operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

Forward-Looking Information

This news release contains certain forward-looking information and statements within the meaning of applicable Canadian securities legislation. Certain statements contained in this news release, including most of those contained in the section titled "Outlook" and including statements which may contain such words as "anticipate", "could", "continue", "should", "seek", "may", "intend", "likely", "plan", "estimate", "believe", "expect", "will", "objective", "ongoing", "project" and similar expressions are intended to identify forward-looking information or statements. In particular, this news release contains forward-looking statements including management's assessment of future plans and operations, planned levels of capital expenditures, expectations as to activity levels, expectations on the sustainability of future cash flow and earnings, expectations with respect to crude oil and natural gas prices, activity levels in various areas, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB and the United States, expectations regarding entering into long term drilling contracts and expanding its customer base, and expectations regarding the business, operations, revenue and debt levels of the Company in addition to general economic conditions. Although the Company believes that the expectations and assumptions on which such forward-looking information and statements are based are reasonable, undue reliance should not be placed on the forward-looking information and statements because the Company can give no assurances that they will prove to be correct. Since forward-looking information and statements address future events and conditions, by their very nature they involve 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 risks associated with the drilling and oilfield services sector (ie. demand, pricing and terms for oilfield drilling and services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety 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 and environmental regulations, stock market volatility and the inability to access sufficient capital from external and internal sources. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through SEDAR at www.sedar.com. The forward-looking information and statements contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Any forward-looking statements made previously may be inaccurate now.

Reconciliation of Non-IFRS Measures

SOURCE CWC Energy Services Corp.