201 Stainless steel coiled tubing chemical component ,Essential Energy Services Reports 4Q and Year-End Financial Results and 2023 Capital Budget

/EIN NEWS/ — CALGARY, ALBERTA, March 3, 2023 (GLOBE NEWSWIRE) — Essential Energy Services Ltd. (TSX: ESN) (“Essential” or “the Company”) announced its fourth quarter and year-end financial results. and its 2023 capital budget.

(1) Non-standard financial indicators and other financial indicators. For more information, see the section “Non-Standard Financial Ratios and Other Financial Ratios”.
The average price of West Texas Intermediate (“WTI”) crude oil in the fourth quarter of 2022 was $83 per barrel, compared to an average price of $77 per barrel in the fourth quarter of 2021. Natural gas prices in Canada (“AECO”) averaged $4.94 per gigajoule in the fourth quarter of 2022, compared to an average of $4.47 per gigajoule during the same period last year.
Production drilling and completions in the Western Canadian Sedimentary Basin (“WCSB”) in the fourth quarter of 2022 were ahead of schedule (a) a year earlier, as higher commodity prices led to higher costs for upstream companies (“Exploration and production “). . Inflation in Canada in 2022 is the highest (b) since the early 1990s, adding to the overall cost structure.
As usual for the fourth quarter, activity in the oilfield services industry was negatively affected by the seasonal downturn, depleted client budgets and abnormally cold weather in December.
Revenue for the three months ended December 31, 2022 was $40.3 million, up 15% year-over-year due to improved industry conditions. Management is pleased to report fourth quarter EBITDAS(1) of $5.1 million, up $2.7 million year-over-year.
For the year ended December 31, 2022, Essential reported $150.1 million in revenue, up 24% year-on-year, driven by increased activity and better pricing for customers. EBITDAS(1) in 2022 is $18.1 million, up $2.9 million from the previous year. Stronger activity and better pricing in the second half of the year was partly offset by higher operating costs due to inflation and reduced funding for the government subsidy program (c). Essential received $4.4 million in government grant funding for the year ended December 31, 2021. These plans were implemented by the end of 2021.
During the year ended December 31, 2022, Essential purchased and redeemed 8,490,216 ordinary shares (“Shares”) pursuant to its Common Rate Issuer Offer (“NCIB”) at a weighted average price of $0.40 per share, for a total of $3.4 million. The number of shares purchased during the year was 6% of the total shares issued and outstanding as at 1 January 2022. These purchases were made as part of the NCIB implementation in December 2021.
On December 21, 2022, Essential announced that it will extend its NCIB for a 12-month period beginning December 23, 2022 and ending December 22, 2023, or until the NCIB ends or terminates at Essential’s discretion. Under the updated terms, NCIB Essential may purchase up to 12,965,027 shares, or 10% of the total number of shares.
As of December 31, 2022, Essential continues to be in a strong financial position with positive cash net of (1) $1.1 million in long-term debt and (1) $44.7 million in working capital. On March 3, 2023, Essential had $1.5 million in long-term debt (net of cash)(1). During periods of high activity, accounts receivable tend to increase, resulting in lower cash balances.
ECWS revenue in the fourth quarter of 2022 was $22.9 million, up 51% year-on-year, driven by significantly higher earnings per hour worked and increased activity. Revenue per hour worked increased in the quarter due to higher prices for customers and the nature of work performed in the quarter.
Gross profit for the fourth quarter of 2022 was $4.9 million, up $2.8 million year-over-year, driven by improved customer pricing and increased activity. Cost inflation led to an increase in operating expenses related to wages, fuel and inventory during the quarter. Gross margin was 22%, a significant improvement from 14% in the same period last year.
For the year ended December 31, 2022, ECWS generated $81.4 million in revenue, up 37% from the year ended December 31, 2021, thanks to higher revenue per hour and increased activity. Earnings per hour worked are higher due to higher prices for clients and the nature of the work done during the year. Gross profit of $15.8 million was $4.8 million higher than in 2021, driven by higher activity and higher revenue per hour, offset in part by higher operating expenses due to inflation and lack of funding under government subsidy programs. ECWS received no government grants program funding for the year ended December 31, 2022, compared to $2.2 million in the prior year. Gross profit was 19%, unchanged from the previous year.
Tryton’s Q4 2022 revenue was $17.4 million, down 13% year-over-year due to lower MSFS® activity, offset in part by higher legacy tool activity in the US and Canada . MSFS® activity was lower than a year earlier due to lower client activity. Given the small customer base of MSFS® tools, the impact of the customer spending model has been evident for several quarters. Revenues from conventional instruments were higher than last year as improved industry conditions resulted in higher costs to clients for activities related to production and remediation of the well.
Gross profit for the fourth quarter was $3.1 million, almost unchanged from last year despite lower revenue. Gross margin for the full year was 18% compared to 16% for the same period last year. During the quarter, Tryton was able to recover some costs through price improvements. Again, a favorable mix of jobs and higher activity in legacy tools helped maintain the gross margin.
For the year ended December 31, 2022, Tryton’s revenue was $68.7 million, up 11% from the prior year, due to an increase in legacy tool activity in the US and Canada. Gross profit was $13.4 million, up $0.6 million compared to December 31, 2021, due to higher activity on obsolete instruments more than offset by higher operating expenses due to inflation and reduction in funding for government subsidy programs by $1.5 million. Gross margin was 19% compared to 21% the previous year.
Essential classifies its fixed asset purchases as growth capital and maintenance capital:
For the year ended December 31, 2022, Essential’s growth capital expenditure(1) of $3 million was used to purchase and upgrade two 1,000 hp five-cylinder hydraulic pumps. for ECWS. The technical transformation was completed in the fourth quarter and all two oil pumps were put into operation.
During the three and twelve months ending December 31, 2022, Essential incurred capital maintenance costs for its operating ECWS fleet and replaced ECWS and Tryton pickup trucks.
Essential’s 2023 capital budget of $8 million is for the purchase of fixed assets and equipment, and is tied entirely to maintenance capital (1), including replacement pickups. Essential will continue to monitor fleet activity and industry opportunities and adjust costs as necessary. The 2023 capital budget is expected to be funded by cash, operating cash flows and, where necessary, a line of credit.
Oilfield services activity is expected to pick up slightly in 2023 compared to 2022. According to preliminary data, drilling activity in Canada increased compared to the previous year. WTI commodity prices are relatively stable through 2023, but the recent decline in natural gas prices is worrisome. Despite some volatility in commodity prices, exploration and production companies’ spending on drilling and completion is expected to pick up slightly in 2023. Looking at the longer term, the recently announced Blueberry River Aboriginal agreement and the progress of the Canadian LNG project are encouraging.
Through 2023, the Canadian oilfield services industry is expected to continue to be affected by labor shortages, rising costs and supply chain issues. Similarly, the economic consequences of recession risk remain uncertain. However, oilfield services activities may prove somewhat resilient to recession fears, given continued reservoir depletion and Canada’s strategic exploration and production goals. The lower percentage of upstream cash flow allocated to capex in 2023 reflects the capital discipline already established in upstream capital budgeting and could limit the impact that commodity price volatility and recession fears could contribute to plans for capital expenditures for exploration and production.
ECWS has one of the industry’s largest fleets of operating and deepwater coiled tubing. The ECWS active fleet includes 11 coiled tubing rigs and 11 1,000 horsepower five-cylinder fluid pumps. Fluid pumps support third and fourth generation high performance ECWS drilling rigs. ECWS does not service the entire active fleet. As E&P customers continue to demand large volumes of pumped fluid and pressure capabilities, the ECWS fleet is well positioned to meet their needs. ECWS increased customer service prices in the second quarter of 2022. These higher prices, combined with increased activity, are expected to benefit gross margins in 2023.
In 2022, Tryton’s traditional toolmaking operations in Canada and the US improved, mainly due to higher customer spending on manufacturing-related activities as upstream companies continue to seek higher cash flows. Upstream capital expenditures are expected to increase in 2023 and well site recovery work will continue. Tryton expects to continue to seek inflation-driven cost recovery through pricing.
Essential is well positioned to participate in oilfield services improvement activities. Essential’s strengths include a highly trained workforce, an industry-leading coiled tubing fleet, value-added downhole tooling technology, and a strong financial base. Essential will continue to focus on getting the right prices for its services, including cost inflation. Essential is committed to meeting the needs of its key customers in an efficient and safe manner, with an ongoing focus on ESG and a strong financial position. On March 3, 2023, Essential’s long-term debt, net of cash (1), was $1.5 million. Essential’s ongoing financial stability is a strategic advantage as the industry is expected to experience moderate growth.
The Management Discussion and Analysis (“MD&A”) and financial statements for the fourth quarter and end of 2022 are available on the Essential website at www.essentialenergy.ca and on the SEDAR website at www.sedar.com.
Selected financial metrics included in this press release, including EBITDAS, EBITDAS %, Capital gains, Maintenance capital, Net equipment costs, Working capital, Long-term debt , net cash” and “cash less long-term debt”, which do not have a standardized meaning under International Financial Reporting Standards (“IFRS”). These measures should not be used in place of IFRS measures as they may not be comparable to similar financial measures used by other companies. These specific financial measures used by Essential are explained in more detail in the MD&A Non-IFRS and Other Financial Measures section (available on the company profile on the SEDAR website at www.carder.com), which is incorporated herein by reference.
EBITDAS and EBITDAS % — EBITDAS and EBITDAS % are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other companies. Management believes that EBITDAS, in addition to net loss (the most directly comparable measure to IFRS), is a useful metric that improves investors’ perceptions of Essential’s core assets before considering how these activities are funded, how results are taxed, and understanding business results. How non-cash payments affect results. EBITDAS is generally defined as earnings before finance costs, income taxes, depreciation, amortization, transaction costs, losses or gains on disposal, foreign exchange gains or losses, and share-based compensation, which includes both equity-settled transactions and cash transactions. These adjustments are relevant as they provide another metric that is considered an indicator of Essential’s core business performance. EBITDAS % is a non-IFRS ratio calculated as the ratio of EBITDAS to total revenue. It is used by management as an additional financial measure to measure economic performance.
This press release contains “forward-looking statements” and “forward-looking information” within the meaning of applicable securities laws (collectively, “forward-looking statements”). Such forward-looking statements include, but are not limited to, projections, estimates, expectations and targets for future operations, which are subject to a number of material factors, assumptions, risks and uncertainties, many of which are beyond the control of the Company.
Forward-looking statements are statements that are not historical facts and are usually, but not always, identified with words such as “expects”, “anticipates”, “believes”, “strategy”, “intends”, “estimates”, “continues” . , “future”, “expectation”, “continuation” and similar expressions, or events or conditions “will”, “will”, “may”, “may”, “may”, “usual”, “traditional on” or ” propensity” to take place or come true. This press release contains forward-looking statements relating to, but not limited to, Essential’s carrying amount of assets and liabilities, Essential’s capital budget, expectations for the funding model and ongoing monitoring, NCIB, oil and gas prices, oil and gas industry outlook, Operations and Outlook in the field of drilling and completion in the industry, Activities and prospects in the oilfield services industry; Capital expenditures for exploration and production; Recession risk and impact; Capital management strategy and financial position of the Company; and continued emphasis on proper pricing; Commitment, strategic position, Essential strengths, focus, perspectives, activity level and margin; the impact of inflation; supply chain impact; active and inactive equipment, market share and crew size; demand for services; labor market; significant financial stability as a strategic advantage.
The forward-looking statements contained in this press release reflect several important factors, and Essential’s expectations and assumptions, including, but not limited to: the potential impact of the COVID-19 pandemic on Essential, supply chain disruptions, exploration and development in the oil and gas industry and geographic region in which such activities will take place; Essential will continue to operate in accordance with past operations; maintaining prevailing or, if applicable, assumed industry conditions; the availability of debt and/or equity capital to finance Essential’s capital and operating needs, and certain anticipated costs.
While the Company believes that the material factors, expectations and assumptions expressed in such forward-looking statements are reasonable based on information available as of the date of such statements, undue reliance should not be placed on forward-looking statements as the Company cannot guarantee such statements. Statements and information will prove to be correct and such statements are not a guarantee of future results. Because forward-looking statements relate to future events and conditions, by their very nature they involve inherent risks and uncertainties.
Actual performance and results may differ materially from those currently expected due to a variety of factors and risks. These include, but are not limited to: known and unknown risks, including those set out in the Company’s Annual Information Form (“AIF”) (a copy of which can be found in the SEDAR Essential Profile section of www.sedar.com); significant spread of the epidemic and its consequences; risks associated with the oilfield services industry, including demand, pricing and terms of oilfield services; current and expected oil and gas prices; exploration and development costs and delays; the rate of discovery and destocking; pipeline and capacity; weather conditions, health, safety, market, climate and environmental risks; potential delays or changes in plans related to acquisitions, development projects or capital expenditures, as well as changes in legislation (including, but not limited to, tax laws, royalties, incentive programs and acquisitions, consolidation, competition and uncertainty due to environmental legislation); stock market volatility and inability to obtain sufficient funding from external and internal sources; the ability of the Company’s subsidiaries to exercise legal rights in foreign jurisdictions; general economic, market or business conditions, including conditions in the event of an epidemic, natural disaster or other event; global economic events; changes in Essential’s financial condition and cash flows, increasing uncertainties associated with estimates and judgments made in preparing the financial statements; qualified personnel, management or other critical data; expenses for critical resources, fluctuations in the exchange rate, changes in political stability and security, potential changes in the industry and other unforeseen circumstances that may affect the use of the services provided by the Company. Accordingly, readers should not place undue weight on or rely on forward-looking statements. Readers are cautioned that the above list of factors is not exhaustive and that reference should be made to the “Risk Factors” listed in the AIF.
The statements in this press release, including forward-looking statements, are made as of the date hereof and the company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as when applicable to securities. This is required by law. Forward-looking statements contained in this press release are expressly set forth in this cautionary statement.
Additional information about these and other factors that may affect the Company’s operations and financial results is contained in reports filed with the relevant securities regulators and is available on the Essential profile on the SEDAR website at www.carder.com.
Essential provides oilfield services primarily to oil and gas producers in Western Canada. Essential provides completion, production and workover services to a diverse client base. Services offered include the sale and rental of coiled tubing, liquid and nitrogen injection, and downhole tools and equipment. Essential offers one of the largest coiled tubing fleets in Canada. For more information, visit www.essentialenergy.ca.
(a) Source: Daily Petroleum Bulletin – March 2, 2023 (b) Source: Bank of Canada – Consumer Price Index. (c) Government grant programs include the Canadian Emergency Wage Grant, the Canada Emergency Rental Subsidy, and the Employee Retention Tax Credit Program and the U.S. Payroll Protection Program (collectively, the “Government Grant Programs”).
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