CWC Energy Services Corp. ("CWC" or the "Company") announces the release of its operational and financial results for the three months ended March 31, 2017. The interim Financial Statements and Management Discussion and Analysis ("MD&A") for the three months ended March 31, 2017 are filed on SEDAR at www.sedar.com.
Highlights for the Three Months Ended March 31, 2017
Contract Drilling revenue of $11.1 million for Q1 2017 (Q1 2016: $4.1 million) was achieved with a utilization rate of 66% (Q1 2016: 26%), compared to the CAODC industry average of 41%. Overall, Q1 2017 Contract Drilling revenue was 170% higher compared to Q1 2016 as a 178% increase in operating days offset the 3% reduction in pricing.
CAODC reports that the total Canadian drilling industry operating days was 23,448 in Q1 2017, a 79% increase from Q1 2016 operating days of 13,100 days. In comparison, CWC's 179% increase from 191 operating days in Q1 2016 to 532 operating days in Q1 2017 outperformed the CAODC industry average and is attributable to the Company having the most modern, relevant and well maintained drilling rigs as well as a reputation for safe and efficient operations, exceptional management and experienced drilling rig crews. Of note, in Q1 2017, Drilling Rig #8 reached a milestone depth of 6,290 metres demonstrating that CWC's fleet of telescopic double drilling rigs have the hook loads, racking capacity and pumping capabilities to reach the most active horizons of the WCSB.
CWC is the second largest service rig provider in the WCSB, based on our modern fleet of 74 service rigs as at March 31, 2017 which consists of 41 single, 27 double, and 6 slant rigs. At an average age of ten years old, CWC's fleet is amongst the newest in the WCSB and provides services which include completions, maintenance, workovers and abandonments with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park seven of its service rigs and focus its sales and operational efforts on the remaining 67 active service rigs with one temporarily taken out of service in Q1 2017 to complete its Level IV recertification.
CWC's Class I, II and III coil tubing units have depth ratings from 1,500 to 4,000 metres. As at March 31, 2017, the Company's fleet of ten coil tubing units consists of six Class I, three Class II and one Class III coil tubing units. In light of competitive challenges for CWC's Class III coil tubing unit, the Company has chosen to focus its sales and operational efforts on its nine Class I and II coil tubing units which are better suited at servicing SAGD wells, which are shallower in depth and more appropriate for these coil tubing operations.
Production Services revenue was $21.4 million in Q1 2017, up $5.8 million (37%) compared to $15.6 million in Q1 2016, as the impact of increased activity for the Company's service rigs and coil tubing units were due primarily to a seasonal pickup in winter demand driven by an improvement in the global crude oil price for our E&P customers. The Company also saw a modest increase to hourly rates charged to certain customers in Q1 2017.
CWC's service rig utilization of 56% in Q1 2017 (Q1 2016: 40%) with 32,997 operating hours was 41% higher than the 23,466 operating hours in Q1 2016. CWC's Q1 2017 service rig operating hours and utilization was the best operating results the Company has achieved in the last twelve quarters (Q1 2014: 37,652 operating hours and 61% respectively) and reflects the increasing demand from our E&P customers to do maintenance, workovers and abandonments on existing wells.
CWC's coil tubing utilization of 52% in Q1 2017 (Q1 2016: 42%) from 4,243 operating hours was 40% higher than the 3,034 operating hours in Q1 2016. CWC's Q1 2017 coil tubing operating hours and utilization was the highest level of activity in the Company's last eight quarters (Q1 2015: 4,351 operating hours and 60% respectively). The increased activity level is a direct result of a greater demand by our E&P customers to service their SAGD wells. Coil tubing's average hourly rate of $491 per hour in Q1 2017 was a 26% decline from $662 per hour in Q1 2016 due to a higher activity mix of lower priced Class I shallow units working on SAGD wells compared to the deeper Class II units compared to a year ago.
Capital expenditures in Q1 2017 of $0.7 million are $0.4 million (133%) higher than $0.3 million in Q1 2016 and primarily consist of recertification costs, replacement components and one new leased vehicle. This compares to Q1 2016 capital expenditures consisting of recertification costs and one leased vehicle.
The 2017 capital expenditure budget of $5.9 million was approved by the Board of Directors on December 6, 2016 comprised of $5.4 million of maintenance and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rigs, service rigs and coil tubing divisions as well as for information technology and $0.5 million of growth capital.
Crude oil, as represented by WTI, averaged US$51.85/bbl in Q1 2017, an increase of 6% over Q4 2016 average price of US$49.04/bbl and 54% higher than US$33.64/bbl in Q1 2016. Natural gas prices, as represented by AECO, averaged $2.57/GJ, 13% lower than Q4 2016 average of $2.95/GJ, but 48% higher than $1.74/GJ in Q1 2016. Crude oil and natural gas prices have been steadily increasing since WTI's low of US$26.21/bbl in February 2016 and AECO's low of $0.65/GJ in May 2016 resulting in an improved outlook for higher activity levels for North American oilfield service companies, as evident in Q1 2017. On April 27, 2017, The Petroleum Services Association of Canada ("PSAC") revised its forecast of wells to be drilled in 2017 for a second time to 6,680 wells, up 1,530 wells or 30% from its first upwardly revised forecast on January 30, 2017 of 5,150 wells; a 64% increase to the 4,084 wells drilled in 2016.
CWC expects to continue to be highly utilized after spring breakup ends. However, as demand for oilfield services increases across the industry, it has become apparent that attracting and retaining field employees will become more difficult for each additional rig to meet rising customer demand. Currently, CWC can crew nine of nine drilling rigs (100%), 54 of 66 service rigs (82%) and eight of nine coil tubing units (89%). The Company will continue to attract field employees by being one of the most active drilling rig, service rig and coil tubing contractors in the WCSB. Offering new field employees more hours worked rather than increased wages per hour should allow the Company to keep wage inflation under control when attracting and retaining the next incremental rig crew. Should customer demand continue to increase for the remainder of 2017 and into 2018 along with a tight labour market, CWC believes increases to customer pricing should materialize resulting in improved operating and cash flow margins in future quarters.
While CWC continues to maintain focus on its operational and financial performance, it also recognizes the need to pursue opportunities that create long-term shareholder value. With the support of the Board of Directors, management continues to actively evaluate strategic opportunities and pursue those it believes will fundamentally position CWC well for the future.
About CWC Energy Services Corp.
CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the WCSB with a complementary suite of oilfield services including drilling rigs, service rigs and coil tubing units. The Company's corporate office is located in Calgary, Alberta, with operational locations in Nisku, Grande Prairie, Slave Lake, Red Deer, Drayton Valley, Lloydminster, Provost and Brooks, Alberta. The Company's shares trade on the TSX Venture Exchange under the symbol "CWC".
SOURCE: CWC Energy Services Corp.
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