Oilfield services contractor Ensign Energy Services Inc. (ESI.TO, ESVIF.PK) said Monday that third-quarter profit plunged about 77% from the year-ago period, as revenues for the quarter nearly halved from last year due to oversupply of service equipment in the oilfield services industry resulting from reduced demand.
Third-quarter net income plummeted to C$16.90 million or C$0.11 per share from C$72.07 million or C$0.47 per share in the previous year. In the second quarter, the company's net income was C$13.21 million or C$0.09 per share.
The recession has reduced demand for oil, thereby creating imbalance between demand and supply. Thus, companies operating in the oil sector have had a tough time. Oil prices have almost halved from an all-time high of $147 per barrel in July 2008, although they have improved from a yearly low of less than $34 a barrel in February this year. Hence, an year-over-year comparison seems unfair for most oil and gas and related companies.
Ensign Energy said its adjusted net income for the third quarter was C$16.4 million or C$0.11 per share.
Funds from operations declined to C$55.67 million or C$0.36 per share from C$90.45 million or C$0.58 per share in the prior year.
Third-quarter revenue generated from Oilfield services, plunged 47% to C$232.46 million from C$435.19 million in the prior year. For the second quarter, the company reported revenues of C$226.01 million.
Third-quarter revenue from Canada declined to C$80.22 million from C$193.94 million in the previous year. According to the company, the oversupply of oilfield service equipment hurt utilization and margins in the Canadian market. Competitive conditions will not improve until the underlying oil and natural gas commodity fundamentals improve to a level that encourages additional investment in oil and natural gas development, Ensign Energy added.
Revenues from the U.S. for the quarter declined to C$93.96 million from C$161.62 million and International revenues slipped to C$58.28 million from C$79.63 million. The company noted that continued weak natural gas fundamentals hit oilfield service activity levels in Canada and the U.S. Additionally, in the international segment, revenues were hurt by the voluntary termination of contracts in Venezuela as the company worked to resolve issues with its major customer. Further, results from both the U.S. and international business segments were negatively impacted by adverse currency rates, as the Canadian dollar was stronger, compared to the U.S. dollar.
Gross margin dropped to 28.2% from 30.8% recorded in the third quarter of 2008, as additional rigs were put to work in the spot market in Canada. Spot prices for uncontracted oilfield services equipment continued to weaken in the third quarter due to low demand and an oversupply of equipment in Canada and the U.S.
Expenses for the quarter declined to C$203.03 million from C$331.85 million in the previous year.
Additionally, the company said its Board of Directors declared a fourth-quarter dividend of C$0.0875 per common share, up 3% from the previous quarterly dividend rate of $0.085 per common share. This is payable on January 5, 2010 to all common shareholders of record as of December 21, 2009.
For the first three quarters of the fiscal, net income declined to $102.80 million or C$0.67 per share from $186.13 million or C$1.22 per share in the previous year. Revenues slumped to C$858.89 million from C$1.245 billion in the prior year.
Looking ahead, Ensign Energy said, "Lower utilization and lower margins are expected to be the norm for the foreseeable future as 2009 ends and 2010 begins...It is difficult to be optimistic given all of the uncertainty around the fundamentals influencing the supply and demand for crude oil and natural gas. While there have been some encouraging signs, the company believes that a meaningful industry recovery is still a ways off. Accordingly, it remains prudent to continue to control costs and preserve cash."
ESI.TO closed Friday's regular trade at C$15.98, up from the previous close of C$16.00, on 345,600 shares.
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