Western Energy Services Corp. Releases Third Quarter 2023 Financial and Operating Results and Announces Further Debt Repayments
Press Release
FOR IMMEDIATE RELEASE: October 24, 2023
CALGARY, ALBERTA – Western Energy Services Corp. (“Western” or the “Company”) (TSX: WRG) announces the release of its third 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 September 30, 2023 and for the three and nine months ended September 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. Third Quarter 2023 Operating Results:
On September 29, 2023, the Company made a lump sum repayment of $4.1 million related to its HSBC Bank Canada six-year committed term non-revolving facility with the participation of Business Development Canada (the “HSBC Facility”). The voluntary repayment included all committed monthly principal payments from September 30, 2023 up to December 31, 2026, resulting in no current obligation owing on the HSBC Facility as at September 30, 2023. The remaining balance under the HSBC Facility is due upon maturity of the HSBC Facility on December 31, 2026.
Third quarter revenue decreased by $3.5 million or 6%, to $55.0 million in 2023, as compared to $58.5 million in the third quarter of 2022. Contract drilling revenue totalled $38.3 million in the third quarter of 2023, which was consistent with $38.1 million in the third quarter of 2022. Production services revenue was $16.8 million for the three months ended September 30, 2023, a decrease of $3.6 million or 18%, as compared to $20.4 million in the same period of the prior year. In the third quarter of 2023, revenue was negatively impacted by lower activity in production services and contract drilling in Canada and the US due to lower commodity prices, compared to the third quarter of 2022 as described below:
o In Canada, Operating Days of 883 days in the third quarter of 2023 were 26 days (or 3%) lower compared to 909 days in the third quarter of 2022. This compares to a 7% decrease in the Canadian Association of Energy Contractors (“CAOEC”) industry Operating Days in the third quarter of 2023, compared to the third quarter of 2022. Drilling rig utilization in Canada was 28% in the third quarter of 2023, compared to 27% in the same period of the prior year, as lower Operating Days were offset by three rigs that were deregistered since September 30, 2022. The CAOEC industry average utilization of 38% 1 for the third quarter of 2023 represented a decrease of 200 bps compared to the CAOEC industry average utilization of 40% in the third quarter of 2022. Revenue per Operating Day averaged $31,698 in the third quarter of 2023, an increase of 8% 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;
o In the United States (“US”), drilling rig utilization averaged 34% in the third quarter of 2023, compared to 45% in the third quarter of 2022, with Operating Days decreasing from 333 days in the third quarter of 2022 to 249 days in the third quarter of 2023 due to lower industry activity. Average active industry rigs of 6492 in the third quarter of 2023 were 15% lower compared to the third quarter of 2022. Revenue per Operating Day for the third quarter of 2023 averaged US$30,898, a 17% increase compared to US$26,372 in the same period of the prior year, mainly due to improved spot market rates; and
o In Canada, service rig utilization of 33% in the third quarter of 2023 was lower than 45% in the same period of the prior year as industry activity decreased, mainly due to the completion of the Federal site rehabilitation program, several customers waiting on the restoration of power in areas impacted by wildfires and lower commodity prices experienced during the first eight months of 2023, compared to 2022. Revenue per Service Hour averaged $1,012 in the third quarter of 2023 and was 4% higher than the third 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 $0.7 million or 21%, to $4.0 million in the third quarter of 2023, as compared to $3.3 million in the third quarter of 2022, due to inflationary pressures on all employee related costs.
The Company incurred a net loss of $1.3 million in the third quarter of 2023 ($0.04 net loss per basic common share) as compared to a net income of $0.8 million in the same period in 2022 ($0.02 net income per basic common share). The change can mainly be attributed to a $3.8 million decrease in Adjusted EBITDA and $0.5 million increase in depreciation expense due to property and equipment additions, which were partially offset by a $1.3 million decrease in income tax expense, a $0.6 million increase in
1 Source: CAOEC, monthly Contractor Summary.
2 Source: Baker Hughes Company, North America Rotary Rig Count.
other items, a $0.2 million decrease in stock based compensation expense and a $0.1 million decrease in finance costs due to a lower total debt balance.
Adjusted EBITDA of $11.0 million in the third quarter of 2023 was $3.8 million, or 25%, lower compared to $14.8 million in the third quarter of 2022. Adjusted EBITDA in 2023 was lower due to lower production services activity in Canada and lower contract drilling activity in the US and Canada, as well as inflationary cost increases, offset partially by higher pricing across all divisions.
Third quarter additions to property and equipment of $7.3 million in 2023 compared to $8.5 million in the third quarter of 2022, consisting of $1.7 million of expansion capital related to the substantial completion of the Company’s rig upgrade program and $5.6 million of maintenance capital.
Year to Date 2023 Operating Results:
During the nine months ended September 30, 2023, the Company reduced its total debt by $13.6 million (or 10%), primarily through repayments of its Credit Facilities (as defined in this press release) as well as a $4.1 million voluntary repayment of all committed monthly principal amounts owing on its HSBC Facility to its maturity on December 31, 2026 as described previously.
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 nine months ended September 30, 2023. Since the upgrades have been performed and the rigs recommissioned into service, all upgraded drilling rigs have worked for customers. Additionally, the upgraded rigs have generated higher day rates which contributed to increased revenue for the nine months ended September 30, 2023.
Revenue for the nine months ended September 30, 2023, increased by $37.6 million or 27%, to $177.2 million as compared to $139.6 million for the nine months ended September 30, 2022. Contract drilling revenue totalled $126.9 million for the nine months ended September 30, 2023, an increase of $40.6 million or 47%, compared to $86.3 million in the same period of the prior year. Production services revenue was $50.6 million for the nine months ended September 30, 2023, a decrease of $2.9 million or 6%, as compared to $53.5 million in the same period of the prior year. In the nine months ended September 30, 2023, revenue was positively impacted by improved pricing in all divisions, rig upgrades, as well as higher activity in contract drilling, partially offset by lower activity in production services, compared to the same period of 2022 as described below:
o In Canada, Operating Days of 2,742 days for the nine months ended September 30, 2023, were 430 days (or 19%) higher, compared to 2,312 days for the nine months ended September 30, 2022, resulting in drilling rig utilization of 30% for the nine months ended September 30, 2023, compared to 23% in the same period of the prior year. This compares to a 1% increase in CAOEC Operating Days for the nine months ended September 30, 2023, compared to the same period in the prior year. The CAOEC industry average utilization of 36% 3 for the nine months ended September 30, 2023, represented an increase of 200 bps compared to the CAOEC industry average utilization of 34% for the nine months ended September 30, 2022. Revenue per Operating Day averaged $32,755 for the nine months ended September 30, 2023, an increase of 17% 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;
o In the US, drilling rig utilization averaged 39% for the nine months ended September 30, 2023, compared to 31% in the same period of 2022, with Operating Days improving by 160 days from 683 days in 2022 to 843 days in 2023. Average active industry rigs of 709 4 in the nine months ended September 30, 2023 were 1% higher than the average for the nine months ended September 30, 2022. Revenue per Operating Day for the nine months ended September 30, 2023 averaged US$32,038, a 31% increase compared to US$24,421 in the same period of the prior year, mainly due to improved spot market pricing in the Williston Basin; and
o In Canada, service rig utilization of 33% for the nine months ended September 30, 2023 was lower than 42% in the same period of the prior year as industry activity decreased, mainly due to the completion of the Federal site rehabilitation program, several customers waiting on the restoration of power in areas impacted by wildfires and lower commodity prices. Revenue per Service Hour averaged $1,030 for the nine months ended September 30, 2023 and was 11% 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 $2.3 million or 23%, to $12.4 million for the nine months ended September 30, 2023, as compared to $10.1 million in the same period of 2022, due to higher employee related costs along with inflationary costs and higher professional fees.
The Company generated a net loss of $4.7 million for the nine months ended September 30, 2023 ($0.14 net loss per basic common share) as compared to net income of $32.4 million in the same period in 2022 ($1.89 net income per basic common share). The change can mainly be attributed to the $49.4 million gain on debt forgiveness in 2022 in connection with the Company’s restructuring transaction completed in May 2022, a $6.7 million increase in Adjusted EBITDA, a $4.0 million decrease in income tax expense and a $2.7 million decrease in finance costs due to the lower total debt balance, offset partially by a $1.1 million increase in stock based compensation expense and a $1.1 million increase in depreciation expense due to property and equipment additions.
3 Source: CAOEC, monthly Contractor Summary.
4 Source: Baker Hughes Company, North America Rotary Rig Count
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