CWC CWC Energy Services Corp

OPERATIONAL AND FINANCIAL RESULTS AND RECORD Q1 REVENUE

CALGARY, AB, April 27, 2023 /CNW/ - (TSXV: CWC) CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three months ended March 31, 2023. The Financial Statements and Management Discussion and Analysis ("MD&A") for the three months ended March 31, 2023 are filed on SEDAR at www.sedar.com.

Financial Highlights

Working capital (excluding debt) for March 31, 2023, has increased $1.4 million (4%) since December 31, 2022, driven by increases in accounts receivable ($1.8 million (4%)) and decreases in accounts payable ($0.8 million (6%)) offset by decreases in prepaid expenses and deposits ($1.3 million (33%)). Long-term debt (including current portion) of $43.8 million has increased $0.8 million (2%) from December 31, 2022, primarily to fund changes in non-cash working capital.

Highlights for the Three Months Ended March 31, 2023

• Record quarterly revenue of $57.5 million, an increase of $16.7 million (41%) compared to $40.8 million in Q1 2022. Revenue increased $12.8 million (77%) in Q1 2023 for the Contract Drilling segment and $3.9 million (16%) for the Production Services segment compared to Q1 2022.
• Q1 2023 Adjusted EBITDA⁽¹⁾ of $10.9 million, an increase of $2.5 million (30%) compared to $8.4 million in Q1 2022. Q1 2023 Adjusted EBITDA was the third-best Q1 in the Company's 19-year history, just missing the record set in Q1 2013 by $0.4 million.
• Net income of $4.7 million, an increase of $1.2 (36%) million compared to $3.4 million in Q1 2022. Q1 2023 net income was the second-best Q1 in the Company's 19-year history, just missing the record set in Q1 2013 by $0.2 million.
• During Q1 2023, 406,000 common shares (Q1 2022: nil) were purchased under the Normal Course Issuer Bid ("NCIB") of which 285,500 were cancelled and returned to treasury.

⁽¹⁾  Please refer to the "Non-GAAP and Other Financial Measures" section for further information. 

Industry Overview

Average crude oil and natural gas prices

Source: GLJ Ltd price forecasts.

As strong as the activity level and pricing was in 2022, the expectation for 2023 is even higher. On November 23, 2022, the CAOEC forecasted 70,495 operating days for Canadian drilling rigs in 2023, an increase of 20% compared to 2022. While inflation, interest rate increases by central banks and a potential global recession continue to be a concern for the price of crude oil and natural gas, North American oilfield services activity and pricing have not shown signs of a significant pullback to date. The discipline among our North American E&P customers to return free cash flow in the form of dividends and share buybacks to their shareholders remains strong and will keep the potential of any oversupply of crude oil or natural gas in check. This should result in a steady stream of North American oilfield services activity throughout 2023 and beyond.

Corporate Overview

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in Canada and the United States with a complementary suite of oilfield services including drilling rigs and service rigs. The Company's corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta and U.S. offices in Denver, Colorado and Casper, Wyoming. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

The Contract Drilling division operates under the trade name CWC Ironhand Drilling and is comprised of thirteen (13) electric triple drilling rigs with depth ratings from 3,600 to 7,600 metres and nine (9) telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. All twenty-two (22) rigs have top drives, seventeen (17) have pad rig moving systems, nine (9) have 7,500 psi pumping systems, three (3) have carbon reduction bi-fuel capabilities, and two (2) have high line power capabilities. All of the drilling rigs are ideally suited for the most active depths for horizontal drilling in the Western Canadian Sedimentary Basin ("WCSB"), including the Montney, Cardium, Duvernay and other deep basin horizons, and select United States basins including the Permian, Eagle Ford, Niobrara, Denver-Julesburg ("DJ"), Powder River and Bakken.

The Production Services division operates under the trade name CWC Well Services. With a fleet of 140 service rigs, CWC is one of Canada's largest well servicing companies as measured by active fleet and operating hours. CWC's service rig fleet consists of 73 single, 54 double and 13 slant rigs providing services which include completions, maintenance, workovers and well decommissioning with depth ratings from 1,500 to 5,000 metres. In 2023, CWC chose to park 77 of its service rigs and focus its sales and operational efforts on the remaining 63 active service rigs due to the reduction in the number of service rigs currently required to service the WCSB and the tight labour market experienced in the industry for service rig crews.

Results of Operations

Contract Drilling – Canada and United States

Canadian Contract Drilling revenue of $17.1 million in Q1 2023, an increase of $4.3 million (34%) compared to $12.8 million in Q1 2022, was achieved with a utilization rate of 77% (Q1 2022: 70%), compared to the CAOEC industry average of 45%. CWC completed 483 Canadian drilling rig operating days in Q1 2023, an increase of 39 operating days (9%) compared to 444 Canadian drilling rig operating days in Q1 2022 as all seven (7) Canadian drilling rigs were working during the quarter.

Gross margin in the Canadian Contract Drilling segment was $5.9 million, an increase of $2.1 million from $3.8 million in Q1 2022. The gross margin increase is a result of a 23% increase in average revenue per operating day while the increase in direct operating expenses, primarily related to inflationary increases in field labour, fuel and supplies cost, was successfully recovered from customers.

U.S. Contract Drilling revenue of $12.4 million in Q1 2023, an increase of $8.5 million (216%) compared to $3.9 million in Q1 2022, was achieved with 306 U.S. drilling rig operating days (Q1 2022: 113 U.S. drilling rig operating days). During Q1 2023, CWC had six (6) of twelve (12) marketable drilling rigs working in the U.S. as Q1 is typically a less active quarter for our E&P customers due to operational challenges related to adverse winter weather conditions in our U.S. operating regions.

Gross margin in the U.S. Contract Drilling segment was $2.3 million, an increase of $1.2 million (101%) compared to $1.2 million in Q1 2022. The gross margin increase is a result of a 171% increase in U.S. drilling rig operating days as well as a 9% increase in average revenue per operating day, partially offset by direct operating cost increases.

Production Services – Canada

Production Services revenue of $28.0 million in Q1 2023, an increase of $3.9 million (16%) compared to $24.1 million in Q1 2022 as the Company was successful in implementing pricing adjustments to partially offset higher inflationary field labour, fuel and supply costs as evident from the average revenue per hour of $981 in Q1 2023 increasing $194 per hour (25%) compared to the $787 per hour in Q1 2022. CWC's service rig utilization in Q1 2023 of 69% (Q1 2022: 73%) with 28,539 operating hours was 7% lower than the 30,637 operating hours in Q1 2022 as spring break-up slowed activity levels in March 2023 earlier than in March 2022.

During Q1 2023, the Company earned $0.8 million (Q1 2022: $1.1 million) in revenue on 10 oil and gas sites (Q1 2022: 53) requiring well decommissioning under the Alberta Site Rehabilitation Program ("SRP") and 42 oil and gas sites (Q1 2022: 11) under the Saskatchewan Accelerated Site Closure Program ("ASCP"). The $1.0 billion Alberta SRP, the $400 million Saskatchewan ASCP and the $100 million B.C. Dormant Sites Reclamation Program ("DSRP") ended on February 14, 2023.

Capital Expenditures

Capital expenditures of $10.1 million in Q1 2023 an increase of $7.3 million compared to $2.8 million in Q1 2022. The increase in capital expenditures in Q1 2023 is primarily due to Level IV re-certification and upgrades to the three (3) U.S. triple drilling rigs and related ancillary equipment purchased in June 2022.

Outlook

2023 started the year with crude oil prices buoyed by higher demand from China following the re-opening of their economy after abandoning its zero COVID-19 policies. However, in March 2023, crude oil prices declined sharply on concerns the financial health of a few U.S. regional banks and a European bank would spread, potentially creating a new global financial crisis. Fortunately, both U.S. and European financial regulators stepped in and acted quickly to contain the crisis of confidence from spreading to other financial institutions. As an added precaution, on April 2, 2023, eight (8) members of OPEC voluntarily announced additional production cuts of 1.16 million bbls/day to help support global crude oil prices. Along with the 500,000 bbls/day crude oil production cut announced by Russia in February 2023 and the original 2.0 million bbls/day production cut announced by OPEC+ in November 2022, the total crude oil production cut by OPEC+ is now projected to be 3.66 million bbls/day. The result of these crude oil production cuts has been a support of global crude oil prices at approximately US$80/bbl. As such, analysts believe North American drilling and oilfield services activity will continue to be strong under this favourable crude oil price environment at a sustainable and measured pace given the capital discipline instilled upon these E&P companies by their debt and equity stakeholders for return of capital through debt reduction, dividends and share buybacks. Such sustained and measured increases in oilfield services activity should bode well for CWC.

Q1 2023 has started off strong for CWC. Activity levels in both Canada and the U.S. in Q1 2023 continue to be elevated compared to the prior year's comparable quarter, while pricing has increased quarter-over-quarter with average revenue per day and hour for drilling rigs and service rigs, respectively, now at record levels in CWC's nineteen (19) year history buoyed by inflation for both labour, fuel and supplies. The biggest challenge for CWC and the industry will be to attract more field labour or rig crews which remains extremely tight. The Company has been successful in recruiting new field employees and crewing both its drilling and service rigs. As at March 31, 2023, CWC employed 630 employees and will be ramping up its field labour or rig crews to accommodate an expected increase in drilling rig activity in Q2 2023.

While CWC expects a continuation of its strong operational and financial results for the remainder of 2023, various global uncertainties may derail the Company's expected positive path. Russia's invasion of Ukraine has elicited a strong global response of sanctions against Russia from many Western countries. Such sanctions may have a negative effect on the global economy through supply chain disruptions and volatile commodity prices. In addition, many global economies are still experiencing high levels of inflation despite central banks having increased interest rates at a rapid pace, which has modestly slowed economic growth and the pace of inflation to date. If interest rates increase too rapidly, or rise to a high enough level whereby economic activity slows significantly resulting in a global recession, CWC may be negatively impacted.

About CWC Energy Services Corp.

CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in Canada and the United States with a complementary suite of oilfield services including drilling rigs and service rigs. The Company's corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta and U.S. offices in Denver, Colorado and Casper, Wyoming. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

Forward-Looking Information

This News Release contains certain forward-looking information and statements (collectively, "forward-looking statements") within the meaning of applicable Canadian securities legislation. Certain statements contained in this News Release, including those contained in the section titled "Outlook" and including statements which may contain such words as "anticipate", "could", "continue", "should", "seek", "may", "intend", "likely", "plan", "estimate", "believe", "expect", "will", "objective", "ongoing", "project" and similar expressions are intended to identify forward-looking statements. In particular, this News Release contains forward-looking statements including management's assessment of future plans and operations, planned levels of capital expenditures, expectations as to industry and Company activity levels in various areas, expectations on the sustainability of future cash flow and earnings, expectations with respect to crude oil and natural gas prices, expectations regarding the level and type of drilling and production and related drilling and well services activity in the WCSB and U.S. basins, expectations regarding entering into long term drilling contracts and expanding our customer base, and expectations regarding the business, operations, revenue and debt levels of the Company in addition to general economic conditions including industry labor shortages, inflationary pressures and a rising interest rate environment and the impact of those conditions on the Company. Although the Company believes that the expectations and assumptions on which such forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurances that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Factors that could cause actual results to vary from forward-looking statements or may affect the operations, performance, development and results of CWC's businesses include, among other things: risks and assumptions associated with operations, such as CWC's ability to successfully implement its strategic initiatives and achieve expected benefits therefrom; assumptions concerning operational reliability; the ability to access sufficient capital from internal and external sources including debt and equity capital; risks inherent in CWC's Canadian and U.S. operations; CWC's ability to generate sufficient cash flow from operations to meet its current and future obligations; risks associated with the failure to finalize formal agreements with counterparties in certain circumstances; CWC's ability to make capital investments and the amounts of capital investments; increases in maintenance, operating or financing costs; the realization of the anticipated benefits of transactions; the possibility that CWC is unable to identify or consummate any acceptable strategic alternatives; the availability and price of labour, equipment and construction materials; the status, credit risk and continued existence of customers having contracts with CWC and its affiliates; availability of energy commodities; volatility of and assumptions regarding prices of energy commodities; competitive factors, including competition from third parties in the areas in which CWC operates or intends to operate, pricing pressures and supply and demand in the drilling and service rig business; fluctuations in currency and interest rates; inflation; risks of war (including the war in Ukraine), hostilities, civil insurrection, pandemics (including COVID-19), instability and political and economic conditions in or affecting jurisdictions in which CWC and its affiliates operate; severe weather conditions and risks related to climate change; terrorist threats; risks associated with technology; changes in laws and regulations, including environmental, regulatory and taxation laws, and the interpretation of such changes to CWC's business; the risks associated with existing and potential or threatened future lawsuits, legal proceedings and regulatory actions against CWC and its affiliates; availability of adequate levels of insurance; difficulty in obtaining necessary regulatory approvals or land access rights and maintenance of support of such approvals and rights; the effects and impacts of the COVID-19 pandemic on CWC's business and general economic and business conditions and markets; and such other risks and uncertainties described in the Annual MD&A under the section entitled "Risk Factors" and from time to time in CWC's reports and filings with the Canadian securities authorities. The impact of any one assumption, risk, uncertainty or other factor on a forward-looking statement cannot be determined with certainty, as these are interdependent and CWC's future course of action depends on management's assessment of all information available at the relevant time. You can find a discussion of those risks and uncertainties in the Annual MD&A under the section entitled "Risk Factors" and in CWC's other securities filings at www.sedar.com.

Readers are cautioned that the foregoing list of assumptions, risks, uncertainties and factors is not exhaustive. See also the section entitled "Risks and Uncertainties" for further risk factors. The forward-looking statements contained in this News Release are made as of the date of this News Release and, except to the extent expressly required by applicable securities laws and regulations, CWC assumes no obligation to update or revise forward-looking statements made herein or otherwise, whether as a result of new information, future events, or otherwise. The forward-looking statements contained in this News Release and all subsequent forward-looking statements, whether written or oral, attributable to CWC or persons acting on CWC's behalf are expressly qualified in their entirety by these cautionary statements. Any forward-looking statements made previously may be inaccurate now.

Non-GAAP and Other Financial Measures

SOURCE CWC Energy Services Corp.