‘Headwinds’ swell Ensign Energy Q2 net loss, shares fall on revenue miss

CALGARY – Stalled oilfield activity in Canada and a slowing market in the United States are providing “headwinds” against which Ensign Energy Services Inc. continues to struggle, president Bob Geddes said on Tuesday.

The Calgary-based drilling company’s revenue for the three months ended June 30 jumped 44 per cent to $378 million from $263 million in the year-earlier period, mainly due to its acquisition late last year of Trinidad Drilling Ltd. after a battle with larger rival Precision Drilling Corp.

But most of the revenue growth came from its U.S. operations, while Canadian revenue was affected by steep declines in activity attributed in part to Alberta government oil production curtailments designed to draw down inventories and eliminate steep local price discounts on crude.

“Canada, as you know, has macro-geopolitical issues that created a curtailment scenario which undoubtedly was a necessary solution but has created huge activity headwinds, headwinds which we feel will subside as operators work through their cash flows and show disciplined reinvestment through the drillbit,” said Geddes on a conference call.

He predicted a rebound in activity could take place in 2020, adding the company doesn’t foresee moving any more rigs from Canada to United States after transferring one in the first quarter of this year.

Shares in drilling company closed at $3.60 on Tuesday, down just over nine per cent.

Ensign’s revenue fell short of the $419 million expected by analysts, according to financial markets data firm Refinitiv, and its net loss of $31.7 million, while an improvement over a $36.7 million loss a year earlier, missed forecasts for a net loss of $25.7 million.

The reduction in Ensign’s share price means its annual dividend of 48 cents per share renders a theoretical yield of 13 per cent, but Geddes told analysts on the call there is no plan at present to reduce the payouts.

Ensign’s U.S. revenue in the second quarter rose by 77 per cent compared to the year-earlier period to $261 million, despite softening demand, to account for 69 per cent of the company’s total revenue. It has 134 marketed rigs in the U.S.

In contrast, its Canadian revenue rose by just 11 per cent to $51 million – despite the addition of 68 Trinidad rigs to swell its fleet to 118 marketed rigs – accounting for 14 per cent of the total.

International revenue was down slightly at $66 million but still exceeded the Canadian contribution.

Geddes said Ensign is focused on realizing the promised $40 million in annual cost savings from the Trinidad deal, mainly related to the elimination of duplicate costs and sale of unneeded facilities.