Western Energy Services Corp. releases first quarter 2023 financial and operating results
Press Release
April 25, 2023
CALGARY, ALBERTA – Western Energy Services Corp. (“Western” or the “Company”) (TSX: WRG) announces the release of its first quarter 2023 financial and operating results. Additional information relating to the Company, including the Company’s financial statements and management’s discussion and analysis as at March 31, 2023 and for the three months ended March 31, 2023 and 2022 (“MD&A”) will be available on SEDAR at www.sedar.com. Non-International Financial Reporting Standards (“Non-IFRS”) measures and ratios, such as Adjusted EBITDA, Adjusted EBITDA as a percentage of revenue, revenue per Operating Day, revenue per Service Hour and Working Capital, 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.
First Quarter 2023 Operating Results:
- Western’s drilling rig upgrade program, which was initiated in 2022, has been a success and has generated a substantial portion of revenue in the first quarter of 2023. Since the upgrades have been performed and the rigs recommissioned into service, each upgraded drilling rig has been working for a customer. Additionally, the upgraded rigs have generated day rates which contributed to higher revenue in the first quarter of 2023.
- First quarter revenue increased by $28.7 million or 57%, to $79.2 million in 2023 as compared to $50.5 million in the first quarter of 2022. Contract drilling revenue totalled $58.1 million in the first quarter of 2023, an increase of $27.1 million or 88%, compared to $31.0 million in the first quarter of 2022. Production services revenue was $21.3 million for the three months ended March 31, 2023, an increase of $1.7 million or 9%, as compared to $19.6 million in the same period of the prior year. In the first quarter of 2023, revenue was positively impacted by improved pricing in all divisions, as well as higher activity in contract drilling, compared to the first quarter of 2022 as described below:
o In Canada, Operating Days of 1,283 days in the first quarter of 2023 were 202 days (or 19%) higher compared to 1,081 days in the first quarter of 2022, resulting in drilling rig utilization of 42% in the first quarter of 2023 compared to 32% in the same period of the prior year. The Canadian Association of Energy Contractors (“CAOEC”) industry average utilization of 45%1 for the first quarter of 2023 represented an increase of 600 basis points (“bps”) compared to the CAOEC industry average utilization of 39% in the first quarter of 2022. Revenue per Operating Day averaged $33,275 in the first quarter of 2023, an increase of 26% compared to the same period of the prior year, mainly due to rig upgrades, market driven increased pricing, and inflationary pressures on operating costs, including higher CAOEC industry wages and fuel charges that are passed through to the customer;
o In the United States, drilling rig utilization averaged 45% in the first quarter of 2023, compared to 14% in the first quarter of 2022, with Operating Days improving from 100 days in the first quarter of 2022 to 327 days in the first quarter of 2023. Average active industry rigs of 7442 in the first quarter of 2023 were 20% higher compared to the first quarter of 2022. Revenue per Operating Day for the first quarter of 2023 averaged US$33,021, a 73% increase compared to US$19,134 in the same period of the prior year, mainly due to improved pricing and changes in rig mix, as there was more activity with the Company’s higher spec rigs which command higher day rates; and
o In Canada, service rig utilization of 44% in the first quarter of 2023 was lower than 49% in the same period of the prior year, mainly due to the industry wide issue of crew availability. Revenue per Service Hour averaged $1,032 in the first quarter of 2023 and was 18% higher than the first quarter of 2022, due to improved pricing and inflationary pressures on operating costs, including higher CAOEC industry wages and fuel charges that are passed through to the customer.
- Administrative expenses increased by $0.8 million or 24%, to $4.2 million in the first quarter of 2023, as compared to $3.4 million in the first quarter of 2022, due to higher employee related costs along with inflationary cost increases associated with improved industry activity.
- The Company generated net income of $4.4 million in the first quarter of 2023 ($0.13 net income per basic common share) as compared to a net loss of $3.8 million in the same period in 2022 ($0.57 net loss per basic common share). The change can mainly be attributed to an $8.8 million increase in Adjusted EBITDA, a $1.6 million decrease in finance costs due to the lower total debt balance and a $0.6 million gain on asset disposals, offset partially by a $1.6 million increase in income tax expense, a $0.9 million increase in stock based compensation expense and a $0.4 million increase in depreciation expense due to property and equipment additions.
- Source: CAOEC, monthly Contractor Summary.
- Source: Baker Hughes Company, North America Rotary Rig Count
- Adjusted EBITDA of $19.2 million in the first quarter of 2023 was $8.8 million, or 85%, higher compared to $10.4 million in the first quarter of 2022. Adjusted EBITDA was higher due to improved contract drilling activity in Canada and the US, higher pricing across all divisions, and US$0.6 million of shortfall commitment revenue, which was offset partially by one-time costs of $0.6 million related to reactivating certain drilling rigs and inflationary cost increases.
- First quarter additions to property and equipment of $5.2 million in 2023 compared to $4.1 million in the first quarter of 2022, consisting of $2.7 million of expansion capital related to the substantial completion of the Company’s rig upgrade program and $2.5 million of maintenance capital.
Selected Financial Information
(stated in thousands, except share and per share amounts)
| Three months ended March 31 | |||
| Financial Highlights | 2023 | 2022 | Change |
| Revenue | 79,239 | 50,475 | 57% |
| Adjusted EBITDA(1) | 19,196 | 10,391 | 85% |
| Adjusted EBITDA as a percentage of revenue(1) | 24% | 21% | 14% |
| Cash flow from operating activities | 6,445 | 6,461 | – |
| Additions to property and equipment | 5,165 | 4,094 | 26% |
| Net income (loss) | 4,421 | (3,834) | (215%) |
| – basic and diluted net income (loss) per share(2) | 0.13 | (0.57) | (123%) |
| Weighted average number of shares(2) | |||
| – basic | 33,841,323 | 6,704,402 | 405% |
| – diluted | 33,843,048 | 6,704,402 | 405% |
| Outstanding common shares as at period end(2) | 33,841,324 | 764,899 | 4,324% |
- See “Non-IFRS Measures and Ratios” included in this press release.
- On August 2, 2022, the Company’s issued and outstanding common shares were consolidated at a ratio of one post-consolidation common share for every 120 pre-consolidation common shares (the “Consolidation”) as further described in the Company’s MD&A for the year ended December 31, 2022 and consolidated financial statements. The comparative 2022 balances and the weighted average number of shares have been restated to reflect the Consolidation and the May 2022 rights offering.
| Three months ended March 31 | |||
| Operating Highlights(3) | 2023 | 2022 | Change |
| Contract Drilling | |||
| Canadian Operations: | |||
| Contract drilling rig fleet: | |||
| – Average active rig count | 14.3 | 12.0 | 19% |
| Operating Days | 1,283 | 1,081 | 19% |
| Revenue per Operating Day(4) | 33,275 | 26,390 | 26% |
| Drilling rig utilization | 42% | 32% | 31% |
| CAOEC industry average utilization(5) | 45% | 39% | 15% |
| Average meters drilled per well | 6,261 | 6,536 | (4%) |
| Average Operating Days per well | 13.2 | 12.6 | 5% |
| United States Operations: | |||
| Contract drilling rig fleet: | |||
| – Average active rig count | 3.6 | 1.1 | 227% |
| Operating Days | 327 | 100 | 227% |
| Revenue per Operating Day (US$)(4) | 33,021 | 19,134 | 73% |
| Drilling rig utilization | 45% | 14% | 221% |
| Average meters drilled per well | 3,516 | 2,295 | 53% |
| Average Operating Days per well | 14.4 | 11.7 | 23% |
| Production Services | |||
| Well servicing rig fleet: | |||
| – Average active rig count | 28.0 | 31.0 | (10%) |
| Service Hours | 18,253 | 20,173 | (10%) |
| Revenue per Service Hour(4) | 1,032 | 876 | 18% |
| Service rig utilization | 44% | 49% | (10%) |
- See “Defined Terms” included in this press release.
- See “Non-IFRS Measures and Ratios” included in this press release.
- Source: The CAOEC monthly Contractor Summary. The CAOEC industry average is based on Operating Days divided by total available drilling days.
| Financial Position at (stated in thousands) | March 31, 2023 | December 31, 2022 | December 31, 2021 |
| Working capital(1) | 36,581 | 21,923 | 2,224 |
| Total assets | 483,532 | 475,708 | 456,003 |
| Long term debt | 129,853 | 126,527 | 226,884 |
- See “Non-IFRS Measures and Ratios” included in this press release.
Business Overview
Western is an energy services company that provides contract drilling services in Canada and the US and production services in Canada through its various divisions, its subsidiary, and its first nations relationships.
Contract Drilling
Western markets a fleet of 42 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.
Western’s marketed and owned contract drilling rig fleets are comprised of the following:
IBF4
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