Western Energy Services Corp. Releases Fourth Quarter and Year End 2022 Financial and Operating Results

Press Release

FOR IMMEDIATE RELEASE: February 28, 2023

CALGARY, ALBERTA – Western Energy Services Corp. (“Western” or the “Company”) (TSX: WRG) announces the release of its fourth quarter and year end 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 and for the year ended December 31, 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 other supplemental financial measures, 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.

Fourth Quarter 2022 Operating Results:

• Fourth quarter revenue increased by $19.4 million or 47%, to $60.8 million in 2022 as compared to $41.4 million in the fourth quarter of 2021. Contract drilling revenue totalled $43.2 million in the fourth quarter of 2022, an increase of $18.1 million or 72%, compared to $25.1 million in the fourth quarter of 2021. Production services revenue was $17.8 million for the three months ended December 31, 2022, an increase of $1.4 million or 8%, as compared to $16.4 million in the same period of the prior year. In the fourth quarter of 2022, revenue was positively impacted by improved pricing compared to the fourth quarter of 2021 as described below:
• In Canada, Operating Days of 928 days in the fourth quarter of 2022 were down 12 (or 1%) compared to 940 days in the fourth quarter of 2021, resulting in drilling rig utilization of 28% in the fourth quarter of 2022 compared to 21% in the same period of the prior year. In 2022, the Company deregistered 13 drilling rigs, all of which can be reactivated at a later date, which increased the drilling rig utilization percentage. The Canadian Association of Energy Contractors (“CAOEC”) industry average utilization of 40% 1 for the fourth quarter of 2022 represented an increase of 1,000 basis points (“bps”) compared to the CAOEC industry average utilization of 30% in the fourth quarter of 2021. Revenue per Operating Day averaged $33,923 in the fourth quarter of 2022, an increase of 41% compared to the same period of the prior year, mainly due to improved pricing, rig upgrades, and inflationary pressures on operating costs, including higher CAOEC industry wages and fuel charges that are passed through to the customer;
• In the United States, drilling rig utilization averaged 40% in the fourth quarter of 2022, compared to 14% in the fourth quarter of 2021, with Operating Days improving from 100 days in the fourth quarter of 2021 to 293 days in the same period of 2022. Average active industry rigs of 760 in the fourth quarter of 2022 were 36% higher compared to the fourth quarter of 2021. Revenue per Operating Day for the fourth quarter of 2022 averaged US$29,439, a 47% increase compared to US$20,092 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
•  In Canada, service rig utilization of 38% in the fourth quarter of 2022 was lower than 46% in the same period of the prior year, mainly due to very cold weather in December 2022, which caused some customers to defer their capital programs into 2023. Revenue per Service Hour averaged $991 in the fourth quarter of 2022 and was 27% higher than the fourth quarter of 2021, 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 $1.3 million or 52%, to $3.8 million in the fourth quarter of 2022, as compared to $2.5 million in the fourth quarter of 2021, due to higher employee related costs along with inflationary cost increases associated with improved industry activity.
• The Company generated a net loss of $3.1 million in the fourth quarter of 2022 ($0.09 net loss per basic common share) as compared to a net loss of $6.0 million in the same period in 2021 ($0.90 net loss per basic common share). The change can mainly be attributed to a $3.2 million increase in Adjusted EBITDA, a $1.7 million decrease in finance costs due to the lower total debt balance, offset partially a $0.9 million increase in income tax expense, a $0.8 million increase in stock based compensation
  expense, a $0.2 million increase in the loss on asset disposals and a $0.2 million increase in depreciation expense due to property and equipment additions.
• Adjusted EBITDA of $12.2 million in the fourth quarter of 2022 was $3.2 million, or 36%, higher compared to $9.0 million in the fourth quarter of 2021. Adjusted EBITDA was higher due to improved activity in the US and higher pricing in Canada and in the US, and $1.0 million related to the receipt of the Employee Retention Credit in the US (“ERC”) which was offset by one‐time costs of $1.6 million related to reactivating certain drilling rigs.
•  Fourth quarter additions to property and equipment of $7.7 million in 2022 compared to $2.1 million in the fourth quarter of 2021, consisting of $6.0 million of expansion capital and $1.7 million of maintenance capital, as the Company continued its rig upgrade program initiated in 2022.

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