CWC Energy Services Corp. Announces First Quarter 2021 Operational and Financial Results

CALGARY, AB, April 29, 2021 /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, 2021. The Financial Statements and Management Discussion and Analysis ("MD&A") for the three months ended March 31, 2021 are filed on SEDAR at www.sedar.com.

Financial and Operational Highlights

Highlights for the Three Months Ended March 31, 2021

• Average Q1 2021 crude oil price, as measured by West Texas Intermediate ("WTI"), of US$58.13/bbl was 36% higher than the Q4 2020 average price of US$42.63/bbl (Q1 2020: US$42.57/bbl) and the price differential between Canadian heavy crude oil, as represented by Western Canadian Select ("WCS"), and WTI maintained a differential in the range of US$11.37/bbl to US$13.82/bbl during the first quarter of 2021. Natural gas prices, as measured by AECO, increased 17% from an average of $2.52/GJ in Q4 2020 to $2.94/GJ in Q1 2021 (Q1 2020: $1.93/GJ).
  
  
• CWC's Canadian drilling rig utilization in Q1 2021 of 50% (Q1 2020: 55%) continued to outperform the Canadian Association of Oilwell Drilling Contractors ("CAODC") industry average of 27% (Q1 2020: 35%). Average revenue per operating day of $22,497 resulted in revenue of $7.1 million (Q1 2020: $7.9 million) from the Canadian drilling operations. As a result of the COVID-19 health pandemic and the travel restrictions implemented between Canada and the U.S., CWC's two U.S. drilling rigs, which operate with Canadian rig crews, did not begin operations until the last week of March 2021 resulting in 2 operating days in the quarter (Q1 2020: 144 operating days). U.S. Contract Drilling revenue of $0.2 million with an average revenue per operating day of US$80,000 resulted primarily from one-time recovery of mobilization costs. Service rig utilization in Q1 2021 of 64% (Q1 2020: 56%) was driven by 27,087 operating hours which were 11% lower than the 30,442 operating hours in Q1 2020. Given the tight labour market experienced in the industry for service rig crews in Q1 2021, CWC parked 15 additional service rigs at the beginning of the year, resulting in 66 active service rigs for 2021.
  
  
• Revenue of $24.7 million, a decrease of $8.9 million (26%) compared to $33.5 million in Q1 2020. During Q1 2021, the Company earned $1.7 million in revenue on 90 oil and gas sites requiring well decommissioning under the Alberta Site Rehabilitation Program ("SRP") and 15 oil and gas sites under the Saskatchewan Accelerated Site Closure Program ("ASCP"). The $1.0 billion Alberta SRP, the $400 million ASCP and the $100 million B.C. Dormant Sites Reclamation Program ("DSRP") provide grants to eligible oilfield service contractors to perform well, pipeline, and oil and gas site closure and reclamation work, creating jobs and supporting the environment until December 31, 2022. CWC's Production Services segment is well positioned to provide well decommissioning work on these inactive wells.
  
  
• Adjusted EBITDA⁽¹⁾ of $4.9 million, a decrease of $0.6 million compared to $5.5 million in Q1 2020.
  
  
• Net income of $0.5 million, an increase of $19.7 million compared to a net loss of $19.2 million in Q1 2020.
  
  
• During Q1 2021, 2,249,500 common shares (Q1 2020: 3,674,500 common shares) were purchased, cancelled and returned to treasury under the Normal Course Issuer Bid ("NCIB").

Operational Overview

Contract Drilling

CWC Ironhand Drilling, the Company's Contract Drilling segment, has a fleet of nine telescopic double drilling rigs with depth ratings from 3,200 to 5,000 metres. Eight of nine rigs have top drives, three have pad rig walking systems, three have 7,500 psi pumping systems and one has carbon reduction bi-fuel capabilities. All of the drilling rigs are well suited for the most active depths for horizontal drilling in the WCSB, including the Montney, Cardium, Duvernay and other deep basin horizons. The Company also operates in select United States basins including the Eagle Ford, Denver-Julesburg ("DJ") and Bakken. One of the Company's strategic initiatives is to continue to increase the capabilities of its existing fleet to meet the growing demands of E&P customers for faster drilling times and more environmentally friendly solutions at a cost effective price while providing a sufficient internal rate of return for CWC's shareholders.

Canadian Contract Drilling revenue of $7.1 million for Q1 2021 (Q1 2020: $7.9 million) was achieved with a utilization rate of 50% (Q1 2020: 54%), compared to the CAODC industry average of 27% (Q1 2020: 35%). CWC completed 317 Canadian drilling rig operating days in Q1 2021, 8% lower than 344 Canadian drilling rig operating days in Q1 2020.

U.S. Contract Drilling revenue of $0.2 million for Q1 2021 (Q1 2020: $4.8 million) was achieved with a utilization rate of 1% (Q1 2020: 79%) with 2 U.S. drilling rig operating days, 99% lower than the 144 U.S. drilling rig operating days in Q1 2020. As a result of the COVID-19 health pandemic and the travel restrictions implemented between Canada and the U.S., CWC's two U.S. drilling rigs, which operate with Canadian rig crews, did not begin operations until the last week of March 2021.

Production Services

With a fleet of 145 service rigs, CWC is one of the largest well servicing companies in Canada as measured by active fleet and operating hours. CWC's service rig fleet consists of 75 single, 56 double, and 14 slant rigs providing services which include completions, maintenance, workovers and well decommissioning with depth ratings from 1,500 to 5,000 metres. In 2021,  CWC chose to park 79 of its service rigs and focus its sales and operational efforts on the remaining 66 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.

CWC's fleet of 12 swabbing rigs operate under the trade name CWC Swabtech. The swabbing rigs are used to remove liquids from the wellbore and allow reservoir pressures to push the commodity up the tubing. The Company chose to park seven of its swabbing rigs and focus its sales and operational efforts on the remaining five active swabbing rigs.

Production Services revenue of $17.4 million in Q1 2021, down $3.5 million (17%) compared to $20.9 million in Q1 2020. The revenue decrease in Q1 2021 was a continued direct result of the decrease in industry activity, which started in March 2020, as the global health solutions to slow the spread of the COVID-19 virus resulted in a decrease in oilfield service activity compared to Q1 2020.

CWC's service rig utilization in Q1 2021 of 64% (Q1 2020: 56%) with 27,087 operating hours was 11% lower than the 30,442 operating hours in Q1 2020. Average revenue per hour of $630 in Q1 2021 was $36 per hour (5%) lower than the $666 per hour in Q1 2020 as a result of customer requested discounts during the quarter. Q1 2021 average revenue per hour of $651 excluding the Company's top volume customers was $22 per hour (3%) lower than Q1 2020 average revenue per hour of $673.

CWC's swabbing rig utilization in Q1 2021 of 30% (Q1 2020: 33%) with 976 operating hours was 10% lower than the 1,088 operating hours in Q1 2020. Average revenue per hour for swabbing rigs of $286 in Q1 2021 was $14 per hour (5%) lower compared to $300 in Q1 2020.

Capital Expenditures

Capital expenditures of $1.3 million in Q1 2021, a decrease of $1.5 million compared to $2.8 million in Q1 2020.

On December 3, 2020, the Company announced its capital expenditure budget for 2021 of $3.9 million, $2.7 million of which is maintenance and infrastructure capital related to re-certifications, additions and upgrades to field equipment for the drilling rig and service rig divisions as well as information technology infrastructure, with the remaining $1.2 million being growth capital to upgrade two of the drilling rigs. On April 29, 2021, the Board of Directors approved an additional $0.7 million of growth capital to further upgrade one of the drilling rigs.

Outlook

In March 2020, the World Health Organization declared a global health pandemic due to COVID-19. In response to the COVID-19 outbreak, governments around the world implemented measures to control the spread of the virus from Q2 2020 through Q2 2021 including closure of non-essential businesses, restricting travel and encouraging its citizens to stay-at-home. These government actions contributed to a significant deterioration in the global economy including a material decline in the demand for crude oil, which initially resulted in a significant decrease in oil prices. The decline in oil prices negatively affected current and forecasted drilling and production service activities in Canada and the United States. In response to the decline in oil prices, OPEC+ and G20 oil producing nations reduced crude oil production resulting in a rebound in crude oil prices from the low US$20/bbl in April 2020 to over US$60/bbl in April 2021. While governments have, at various times, loosened and then tightened their economic restrictions related to COVID-19, further caution remains as the number of active COVID-19 cases globally have recently increased due to the emergence of more infectious variants of the virus.

Countering the recent increases in COVID-19 cases globally and the reinstatement by governments to implement measures to control the spread of the virus, the global COVID-19 vaccinations continue to be rolled out at increasing speeds resulting in the belief that the global economy may soon return to normalcy. This belief extends to the forecast for a steady rise in crude oil demand which has resulted in crude oil prices staying above US$60/bbl, and has driven an increase in oilfield service activity in Canada and the U.S. For the first time in a few years, there is optimism that 2021 will be a robust year for the Canadian oilfield services industry, supported by the re-opening of the global economy and buoyed by the financial stimulus provided by governments around the world. CWC has had a good Q1 2021, outperforming our own cautious expectations and forecasted activity levels. Activity levels for the remainder of 2021 appear to be continuing onward from where the winter season left off. CWC will continue to benefit from the well decommissioning program provided by the Government of Canada's$1.7 billion in funding to Alberta, Saskatchewan, British Columbia and the Alberta Orphan Well Association until December 31, 2022. While there are many positives to look forward to for the remainder of 2021, capitalizing upon them will primarily be constrained by the amount of available field labour or rig crews that CWC will be able to staff up. The labour market was extremely tight in Q1 2021. As such, the solutions to solve the labour shortage will be an increase to rig rates charged to our E&P customers to compensate for the wage inflation required to retain and attract field labour to work on our drilling and service rigs.

Looking out to the medium and longer term, CWC is optimistic about the future of the oil and gas industry in Canada. The Canadian oil and gas industry will continue to grow with the anticipated completion of Enbridge's Line 3 pipeline in late 2021, which will carry 760,000 bbls/day to Minnesota and eastern refineries and the Trans Mountain expansion project carrying 890,000 bbls/day by late 2022 to the west coast for oversea markets.

CWC will remain focused on its operational and financial performance in the short-term, but recognizes the need to pursue opportunities that have inevitably been created in this market to create medium and longer-term value for CWC's shareholders. With the support of the Board of Directors, management continues to actively pursue consolidation opportunities in North America. CWC cautions that there can be no guarantees that strategic opportunities will result in a transaction, or if a transaction is undertaken, as to its terms or timing.

Lastly, 2021 will also be the year that CWC produces its inaugural Environmental, Social and Governance ("ESG") report as societal demands put more onus on companies to document what and how they are responding to good corporate stewardship from an ESG perspective. Management is confident that when this ESG report is released in the summer of 2021, CWC will be regarded as a leader on ESG matters in our oilfield services industry.

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, service rigs, and swabbing rigs. The Company's corporate office is located in Calgary, Alberta, with a U.S. office in Denver, Colorado and operational locations in Nisku, Grande Prairie, Slave Lake, Sylvan Lake, Drayton Valley, Lloydminster, Provost and Brooks, Alberta. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".

Duncan T. Au, FCPA, FCA, CFA
President & Chief Executive Officer               

Stuart King, CPA, CA 
Chief Financial Officer      

Forward-Looking Information

This News Release contains certain forward-looking information and statements within the meaning of applicable Canadian securities legislation. Certain statements contained in this News Release, including most of 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 information or 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 activity levels, expectations on the sustainability of future cash flow and earnings, expectations with respect to crude oil and natural gas prices, activity levels in various areas, 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 its customer base, and expectations regarding the business, operations, revenue and debt levels of the Company in addition to general economic conditions. Although the Company believes that the expectations and assumptions on which such forward-looking information and statements are based are reasonable, undue reliance should not be placed on the forward-looking information and statements because the Company can give no assurances that they will prove to be correct. Since forward-looking information and statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks including the implications of the COVID-19 health pandemic on the Company's business, operations and personnel. These factors and risks include, but are not limited to, the risks associated with the COVID-19 health pandemic and their implications on the demand and supply in the drilling and oilfield services sector (i.e. demand, pricing and terms for oilfield drilling and services; current and expected oil and gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks), significant expansion measures to stop the spread of COVID-19 further restricting or prohibiting the operations of the Company's facilities and operations, actions to ensure social distancing due to COVID-19, the Company's cash saving initiatives, integration of acquisitions, competition, and uncertainties resulting from potential delays or changes in plans with respect to acquisitions, development projects or capital expenditures and changes in legislation, including but not limited to tax laws, royalties and environmental regulations, stock market volatility and the inability to access sufficient capital from external and internal sources. Accordingly, readers should not place undue reliance on the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through SEDAR at www.sedar.com. The forward-looking information and statements contained in this News Release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking information or statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. Any forward-looking statements made previously may be inaccurate now.

Reconciliation of Non-IFRS Measures

SOURCE CWC Energy Services Corp.