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Drilling and production services provider Western Energy Services Corp. reported a net loss of $0.94 million (CAD 1.3 million) in the third quarter, compared to a net income of $0.58 million (CAD 0.8 million) in the same period in 2022, which it attributed to a $2.74 million (CAD 3.8 million) decrease in adjusted EBITDA and a $0.36 million (CAD 0.5 million) increase in depreciation expense due to property and equipment additions.
The company’s third-quarter revenue decreased by $2.52 million (CAD 3.5 million), or 6 percent, to $39.73 million (CAD 55.0 million), compared to $42.35 million (CAD 58.5 million) in the third quarter of 2022. Contract drilling revenue totaled $27.66 million (CAD 38.3 million) in the third quarter, flat compared to last year’s figure. Production services revenue was $12.13 million (CAD 16.8 million) for the three months ended September 30, falling $2.6 million (CAD 3.6 million), or 18 percent, compared to $14.73 million (CAD 20.4 million) in the same period of the prior year.
Revenue was negatively impacted by lower activity in production services and contract drilling in Canada and the USA due to lower commodity prices, Western Energy said in a recent earnings release.
Western Energy’s adjusted EBITDA of $7.95 million (CAD 11.0 million) in the third quarter was 25 percent lower compared to $10/69 million (CAD 14.8 million) in the prior-year period, which it attributed to lower production services activity in Canada and lower contract drilling activity in the USA and Canada, as well as inflationary cost increases, offset partially by higher pricing across all divisions.
In the USA, the company’s drilling rig utilization averaged 34 percent in the quarter, compared to 45 percent in the prior-year quarter. Operating days decreased from 333 days in the third quarter of 2022 to 249 days in the third quarter of 2023 due to lower industry activity, the company noted, adding that average active industry rigs of 6492 were 15 percent lower compared to the prior-year figure.
In Canada, Western Energy’s service rig utilization of 33 percent for the quarter was lower by 45 percent in the same period of the prior year “as industry activity decreased, mainly due to the completion of the Federal site rehabilitation program, several customers waiting on the restoration of power in areas impacted by wildfires and lower commodity prices experienced during the first eight months of 2023, compared to 2022”, the company said.
Crude oil and natural gas prices impact the cash flow of Western Energy’s customers, which in turn impacts the demand for its services, the company noted. West Texas Intermediate (WTI) on average decreased by 10 percent and 21 percent respectively, for the three and nine months ended September 30, compared to the same periods in the previous year. Pricing on Western Canadian Select (WCS) crude oil for the three months ended September 30 was consistent with the same period of the prior year, while for the nine months ended September 30, WCS decreased by 24 percent compared to the same period in the previous year.
Due to the reduced industry activity in the third quarter caused by lower commodity prices in the first eight months of the year, Western Energy has reduced its capital budget for 2023 to $18.06 million (CAD 25 million), a decrease of its previous capital budget of $21.67 million (CAD 30 million). The company said it will continue to manage its costs in a disciplined manner and make required adjustments to its capital program as customer demand changes.
The company noted that global events such as the Ukraine War and the Israel-Palestine conflict “contribute to the volatility of commodity prices and the precise duration and extent of the adverse impacts of the current macroeconomic environment on Western’s customers, operations, business and global economic activity, remains uncertain at this time”. However, recent events such as the Trans Mountain pipeline expansion, now expected to be mechanically complete in 2023 and start operating in early 2024, the Coastal Gaslink pipeline project which is 98 percent complete, and the LNG Canada liquefied natural gas project in British Columbia expected to be online in 2025, “may contribute to increased industry activity”, the company said.
With its recent drilling rig upgrade program substantially complete, Western Energy said it is “well-positioned to be the contractor of choice” to supply drilling rigs in a tightening market.
To contact the author, email rocky.teodoro@rigzone.com
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