Press release from Marketwire
Essential Energy Services Announces Second Quarter Results and Quarterly Dividend
Wednesday, August 08, 2012
Essential Energy Services Announces Second Quarter Results and Quarterly Dividend 21:36 EDT Wednesday, August 08, 2012CALGARY, ALBERTA--(Marketwire - Aug. 8, 2012) - Essential Energy Services Ltd. (TSX:ESN) ("Essential" or the "Company") announces second quarter results with EBITDA(1) of $(0.5) million compared to $(0.1) million in the second quarter of 2011. On a year-to-date basis, EBITDA(1) was $31.9 million compared to $13.3 million in the same period of 2011. The second quarter results reflect the seasonal slowdown due to spring break-up. Compared to 2011, spring break-up was prolonged this year with rain negatively impacting utilization levels to the end of June.SELECTED FINANCIAL INFORMATION(Thousands, except per shareThree months ended June 30,Six months ended June 30, amounts)2012201120122011Revenue$52,333$40,479$171,913$106,895Gross margin$3,667$3,077$40,171$19,729Gross margin % (1)7%8%23%18%EBITDA (1)$(479)$(137)$31,873$13,264EBITDA % (1)(1)%0%19%12%Funds flow from operations (1)$1,115$(2,713)$29,746$10,727Per share - basic and diluted (1)$0.01$(0.03)$0.24$0.13Net income attributable to shareholders of Essential$(5,923)$(6,364)$12,971$(116)Per share - basic and diluted$(0.05)$(0.07)$0.10$0.00Total assets$393,377$371,017$393,377$371,017Total long-term debt$41,198$63,459$41,198$63,459Equity attributed to shareholders of Essential$297,937$257,119$297,937$257,119(1) Refer to Non-IFRS measures. Completion of the acquisition of Technicoil Corporation ("Technicoil" or the "Technicoil Acquisition") on May 31, 2011 impacts the results for 2012 compared to 2011. The results for Technicoil are only included in periods after the acquisition and the results for Technicoil for the first quarter and for April and May are not included in the prior year comparatives. The increased operating costs associated with Technicoil's annual maintenance programs that are performed during spring break-up are reflected in the 2012 results but are not included for the comparative periods.SELECTED COMBINED FINANCIAL INFORMATIONTo assist the reader in understanding the current operations of Essential, management has provided the combined results for Essential assuming the Technicoil Acquisition had occurred on January 1, 2011. The reporting in this news release represents Essential's stand-alone activities for January 1, 2011 to May 31, 2011 and the combined operations of Essential and Technicoil from June 1, 2011 to December 31, 2011 and does not include Technicoil's pre-acquisition operating or financial results.Essential and Technicoil operations combined as of January 1, 2011:Three months endedSix months endedJune 30,June 30,(Thousands)2012201120122011Well servicingCoil well service$18,697$14,677$61,111$50,850Service rigs12,81511,88442,75341,843Other3,8184,43414,39713,272Total well servicing35,33030,995118,261105,965Downhole tools & rentals15,54017,11550,79143,321Colombia1,4633612,861361Total revenue$52,333$48,471$171,913$149,647Gross margin$3,667$1,324$40,171$30,459Gross margin %(1)7%3%23%20%EBITDA(1)$(479)$(2,506)$31,873$22,343During the second quarter, revenue and EBITDA(1) for the combined entity improved compared to the prior year. The factors that enabled Essential to improve on the prior year results included:Coil well service - Revenue increased compared to the prior year as a result of the improvements in the fleet combined with price increases introduced after the Technicoil Acquisition. Essential expanded its coil well service operations over the last twelve months with the acquisition of additional deep coil tubing rigs and fluid pumpers. The expanded coil tubing rig fleet combined with the successful integration of the pumping fleet created additional revenue for Essential. Service rigs - Revenue and utilization for the second quarter increased from the prior year due to the addition of service rigs from the Technicoil Acquisition operating for a full quarter. Essential's service rig utilization increased to 34% in the second quarter of 2012 from 27% in the second quarter of 2011. Downhole tools & rentals - Revenue decreased during the quarter as a result of the disposal of the wireline business in the first quarter of 2012. Wet weather conditions during the quarter and the corresponding decline in industry drilling activity resulted in slightly lower activity for the Tryton Multi-Stage Fracturing System ("Tryton MSFS"). Conventional tool operations maintained revenue levels similar to the prior year despite the adverse operating conditions. Management has also reconciled the results from the table above to the financial results for Essential.Three months endedSix months endedJune 30,June 30,(Thousands)2012201120122011RevenueCombined results$52,333$48,471$171,913$149,647Less: Technicoil pre-acquisition revenue-(7,992)-(42,752)Essential Consolidated Financial Statements$52,333$40,479$171,913$106,895EBITDA(1)Combined results$(479)$(2,506)$31,873$22,343Less: Technicoil pre-acquisition EBITDA(1)-2,369-(9,079)Essential Consolidated Financial Statements$(479)$(137)$31,873$13,264OVERVIEW OF ESSENTIAL EQUIPMENT FLEET As at June 30,20122011Coil Well Service Deep coil tubing rigs 2523Shallow/Intermediate coil tubing rigs 2227Nitrogen pumpers 1210Fluid pumpers 166Service Rigs Singles 3338Doubles 2221INDUSTRY OVERVIEWWet weather throughout the Western Canadian Sedimentary Basin ("WCSB") during the second quarter restricted access to work sites and limited well service activity. The wet conditions in the current year persisted throughout the quarter compared to the prior year where conditions improved in June 2011.Well service activity in the WCSB continues to be driven by horizontal drilling, stimulation and completion of oil and liquids-rich natural gas plays. The industry continued to focus on horizontal wells which typically require more investment capital and increased rig time per well due to their depth and complexity compared to conventional vertical wells.OPERATING HIGHLIGHTS - ESSENTIALCompletion of the Technicoil Acquisition on May 31, 2011 impacts the results for 2012 compared to 2011. The results for Technicoil are only included in periods after the acquisition and the results for Technicoil for the first quarter and for April and May are not included in the prior year comparatives. The increased operating costs associated with Technicoil's annual maintenance programs that are performed during spring break-up are reflected in the 2012 results but are not included for 2011.Results for the second quarter reflected the normal activity decline that occurs during spring break-up. During the quarter:Coil well service - Revenue generated by Essential's pumping and nitrogen fleets increased significantly compared to the prior year as a result of Essential's commitment to the expansion of these fleets. Integration of this equipment with the coil tubing rigs created additional revenue generating opportunities, however, the persistent wet weather that extended through most of June reduced activity for deep coil tubing compared to the prior year. Service rigs - Revenue and utilization for the second quarter increased from the prior year due to service rigs added through the Technicoil Acquisition operating for a full quarter. Essential's service rig utilization increased to 34% in the second quarter of 2012 from 27% in the second quarter of 2011. Downhole tools & rentals - Revenue decreased during the quarter as a result of the disposal of the wireline business in the first quarter of 2012. Tryton MSFS activity declined slightly compared to the prior year due to the wetter weather conditions and the corresponding decline in drilling activity. Conventional tool operations maintained revenue levels similar to the prior year despite the adverse operating conditions during the quarter. Essential continued with its 2012 capital program with 2012 spending expected to decrease from $60 million to $57 million due to a slight delay in the delivery of certain equipment. Year-to-date capital expenditures were $23.0 million, consisting of $15.6 million in growth capital, $6.6 million in maintenance capital and $0.8 million on infrastructure. Essential continues to focus on investing in high-demand assets in addition to maintaining and enhancing its existing fleet. SEGMENT RESULTS - WELL SERVICING - CANADAThree months endedSix months endedJune 30,June 30,(Thousands)2012201120122011RevenueCoil well service(i)$18,697$9,871$61,111$24,002Service rigs12,8159,60642,75333,479Other3,8183,52614,3975,732Total revenue35,33023,003118,26163,213Operating expenses36,11724,25992,55453,753Gross margin$(787)$(1,256)$25,707$9,460Gross margin %(1)(2)%(5)%22%15%Utilization(ii)Deep coil tubing rigsUtilization32%37%67%66%Operating hours7,2623,63830,4988,213Service rigsUtilization34%27%44%45%Operating hours16,18313,22951,37141,939(i) Includes revenue from coil tubing rigs, nitrogen and fluid pumpers and other ancillary equipment. (ii) Utilization is calculated on a 10 hour day. Completion of the Technicoil Acquisition on May 31, 2011 impacts the results for 2012 compared to 2011. The results for Technicoil are only included in periods after the acquisition and the results for Technicoil for the first quarter and for April and May 2011 are not included in the prior year comparatives. The increased operating costs associated with Technicoil's annual maintenance programs that are performed during spring break-up are reflected in the 2012 results but are not included for 2011.The normal decline in activity during the second quarter was more pronounced in the current year as wet weather conditions persisted throughout the quarter which limited access to well sites.Coil well service revenue increased significantly for the second quarter and for the year-to-date over the same periods in the prior year due to the increased size and scope of Essential's deep coil fleet from the Technicoil Acquisition and execution of Essential's capital program. Essential completed a large horizontal workover project during the quarter. This project utilized both the deep coil rigs and a full complement of Essential's ancillary coil services and generated incremental nitrogen and chemical revenues. The increase in these revenues, and the current year impact of price increases introduced during the second half of 2011, increased the rate per hour.Service rig revenue for the second quarter increased from the prior year due to increased utilization across the fleet and service rigs added through the Technicoil Acquisition operating for a full quarter. Activity was impacted by wet weather conditions during the quarter, however, utilization increased due to Essential operating in high demand areas including Slave Lake and the Cardium.During the second quarter, other revenue, which includes hybrid drilling rigs and rod rigs, was relatively flat compared to the prior year. Utilization of the hybrid drilling rigs was significantly impacted by the wet conditions during the quarter which limited their ability to access work sites and resulted in lower utilization of 11% during the second quarter of 2012.Costs associated with retaining key personnel and maintaining equipment and service locations negatively impact operating margins during periods of lower activity; while certain labour, fuel and other operating costs tend to fluctuate with activity. Operating expenses during the second quarter also increased due to Technicoil's annual maintenance programs that are included in the current year results but not in the comparable information for the prior year. SEGMENT RESULTS - DOWNHOLE TOOLS & RENTALS - CANADAThree months endedSix months endedJune 30,June 30,(Thousands)2012201120122011Revenue$15,540$17,115$50,791$43,321Operating expenses10,27712,99334,01531,429Gross margin$5,263$4,122$16,776$11,892Gross margin %(1)34%24%33%27%Number of Tryton MSFS jobs333611982The Downhole Tools & Rentals segment focuses on oil and liquids-rich natural gas plays by providing production and completion tools for horizontal and vertical wells. Operations for this segment are well placed geographically across many of the active oil plays in the WCSB. During the first half of 2012, this segment continued to grow as the industry continued utilizing multi-stage fracturing services for completions on horizontal wells and as Essential continued to expand its conventional downhole tools & rentals operations.The revenue decline for this segment compared to 2011 related primarily to the disposal of the wireline business in the first quarter of 2012. Activity generated from Tryton MSFS declined slightly during the second quarter, compared to the same period in the prior year, due to persistent wet weather conditions and moderate declines in drilling activity. Conventional downhole tools & rentals activity during the quarter remained comparable to the prior year despite the weather conditions.The gross margin for this segment improved over the prior year as a result of the disposition of the wireline business which traditionally generated lower margins. Margins in the Downhole Tools & Rentals segment are typically less impacted during periods of low activity due to the lower fixed cost structure of this segment. COLOMBIA Essential services producing wells from its operating base in Barrancabermeja, Colombia. The Colombian operations were slightly cash flow negative during the quarter and revenue was below management expectations due to periods of inactivity. The Colombian operations have experienced inconsistent activity and Essential continues to pursue opportunities to stabilize activity and expand these operations. Management believes that there is significant demand for the services Essential provides and is continuing to develop these operations and relationships. GENERAL AND ADMINISTRATIVE Three months endedSix months endedJune 30,June 30,(Thousands)2012201120122011General and administrative expenses$4,146$3,214$8,298$6,465As a % of revenue8%8%5%6%General and administrative expenses are comprised of wages, professional fees, office space and other administrative costs incurred at the corporate and operations level. General and administrative expenses increased in absolute dollars primarily due to additional administrative costs associated with Technicoil field operations which are only included for one month of 2011 comparatives. INCOME TAXES Three months endedSix months endedJune 30,June 30,(Thousands)2012201120122011Current income tax expense (recovery)$(1,248)$239$2,468$239Deferred income tax expense (recovery)(542)(1,999)2,290517Total income tax expense (recovery)$(1,790)$(1,760)$4,758$756For the six months ended June 30, 2012, income tax expense increased compared to 2011 due to higher comparable earnings. WORKING CAPITAL June 30,June 30,(Thousands)20122011Current assets$75,363$66,558Current liabilities, excluding current portion of long-term debt(28,373)(31,155)Working capital$46,990$35,403Working capital ratio2.7:12.1:1The increase in working capital is a result of the improved results compared to the prior year. CREDIT FACILITY Essential's Credit Facility with its banking syndicate is comprised of a $100 million revolving term loan facility with a $35 million accordion feature available on lender's consent. The revolving term loan facility matures on May 30, 2014, is renewable at the lender's consent and is secured by a general security agreement over the Company's assets. To the extent the revolving term loan facility is not renewed, debt payments would be required over a two year period based on a three year amortization schedule. At June 30, 2012, the maximum of $100 million was available to Essential.As at June 30, 2012, all financial debt covenants were satisfied and all banking requirements were up to date. Essential does not anticipate any financial resource or liquidity issues to restrict its future operating, investing or financing activities. On August 8, 2012, Essential had long-term debt outstanding of $51.9 million. EQUIPMENT EXPENDITURES Three months endedSix months endedJune 30,June 30,(Thousands)2012201120122011Well Servicing$11,820$8,168$21,088$14,425Downhole Tools & Rentals3981,4611,2133,129Corporate246348710425Total equipment expenditures12,4649,97723,01117,979Less proceeds on disposal of property and equipment(797)(1,404)(8,115)(2,351)Net equipment expenditures(1)$11,667$8,573$14,896$15,628Essential plans to complete its 2012 capital program, however, spending is expected to decrease from $60 million to $57 million due to the slight delay in the delivery of certain equipment into 2013. Spending in 2012 is expected to consist of $43 million in growth capital and $14 million in maintenance and infrastructure capital. The program continues to focus on increasing the depth capacity of the coil tubing fleet, expanding the pumping fleet to support deeper horizontal well activity and enhancing the capabilities of the service rig fleet. Capital spending during the first half of 2012 primarily consisted of deposits and progress payments on the build programs for the masted coil tubing rigs, fluid pumpers and service rigs. Capital spending during the second half of 2012 is expected to be higher than the first half of 2012 as Essential makes final payments for equipment once it has been commissioned and delivered.During the first six months of 2012, Essential added the following assets to its fleet:One 1,000 HP quintiplex fluid pumper in the coil well service operations. One custom built mobile, free-standing, all-period double service rig for northern Alberta service rig operations. One mobile, free-standing double service rig for southern Alberta service rig operations. Essential expects to add the following assets to its fleet through the remainder of 2012 and into 2013:Five deep masted coil tubing rigs and one conventional deep coil tubing rig in the coil well service operations. Two 1,000 HP quintiplex fluid pumpers, three low-rate nitrogen pumpers and one high-rate pumper in the coil well service operations. Two custom built mobile, free-standing, all-period double service rigs for the northern Alberta service rig operations. One mobile, free-standing double service rig for southern Alberta service rig operations. Essential has removed from service several redundant shallow coil tubing rigs and aging service rigs during the quarter. These assets have nominal book value and represent a small portion of Essential's equipment fleet. The company expects to sell or dismantle this equipment.Essential classifies its equipment expenditures as growth capital(1), maintenance capital(1), and infrastructure capital(1). The latter category includes information systems, operational facilities and leasehold improvements. Comparative equipment expenditures are as follows:Three months endedSix months endedJune 30,June 30,(Thousands)2012201120122011Growth capital(1)$9,545$7,301$15,633$12,721Maintenance capital(1)2,5751,9296,5524,179Infrastructure capital(1)3447478261,079Total equipment expenditures$12,464$9,977$23,011$17,979OUTLOOKDemand in the WCSB continues to be driven by oil prices and activity on horizontal wells which are more service intensive than vertical wells. Activity in the second quarter was hampered by wet weather conditions which delayed the restart of operations after spring break-up, however, demand for Essential's services has recently started improving.Since the end of the first quarter there has been some deterioration in industry expectations for the second half of 2012 as world economic events have created uncertainty in the market and oil price instability. Activity for the back half of 2012 will be dependent on whether customers maintain or reduce their capital spending programs given these market uncertainties. If capital budgets are reduced, customers may continue to focus on workovers of existing wells to meet production targets. Despite these factors, management expects strong activity in Essential's deep coil tubing fleet due to the shortage of equipment in the industry.Essential expects to complete its 2012 capital expenditure program which further expands the breadth and depth of the current fleet and is expected to reinforce Essential's position as a leading well service provider in the WCSB.Essential remains well-positioned with a strong balance sheet and high demand services lines of coil well service, service rigs and downhole tools and rentals to meet its customers' needs.QUARTERLY DIVIDENDThe cash dividend for the period July 1, 2012 to September 30, 2012 has been set at $0.025 per share. The dividend will be paid on October 15, 2012 to shareholders of record on September 28, 2012. The ex-dividend date is September 26, 2012.SUMMARY OF QUARTERLY DATA($Thousands, exceptJune 30,Mar 31,Dec 31,Sep 30,Jun 30,Mar 31,Dec 31,Sep 30, per share amounts)20122012201120112011201120102010Well servicing:Coil well service18,69742,41443,94536,3499,87114,13111,3738,859Service rigs12,81529,93825,06020,9699,60623,87317,74712,796Other3,81810,5797,7357,1483,5262,2062,4572,454Total well servicing35,33082,93176,74064,46623,00340,21031,57724,109Downhole tools & rentals*15,54035,25132,11533,31617,11526,20622,36617,135Colombia1,4631,3982,0481,634361---Total revenue52,333119,580110,90399,41640,47966,41653,94341,244Gross margin(1)3,66736,50435,75831,1003,07716,65214,63610,186Gross margin %(1)7%31%32%31%8%25%27%25%EBITDA(1)(479)32,35231,82927,293(137)13,40111,2937,248EBITDA %(1)(1)%27%29%27%0%20%21%18%Net income (loss) attributable to shareholders of Essential(5,923)18,89317,55913,678(6,364)6,2486,1212,663Per share - basic and diluted$(0.05)$0.15$0.14$0.11$(0.07)$0.09$0.09$0.04Total assets393,377430,674421,590411,084371,017190,926173,803160,797Total long-term debt41,19857,23863,57679,23063,4597,392396471Equity attributable to shareholders of Essential297,937306,372288,828271,561257,119156,694149,660143,989Utilization **Coil tubing rigs - deep32%102%111%104%37%85%81%70%Coil tubing rigs - other7%25%30%25%18%34%35%38%Service rigs34%68%59%54%27%64%51%40%Hybrid drilling rigs11%60%47%48%47%---Operating HoursCoil tubing rigs - deep7,26223,23623,52421,9383,6384,5753,7402,305Coil tubing rigs - other1,5965,4946,7785,8133,8057,0338,7048,647Service rigs16,18335,18831,00528,20113,22928,71024,07218,752Hybrid drilling rigs1,2306,5815,1925,3371,696---Number of Tryton MSFS jobs3386698536464133Equipment fleet ***CanadaCoil tubing rigs4549494848323232Service rigs5358575758525151Nitrogen pumpers101010988910Fluid pumpers161515126---Hybrid drilling rigs55555---Rod rigs1414141414202023ColombiaCoil tubing rigs2222221-Service rigs2221111-Nitrogen pumpers2222221-Rod rigs3333333-(i) Revenue for Downhole Tools & Rentals includes the revenue from Essential's wireline fleet until it was disposed of on February 2, 2012. (ii) Utilization is calculated using a 10 hour day for the entire fleet except for hybrid drilling rigs which is calculated using a 24 hour day. (iii) Fleet data represents the number of units at the end of the period. ESSENTIAL ENERGY SERVICES LTD.CONSOLIDATED STATEMENT OF FINANCIAL POSITION(unaudited)As atAs atJune 30,December 31,(Thousands)20122011AssetsCurrentCash$-$164Trade and other receivables49,13185,013Income taxes receivable800-Inventories21,31317,819Prepayments4,1193,01975,363106,015Non-currentProperty and equipment217,513211,764Intangible assets41,96144,750Goodwill57,42557,425Deferred tax assets1,1151,636318,014315,575Total assets$393,377$421,590LiabilitiesCurrentBank indebtedness$2,715$-Trade and other payables22,45239,913Dividends payable3,096-Income taxes payable-5,234Current portion of long-term debt1514,603Current portion of equity taxes11011728,38859,867Non-currentLong-term debt41,18348,973Equity taxes110232Deferred tax liabilities25,79423,61567,08772,820Total liabilities95,475132,687EquityShare capital258,514257,775Retained earnings35,42728,651Other reserves3,9962,402Equity attributable to shareholders of Essential297,937288,828Non-controlling interest(35)75Total equity297,902288,903Total liabilities and equity$393,377$421,590ESSENTIAL ENERGY SERVICES LTD.CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(unaudited)For the three months endedFor the six months endedJune 30,June 30,(Thousands, except per share amounts)2012201120122011Revenue$52,333$40,479$171,913$106,895Operating expenses48,66637,402131,74287,166Gross margin3,6673,07740,17119,729General and administrative expenses4,1463,2148,2986,465(479)(137)31,87313,264Depreciation and amortization6,2314,04713,3947,555Share-based compensation444409935714Equity taxes---478Other (income) expense74849(1,143)1,228Operating profit (loss)(7,228)(5,442)18,6873,289Transaction costs-2,397-2,397Finance costs5693721,205492Earnings (loss) before income taxes(7,797)(8,211)17,482400Income taxesCurrent expense (recovery)(1,248)2392,468239Deferred expense (recovery)(542)(1,999)2,290517Total income tax expense (recovery)(1,790)(1,760)4,758756Net income (loss)(6,007)(6,451)12,724(356)Other comprehensive income (loss):Unrealized foreign exchange gain (loss) on foreign operations(2)1691,007344Comprehensive income (loss)$(6,009)$(6,282)$13,731$(12)Net income (loss) attributable to:Shareholders of Essential$(5,923)$(6,364)$12,971$(116)Non-controlling interest(84)(87)(247)(240)$(6,007)$(6,451)$12,724$(356)Comprehensive income (loss) attributable to:Shareholders of Essential$(5,913)$(6,216)$13,846$193Non-controlling interest(96)(66)(115)(205)$(6,009)$(6,282)$13,731$(12)Earnings (loss) per shareBasic and diluted, attributable to shareholders of Essential$(0.05)$(0.07)$0.10$0.00ESSENTIAL ENERGY SERVICES LTD.CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited)For the six months endedJune 30,(Thousands)20122011Operating activities:Net income (loss)$12,724$(356)Non-cash adjustments to reconcilenet income to net cash flow:Depreciation and amortization13,3947,555Deferred income tax expense2,290517Share-based compensation935714Provision for (recovery of) impairment of trade receivables(312)214Finance costs1,205492(Gain) loss on disposal of assets(490)1,591Operating cash flow before changes in working capital29,74610,727Changes in working capital:Decrease in trade and other receivables before provision36,6686,096Increase in inventories(3,494)(3,036)(Increase) decrease in prepayments(1,100)311Increase (decrease) in income taxes payable(6,034)239Decrease in trade and other accounts payables(17,461)(11,417)Increase (decrease) in equity taxes payable(129)478Net cash flows from operating activities38,1963,398Investing activities:Purchase of property and equipment(23,011)(17,979)Business acquisition-(56,582)Proceeds on disposal of equipment8,1152,351Net cash flows used in investing activities(14,896)(72,210)Financing activities:Increase (decrease) in long-term debt(22,378)62,837Dividends paid(3,094)-Issuance of share capital, net of costs5206Finance costs(1,205)(492)Net cash flows from (used in) financing activities(26,157)62,351Foreign exchange gain on cash held in a foreign currency(22)(4)Change in cash(2,879)(6,465)Cash, beginning of period1642,392Bank indebtedness, end of period$(2,715)$(4,073)(1)Non-IFRS MeasuresThroughout this news release, certain terms that are not specifically defined in International Financial Reporting Standards ("IFRS") are used to analyze Essential's operations. In addition to the primary measures of net earnings and net earnings per share in accordance with IFRS, Essential believes that certain measures not recognized under IFRS assist both Essential and the reader in assessing performance and understanding Essential's results. Each of these measures provides the reader with additional insight into Essential's ability to fund principal debt repayments and capital programs. As a result, the method of calculation may not be comparable with other companies. These measures should not be considered alternatives to net earnings and net earnings per share as calculated in accordance with IFRS.Gross margin % - This measure is considered a primary indicator of operating performance as calculated by gross margin divided by revenue.EBITDA (Earnings before finance costs, income taxes, equity taxes, depreciation, amortization, transaction costs, non-controlling interest earnings, losses or gains on disposal of equipment and share- based compensation) - This measure is considered an indicator of Essential's ability to generate funds flow in order to fund required working capital, service debt and fund capital programs.EBITDA % - This measure is considered an indicator of Essential's ability to generate funds flow as calculated by EBITDA divided by revenue.Funds flow or funds flow from operations - This measure is an indicator of Essential's ability to generate funds flow in order to fund working capital, principal debt repayments and capital programs. Funds flow or funds flow from operations is defined as cash flow from operations before changes in non-cash operating working capital. This measure is useful in assessing Essential's operational cash flow as it provides cash generated in the period excluding the timing of non-cash operating working capital. This reflects the ability of the operations of Essential to meet the above noted funding requirements.Growth capital - Growth capital is capital spending which is intended to result in incremental increases in revenue. Growth capital is considered to be a key measure as it represents the total expenditures on equipment expected to add incremental revenues and funds flow to Essential.Maintenance capital - Equipment additions that are incurred in order to refurbish or replace previously acquired equipment less proceeds on the disposal of retired equipment. Such additions do not provide incremental increases in revenue. Maintenance capital is a key component in understanding the sustainability of Essential's business as cash resources retained within Essential must be sufficient to meet maintenance capital needs to replenish the assets for future cash generation.Infrastructure capital - Additions that are incurred in order to maintain the Company's business systems and operating facilities. Such additions do not provide incremental increases in revenue.Net equipment expenditures - This measure is equipment expenditures less proceeds on the disposal of equipment. Essential uses net equipment expenditures to assess net cash flows related to the financing of Essential's oilfield services equipment.ABOUT ESSENTIALEssential operates the largest coil tubing well service fleet in Canada with 47 coil tubing rigs and a fleet of 55 service rigs. Essential is a growth-oriented corporation that provides oilfield services to oil and gas producers in western Canada for servicing producing wells and new drilling activity. Essential also sells, rents and services downhole tools and equipment including the Tryton Multi-Stage Fracturing System. Further information can be found at www.essentialenergy.ca.FORWARD-LOOKING STATEMENTS AND INFORMATIONThis news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, this news release contains forward-looking statements including expectations regarding capital spending, in-service timing of new equipment, expectations regarding the impact of recent equipment purchases, expectations of future cash flow and earnings, expectations with respect to the demand for and price of oil and liquids-rich natural gas, expectations regarding the level and type of drilling activity, production activity and required oilfield services in the WCSB, expectations regarding the demand for Essential's services, expectations regarding the business, operations and revenues of the Company in addition to general economic conditions, expectations regarding Essential's ability to meet the changing needs of the WCSB market and expectations regarding demand for Essential's services in Colombia.Although the Company believes that the expectations and assumptions on which such forward-looking statements and information are reasonable, undue reliance should not be placed on the forward-looking statements and information because the Company can give no assurance that such statements and information will prove to be correct. Since forward-looking statements and information 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. These include, but are not limited to: the risks associated with the oilfield services sector (e.g. demand, pricing and terms for oilfield services; current and expected oil and natural gas prices; exploration and development costs and delays; reserves discovery and decline rates; pipeline and transportation capacity; weather, health, safety and environmental risks); 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, incentive programs and environmental regulations; stock market volatility and the inability to access sufficient capital from external and internal sources; the ability of the Company's subsidiaries to enforce legal rights in foreign jurisdictions; general economic, market or business conditions; global economic events; changes to Essential's financial position and cash flow; the availability of qualified personnel, management or other key inputs; currency exchange fluctuations; changes in political and security stability; risks associated with government regulations and environmental health and safety matters and other unforeseen conditions which could impact the use of equipment and services supplied by Essential in Colombia; and other unforeseen conditions which could impact the use of services supplied by the Company. 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 the SEDAR website (www.sedar.com) for the Company. The forward-looking statements and information 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 statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.FOR FURTHER INFORMATION PLEASE CONTACT: Garnet K. AmundsonEssential Energy Services Ltd.President and CEO(403) email@example.comORJeff B. NewmanEssential Energy Services Ltd.Chief Financial Officer(403) firstname.lastname@example.orgORKaren PerasaloEssential Energy Services Ltd.Investor Relations(403) email@example.comThe TSX has neither approved nor disapproved the contents of this news release.