Western Energy Services Corp. releases second quarter 2023 Financial and Operating Results

Press Release

CALGARY, AB, July 25, 2023 – Western Energy Services Corp. (“Western” or the “Company”) (TSX: WRG) announces the release of its second 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 June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 (“MD&A”) will be available on SEDAR+ at www.sedarplus.ca.  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.

• Second quarter revenue increased by $12.4 million or 40%, to $43.0 million in 2023, as compared to $30.6 million in the second quarter of 2022. Contract drilling revenue totalled $30.6 million in the second quarter of 2023, an increase of $13.4 million or 78%, compared to $17.2 million in the second quarter of 2022. Production services revenue was $12.4 million for the three months ended June 30, 2023, a decrease of $1.1 million or 8%, as compared to $13.5 million in the same period of the prior year. In the second quarter of 2023, revenue was positively impacted by improved pricing in all divisions, rig upgrades, as well as higher activity in contract drilling, however activity was lower in production services due to lower commodity prices, compared to the second quarter of 2022 as described below:
  • In Canada, Operating Days of 576 days in the second quarter of 2023 were 254 days (or 79%) higher compared to 322 days in the second quarter of 2022, resulting in drilling rig utilization of 19% in the second quarter of 2023 compared to 10% in the same period of the prior year. This compares to a 1% increase in the Canadian Association of Energy Contractors (“CAOEC”) industry Operating Days in the second quarter of 2023, compared to the second quarter of 2022. The CAOEC industry average utilization of 25%¹ for the second quarter of 2023 represented an increase of 200 bps compared to the CAOEC industry average utilization of 23% in the second quarter of 2022. Revenue per Operating Day averaged $33,218 in the second quarter of 2023, an increase of 11% 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 wages and fuel charges that are passed through to the customer;
  • In the United States (“US”), drilling rig utilization averaged 37% in the second quarter of 2023, compared to 34% in the second quarter of 2022, with Operating Days improving from 250 days in the second quarter of 2022 to 267 days in the second quarter of 2023. Average active industry rigs of 719² in the second quarter of 2023 were 1% higher compared to the second quarter of 2022. Revenue per Operating Day for the second quarter of 2023 averaged US$31,896, a 33% increase compared to US$23,945 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 23% in the second quarter of 2023 was lower than 32% in the same period of the prior year as industry activity decreased, mainly due to the completion of the Federal site rehabilitation program and customers reducing their capital spending due to inflationary factors and lower commodity prices. Revenue per Service Hour averaged $1,052 in the second quarter of 2023 and was 12% higher than the second quarter of 2022, due to improved pricing and inflationary pressures on operating costs, including higher 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 second quarter of 2023, as compared to $3.4 million in the second quarter of 2022, due to higher employee related costs along with inflationary costs and higher legal fees.
• The Company incurred a net loss of $7.8 million in the second quarter of 2023 ($0.23 net loss per basic common share) as compared to a net income of $35.4 million in the same period in 2022 ($1.81 net income per basic common share). The change can mainly be attributed to the $49.4 million gain on debt forgiveness in connection with the Company’s restructuring transaction in May 2022, a $0.5 million increase in stock based compensation expense and a $0.3 million increase in depreciation expense due to property and equipment additions, which were partially offset by a $4.3 million decrease in income tax expense, a $1.6 million increase in Adjusted EBITDA, and a $1.0 million decrease in finance costs due to a lower total debt balance.
• Adjusted EBITDA of $4.1 million in the second quarter of 2023 was $1.6 million, or 66%, higher compared to $2.5 million in the second quarter of 2022. Adjusted EBITDA was higher due to improved contract drilling activity in Canada and the US, as well as higher pricing across all divisions, which was offset partially by inflationary cost increases and $0.9 million lower receipts of COVID-19 related government subsidies in 2023 compared to 2022.
• Second quarter additions to property and equipment of $6.7 million in 2023 compared to $14.0 million in the second quarter of 2022, consisting of $2.4 million of expansion capital related to the substantial completion of the Company’s rig upgrade program and $4.3 million of maintenance capital.

¹ Source: CAOEC, monthly Contractor Summary.

² Source: Baker Hughes Company, North America Rotary Rig Count.

• During the six months ended June 30, 2023, the Company reduced its total debt by $8.3 million (or 7%), primarily through repayments of its Credit Facilities.
• 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 half 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 for the six months ended June 30, 2023.
• Revenue for the six months ended June 30, 2023, increased by $41.1 million or 51%, to $122.2 million as compared to $81.1 million for the six months ended June 30, 2022. Contract drilling revenue totalled $88.7 million for the six months ended June 30, 2023, an increase of $40.5 million or 84%, compared to $48.2 million in the same period of the prior year. Production services revenue was $33.8 million for the six months ended June 30, 2023, an increase of $0.7 million or 2%, as compared to $33.1 million in the same period of the prior year. In the first half of 2023, revenue was positively impacted by improved pricing in all divisions, rig upgrades, as well as higher activity in contract drilling, compared to the first half of 2022 as described below:
  • In Canada, Operating Days of 1,859 days for the six months ended June 30, 2023 were 456 days (or 33%) higher, compared to 1,403 days for the six months ended June 30, 2022, resulting in drilling rig utilization of 30% for the first half of 2023 compared to 21% in the same period of the prior year. This compares to a 6% increase in CAOEC Operating Days for the six months ended June 30, 2023, compared to the same period in the prior year. The CAOEC industry average utilization of 35%³ for the six months ended June 30, 2023 represented an increase of 400 bps compared to the CAOEC industry average utilization of 31% for the six months ended June 30, 2022. Revenue per Operating Day averaged $33,258 for the six months ended June 30, 2023, an increase of 22% 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 wages and fuel charges that are passed through to the customer;
  • In the US, drilling rig utilization averaged 41% for the six months ended June 30, 2023, compared to 24% in the same period of 2022, with Operating Days improving from 350 days in the first half of 2022 to 594 days in the first half of 2023. Average active industry rigs of 740⁴ in the first six months of 2023 were 10% higher compared to the first six months of 2022. Revenue per Operating Day for the six months ended June 30, 2023 averaged US$32,515, a 44% increase compared to US$22,565 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 33% for the six months ended June 30, 2023 was lower than 40% in the same period of the prior year as industry activity decreased, mainly due to the completion of the Federal site rehabilitation program and customers reducing their capital spending due to inflationary factors and lower commodity prices. Revenue per Service Hour averaged $1,039 for the six months ended June 30, 2023 and was 15% higher than the same period of the prior year, due to improved pricing and inflationary pressures on operating costs, including higher wages and fuel charges that are passed through to the customer.
• Administrative expenses increased by $1.6 million or 24%, to $8.4 million for the six months ended June 30, 2023, as compared to $6.8 million in the same period of 2022, due to higher employee related costs along with inflationary costs and higher legal fees.
• The Company generated a net loss of $3.4 million for the six months ended June 30, 2023 ($0.10 net loss per basic common share) as compared to net income of $31.6 million in the same period in 2022 ($2.40 net income per basic common share). The change can mainly be attributed to the $49.4 million gain on debt forgiveness in connection with the Company’s restructuring transaction completed in May 2022, a $10.4 million increase in Adjusted EBITDA, a $2.7 million decrease in income tax expense and a $2.6 million decrease in finance costs due to the lower total debt balance, offset partially by a $1.3 million increase in stock based compensation expense and a $0.6 million increase in depreciation expense due to property and equipment additions.
• Adjusted EBITDA of $23.3 million for the six months ended June 30, 2023 was $10.4 million, or 81%, higher compared to $12.9 million in the same period 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 and $0.7 million lower COVID-19 related government subsidies received in 2023 compared to 2022.
• Year to date 2023 additions to property and equipment of $11.9 million compared to $18.1 million in the same period of 2022, consisting of $5.1 million of expansion capital related to the substantial completion of the Company’s rig upgrade program and $6.8 million of maintenance capital.

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