2018 Annual Report
CWC-AR-2018-2.indd 1
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Contents
1
3
6
Corporate Profile
President’s Message
34
Management’s Discussion & Analysis
41
Financial Statements
Notes to the Financial Statements
CWC-AR-2018-2.indd 2
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Corporate Pro�ile – April 2017
Market Pro�ile
Shares outstanding
Price
Market
Financial Information
December 31, 2016
391.9 million
$0.195
$76.4 million
($ millions)
2016
2015
2014
Revenue
EBITDAS
Total Assets
Long-Term Debt
Net Debt
$73.1
$81.3
$143.7
$8.2
$12.0
$34.1
$210.8
$222.4
$275.4
$33.1
$21.8
$52.2
$40.4
$65.7
$45.1
Horn
River
Montney/
Deep Basin
Devonian
Slave Lake
Grande Prairie
Pekisko &
Beaverhill Lake
Heavy
Oil
Drayton Valley
Lloydminster
Cardium
Red Deer
Provost
Viking
Calgary
AB
Bakken
Brooks
Corporate Pro�ile – April 2017
TSX-V: CWC
CWC Energy Services Corp.
is a premier
contract drilling and well servicing company
operating in the WCSB with a complementary
suite of oilfield services including drilling rigs,
service rigs, swabbing rigs and coil tubing units.
These oilfield service activities are necessary
to drill wells, to complete newly drilled wells,
to maintain ongoing servicing of producing
wells and to abandon wells. CWC’s services
are provided through two divisions: Contract
Drilling and Production Services.
Corporate Profile – June 2019
Market Pro�ile
Market Pro�ile
December 31, 2016
December 31, 2018
Shares outstanding
Shares outstanding
Price
Price
Market
Financial Information
Market
Financial Information
($ millions)
391.9 million
512.5 million
$0.195
$0.115
$76.4 million
$58.9 million
2015
2014
2016
($ millions)
2018
2017
2016
Revenue
Revenue
EBITDAS
Adjusted EBITDA
Total Assets
Total Assets
Long-Term Debt
Long-Term Debt
Net Debt
Net Debt
$73.1
$81.3
$143.7
$144.8
$8.2
$112.2
$12.0
$73.1
$34.1
$18.5
$210.8
$16.1
$222.4
$8.2
$275.4
$252.7
$33.1
$264.4
$52.2
$210.8
$65.7
$44.9
$21.8
$49.8
$40.4
$33.1
$45.1
$25.9
$30.3
$24.0
Horn
Horn
River
River
Montney/
Montney/
Deep Basin
Deep Basin
Devonian
Devonian
Slave Lake
Slave Lake
Grande Prairie
Grande Prairie
Pekisko &
Beaverhill Lake
Heavy
Heavy
Oil
Oil
Drayton Valley
Drayton Valley
Cardium
Cardium
Lloydminster
Lloydminster
Red Deer
Sylvan Lake
Provost
Provost
Viking
Viking
Calgary
Calgary
Brooks
Brooks
AB
AB
Bakken
Bakken
CWC-AR-2018-2.indd 3
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2019-05-03 8:47 AM
Board of Directors
Jim Reid, Chairman
Duncan Au
Daryl Austin
Gary Bentham
Wade McGowan
Management
Dean Schultz
President & CEO
Duncan Au, FCPA, FCA, CFA
Chief Financial Officer
Stuart King, CPA, CA
VP Operations (Drilling)
Paul Donohue
VP Operations (Well
Darwin McIntyre
Services)
VP Sales and Marketing
Bob Apps
(Drilling)
VP Sales and Marketing
Mike Dubois
(Well Services)
Corporate Pro�ile – April 2017
The Contract Drilling division operates under the trade name CWC
Ironhand Drilling which has a fleet of nine telescopic 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. The drilling rig fleet has
an average age of nine years. 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 is expanding its drilling rig services into select United States
basins including the Permian, Eagle Ford and Bakken.
Market Pro�ile
December 31, 2016
Price
$0.195
391.9 million
Shares outstanding
Market
Financial Information
The Production Services division operates under the trade name CWC Well
Services and is the largest service rig provider by operating hours in the
WCSB, based on our fleet of 148 service rigs as at December 31, 2018. Rig
services include completions, maintenance, workovers and abandonments
with depth ratings from 1,500 to 5,000 metres and are well positioned
throughout the WCSB with operating locations in Slave Lake, Grande
Prairie, Drayton Valley, Sylvan Lake, Lloydminster, Provost and Brooks,
Alberta. CWC also operates 9 coil tubing units with depth rating from
1,500 to 4,000 metres. CWC’s coil tubing units are ideally suited for the
steam adjusted gravity drainage (SAGD) wells in the oilsands as well as
other parts of the WCSB. Finally, CWC operates 13 Swabbing rigs in the
WCSB. CWC’s Swabbing services are performed by a derrick unit (similar
to a small service rig) to remove liquids from within the wellbore and allow
reservoir pressure to push all fluids up the tubing or casing. CWC’s Well
Services division is well positioned for the changing demands of our oil and
gas customers for horizontal drilling and deeper depth capabilities.
Long-Term Debt
2018
$76.4 million
($ millions)
Total Assets
EBITDAS
Revenue
$222.4
$275.4
$210.8
$143.7
2016
2017
$73.1
$81.3
$33.1
$34.1
$12.0
$65.7
$52.2
2016
2014
2015
$8.2
Net Debt
2018
2018
2018
2017
2017
2017
$21.8
2016
2016
2016
$40.4
$45.1
Contract Drilling
Service Rigs
Horn
River
Coil Tubing
Swabbing Rigs
REVENUE BY DIVISION
Devonian
Montney/
Deep Basin
REVENUE BY DIVISION
REVENUE BY DIVISION
Grande Prairie
REVENUE BY DIVISION
Slave Lake
9
148
9
2018
13
2018
2018
2018
9
149
10
13
9
74
9
–
ADJUSTED EBITDA BY DIVISION *
ADJUSTED EBITDA BY DIVISION *
ADJUSTED EBITDA BY DIVISION *
ADJUSTED EBITDA BY DIVISION *
26%
Pekisko &
Beaverhill Lake
Heavy
Oil
26%
26%
Drayton Valley
26%
Cardium
74%
Red Deer
74%
74%
74%
Calgary
Production
Lloydminster
Services
Provost
Production
Production
Viking
Services
Contract
Services
Production
Drilling
Services
Contract
Contract
Drilling
Drilling
Contract
Drilling
Brooks
* Divisional contribution, corporate costs excluded
AB
Bakken
37%
37%
37%
37%
63%
63%
63%
63%
CWC-AR-2018-2.indd 4
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* Divisional contribution, corporate costs excluded
* Divisional contribution, corporate costs excluded
* Divisional contribution, corporate costs excluded
2019-05-03 8:47 AM
Corporate Pro�ile – April 2017
Market Pro�ile
December 31, 2016
Highlights of 2018
President’s Message
Dear Fellow Shareholders,
I am very pleased to share with you CWC Energy Services Corp.’s (“CWC” or
the “Company”) 2018 Annual Report. 2018 was a year of significant growth
for CWC as we achieved a record-setting 156,358 operating hours in the
service rig division, an increase of 28% compared to 2017 which was itself
the previous Company record, and firmly positioned CWC as the largest
service rig company in Canada as measured by operating hours.
Shares outstanding
Price
Market
Financial Information
391.9 million
$0.195
$76.4 million
($ millions)
2016
2015
2014
Revenue
EBITDAS
Total Assets
Long-Term Debt
2018
Net Debt
2018
2018
2018
2017
2017
2017
2017
$73.1
$81.3
$143.7
$8.2
$12.0
$34.1
$210.8
$222.4
$275.4
$33.1
2016
$52.2
$21.8
2016
2016
$40.4
2016
$65.7
$45.1
Horn
River
REVENUE BY DIVISION
Devonian
Montney/
Deep Basin
REVENUE BY DIVISION
REVENUE BY DIVISION
Grande Prairie
REVENUE BY DIVISION
Slave Lake
ADJUSTED EBITDA BY DIVISION *
ADJUSTED EBITDA BY DIVISION *
ADJUSTED EBITDA BY DIVISION *
ADJUSTED EBITDA BY DIVISION *
2018
2018
2018
2018
Lloydminster
Production
Services
Provost
Production
Production
Viking
Services
Contract
Services
Production
Drilling
Services
Contract
Contract
Drilling
Drilling
Contract
Drilling
Pekisko &
26%
Beaverhill Lake
Heavy
Oil
Drayton Valley
26%
26%
26%
Cardium
Red Deer
74%
74%
74%
74%
37%
37%
37%
37%
63%
63%
63%
63%
Calgary
Brooks
* Divisional contribution, corporate costs excluded
AB
Bakken
* Divisional contribution, corporate costs excluded
* Divisional contribution, corporate costs excluded
* Divisional contribution, corporate costs excluded
2018 started the year with West Texas Intermediate (“WTI”) oil prices in the mid US$60/bbl increasing to
the mid US$70/bbl range by the end of September 2018 before dropping precipitously to end the year at
approximately US$48/bbl. However, the real story in Canada was the widening price differential between
Canadian heavy oil, as represented by Western Canadian Select (“WCS”), and WTI which exploded to
unprecedented levels of over US$50/bbl compared to the historical normalized range of US$10 to US$15/bbl
in Q4 2018. This significant WTI-WCS differential resulted in the Government of Alberta announcement on
December 2, 2018 mandating a 325,000 bbls/day crude oil production curtailment on Alberta oil companies
producing more than 10,000 bbls/day. This Alberta production curtailment had a negative effect at the end of
the year on our Production Services segment as activity levels dropped significantly in mid-November 2018
as our exploration and production (“E&P”) customers were faced with both lower pricing and reduced ability
to sell their oil resulting in lower cash flow to spend on CWC’s production services. Despite the poor finish at
the end of 2018, CWC increased revenue to $144.8 million (a $32.5 million increase or 29% from 2017) and
increased Adjusted EBITDA to $18.5 million (a $2.4 million increase or 15% from 2017) resulting in a net loss
of $1.7 million (compared to a net income of $4.9 million in 2017, driven mostly from a gain on acquisition
from C&J Canada of $9.1 million). These operational and financial results are a testament to CWC’s productive,
efficient and safety conscious employees, exceptional management team, Board of Directors guidance and,
above all, the support of our debtholders and shareholders in providing the necessary financing to achieve
these goals.
On June 29, 2018, CWC obtained a new five-year credit facility (the “Mortgage Loan”) in the principal amount
of $12.8 million to refinance our properties in Sylvan Lake, Slave Lake and Brooks, Alberta. As a result of this
financing, the Company reduced its credit facility with its banking syndicate from $100 million to $75 million
to reduce borrowing costs and standby charges. In addition, on July 27, 2018 the Company entered into an
interest rate swap to effectively fix the interest rate on the Mortgage Loan at 4% until June 28, 2023. Such
support from our debtholders allows CWC to focus on its business operations and strategic growth initiatives
to create long-term shareholder value.
On April 10, 2018, the Company renewed its Normal Course Issuer Bid (“NCIB”) with an Automatic Securities
Purchase Plan (“ASPP”) with Raymond James Ltd. During 2018, CWC purchased 11,421,000 common shares
under the NCIB which were cancelled and returned to treasury. These common shares represented 47%
of the 24,366,081 shares traded on the TSX Venture Exchange in 2018, as the Company continued to add
value for its remaining shareholders by reducing the number of common shares outstanding and providing
liquidity for those shareholders looking to sell their shares.
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CWC-AR-2018-2.indd 5
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Outlook For 2019
Activity levels for the beginning of 2019 has been slower than 2018 due to the Alberta production curtailment.
On May 1, 2019, the Petroleum Services Association of Canada (“PSAC”) revised its forecast for number of
wells drilled in 2019 to 5,300 wells, a decrease of 1,300 wells or 20% from its original November 1, 2018
forecast. Despite the slow start to 2019, CWC is starting to see activity levels in both the Contract Drilling and
Production Services segment increasing as the Government of Alberta reduced their production curtailment
by 75,000 bbls/day in February 2019, another 25,000 bbls/day in each of April, May and June 2019. In addition,
the Company has been actively pursuing opportunities with new E&P customers in the United States for our
drilling rigs where both utilization and pricing are expected to be higher than in Canada. We have recently
signed our first two U.S. contracts and will be moving one drilling rig into the Eagle Ford basin in Texas and
a second drilling rig into Wyoming with operations expected to start in Q2 2019, subject to obtaining work
visas for our field employees. We intend on sending two more drilling rigs into the U.S. in the second half
of 2019. As such, CWC is optimistic that the second half of 2019 will show higher activity levels and better
Shareholder Returns
operational and financial results compared to the first half of 2019.
From a shareholder return perspective, while 2018 was not a great year for share price appreciation for
public Canadian contract drilling and well servicing companies, CWC’s share price has bounced back in 2019
and is the only company to produce a significant positive share price return of 67% for its shareholders since
December 31, 2015 as the following graph indicates:
Share Price Returns - January 1, 2016 to April 1, 2019
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CWC-AR-2018-2.indd 6
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The poor share price performance for the Canadian contract drilling and well servicing sector, despite
better fundamental operating and financial performance in 2018 compared to 2017 and 2016, can largely be
attributable to the negative macro environment surrounding our E&P customers’ ability to get their oil and
natural gas to markets. The delays in building pipelines and the constantly increasing costs and regulations
put on our customers by federal and provincial government authorities versus the more accommodating
investment environment in the U.S. towards oil and natural gas has led to investment dollars flowing to U.S.
companies compared to Canadian companies. In fact, 2018 was the lowest amount of equity capital raised
(approximately $500 million) for Canadian E&P companies in the last 25 years. To date for 2019, the amount
of equity capital raised for Canadian E&P companies has been $0. While there does not appear to be any
catalysts that will reverse this competitiveness and investment trend in the near future, save and except
for a change in provincial and federal government policies, CWC believes these are opportunistic times
for consolidation with our peers at very attractive valuations and as such will create superior returns for
Conclusion
shareholders over the long-term.
In closing, I would like to express my sincere thanks to CWC’s employees for their truly hard work and
dedication to making CWC the best performing contract drilling and well servicing company in Canada. To
our customers, we cherish your ongoing business and relationship and will be there to advocate for you
in creating a healthier Canadian energy industry. To my Board of Directors, thank you for your support,
wisdom, guidance and belief in this management team. And to all of my fellow shareholders who continue to
believe and support us, it’s not what we know but what we USE of what you know that matters!
Sincerely and submitted on behalf of the Board of Directors,
Duncan T. Au
President & Chief Executive Officer
May 1, 2019
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MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)
Management’s Discussion and Analysis (“MD&A”) is a review of the results of operations and liquidity and capital resources of
CWC Energy Services Corp. (unless the context indicates otherwise, a reference in this MD&A to “CWC”, the “Company”, “we”,
“us”, or “our” means CWC Energy Services Corp.). The following discussion and analysis provided by CWC is dated February 28,
2019 and should be read in conjunction with audited consolidated financial statements for the year ended December 31, 2018.
Additional information regarding CWC can be found in the Company’s latest Annual Information Form (“AIF”). The audited
consolidated financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards
Board (“IASB”). All amounts are expressed in Canadian dollars unless otherwise noted. Additional information relating to CWC,
including the AIF, is available on SEDAR at www.sedar.com.
Financial and Operational Highlights
$ thousands, except shares, per share
amounts, margins and ratios
FINANCIAL RESULTS
Revenue
Contract Drilling
Production Services
(1)
Adjusted EBITDA
Adjusted EBITDA margin (%)
(1)
Funds from operations
Net income (loss) and comprehensive income
(loss)
Net income (loss) and comprehensive income
(loss) margin (%)
Per share information
Weighted average number of shares
outstanding – basic
Weighted average number of shares
outstanding – diluted
Adjusted EBITDA
diluted
Net income (loss) per share - basic and diluted
per share – basic and
(2)
$ thousands, except ratios
FINANCIAL POSITION AND LIQUIDITY
(1)
Three months ended
December 31,
Year ended
December 31,
2018
2017
% Change
2018
2017
2016
13,081
22,397
35,478
4,978
14%
4,978
(157)
(0%)
10,914
26,506
37,420
6,630
18%
20%
(16%)
(5%)
(25%)
38,223
106,539
144,762
18,489
13%
35,222
76,993
112,215
16,063
14%
5,081
(2%)
18,489
14,514
15,903
57,219
73,122
8,220
11%
8,220
(2)
8,544
n/m
(1,702)
4,861
(6,746)
23%
n/m
(1%)
4%
(9%)
(2)
518,513,776 418,913,266
520,576,582 399,008,915 349,836,144
518,513,776 423,221,202
520,576,582 403,359,537 349,836,144
$0.01
($0.00)
$0.02
$0.02
December 31,
2018
$0.04
December 31,
($0.00)
2017
$0.04
$0.01
$0.02
December 31,
($0.02)
2016
Working capital (excluding debt)
Working capital (excluding debt) ratio
Total assets
Total long-term debt (including current portion)
Shareholders' equity
(1)
(1)
(2)
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Not meaningful.
19,028
3.4:1
252,665
44,896
184,231
19,543
2.6:1
264,354
49,810
186,519
9,142
2.2:1
210,750
33,142
155,482
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(10%) from December 31, 2017 as positive funds from operations were used to fund capital expenditures, purchase shares
under the Normal Course Issuer Bid (“NCIB”) and to repay debt.
Highlights for the Three Months Ended December 31, 2018
Average Q4 2018 crude oil pricing, as measured by WTI, of US$59.34/bbl was 15% lower than Q3 2018 average price of
US$69.51/bbl (Q4 2017: US$55.28/bbl) and finished the year on December 31, 2018 at US$45.41/bbl. However, the price
differential between Canadian heavy crude oil, as represented by WCS, and WTI widened at times during Q4 2018 to
unprecedented levels of over US$50/bbl compared to the historical normalized range of US$10/bbl to US$15/bbl. These
significant WTI-WCS differential resulted in the Government of Alberta announcement on December 2, 2018 mandating a
325,000 bbls/day crude oil production curtailment on Alberta oil companies producing more than 10,000 bbls/day. Natural
gas prices, as measured by AECO, increased 29% from an average of $1.19/GJ in Q3 2018 to $1.53/GJ in Q4 2018 (Q4 2017:
$1.67/GJ), but continues to remain very low in historically terms.
CWC’s drilling rig utilization in Q4 2018 of 59% (Q4 2017: 56%) exceeded Canadian Association of Oilwell Drilling
Contractors (“CAODC”) industry average of 28%. Activity levels increased 6% to 491 drilling rig operating days in Q4 2018
compared to 463 drilling rig operating days in Q4 2017, further demonstrating the desirability and demand by exploration
and production (“E&P”) customers for CWC’s telescopic double drilling rigs. CWC's service rig utilization in Q4 2018 of 37%
(Q4 2017: 46%) was driven by 31,232 operating hours being 24% lower than the 40,879 operating hours in Q4 2017. The
significant drop in Q4 2018 activity level for our production-oriented service rigs was a direct result of the significant WTI-
WCS differentials reaching over US$50/bbl and the uncertainties our E&P customers faced regarding the Government of
Alberta production curtailments thereby causing them to shorten or delay their workover and maintenance work on
(cid:120)
producing wells.
Revenue of $35.5 million, a decrease of $1.9 million (5%) compared to $37.4 million in Q4 2017. The decrease in Q4 2018
is a direct result of the significant WTI-WCS differential and the uncertainties our E&P customers faced regarding Alberta’s
production curtailments resulting in reduced activity levels in November and December 2018 for our Production Services
segment partially offset by an increase in activity level in our Contract Drilling segment.
(1)
Adjusted EBITDA
of $5.0 million, a decrease of $1.7 million (25%) compared to $6.6 million in Q4 2017. The decrease in
Q4 2018 is a direct result of the significant WTI-WCS differential and the uncertainties our E&P customers faced regarding
Alberta’s production curtailments resulting in reduced activity levels in November and December 2018 for our Production
Services segment partially offset by an increase in activity level in our Contract Drilling segment.
Net loss of $0.2 million, a decrease of $8.7 million compared to a net income of $8.5 million in Q4 2017. The decrease in net
income in Q4 2018 is primarily due to a gain on acquisition of $9.1 million, related to the C&J Energy Production Services-
Canada Ltd. (“C&J Canada”) acquisition in Q4 2017.
During Q4 2018, 7,828,000 (Q4 2017: 405,000) common shares were purchased, cancelled and returned to treasury under
CWC’s Normal Course Issuer Bid (“NCIB”).
Highlights for the Year Ended December 31, 2018
CWC’s drilling rig utilization in 2018 of 49% (2017: 51%) exceeded the CAODC industry average of 29%. Activity levels in
2018 have decreased 3% compared to 2017 due to significant wet weather conditions in key operating areas in Q3 2018
which resulted in lost activity days. For the year ended December 31, 2018 operating days of 1,622 (2017: 1,672 operating
days) is the second most active since the acquisition of Ironhand Drilling Inc. in May 2014. CWC's service rig utilization in
2018 of 42% (2017: 45%). Activity levels in 2018 set new Company records by increasing 28% to 156,358 operating hours
(2017: 122,243). The increase resulted from the additional service rigs acquired from C&J Canada in November 2017.
Revenue of $144.8 million, an increase of $32.5 million (29%) compared to $112.2 million in 2017. The increase is primarily
a result of the addition of the service rig assets of C&J Canada.
(1)
Adjusted EBITDA
of $18.5 million, an increase of $2.4 million (15%) compared to $16.1 million in 2017. The increase in
Adjusted EBITDA is consistent with the increased activity ($4.5 million) from Production services due to the C&J Canada
acquisition, offset by a decrease in Adjusted EBITDA in Contract drilling ($0.4 million) and corporate expense of ($1.7
Working capital (excluding debt) is similar to December 31, 2017 due to similar operating days and hours between CWC’s
Contract Drilling and Production Services segments. Long-term debt (including current portion) has decreased $4.9 million
Page | 6
CWC-AR-2018-2.indd 8
2019-05-03 8:47 AM
million).
Page | 7
MANAGEMENT’S DISCUSSION AND ANALYSIS (“MD&A”)
Management’s Discussion and Analysis (“MD&A”) is a review of the results of operations and liquidity and capital resources of
CWC Energy Services Corp. (unless the context indicates otherwise, a reference in this MD&A to “CWC”, the “Company”, “we”,
“us”, or “our” means CWC Energy Services Corp.). The following discussion and analysis provided by CWC is dated February 28,
2019 and should be read in conjunction with audited consolidated financial statements for the year ended December 31, 2018.
Additional information regarding CWC can be found in the Company’s latest Annual Information Form (“AIF”). The audited
consolidated financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards
Board (“IASB”). All amounts are expressed in Canadian dollars unless otherwise noted. Additional information relating to CWC,
including the AIF, is available on SEDAR at www.sedar.com.
Financial and Operational Highlights
Funds from operations
5,081
(2%)
18,489
14,514
Three months ended
December 31,
Year ended
December 31,
2018
2017
% Change
2018
2017
2016
13,081
22,397
35,478
4,978
14%
4,978
(157)
(0%)
10,914
26,506
37,420
6,630
18%
20%
(16%)
(5%)
(25%)
38,223
106,539
144,762
18,489
13%
35,222
76,993
112,215
16,063
14%
15,903
57,219
73,122
8,220
11%
8,220
8,544
n/m
(1,702)
4,861
(6,746)
23%
n/m
(1%)
4%
(9%)
(2)
(2)
518,513,776 418,913,266
520,576,582 399,008,915 349,836,144
518,513,776 423,221,202
520,576,582 403,359,537 349,836,144
$0.01
($0.00)
$0.02
$0.02
$0.04
$0.04
December 31,
December 31,
($0.00)
$0.01
December 31,
($0.02)
2018
2017
$0.02
2016
$ thousands, except shares, per share
amounts, margins and ratios
FINANCIAL RESULTS
Revenue
Contract Drilling
Production Services
Adjusted EBITDA
(1)
Adjusted EBITDA margin (%)
(1)
Net income (loss) and comprehensive income
Net income (loss) and comprehensive income
(loss)
(loss) margin (%)
Per share information
Weighted average number of shares
outstanding – basic
Weighted average number of shares
outstanding – diluted
(2)
Adjusted EBITDA
per share – basic and
diluted
Net income (loss) per share - basic and diluted
$ thousands, except ratios
FINANCIAL POSITION AND LIQUIDITY
Working capital (excluding debt)
Working capital (excluding debt) ratio
(1)
(1)
Total assets
Total long-term debt (including current portion)
Shareholders' equity
(1)
(2)
Not meaningful.
Page | 6
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Working capital (excluding debt) is similar to December 31, 2017 due to similar operating days and hours between CWC’s
Contract Drilling and Production Services segments. Long-term debt (including current portion) has decreased $4.9 million
19,028
3.4:1
252,665
44,896
184,231
19,543
2.6:1
264,354
49,810
186,519
9,142
2.2:1
210,750
33,142
155,482
(10%) from December 31, 2017 as positive funds from operations were used to fund capital expenditures, purchase shares
Highlights for the Three Months Ended December 31, 2018
under the Normal Course Issuer Bid (“NCIB”) and to repay debt.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Average Q4 2018 crude oil pricing, as measured by WTI, of US$59.34/bbl was 15% lower than Q3 2018 average price of
US$69.51/bbl (Q4 2017: US$55.28/bbl) and finished the year on December 31, 2018 at US$45.41/bbl. However, the price
differential between Canadian heavy crude oil, as represented by WCS, and WTI widened at times during Q4 2018 to
unprecedented levels of over US$50/bbl compared to the historical normalized range of US$10/bbl to US$15/bbl. These
significant WTI-WCS differential resulted in the Government of Alberta announcement on December 2, 2018 mandating a
325,000 bbls/day crude oil production curtailment on Alberta oil companies producing more than 10,000 bbls/day. Natural
gas prices, as measured by AECO, increased 29% from an average of $1.19/GJ in Q3 2018 to $1.53/GJ in Q4 2018 (Q4 2017:
$1.67/GJ), but continues to remain very low in historically terms.
CWC’s drilling rig utilization in Q4 2018 of 59% (Q4 2017: 56%) exceeded Canadian Association of Oilwell Drilling
Contractors (“CAODC”) industry average of 28%. Activity levels increased 6% to 491 drilling rig operating days in Q4 2018
compared to 463 drilling rig operating days in Q4 2017, further demonstrating the desirability and demand by exploration
and production (“E&P”) customers for CWC’s telescopic double drilling rigs. CWC's service rig utilization in Q4 2018 of 37%
(Q4 2017: 46%) was driven by 31,232 operating hours being 24% lower than the 40,879 operating hours in Q4 2017. The
significant drop in Q4 2018 activity level for our production-oriented service rigs was a direct result of the significant WTI-
WCS differentials reaching over US$50/bbl and the uncertainties our E&P customers faced regarding the Government of
Alberta production curtailments thereby causing them to shorten or delay their workover and maintenance work on
producing wells.
Revenue of $35.5 million, a decrease of $1.9 million (5%) compared to $37.4 million in Q4 2017. The decrease in Q4 2018
is a direct result of the significant WTI-WCS differential and the uncertainties our E&P customers faced regarding Alberta’s
production curtailments resulting in reduced activity levels in November and December 2018 for our Production Services
segment partially offset by an increase in activity level in our Contract Drilling segment.
(1)
of $5.0 million, a decrease of $1.7 million (25%) compared to $6.6 million in Q4 2017. The decrease in
Adjusted EBITDA
Q4 2018 is a direct result of the significant WTI-WCS differential and the uncertainties our E&P customers faced regarding
Alberta’s production curtailments resulting in reduced activity levels in November and December 2018 for our Production
Services segment partially offset by an increase in activity level in our Contract Drilling segment.
Net loss of $0.2 million, a decrease of $8.7 million compared to a net income of $8.5 million in Q4 2017. The decrease in net
income in Q4 2018 is primarily due to a gain on acquisition of $9.1 million, related to the C&J Energy Production Services-
Canada Ltd. (“C&J Canada”) acquisition in Q4 2017.
During Q4 2018, 7,828,000 (Q4 2017: 405,000) common shares were purchased, cancelled and returned to treasury under
CWC’s Normal Course Issuer Bid (“NCIB”).
Highlights for the Year Ended December 31, 2018
(cid:120)
(cid:120)
(cid:120)
CWC’s drilling rig utilization in 2018 of 49% (2017: 51%) exceeded the CAODC industry average of 29%. Activity levels in
2018 have decreased 3% compared to 2017 due to significant wet weather conditions in key operating areas in Q3 2018
which resulted in lost activity days. For the year ended December 31, 2018 operating days of 1,622 (2017: 1,672 operating
days) is the second most active since the acquisition of Ironhand Drilling Inc. in May 2014. CWC's service rig utilization in
2018 of 42% (2017: 45%). Activity levels in 2018 set new Company records by increasing 28% to 156,358 operating hours
(2017: 122,243). The increase resulted from the additional service rigs acquired from C&J Canada in November 2017.
Revenue of $144.8 million, an increase of $32.5 million (29%) compared to $112.2 million in 2017. The increase is primarily
a result of the addition of the service rig assets of C&J Canada.
(1)
of $18.5 million, an increase of $2.4 million (15%) compared to $16.1 million in 2017. The increase in
Adjusted EBITDA
Adjusted EBITDA is consistent with the increased activity ($4.5 million) from Production services due to the C&J Canada
acquisition, offset by a decrease in Adjusted EBITDA in Contract drilling ($0.4 million) and corporate expense of ($1.7
million).
Page | 7
CWC-AR-2018-2.indd 9
2019-05-03 8:47 AM
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Net loss of $1.7 million, a decrease of $6.5 million compared to a net income of $4.9 million in 2017. The decrease in net
income in 2018 is primarily due to a gain on acquisition of $9.1 million, related to the C&J Canada acquisition in 2017.
OPERATING HIGHLIGHTS
Drilling Rigs
Dec. 31,
Sep. 30,
Jun. 30,
Mar. 31,
Dec. 31,
Sep. 30,
Jun. 30,
Mar. 31,
2018
2018
2018
2018
2017
2017
2017
2017
Three months ended
At the request of the Company, the Bank Loan was reduced from $100 million to $75 million to reduce borrowing costs and
standby charges.
On June 29, 2018 the Company obtained a new five year credit facility (the “Mortgage Loan”) in the principal amount of
$12.8 million. The Mortgage Loan is secured by, among other things, a collateral mortgage from the Company in favour of
the bank over properties located in Sylvan Lake, Brooks and Slave Lake Alberta. These new borrowing arrangements
significantly reduce the Company’s overall borrowing costs by reducing standby charges on the syndicated credit facilities
(the “Bank Loan”) and realizing a lower interest rate on the term Bank Loan. The Mortgage Loan has been amortized over
22 years with blended monthly principal and interest payments. On July 27, 2018 the Company entered into an interest
rate swap to effectively fix the interest rate at 4.00% until June 28, 2023. As of December 31, 2018, the mark-to-market
value of the interest rate swap resulted in a net loss of $0.2 million.
On April 10, 2018, the Company renewed its NCIB with an Automatic Securities Purchase Plan (“ASPP”) with Raymond
James Ltd., which expires on April 9, 2019. During 2018, the Company purchased 11,421,000 (2017: 3,493,500) common
shares under its NCIB which were cancelled and returned to treasury. The 11,421,000 common shares purchased under the
NCIB represented 47% of the 24,366,081 shares traded on the TSX Venture Exchange (“TSXV”) in 2018.
(1)
Corporate Overview
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the Western Canadian
Sedimentary Basin ("WCSB") with a complementary suite of oilfield services including drilling rigs, service rigs, swabbing rigs
and coil tubing units. The Company's corporate office is located in Calgary, Alberta, with 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”.
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 and three have pad rig walking systems. 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. Part 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 deeper depths at a cost effective price while providing a sufficient
internal rate of return for CWC’s shareholders.
Active drilling rigs, end of period
Inactive drilling rigs, end of period
Total drilling rigs, end of period
(1)
Revenue per operating day
Drilling rig operating days
(2)
Drilling rig utilization %
CAODC industry average utilization %
Wells drilled
Average days per well
Meters drilled (thousands)
Meters drilled per day
(1)
Average meters per well
(2)
of field service.
$26,642
$21,263
$21,227
$23,485
$23,572
$19,424
$19,575
$20,942
9
-
9
491
59%
28%
34
14.4
127.8
261
3,708
9
-
9
500
60%
30%
41
12.2
155.2
310
3,786
9
-
9
133
16%
17%
11
12.1
41.0
309
3,724
9
-
9
498
61%
52%
45
11.1
161.7
325
3,593
9
-
9
463
56%
28%
30
15.0
128.1
277
4,270
9
-
9
522
63%
29%
29
18.0
112.2
215
3,869
9
-
9
155
19%
17%
17
9.1
45.6
294
2,684
9
-
9
532
66%
40%
41
13.0
151.8
285
3,702
Revenue per operating day is calculated based on operating days (i.e. spud to rig release basis). New or inactive drilling rigs are added based on the first day
Drilling rig utilization is calculated based on operating days (i.e. spud to rig release basis) in accordance with the methodology prescribed by the CAODC.
Contract Drilling revenue of $13.1 million for Q4 2018 (Q4 2017: $10.9 million) was achieved with a utilization rate of 59% (Q4
2017: 56%), compared to the CAODC industry average of 28%. CWC achieved 491 drilling rig operating days in Q4 2018, a 6%
increase from 463 drilling rig operating days in Q4 2017. The Q4 2018 average revenue per operating day of $26,642 was an
increase from $23,572 in Q4 2017 and included a one-time contract payout amount of $0.7 million.
For the year ended December 31, 2018, Contract Drilling revenue of $38.2 million was 9% higher than the $35.2 million achieved
in 2017. CWC’s utilization rate in 2018 of 49% continues to significantly exceed the CAODC industry average of 29% and is
slightly lower than the 51% for the year ended December 31, 2017. CWC had 1,622 drilling rig operating days in 2018, a 3%
decrease from the 1,672 drilling operating days in 2017. The reduction in operating days were due to significant wet weather
conditions in key operating areas in Q3 2018 (57 days of lost activity compared to 31 days in Q3 2017 out of a possible 828 total
days).
Production Services
With a fleet of 148 service rigs, CWC is the largest well servicing company in Canada as measured by operating hours. CWC’s
service rig fleet consists of 77 single, 57 double, and 14 slant rigs providing services which include completions, maintenance,
workovers and abandonments with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park 56 of its service rigs and
focus its sales and operational efforts on the remaining 92 active service rigs due to the tight labour market for field employees
and the inability to crew these service rigs.
CWC’s fleet of nine coil tubing units consist of six Class I and three Class II coil tubing units having depth ratings from 1,500 to
3,200 metres. The Company continues to focus its sales and operational efforts on servicing Steam-assisted gravity drainage
(“SAGD”) wells that are shallower in depth and more appropriate for coil tubing operations.
CWC’s fleet of 13 swabbing rigs were acquired as part of the C&J Canada acquisition and 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 casing. The Company has chosen to park five of its swabbing rigs and focus its sales and operational efforts on the
remaining eight active swabbing rigs.
Page | 8
CWC-AR-2018-2.indd 10
Page | 9
2019-05-03 8:47 AM
(1)
34
14.4
127.8
261
3,708
41
12.2
155.2
310
3,786
17
9.1
45.6
294
2,684
29
18.0
112.2
215
3,869
30
15.0
128.1
277
4,270
11
12.1
41.0
309
3,724
45
11.1
161.7
325
3,593
41
13.0
151.8
285
3,702
Revenue per operating day is calculated based on operating days (i.e. spud to rig release basis). New or inactive drilling rigs are added based on the first day
Wells drilled
Average days per well
Meters drilled (thousands)
Meters drilled per day
Average meters per well
Net loss of $1.7 million, a decrease of $6.5 million compared to a net income of $4.9 million in 2017. The decrease in net
income in 2018 is primarily due to a gain on acquisition of $9.1 million, related to the C&J Canada acquisition in 2017.
OPERATING HIGHLIGHTS
Drilling Rigs
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
Dec. 31,
2017
Sep. 30,
2017
Jun. 30,
2017
Mar. 31,
2017
Three months ended
Active drilling rigs, end of period
Inactive drilling rigs, end of period
Total drilling rigs, end of period
9
-
9
9
-
9
9
-
9
9
-
9
9
-
9
9
-
9
9
-
9
9
-
9
(1)
Revenue per operating day
Drilling rig operating days
(2)
Drilling rig utilization %
CAODC industry average utilization %
$26,642
491
59%
28%
$21,263
500
60%
30%
$21,227
133
16%
17%
$23,485
498
61%
52%
$23,572
463
56%
28%
$19,424
522
63%
29%
$19,575
155
19%
17%
$20,942
532
66%
40%
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(1)
At the request of the Company, the Bank Loan was reduced from $100 million to $75 million to reduce borrowing costs and
standby charges.
On June 29, 2018 the Company obtained a new five year credit facility (the “Mortgage Loan”) in the principal amount of
$12.8 million. The Mortgage Loan is secured by, among other things, a collateral mortgage from the Company in favour of
the bank over properties located in Sylvan Lake, Brooks and Slave Lake Alberta. These new borrowing arrangements
significantly reduce the Company’s overall borrowing costs by reducing standby charges on the syndicated credit facilities
(the “Bank Loan”) and realizing a lower interest rate on the term Bank Loan. The Mortgage Loan has been amortized over
22 years with blended monthly principal and interest payments. On July 27, 2018 the Company entered into an interest
rate swap to effectively fix the interest rate at 4.00% until June 28, 2023. As of December 31, 2018, the mark-to-market
value of the interest rate swap resulted in a net loss of $0.2 million.
On April 10, 2018, the Company renewed its NCIB with an Automatic Securities Purchase Plan (“ASPP”) with Raymond
James Ltd., which expires on April 9, 2019. During 2018, the Company purchased 11,421,000 (2017: 3,493,500) common
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Corporate Overview
CWC Energy Services Corp. is a premier contract drilling and well servicing company operating in the Western Canadian
Sedimentary Basin ("WCSB") with a complementary suite of oilfield services including drilling rigs, service rigs, swabbing rigs
and coil tubing units. The Company's corporate office is located in Calgary, Alberta, with 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”.
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 and three have pad rig walking systems. 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. Part 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 deeper depths at a cost effective price while providing a sufficient
internal rate of return for CWC’s shareholders.
shares under its NCIB which were cancelled and returned to treasury. The 11,421,000 common shares purchased under the
(2)
of field service.
NCIB represented 47% of the 24,366,081 shares traded on the TSX Venture Exchange (“TSXV”) in 2018.
Drilling rig utilization is calculated based on operating days (i.e. spud to rig release basis) in accordance with the methodology prescribed by the CAODC.
Contract Drilling revenue of $13.1 million for Q4 2018 (Q4 2017: $10.9 million) was achieved with a utilization rate of 59% (Q4
2017: 56%), compared to the CAODC industry average of 28%. CWC achieved 491 drilling rig operating days in Q4 2018, a 6%
increase from 463 drilling rig operating days in Q4 2017. The Q4 2018 average revenue per operating day of $26,642 was an
increase from $23,572 in Q4 2017 and included a one-time contract payout amount of $0.7 million.
For the year ended December 31, 2018, Contract Drilling revenue of $38.2 million was 9% higher than the $35.2 million achieved
in 2017. CWC’s utilization rate in 2018 of 49% continues to significantly exceed the CAODC industry average of 29% and is
slightly lower than the 51% for the year ended December 31, 2017. CWC had 1,622 drilling rig operating days in 2018, a 3%
decrease from the 1,672 drilling operating days in 2017. The reduction in operating days were due to significant wet weather
conditions in key operating areas in Q3 2018 (57 days of lost activity compared to 31 days in Q3 2017 out of a possible 828 total
days).
Production Services
With a fleet of 148 service rigs, CWC is the largest well servicing company in Canada as measured by operating hours. CWC’s
service rig fleet consists of 77 single, 57 double, and 14 slant rigs providing services which include completions, maintenance,
workovers and abandonments with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park 56 of its service rigs and
focus its sales and operational efforts on the remaining 92 active service rigs due to the tight labour market for field employees
and the inability to crew these service rigs.
CWC’s fleet of nine coil tubing units consist of six Class I and three Class II coil tubing units having depth ratings from 1,500 to
3,200 metres. The Company continues to focus its sales and operational efforts on servicing Steam-assisted gravity drainage
(“SAGD”) wells that are shallower in depth and more appropriate for coil tubing operations.
CWC’s fleet of 13 swabbing rigs were acquired as part of the C&J Canada acquisition and 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 casing. The Company has chosen to park five of its swabbing rigs and focus its sales and operational efforts on the
remaining eight active swabbing rigs.
Page | 8
Page | 9
CWC-AR-2018-2.indd 11
2019-05-03 8:47 AM
increase in average service rig revenue per hour of 10% in 2018 compared to 2017. Service rig utilization decreased to 42% in
2018 compared to 45% in 2017. The increase in Production Services revenue was partially offset by coil tubing operating hours
decreasing 29% in 2018 to 6,764 operating hours (2017: 9,561 operating hours) resulting in coil tubing utilization in 2018 of
23% (2017: 29%). The decrease in coil tubing activity level in 2018 is a result of low natural gas prices and unprecedented
widening of WTI-WCS differentials in SAGD operating areas causing delays in allocation and commitment of capital by our E&P
customers. These lower activity levels were partially offset by an increase in average coil tubing revenue per hour of 17% in
2018.
Outlook
The steady rise in crude oil prices throughout 2017 and the first nine months of 2018 ended in Q4 2018. Crude oil, as
represented by WTI, averaged US$59.34/bbl in Q4 2018, a decrease of 15% compared to Q3 2018 average price of US$69.51/bbl
(Q4 2017: US$55.28/bbl) and finished the year on December 31, 2018 at US$45.41/bbl. However, the price differential between
Canadian heavy crude oil, as represented by WCS, and WTI widened at times during Q4 2018 to unprecedented levels of over
US$50/bbl compared to the historical normalized range of US$10/bbl to US$15/bbl. These significant WTI-WCS differential
resulted in the Government of Alberta announcement on December 2, 2018 mandating a 325,000 bbls/day crude oil production
curtailment on Alberta oil companies producing more than 10,000 bbls/day. Natural gas prices, as measured by AECO, increased
29% from an average of $1.19/GJ in Q3 2018 to $1.53/GJ in Q4 2018 (Q4 2017: $1.67/GJ), but continues to remain very low in
historically terms. With the backdrop of a decreasing crude oil price and a depressed natural gas price, the Petroleum Services
Association of Canada (“PSAC”) on January 29, 2019 updated its 2019 forecast of number of wells drilled to 5,600 wells; a
decrease of 1,000 wells or 15% from their original 2019 forecast. Recognizing the oversupply of crude oil on the market, on
December 7, 2018 OPEC agreed to a cut global oil production by 1.2 million barrels, which has helped the price of WTI recover
and stabilize to approximately US$55/bbl in February 2019.
CWC has sustainably positioned itself by providing its E&P customers with the highest quality service from the highest quality
people at reasonable prices. However, uncertainties around the proposed Government of Canada’s Bill C-69 legislation on the
creation of the Canadian Energy Regulator and the Impact Assessment Act, which may impact the ability to develop new
pipelines, as well as Bill C-48 banning tanker traffic for crude oil on British Columbia’s north coast, will continue to negatively
affect investment capital and growth in Canada’s oil and gas industry in the near term. However, investment capital and growth
are showing signs of returning as evident by the positive final investment decisions made in October 2018 by proponents of a
liquefied natural gas process facility (LNG Canada) in northeast British Columbia and final investment decisions to be made in
2019 on the Goldboro LNG in Nova Scotia. In addition, the Government of Alberta announced a decrease in their production
curtailment by 75,000 bbls/day in February 2019, which has resulted in CWC’s E&P customers being allowed to increase their
production and in turn gradually increasing CWC’s activity levels for its Production Services segment back to more normalized
levels.
While CWC remains focused 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 pursue
opportunities to achieve higher utilization and EBITDA margins on its existing fleet, including working for new customers in the
United States, while also evaluating opportunities to consolidate the North American drilling and well servicing industry. CWC
cautions that there are no guarantees that strategic opportunities will result in a transaction, or if a transaction is undertaken,
as to its terms or timing.
OPERATING HIGHLIGHTS
Service Rigs
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Three months ended
Dec. 31,
2017
Mar. 31,
2018
Sep. 30,
2017
Jun. 30,
2017
Mar. 31,
2017
Active service rigs, end of period
Inactive service rigs, end of period
Total service rigs, end of period
92
56
148
102
46
148
107
41
148
108
41
149
111
38
149
66
8
74
66
8
74
66
8
74
Operating hours
Revenue per hour
Revenue per hour excluding top
volume customers
Service rig utilization %
(1)
Coil Tubing Units
31,232
$663
42,316
$628
28,831
$642
53,979
$637
40,879
$606
28,320
$559
20,047
$551
32,997
$584
$696
37%
$664
45%
$677
60%
$681
56%
$645
46%
$610
47%
$608
33%
$641
56%
Active coil tubing units, end of period
Inactive coil tubing units, end of period
Total coil tubing units, end of period
Operating hours
Revenue per hour
Coil tubing unit utilization %
Swabbing Rigs
(2)
Active swabbing rigs, end of period
Inactive swabbing rigs, end of period
Total swabbing rigs, end of period
Operating hours
Revenue per hour
Swabbing rig utilization %
(1)
8
1
9
1,647
$625
22%
8
5
13
2,313
$283
30%
8
1
9
898
$731
12%
9
4
13
881
$273
11%
8
1
9
8
1
9
9
1
10
9
1
10
9
1
10
9
1
10
1,212
$762
17%
3,007
$724
39%
1,978
$725
24%
1,783
$688
22%
1,557
$657
19%
4,243
$491
52%
8
5
13
958
$265
13%
8
5
13
9
4
13
2,258
$310
31%
1,063
$286
19%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
(2)
Service and swabbing rig utilization is calculated based on 10 hours a day, 365 days a year. New service and swabbing rigs are added based on the first day
of field service. Service and swabbing rigs requiring their 24,000 hour recertification, refurbishment or have been otherwise removed from service for greater
than 90 days are excluded from the utilization calculation until their first day back in field service.
Coil tubing unit utilization is calculated based on 10 hours a day, 365 days a year. New coil tubing units are added based on the first day of field service. Coil
tubing units that have been removed from service for greater than 90 days are excluded from the utilization calculation until their first day back in field
service.
Production Services revenue was $22.4 million in Q4 2018, down $4.1 million (16%) compared to $26.5 million in Q4 2017. The
decrease in Q4 2018 is a direct result of the significant WTI-WCS differential reaching over US$50/bbl and the uncertainties our
E&P customers faced regarding the Government of Alberta’s production curtailments resulting in reduced activity levels in
November and December 2018.
CWC's service rig utilization in Q4 2018 of 37% (Q4 2017: 46%) was driven by 31,232 operating hours being 24% lower than
the 40,879 operating hours in Q4 2017. The Q4 2018 average revenue per hour of $663 increased $57 per hour (9%) over the
$606 in Q4 2017. Furthermore, Q4 2018 average revenue per hour excluding the top volume customers of $696 was $51 per
hour (8%) higher than Q4 2017 average revenue per hour of $645 demonstrating CWC’s ability to pass on higher labour and
fuel costs to all of its E&P customers.
CWC’s coil tubing utilization in Q4 2018 of 22% (Q4 2017: 24%) with 1,647 operating hours was 17% lower than the 1,978
operating hours in Q4 2017. Average revenue per hour for coil tubing services of $625 in Q4 2018 is 14% lower than $725 in Q4
2017. Both lower utilization and pricing reflects the continuing challenge of low natural gas prices and unprecedented widening
of the WTI-WCS differential in SAGD operating areas causing delays in allocation and commitment of capital by our E&P
customers in Q4 2018.
CWC swabbing rig utilization in Q4 2018 of 30% (Q4 2017: 19%) with 2,313 operating hours was 118% higher than the 1,063
operating hours in Q4 2017. Average revenue per hour for swabbing rigs of $283 in Q4 2018 is 1% lower than $286 in Q4 2017.
The higher activity level is a result of having a full three months with the swabbing assets in Q4 2018 compared to only two
months in Q4 2017 as a result of the C&J Canada acquisition in November 2017.
For the year ended December 31, 2018, Production Services revenue of $106.5 million was 38% higher than the $77.0 million
achieved in 2017 primarily as a result of a 28% increase in service rig operating hours from 122,243 in 2017 to a new Company
record of 156,358 operating hours in 2018 driven by the additional service rigs from the C&J Canada acquisition, as well as an
Page | 10
CWC-AR-2018-2.indd 12
Page | 11
2019-05-03 8:47 AM
OPERATING HIGHLIGHTS
Dec. 31,
Sep. 30,
Jun. 30,
Mar. 31,
Dec. 31,
Sep. 30,
Jun. 30,
Mar. 31,
2018
2018
2018
2018
2017
2017
2017
2017
Three months ended
Service Rigs
Active service rigs, end of period
Inactive service rigs, end of period
Total service rigs, end of period
92
56
148
102
46
148
107
41
148
108
41
149
111
38
149
66
8
74
66
8
74
66
8
74
Operating hours
Revenue per hour
Revenue per hour excluding top
volume customers
(1)
Service rig utilization %
Coil Tubing Units
Active coil tubing units, end of period
Inactive coil tubing units, end of period
Total coil tubing units, end of period
Operating hours
Revenue per hour
Coil tubing unit utilization %
Swabbing Rigs
(2)
Active swabbing rigs, end of period
Inactive swabbing rigs, end of period
Total swabbing rigs, end of period
Operating hours
Revenue per hour
Swabbing rig utilization %
(1)
(1)
31,232
$663
42,316
$628
28,831
$642
53,979
$637
40,879
$606
28,320
$559
20,047
$551
32,997
$584
$696
37%
$664
45%
$677
60%
$681
56%
$645
46%
$610
47%
$608
33%
$641
56%
1,212
$762
17%
3,007
$724
39%
1,978
$725
24%
1,783
$688
22%
1,557
$657
19%
4,243
$491
52%
8
1
9
1,647
$625
22%
8
5
13
2,313
$283
30%
8
1
9
898
$731
12%
9
4
13
881
$273
11%
8
1
9
8
5
13
958
$265
13%
8
1
9
8
5
13
9
1
10
9
4
13
2,258
$310
31%
1,063
$286
19%
9
1
10
9
1
10
9
1
10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Service and swabbing rig utilization is calculated based on 10 hours a day, 365 days a year. New service and swabbing rigs are added based on the first day
of field service. Service and swabbing rigs requiring their 24,000 hour recertification, refurbishment or have been otherwise removed from service for greater
(2)
than 90 days are excluded from the utilization calculation until their first day back in field service.
Coil tubing unit utilization is calculated based on 10 hours a day, 365 days a year. New coil tubing units are added based on the first day of field service. Coil
tubing units that have been removed from service for greater than 90 days are excluded from the utilization calculation until their first day back in field
service.
Production Services revenue was $22.4 million in Q4 2018, down $4.1 million (16%) compared to $26.5 million in Q4 2017. The
decrease in Q4 2018 is a direct result of the significant WTI-WCS differential reaching over US$50/bbl and the uncertainties our
E&P customers faced regarding the Government of Alberta’s production curtailments resulting in reduced activity levels in
November and December 2018.
CWC's service rig utilization in Q4 2018 of 37% (Q4 2017: 46%) was driven by 31,232 operating hours being 24% lower than
the 40,879 operating hours in Q4 2017. The Q4 2018 average revenue per hour of $663 increased $57 per hour (9%) over the
$606 in Q4 2017. Furthermore, Q4 2018 average revenue per hour excluding the top volume customers of $696 was $51 per
hour (8%) higher than Q4 2017 average revenue per hour of $645 demonstrating CWC’s ability to pass on higher labour and
fuel costs to all of its E&P customers.
CWC’s coil tubing utilization in Q4 2018 of 22% (Q4 2017: 24%) with 1,647 operating hours was 17% lower than the 1,978
operating hours in Q4 2017. Average revenue per hour for coil tubing services of $625 in Q4 2018 is 14% lower than $725 in Q4
2017. Both lower utilization and pricing reflects the continuing challenge of low natural gas prices and unprecedented widening
of the WTI-WCS differential in SAGD operating areas causing delays in allocation and commitment of capital by our E&P
customers in Q4 2018.
CWC swabbing rig utilization in Q4 2018 of 30% (Q4 2017: 19%) with 2,313 operating hours was 118% higher than the 1,063
operating hours in Q4 2017. Average revenue per hour for swabbing rigs of $283 in Q4 2018 is 1% lower than $286 in Q4 2017.
The higher activity level is a result of having a full three months with the swabbing assets in Q4 2018 compared to only two
months in Q4 2017 as a result of the C&J Canada acquisition in November 2017.
For the year ended December 31, 2018, Production Services revenue of $106.5 million was 38% higher than the $77.0 million
achieved in 2017 primarily as a result of a 28% increase in service rig operating hours from 122,243 in 2017 to a new Company
record of 156,358 operating hours in 2018 driven by the additional service rigs from the C&J Canada acquisition, as well as an
Page | 10
increase in average service rig revenue per hour of 10% in 2018 compared to 2017. Service rig utilization decreased to 42% in
2018 compared to 45% in 2017. The increase in Production Services revenue was partially offset by coil tubing operating hours
decreasing 29% in 2018 to 6,764 operating hours (2017: 9,561 operating hours) resulting in coil tubing utilization in 2018 of
23% (2017: 29%). The decrease in coil tubing activity level in 2018 is a result of low natural gas prices and unprecedented
widening of WTI-WCS differentials in SAGD operating areas causing delays in allocation and commitment of capital by our E&P
customers. These lower activity levels were partially offset by an increase in average coil tubing revenue per hour of 17% in
2018.
Outlook
The steady rise in crude oil prices throughout 2017 and the first nine months of 2018 ended in Q4 2018. Crude oil, as
represented by WTI, averaged US$59.34/bbl in Q4 2018, a decrease of 15% compared to Q3 2018 average price of US$69.51/bbl
(Q4 2017: US$55.28/bbl) and finished the year on December 31, 2018 at US$45.41/bbl. However, the price differential between
Canadian heavy crude oil, as represented by WCS, and WTI widened at times during Q4 2018 to unprecedented levels of over
US$50/bbl compared to the historical normalized range of US$10/bbl to US$15/bbl. These significant WTI-WCS differential
resulted in the Government of Alberta announcement on December 2, 2018 mandating a 325,000 bbls/day crude oil production
curtailment on Alberta oil companies producing more than 10,000 bbls/day. Natural gas prices, as measured by AECO, increased
29% from an average of $1.19/GJ in Q3 2018 to $1.53/GJ in Q4 2018 (Q4 2017: $1.67/GJ), but continues to remain very low in
historically terms. With the backdrop of a decreasing crude oil price and a depressed natural gas price, the Petroleum Services
Association of Canada (“PSAC”) on January 29, 2019 updated its 2019 forecast of number of wells drilled to 5,600 wells; a
decrease of 1,000 wells or 15% from their original 2019 forecast. Recognizing the oversupply of crude oil on the market, on
December 7, 2018 OPEC agreed to a cut global oil production by 1.2 million barrels, which has helped the price of WTI recover
and stabilize to approximately US$55/bbl in February 2019.
CWC has sustainably positioned itself by providing its E&P customers with the highest quality service from the highest quality
people at reasonable prices. However, uncertainties around the proposed Government of Canada’s Bill C-69 legislation on the
creation of the Canadian Energy Regulator and the Impact Assessment Act, which may impact the ability to develop new
pipelines, as well as Bill C-48 banning tanker traffic for crude oil on British Columbia’s north coast, will continue to negatively
affect investment capital and growth in Canada’s oil and gas industry in the near term. However, investment capital and growth
are showing signs of returning as evident by the positive final investment decisions made in October 2018 by proponents of a
liquefied natural gas process facility (LNG Canada) in northeast British Columbia and final investment decisions to be made in
2019 on the Goldboro LNG in Nova Scotia. In addition, the Government of Alberta announced a decrease in their production
curtailment by 75,000 bbls/day in February 2019, which has resulted in CWC’s E&P customers being allowed to increase their
production and in turn gradually increasing CWC’s activity levels for its Production Services segment back to more normalized
levels.
While CWC remains focused 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 pursue
opportunities to achieve higher utilization and EBITDA margins on its existing fleet, including working for new customers in the
United States, while also evaluating opportunities to consolidate the North American drilling and well servicing industry. CWC
cautions that there are no guarantees that strategic opportunities will result in a transaction, or if a transaction is undertaken,
as to its terms or timing.
Page | 11
CWC-AR-2018-2.indd 13
2019-05-03 8:47 AM
Discussion of Financial Results
Revenue, Direct Operating Expenses and Gross Margin
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months
ended
December 31,
Year ended
December 31,
Revenue
Contract Drilling
Production Services
Direct operating expenses
Contract Drilling
Production Services
Gross margin
(1)
Contract Drilling
Production Services
Gross margin percentage
(1)
13,081
22,397
35,478
8,600
17,188
25,788
4,481
5,209
9,690
10,914
26,506
37,420
7,026
19,594
26,620
3,888
6,912
10,800
2,167
(4,109)
(1,942)
1,574
(2,406)
(832)
593
(1,703)
(1,110)
20%
(16%)
(5%)
22%
(12%)
(3%)
15%
(25%)
(10%)
Contract Drilling
Production Services
34%
23%
27%
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
36%
26%
29%
n/a
n/a
n/a
(2%)
(3%)
(2%)
(1)
38,223
106,539
144,762
27,691
80,293
107,984
10,532
26,246
36,778
28%
25%
25%
35,222
76,993
112,215
24,690
57,671
82,361
10,532
19,322
29,854
30%
25%
27%
3,001
29,546
32,547
3,001
22,622
25,623
-
6,924
6,924
n/a
n/a
n/a
9%
38%
29%
12%
39%
31%
0%
36%
23%
(2%)
0%
(2%)
Q4 2018 revenue of $35.5 million, a decrease of $1.9 million (5%) compared to $37.4 million in Q4 2017. Revenue increased
$2.2 million (20%) in the Contract Drilling segment and decreased $4.1 million (16%) in the Production Services segment in Q4
2018 compared to Q4 2017. The decrease in Q4 2018 is a direct result of the significant WTI-WCS differential and the
uncertainties our E&P customers faced regarding Alberta’s production curtailments resulting in reduced activity levels in
November and December 2018 for our Production Services segment partially offset by an increase in activity level in our
Contract Drilling segment.
For the year ended December 31, 2018, revenue of $144.8 million, an increase of $32.5 million (29%) compared to $112.2 million
in 2017. Revenue increased $3.0 million (9%) in the Contract Drilling segment and $29.5 million (38%) in the Production
Services segment for 2018 compared to 2017.
In 2018, CWC continued to increase its revenue and diversify its customer base, reducing reliance on its top ten customers.
Revenue contribution from the Company's top ten customers dropped from 62% in 2017 to 57% in 2018 with CWC’s top
customer’s revenue contribution dropping from 21% in 2017 to 18% in 2018.
In 2018, approximately 78% or revenue (2017: 66%) was from work on crude oil wells while 22% (2017: 34%) was from
natural gas wells. Further, approximately 35% of revenue (2017: 38%) was related to drilling and completions work, 53%
(2017: 37%) from maintenance and workovers on producing wells and 12% (2017: 25%) from abandonments.
Many direct operating expenses, including labour costs related to field operating employees, are variable in nature and increase
or decrease with activity levels such that changes in operating costs generally correspond to changes in revenue or activity
levels. Contract Drilling’s gross margin percentage of 34% in Q4 2018 is lower than the 36% in Q4 2017 and the year ended
December 31, 2018 gross margin percentage of 28% for 2018 is lower than 30% in 2017 due to increased repair and
maintenance costs. Production Services’ gross margin of 23% in Q4 2018 is lower than the 26% in Q4 2017, due to reduced
activity levels not being able to cover a certain component of fixed costs. For the year ended December 31, 2018, Production
Services’ gross margin of 25% is consistent with that obtained in 2017.
Selling and Administrative Expenses
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months ended
December 31,
Year ended
December 31,
Selling and administrative
expenses
Page | 12
4,713
4,170
543
13%
18,289
13,791
4,498
33%
expensed over their vesting periods.
Page | 13
CWC-AR-2018-2.indd 14
2019-05-03 8:47 AM
Selling and administrative expenses of $4.7 million in Q4 2018, an increase of $0.5 million (13%) compared to $4.2 million in
Q4 2017.
Selling and administrative expenses of $18.3 million for the year ended December 31, 2018, an increase of $4.5 million (33%)
compared to $13.8 million in 2017.
For both the quarter and year ended December 31, 2018, the increased selling and administrative expenses are due to the
additional salaried employees that joined the Company primarily from the C&J Canada acquisition, additional costs to recruit
field employees combined with other costs incurred due to higher year-over-year activity levels across all segments. Severance
costs totaling $0.3 million were paid in 2018 (2017: $0.3 million) and a bonus accrual of $1.0 million is included in 2018 (2017:
$0.4 million). In addition, CWC experienced a higher bad debt expense in 2018 of $0.7 million (2017: $0.01 million)
Adjusted EBITDA
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Adjusted EBITDA
(1)
Contract Drilling
Production Services
Corporate
Adjusted EBITDA margin (%)
(1)
(1)
4,136
2,621
(1,779)
4,978
14%
3,624
4,765
(1,759)
6,630
18%
512
(2,144)
(20)
(1,652)
n/a
14%
(45%)
(1%)
(25%)
(4%)
9,232
15,550
(6,293)
18,489
13%
9,591
11,073
(4,601)
16,063
14%
(359)
4,477
(1,692)
2,426
n/a
(4%)
40%
(37%)
15%
(1%)
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Management uses Adjusted EBITDA as a measure of the cash flow generated by the Company. Positive Adjusted EBITDA
provides the cash flow needed to grow the business through purchase of equipment or business acquisitions, fund working
capital, service and reduce outstanding long-term debt, pay a dividend or repurchase outstanding common shares under the
NCIB.
Adjusted EBITDA of $5.0 million in Q4 2018, a decrease of $1.7 million (25%) compared to $6.6 million in Q4 2017. The decrease
in Q4 2018 is a direct result of the significant WTI-WCS differential and the uncertainties our E&P customers faced regarding
Alberta’s production curtailments resulting in reduced activity levels in November and December 2018 for our Production
Services segment partially offset by an increase in activity level in our Contract Drilling segment.
For the year ended December 31, 2018, Adjusted EBITDA of $18.5 million, an increase of $2.4 million (15%) compared to $16.1
million in 2017. The increase in Adjusted EBITDA is primarily due to the additional service rigs acquired from C&J Canada offset
by slightly higher selling, general and administrative expenses in the Contract Drilling segment and higher Corporate expenses
due to a larger bonus accrual and higher bad debt expense in 2018 compared to 2017.
Transaction Costs
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months ended
December 31,
Year ended
December 31,
(1)
Transaction costs
Not meaningful.
-
1,549
(1,549)
n/m
-
1,549
(1,549)
(1)
(1)
n/m
Transaction costs of $1.5 million were incurred in 2017 on the acquisition of C&J Canada’s service and swabbing rig assets. No
similar expense was incurred in 2018.
Stock Based Compensation
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months ended
December 31,
Year ended
December 31,
Stock based compensation
339
278
61
22%
1,102
869
233
27%
Stock based compensation is primarily a function of outstanding stock options and restricted share units (“RSUs”) being
$ thousands
Adjusted EBITDA
(1)
Contract Drilling
Production Services
Corporate
(1)
Three months ended
December 31,
2017
2018
Change $ Change %
Year ended
December 31,
2017
2018
Change $ Change %
4,136
2,621
(1,779)
4,978
14%
3,624
4,765
(1,759)
6,630
18%
512
(2,144)
(20)
(1,652)
n/a
14%
(45%)
(1%)
(25%)
(4%)
9,232
15,550
(6,293)
18,489
13%
9,591
11,073
(4,601)
16,063
14%
(359)
4,477
(1,692)
2,426
n/a
(4%)
40%
(37%)
15%
(1%)
Selling and administrative expenses of $4.7 million in Q4 2018, an increase of $0.5 million (13%) compared to $4.2 million in
Q4 2017.
Selling and administrative expenses of $18.3 million for the year ended December 31, 2018, an increase of $4.5 million (33%)
compared to $13.8 million in 2017.
For both the quarter and year ended December 31, 2018, the increased selling and administrative expenses are due to the
additional salaried employees that joined the Company primarily from the C&J Canada acquisition, additional costs to recruit
field employees combined with other costs incurred due to higher year-over-year activity levels across all segments. Severance
costs totaling $0.3 million were paid in 2018 (2017: $0.3 million) and a bonus accrual of $1.0 million is included in 2018 (2017:
$0.4 million). In addition, CWC experienced a higher bad debt expense in 2018 of $0.7 million (2017: $0.01 million)
Adjusted EBITDA
Discussion of Financial Results
Revenue, Direct Operating Expenses and Gross Margin
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months
ended
December 31,
Year ended
December 31,
Revenue
Contract Drilling
Production Services
Direct operating expenses
Contract Drilling
Production Services
Gross margin
(1)
Contract Drilling
Production Services
(1)
Gross margin percentage
Contract Drilling
Production Services
(1)
13,081
22,397
35,478
8,600
17,188
25,788
4,481
5,209
9,690
34%
23%
27%
10,914
26,506
37,420
7,026
19,594
26,620
3,888
6,912
10,800
36%
26%
29%
2,167
(4,109)
(1,942)
1,574
(2,406)
(832)
593
(1,703)
(1,110)
n/a
n/a
n/a
20%
(16%)
(5%)
22%
(12%)
(3%)
15%
(25%)
(10%)
(2%)
(3%)
(2%)
38,223
106,539
144,762
27,691
80,293
107,984
10,532
26,246
36,778
28%
25%
25%
35,222
76,993
112,215
24,690
57,671
82,361
10,532
19,322
29,854
30%
25%
27%
3,001
29,546
32,547
3,001
22,622
25,623
-
6,924
6,924
n/a
n/a
n/a
9%
38%
29%
12%
39%
31%
0%
36%
23%
(2%)
0%
(2%)
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Q4 2018 revenue of $35.5 million, a decrease of $1.9 million (5%) compared to $37.4 million in Q4 2017. Revenue increased
$2.2 million (20%) in the Contract Drilling segment and decreased $4.1 million (16%) in the Production Services segment in Q4
2018 compared to Q4 2017. The decrease in Q4 2018 is a direct result of the significant WTI-WCS differential and the
uncertainties our E&P customers faced regarding Alberta’s production curtailments resulting in reduced activity levels in
November and December 2018 for our Production Services segment partially offset by an increase in activity level in our
Contract Drilling segment.
For the year ended December 31, 2018, revenue of $144.8 million, an increase of $32.5 million (29%) compared to $112.2 million
in 2017. Revenue increased $3.0 million (9%) in the Contract Drilling segment and $29.5 million (38%) in the Production
Services segment for 2018 compared to 2017.
In 2018, CWC continued to increase its revenue and diversify its customer base, reducing reliance on its top ten customers.
Revenue contribution from the Company's top ten customers dropped from 62% in 2017 to 57% in 2018 with CWC’s top
customer’s revenue contribution dropping from 21% in 2017 to 18% in 2018.
In 2018, approximately 78% or revenue (2017: 66%) was from work on crude oil wells while 22% (2017: 34%) was from
natural gas wells. Further, approximately 35% of revenue (2017: 38%) was related to drilling and completions work, 53%
(2017: 37%) from maintenance and workovers on producing wells and 12% (2017: 25%) from abandonments.
Many direct operating expenses, including labour costs related to field operating employees, are variable in nature and increase
or decrease with activity levels such that changes in operating costs generally correspond to changes in revenue or activity
levels. Contract Drilling’s gross margin percentage of 34% in Q4 2018 is lower than the 36% in Q4 2017 and the year ended
December 31, 2018 gross margin percentage of 28% for 2018 is lower than 30% in 2017 due to increased repair and
maintenance costs. Production Services’ gross margin of 23% in Q4 2018 is lower than the 26% in Q4 2017, due to reduced
activity levels not being able to cover a certain component of fixed costs. For the year ended December 31, 2018, Production
Services’ gross margin of 25% is consistent with that obtained in 2017.
Selling and Administrative Expenses
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months ended
December 31,
Year ended
December 31,
Management uses Adjusted EBITDA as a measure of the cash flow generated by the Company. Positive Adjusted EBITDA
provides the cash flow needed to grow the business through purchase of equipment or business acquisitions, fund working
capital, service and reduce outstanding long-term debt, pay a dividend or repurchase outstanding common shares under the
NCIB.
Adjusted EBITDA of $5.0 million in Q4 2018, a decrease of $1.7 million (25%) compared to $6.6 million in Q4 2017. The decrease
in Q4 2018 is a direct result of the significant WTI-WCS differential and the uncertainties our E&P customers faced regarding
Alberta’s production curtailments resulting in reduced activity levels in November and December 2018 for our Production
Services segment partially offset by an increase in activity level in our Contract Drilling segment.
For the year ended December 31, 2018, Adjusted EBITDA of $18.5 million, an increase of $2.4 million (15%) compared to $16.1
million in 2017. The increase in Adjusted EBITDA is primarily due to the additional service rigs acquired from C&J Canada offset
by slightly higher selling, general and administrative expenses in the Contract Drilling segment and higher Corporate expenses
due to a larger bonus accrual and higher bad debt expense in 2018 compared to 2017.
Transaction Costs
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months ended
December 31,
Year ended
December 31,
(1)
Transaction costs
Not meaningful.
-
1,549
(1,549)
n/m
-
1,549
(1,549)
(1)
(1)
n/m
Transaction costs of $1.5 million were incurred in 2017 on the acquisition of C&J Canada’s service and swabbing rig assets. No
similar expense was incurred in 2018.
Stock Based Compensation
$ thousands
2018
2017
Change $
Change %
2018
2017
Change $
Change %
Three months ended
December 31,
Year ended
December 31,
Stock based compensation
339
278
61
22%
1,102
869
233
27%
Selling and administrative
expenses
Page | 12
4,713
4,170
543
13%
18,289
13,791
4,498
33%
Stock based compensation is primarily a function of outstanding stock options and restricted share units (“RSUs”) being
expensed over their vesting periods.
Page | 13
CWC-AR-2018-2.indd 15
2019-05-03 8:47 AM
(1)
Adjusted EBITDA margin (%)
Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Stock based compensation of $0.3 million in Q4 2018 is consistent with $0.3 million in Q4 2017.
Stock based compensation of $1.1 million for the year ended December 31, 2018, an increase of $0.2 million (27%) compared
to $0.9 million in 2017.
For both the quarter and year ended December 31, 2018, the increase in stock based compensation is primarily due to greater
number of stock options and RSUs granted to directors, management and employees for managing a larger pool of assets as a
result of the C&J Canada acquisition.
Finance Costs
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Finance costs
857
606
251
41%
2,756
2,054
702
34%
$ thousands
Finance costs of $0.9 million in Q4 2018, an increase of $0.3 million (41%) compared to $0.6 million in Q4 2017.
Finance costs were $2.8 million for the year ended December 31, 2018, an increase of $0.7 million (34%) compared to $2.1
million in 2017.
For both the quarter and year ended December 31, 2018, the increase in finance costs was due to increases in interest rates and
higher average debt levels due to the acquisition of the C&J Canada assets.
Depreciation and Amortization
Net income (loss) before income taxes
Deferred income tax expense (recovery)
Deferred income tax expense (recovery) as a % of net income (loss)
before income taxes
Expected statutory income tax rate
(1)
Not meaningful.
(17)
140
(1)
n/m
27%
8,402
(142)
(2%)
27%
(1,852)
(150)
(8%)
27%
3,576
(1,285)
(1)
n/m
27%
$ thousands
Depreciation and
amortization
Contract Drilling
Production Services
Corporate
Three months ended
December 31,
Year ended
December 31,
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Income taxes are a function of taxable income and are calculated differently than accounting net income. Differences between
accounting net income and taxable income include such things as gains or losses on disposal of fixed assets, stock based
compensation, differences between income tax estimates and actual tax filings, goodwill impairment, and other differences.
1,840
1,794
219
3,853
1,973
2,801
37
4,811
(133)
(1,007)
182
(958)
(7%)
(36%)
492%
(20%)
6,034
9,523
884
16,441
6,215
10,730
158
17,103
(181)
(1,207)
726
(662)
(3%)
(11%)
459%
(4%)
differences.
Depreciation and amortization for drilling rigs, service rigs and swabbing rigs are based on operating days and hours. Coil tubing
units, capitalized recertification’s and other production equipment are depreciated on a straight line basis resulting in consistent
depreciation and amortization expense regardless of activity. Amortization of Intangibles is based on estimated remaining life.
As such, the change in depreciation for Q4 2018 and the year ended December 31, 2018 predominately reflect changes in
utilizations compared to the same periods in 2017.
(Gain) Loss on Disposal of Equipment
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Gain on Acquisition
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Gain on acquisition
(1)
Not meaningful.
-
9,128
(9,128)
n/m
-
9,128
(9,128)
(1)
(1)
n/m
The gain in 2017 relates to the acquisition of C&J Canada’s service and swabbing rig assets. The gain was calculated as the
difference between the total acquisition fair value of the identifiable net assets acquired being $49.0 million and the fair value
of the consideration transferred being $37.5 million with $2.4 million being deducted for deferred tax liability. No similar gain
on acquisition was incurred for both Q4 2018 nor the year ended December 31, 2018.
Deferred Income Taxes Expense (Recovery)
Three months ended
December 31,
Year ended
December 31,
2018
2017
2018
2017
The deferred income tax expense in Q4 2018 of $0.1 million (deferred income tax recovery Q4 2017: $0.1 million) and for the
year ended December 31, 2018 deferred income tax recovery of $0.2 million (2017: $1.3 million) is a result of the net income
(loss) before income taxes being adjusted into a net loss for tax purposes by adjusting for the temporary and permanent
The Company has substantial tax pools and non-capital losses available to reduce future taxable income such that the Company
does not expect to pay any cash taxes for the next several years.
Net (Loss) Income and Comprehensive (Loss) Income
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Net (loss) income and
comprehensive (loss)
income
(1)
Not meaningful.
(157)
8,544
(8,701)
n/m
(1,702)
4,861
(6,563)
(1)
(1)
n/m
Net (loss) income and comprehensive (loss) income of $(0.2) million in Q4 2018, a decrease of $8.7 million compared to $8.5
million in Q4 2017. Net (loss) income and comprehensive (loss) income for 2018 was $(1.7) million, a decrease of $6.6 million
compared to $4.9 million in 2017. The decrease is primarily due to the $9.1 million gain on acquisition recorded as part of the
purchase price allocation on the acquisition of C&J Canada’s service and swabbing rig assets in 2017 with no similar gain on
acquisition in Q4 2018 nor the year ended December 31, 2018.
Liquidity and Capital Resources
Source of Funds:
The Company’s liquidity needs in the short-term and long-term can be sourced in several ways including: funds from operations,
borrowing against existing credit facilities, new debt instruments, equity issuances and proceeds from the sale of assets. Cash
inflows are used to repay outstanding amounts on the Company's credit facilities, acquire shares under the NCIB and fund capital
Management continually monitors the asset mix and equipment needs and invests and divests assets as needed to optimize
operations.
For both the quarter and year ended December 31, 2018, the (gain) loss on disposal of equipment was the result of the sale of
equipment with proceeds on sale of $0.1 million (Q4 2017: $0.3 million) and $2.1 million (2017: $0.5 million), respectively. The
equipment sold consisted of one inactive coil tubing unit, one picker unit, one inactive service rig and various other vehicles.
Page | 14
CWC-AR-2018-2.indd 16
requirements.
Page | 15
2019-05-03 8:47 AM
(54)
112
(166)
n/m
42
40
2
5%
(1)
(Gain) loss on disposal of
equipment
Not meaningful.
(1)
Gain on Acquisition
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Gain on acquisition
(1)
Not meaningful.
-
9,128
(9,128)
n/m
-
9,128
(9,128)
(1)
(1)
n/m
The gain in 2017 relates to the acquisition of C&J Canada’s service and swabbing rig assets. The gain was calculated as the
difference between the total acquisition fair value of the identifiable net assets acquired being $49.0 million and the fair value
of the consideration transferred being $37.5 million with $2.4 million being deducted for deferred tax liability. No similar gain
on acquisition was incurred for both Q4 2018 nor the year ended December 31, 2018.
Deferred Income Taxes Expense (Recovery)
Finance costs
857
606
251
41%
2,756
2,054
702
34%
$ thousands
Net income (loss) before income taxes
Deferred income tax expense (recovery)
Deferred income tax expense (recovery) as a % of net income (loss)
before income taxes
Expected statutory income tax rate
(1)
Not meaningful.
Three months ended
December 31,
Year ended
December 31,
2018
2017
2018
2017
(17)
140
(1)
n/m
27%
8,402
(142)
(2%)
27%
(1,852)
(150)
(8%)
27%
3,576
(1,285)
(1)
n/m
27%
Three months ended
December 31,
Year ended
December 31,
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Income taxes are a function of taxable income and are calculated differently than accounting net income. Differences between
accounting net income and taxable income include such things as gains or losses on disposal of fixed assets, stock based
compensation, differences between income tax estimates and actual tax filings, goodwill impairment, and other differences.
The deferred income tax expense in Q4 2018 of $0.1 million (deferred income tax recovery Q4 2017: $0.1 million) and for the
year ended December 31, 2018 deferred income tax recovery of $0.2 million (2017: $1.3 million) is a result of the net income
(loss) before income taxes being adjusted into a net loss for tax purposes by adjusting for the temporary and permanent
differences.
The Company has substantial tax pools and non-capital losses available to reduce future taxable income such that the Company
does not expect to pay any cash taxes for the next several years.
Net (Loss) Income and Comprehensive (Loss) Income
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Stock based compensation of $0.3 million in Q4 2018 is consistent with $0.3 million in Q4 2017.
Stock based compensation of $1.1 million for the year ended December 31, 2018, an increase of $0.2 million (27%) compared
to $0.9 million in 2017.
For both the quarter and year ended December 31, 2018, the increase in stock based compensation is primarily due to greater
number of stock options and RSUs granted to directors, management and employees for managing a larger pool of assets as a
result of the C&J Canada acquisition.
Finance Costs
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Finance costs of $0.9 million in Q4 2018, an increase of $0.3 million (41%) compared to $0.6 million in Q4 2017.
Finance costs were $2.8 million for the year ended December 31, 2018, an increase of $0.7 million (34%) compared to $2.1
million in 2017.
For both the quarter and year ended December 31, 2018, the increase in finance costs was due to increases in interest rates and
higher average debt levels due to the acquisition of the C&J Canada assets.
Depreciation and Amortization
$ thousands
Depreciation and
amortization
Contract Drilling
Production Services
Corporate
1,840
1,794
219
3,853
1,973
2,801
37
4,811
(133)
(1,007)
182
(958)
(7%)
(36%)
492%
(20%)
6,034
9,523
884
16,441
6,215
10,730
158
17,103
(181)
(1,207)
726
(662)
(3%)
(11%)
459%
(4%)
Depreciation and amortization for drilling rigs, service rigs and swabbing rigs are based on operating days and hours. Coil tubing
units, capitalized recertification’s and other production equipment are depreciated on a straight line basis resulting in consistent
depreciation and amortization expense regardless of activity. Amortization of Intangibles is based on estimated remaining life.
As such, the change in depreciation for Q4 2018 and the year ended December 31, 2018 predominately reflect changes in
utilizations compared to the same periods in 2017.
(Gain) Loss on Disposal of Equipment
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
(54)
112
(166)
n/m
42
40
2
5%
(1)
Management continually monitors the asset mix and equipment needs and invests and divests assets as needed to optimize
For both the quarter and year ended December 31, 2018, the (gain) loss on disposal of equipment was the result of the sale of
equipment with proceeds on sale of $0.1 million (Q4 2017: $0.3 million) and $2.1 million (2017: $0.5 million), respectively. The
equipment sold consisted of one inactive coil tubing unit, one picker unit, one inactive service rig and various other vehicles.
(Gain) loss on disposal of
equipment
(1)
Not meaningful.
operations.
Page | 14
Net (loss) income and comprehensive (loss) income of $(0.2) million in Q4 2018, a decrease of $8.7 million compared to $8.5
million in Q4 2017. Net (loss) income and comprehensive (loss) income for 2018 was $(1.7) million, a decrease of $6.6 million
compared to $4.9 million in 2017. The decrease is primarily due to the $9.1 million gain on acquisition recorded as part of the
purchase price allocation on the acquisition of C&J Canada’s service and swabbing rig assets in 2017 with no similar gain on
acquisition in Q4 2018 nor the year ended December 31, 2018.
Liquidity and Capital Resources
Source of Funds:
The Company’s liquidity needs in the short-term and long-term can be sourced in several ways including: funds from operations,
borrowing against existing credit facilities, new debt instruments, equity issuances and proceeds from the sale of assets. Cash
inflows are used to repay outstanding amounts on the Company's credit facilities, acquire shares under the NCIB and fund capital
requirements.
Page | 15
CWC-AR-2018-2.indd 17
2019-05-03 8:47 AM
(157)
8,544
(8,701)
n/m
(1,702)
4,861
(6,563)
(1)
(1)
n/m
Net (loss) income and
comprehensive (loss)
income
Not meaningful.
(1)
During the year ended December 31, 2018, the Company’s Funds from Operations of $18.5 million combined with $0.1 million
from common share issuances and $2.1 million proceeds on disposal of equipment was used to fund a $5.4 million reduction in
long term debt, $11.1 million of capital expenditures, $3.0 million of interest on long-term debt and finance lease payments and
$1.8 million in acquisitions of shares under the NCIB.
At December 31, 2018 the Company had working capital (excluding debt) of $19.0 million compared to $19.5 million at
December 31, 2017. (Please refer to the "Reconciliation of Non-IFRS Measures" section for further information). Typically, as
activity levels increase or decrease working capital will also increase or decrease.
During Q2 2018 at the request of the Company the syndicated credit facility (“Bank Loan”) was reduced from $100 million to
$75 million to reduce borrowing costs and standby charges. The $75 million Bank Loan provides financial security and flexibility
to July 31, 2020 and a quarterly financial covenant for Consolidated Debt to Consolidated EBITDA ratio of 4.00 to 1. The Bank
Loan is secured by a general security agreement and a first charge security interest covering all of the assets of the Company.
Under the terms of the Bank Loan, the Company is required to comply with certain financial covenants. The Company is in
compliance with each of the financial covenants at December 31, 2018. The Company expects to be able to renew the Bank Loan
prior to maturity. Effective December 31, 2018, the applicable rates under the Bank Loan are: bank prime rate plus 1.00%,
banker’s acceptances rate plus a stamping fee of 2.00%, and standby fee rate of 0.45%.
On June 29, 2018 the Company obtained a new five year credit facility (the “Mortgage Loan”) in the principal amount of $12.8
million. The Mortgage Loan is secured by, among other things, a collateral mortgage from the Company in favour of the bank
over properties located in Sylvan Lake, Brooks and Slave Lake Alberta. These new borrowing arrangements significantly reduce
the Company’s overall borrowing costs by reducing standby charges on the syndicated Bank Loan and realizing a lower interest
rate on the term Bank Loan. The Mortgage Loan has been amortized over 22 years with blended monthly principal and interest
payments. On July 27, 2018 the Company entered into an interest rate swap to exchange the floating rate interest payments for
fixed rate interest payments, which fix the Bankers Acceptance-Canadian Dollar Offered Rate components of its interest payment
on the outstanding term debt. Under the interest rate swap agreement, the Company pays a fixed rate of 2.65% per annum plus
the applicable credit spread of 1.35%, for an effective fixed rate of 4.0%. The fair value of the interest rate swap arrangement is
the difference between the forward interest rates and the discounted contract rate. As of December 31, 2018 the mark-to-
market value of the interest rate swap resulted in a net loss of $0.2 million.
Capital Requirements
On January 16, 2019 the Company announced its capital expenditure budget for 2019 of $5.4 million all of which is maintenance
and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rigs, service rigs,
swabbing rigs and coil tubing divisions as well as information technology infrastructure. The decrease of $6.4 million to the
2019 capital budget compared to the 2018 capital expenditure of $11.8 million is a result of the Company taking a more cautious
view of the 2019 economic and operating environment than in the prior year. CWC intends to finance its 2019 capital
expenditure budget from operating cash flows.
As utilization of the Company’s equipment increases, CWC plans to recertify several of its service rigs. As at December 31, 2018,
the Company has capital spending plans as noted in the section titled “Capital Expenditures”. Additional discretionary capital
expenditures will be required in order to continue to grow the Company’s assets and revenue in the future. It is anticipated
future cash requirements for capital expenditures will be met through a combination of funds from operations and borrowing
against existing credit facilities as required. However, additional funds may be raised by new debt instruments, equity issuances
and proceeds from the sale of assets.
CWC may require additional financing in the future to implement its strategies and business objectives. It is possible that such
financing will not be available, or if available, will not be available on favorable terms. If CWC issues any shares in the future to
finance its operations or implement its strategies, the current shareholders of CWC may incur a dilution of their interest.
Common Shares and Dividends
The following table summarizes outstanding share data and potentially dilutive securities:
February 28, 2019
December 31, 2018
December 31, 2017
Common shares
Stock options
Restricted share units
512,786,291
24,173,333
5,651,001
512,509,291
24,351,333
5,910,001
521,378,958
27,546,667
5,135,332
During the year ended December 31, 2018, 1,033,335 stock options were exercised, 2,161,999 were forfeited and none were
granted. In addition, 1,517,998 RSU's were exercised, 422,333 were forfeited and 2,715,000 were granted.
On April 10, 2018, the Company replaced its expired NCIB with a new NCIB which now expires on April 9, 2019. Under the new
NCIB the Company may purchase, from time to time as it considers advisable, up to 26,057,889 of issued and outstanding
common shares through the facilities of the TSXV or other recognized marketplaces. In addition, CWC entered into an automatic
securities purchase plan (the “ASPP”) (as defined under applicable securities laws) with Raymond James Ltd. ("Raymond
James") for the purpose of making purchases under the ASPP. Such purchases will be determined by Raymond James in its sole
discretion, without consultation with CWC having regard to the price limitation and aggregate purchase limitation and other
terms of the ASPP and the rules of the TSXV. Conducting the NCIB as an ASPP allows common shares to be purchased at times
when CWC would otherwise be prohibited from doing so pursuant to securities laws and its internal trading policies.
For the year ended December 31, 2018, 11,421,000 common shares (2017: 3,493,500 common shares) were purchased,
cancelled and returned to treasury under the NCIB. The 11,421,000 common shares purchased under the NCIB represented
47% of the 24,366,081 shares traded on the TSXV in 2018.
Capital Expenditures
$ thousands
2018
2017
Change $ Change %
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
Total capital expenditures
1,983
38,906
(36,923)
Contract drilling
Production services
Corporate
Growth capital
Maintenance and
infrastructure capital
Total capital expenditures
414
1,569
-
-
1,176
37,730
-
(762)
(36,161)
-
(65%)
(96%)
-%
(95%)
7,116
4,609
28
3,964
40,559
9
3,152
(35,950)
19
11,753
44,532
(32,779)
80%
(89%)
211%
(74%)
37,605
(37,605)
(100%)
5,859
39,340
(33,481)
(85%)
1,983
1,983
1,301
38,906
682
(36,923)
52%
(95%)
5,894
11,753
5,192
44,532
702
(32,779)
14%
(74%)
Capital expenditures of $2.0 million in Q4 2018, a decrease of $36.9 million (95%) compared to $38.9 million in Q4 2017.
Capital expenditures were $11.8 million for the year ended December 31, 2018, a decrease of $32.8 million (74%) compared to
$44.5 million in 2017.
For both the quarter and year ended December 31, 2018, the decrease in capital expenditures was due to the purchase of the
C&J Canada service and swabbing rig assets in 2017 with no similar purchases in 2018. For the year ended December 31, 2018,
growth capital of $5.9 million consists primarily of customer driven upgrades to Drilling Rig #4 ($4.3 million) that included a
pad rig walking system, increase drilling capacity, torque, pump pressure and dual fuel engine capabilities while operating on a
smaller footprint. Drilling Rig #2 ($1.0 million) upgrades included a new mast, rising cylinders, catwalk and top drive
integration. These upgrades are expected to increase these two drilling rigs’ capacity resulting in higher expected utilization in
future quarters. Drilling Rig #2 and #4’s upgrades align with our strategic initiatives and meet our E&P customers’ demands
for deeper depths at cost effective prices while providing a sufficient internal rate of return for CWC’s shareholders. Maintenance
and infrastructure capital of $5.9 million consists primarily of recertification costs, building upgrades and leased vehicles.
The 2019 capital expenditure budget of $5.4 million was approved by the Board of Directors on January 16, 2019 comprised
entirely of maintenance and infrastructure capital related to recertification’s, additions and upgrades to field equipment for the
drilling rigs, service rigs, swabbing rigs and coil tubing divisions as well as information technology infrastructure.
Page | 16
CWC-AR-2018-2.indd 18
Page | 17
2019-05-03 8:47 AM
Common Shares and Dividends
February 28, 2019
December 31, 2017
December 31, 2018
The following table summarizes outstanding share data and potentially dilutive securities:
During the year ended December 31, 2018, the Company’s Funds from Operations of $18.5 million combined with $0.1 million
from common share issuances and $2.1 million proceeds on disposal of equipment was used to fund a $5.4 million reduction in
long term debt, $11.1 million of capital expenditures, $3.0 million of interest on long-term debt and finance lease payments and
$1.8 million in acquisitions of shares under the NCIB.
At December 31, 2018 the Company had working capital (excluding debt) of $19.0 million compared to $19.5 million at
December 31, 2017. (Please refer to the "Reconciliation of Non-IFRS Measures" section for further information). Typically, as
activity levels increase or decrease working capital will also increase or decrease.
During Q2 2018 at the request of the Company the syndicated credit facility (“Bank Loan”) was reduced from $100 million to
$75 million to reduce borrowing costs and standby charges. The $75 million Bank Loan provides financial security and flexibility
to July 31, 2020 and a quarterly financial covenant for Consolidated Debt to Consolidated EBITDA ratio of 4.00 to 1. The Bank
Loan is secured by a general security agreement and a first charge security interest covering all of the assets of the Company.
Under the terms of the Bank Loan, the Company is required to comply with certain financial covenants. The Company is in
compliance with each of the financial covenants at December 31, 2018. The Company expects to be able to renew the Bank Loan
prior to maturity. Effective December 31, 2018, the applicable rates under the Bank Loan are: bank prime rate plus 1.00%,
banker’s acceptances rate plus a stamping fee of 2.00%, and standby fee rate of 0.45%.
On June 29, 2018 the Company obtained a new five year credit facility (the “Mortgage Loan”) in the principal amount of $12.8
million. The Mortgage Loan is secured by, among other things, a collateral mortgage from the Company in favour of the bank
over properties located in Sylvan Lake, Brooks and Slave Lake Alberta. These new borrowing arrangements significantly reduce
the Company’s overall borrowing costs by reducing standby charges on the syndicated Bank Loan and realizing a lower interest
rate on the term Bank Loan. The Mortgage Loan has been amortized over 22 years with blended monthly principal and interest
payments. On July 27, 2018 the Company entered into an interest rate swap to exchange the floating rate interest payments for
fixed rate interest payments, which fix the Bankers Acceptance-Canadian Dollar Offered Rate components of its interest payment
on the outstanding term debt. Under the interest rate swap agreement, the Company pays a fixed rate of 2.65% per annum plus
the applicable credit spread of 1.35%, for an effective fixed rate of 4.0%. The fair value of the interest rate swap arrangement is
the difference between the forward interest rates and the discounted contract rate. As of December 31, 2018 the mark-to-
market value of the interest rate swap resulted in a net loss of $0.2 million.
Capital Requirements
On January 16, 2019 the Company announced its capital expenditure budget for 2019 of $5.4 million all of which is maintenance
and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rigs, service rigs,
swabbing rigs and coil tubing divisions as well as information technology infrastructure. The decrease of $6.4 million to the
2019 capital budget compared to the 2018 capital expenditure of $11.8 million is a result of the Company taking a more cautious
view of the 2019 economic and operating environment than in the prior year. CWC intends to finance its 2019 capital
expenditure budget from operating cash flows.
As utilization of the Company’s equipment increases, CWC plans to recertify several of its service rigs. As at December 31, 2018,
the Company has capital spending plans as noted in the section titled “Capital Expenditures”. Additional discretionary capital
expenditures will be required in order to continue to grow the Company’s assets and revenue in the future. It is anticipated
future cash requirements for capital expenditures will be met through a combination of funds from operations and borrowing
against existing credit facilities as required. However, additional funds may be raised by new debt instruments, equity issuances
and proceeds from the sale of assets.
CWC may require additional financing in the future to implement its strategies and business objectives. It is possible that such
financing will not be available, or if available, will not be available on favorable terms. If CWC issues any shares in the future to
finance its operations or implement its strategies, the current shareholders of CWC may incur a dilution of their interest.
Common shares
Stock options
Restricted share units
512,786,291
24,173,333
5,651,001
512,509,291
24,351,333
5,910,001
521,378,958
27,546,667
5,135,332
During the year ended December 31, 2018, 1,033,335 stock options were exercised, 2,161,999 were forfeited and none were
granted. In addition, 1,517,998 RSU's were exercised, 422,333 were forfeited and 2,715,000 were granted.
On April 10, 2018, the Company replaced its expired NCIB with a new NCIB which now expires on April 9, 2019. Under the new
NCIB the Company may purchase, from time to time as it considers advisable, up to 26,057,889 of issued and outstanding
common shares through the facilities of the TSXV or other recognized marketplaces. In addition, CWC entered into an automatic
securities purchase plan (the “ASPP”) (as defined under applicable securities laws) with Raymond James Ltd. ("Raymond
James") for the purpose of making purchases under the ASPP. Such purchases will be determined by Raymond James in its sole
discretion, without consultation with CWC having regard to the price limitation and aggregate purchase limitation and other
terms of the ASPP and the rules of the TSXV. Conducting the NCIB as an ASPP allows common shares to be purchased at times
when CWC would otherwise be prohibited from doing so pursuant to securities laws and its internal trading policies.
For the year ended December 31, 2018, 11,421,000 common shares (2017: 3,493,500 common shares) were purchased,
cancelled and returned to treasury under the NCIB. The 11,421,000 common shares purchased under the NCIB represented
47% of the 24,366,081 shares traded on the TSXV in 2018.
Capital Expenditures
$ thousands
2018
2017
Change $ Change %
Three months ended
December 31,
Year ended
December 31,
2017
2018
Change $ Change %
Contract drilling
Production services
Corporate
Total capital expenditures
Growth capital
Maintenance and
infrastructure capital
Total capital expenditures
414
1,569
-
1,983
1,176
37,730
-
38,906
(762)
(36,161)
-
(36,923)
(65%)
(96%)
-%
(95%)
7,116
4,609
28
11,753
3,964
40,559
9
44,532
3,152
(35,950)
19
(32,779)
80%
(89%)
211%
(74%)
-
37,605
(37,605)
(100%)
5,859
39,340
(33,481)
(85%)
1,983
1,983
1,301
38,906
682
(36,923)
52%
(95%)
5,894
11,753
5,192
44,532
702
(32,779)
14%
(74%)
Capital expenditures of $2.0 million in Q4 2018, a decrease of $36.9 million (95%) compared to $38.9 million in Q4 2017.
Capital expenditures were $11.8 million for the year ended December 31, 2018, a decrease of $32.8 million (74%) compared to
$44.5 million in 2017.
For both the quarter and year ended December 31, 2018, the decrease in capital expenditures was due to the purchase of the
C&J Canada service and swabbing rig assets in 2017 with no similar purchases in 2018. For the year ended December 31, 2018,
growth capital of $5.9 million consists primarily of customer driven upgrades to Drilling Rig #4 ($4.3 million) that included a
pad rig walking system, increase drilling capacity, torque, pump pressure and dual fuel engine capabilities while operating on a
smaller footprint. Drilling Rig #2 ($1.0 million) upgrades included a new mast, rising cylinders, catwalk and top drive
integration. These upgrades are expected to increase these two drilling rigs’ capacity resulting in higher expected utilization in
future quarters. Drilling Rig #2 and #4’s upgrades align with our strategic initiatives and meet our E&P customers’ demands
for deeper depths at cost effective prices while providing a sufficient internal rate of return for CWC’s shareholders. Maintenance
and infrastructure capital of $5.9 million consists primarily of recertification costs, building upgrades and leased vehicles.
The 2019 capital expenditure budget of $5.4 million was approved by the Board of Directors on January 16, 2019 comprised
entirely of maintenance and infrastructure capital related to recertification’s, additions and upgrades to field equipment for the
drilling rigs, service rigs, swabbing rigs and coil tubing divisions as well as information technology infrastructure.
Page | 16
Page | 17
CWC-AR-2018-2.indd 19
2019-05-03 8:47 AM
Commitments and Contractual Obligations
Under the terms of the Company’s amended Bank Loan, the borrowing under the Bank Loan are due in full on July 31, 2020. The
Company is committed to monthly payments of interest and bank charges until July 31, 2020. The Company’s Mortgage Loan is
being amortized over 22 years with blended monthly principal and interest payments and matures on June 28, 2023. There have
been no significant changes in other commitments or contractual obligations since December 31, 2017. Management believes
that there will be sufficient cash flows generated from operations to service the interest on the debt and finance the required
maintenance and growth capital of the Company in 2019.
Summary and Analysis of Quarterly Data
$ thousands, except per share
amounts
Three months ended
2018
2017
Dec.
31
Sept.
30
June
30
March
31
Dec.
31
Sept.
30
June
30
March
31
Revenue
Adjusted EBITDA
Net income (loss)
35,478
38,113
22,245
48,925
37,420
27,173
15,114
32,580
4,978
6,002
31
7,478
6,630
4,055
228
5,150
(157)
326
(3,067)
1,196
8,544
(638)
(2,677)
(368)
Net income (loss) per share: basic and
diluted
(0.00)
0.01
(0.01)
0.00
0.02
0.00
(0.01)
0.00
Total assets
Total long-term debt
Shareholders' equity
252,665
44,896
184,231
257,675
46,394
185,195
250,039
36,803
184,834
268,479
51,377
187,829
264,354
49,810
186,519
208,355
34,404
151,833
203,265
28,887
152,596
218,171
38,828
155,358
The table above summarizes CWC’s quarterly results for the previous eight financial quarters. CWC’s operations are carried out
in western Canada. The second quarter is typically expected to be the weakest financial and operating quarter for the Company
due to ground conditions being impacted by spring breakup. The ability to move heavy equipment in the Canadian crude oil and
natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter’s frost comes out of
the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly
dried out. The duration of this spring breakup has a direct impact on the Company’s activity levels. In addition, many exploration
and production areas in northern Canada are accessible only in winter months when the ground is frozen enough to support
equipment. As a result, late March through May is traditionally the Company’s slowest time, and as such the revenue, operating
costs, and financial results of the Company will vary on a quarterly basis.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Q1 2018 service rig fleet set a new Company record of 53,979 operating hours as a result of the increase in the number
of service rigs from the acquisition of the C&J Canada assets. During Q1 2018, 1,394,000 common shares were purchased
under the NCIB and a total of 1,318,500 common shares were cancelled and returned to treasury;
Q4 2017 saw the acquisition of C&J Canada’s service and swabbing rig assets for $37.5 million. Higher operating activity
and pricing in the Contract Drilling and Production Services’ segments also contributed to the improved financial results
compared to the previous seven quarters. CWC closed a rights offering for aggregate gross proceeds of $26.0 million
($25.9 million after deductions of share issue costs) to partially finance the acquisition of the C&J Canada assets. Under
the fully subscribed offering, 130,148,781 common shares were issued to shareholders who exercised their rights.
During Q4 2017, 405,000 common shares were purchased, cancelled and returned to treasury under the NCIB;
During Q3 2017, 1,402,000 common shares were purchased under the NCIB and a total of 1,441,500 common shares
were cancelled and returned to treasury;
During Q2 2017 saw the initiation of a process to review strategic alternatives. During Q2 2017, 1,404,000 common
shares were purchased under the NCIB and a total of 1,478,000 common shares were cancelled and returned to
treasury; and
Q1 2017 saw significantly higher operating activity in the Company’s Contract Drilling and Production Services
Critical Accounting Estimates and Judgments
segments than what had been experienced in the last eight to twelve quarters.
This MD&A of the Company’s financial condition and results of operations is based on the consolidated financial statements
which are prepared in accordance with IFRS. The preparation of the consolidated financial statements in conformity with IFRS
requires that certain estimates and judgments be made with respect to the reported amounts of revenue and expenses and the
carrying amounts of assets and liabilities. These estimates are based on historical experience and management’s judgment.
Anticipating future events involves uncertainty and consequently the estimates used by management in the preparation of the
consolidated financial statements may change as future events unfold, additional experience is acquired or the Company’s
operating environment changes. In many cases the use of judgment is required to make estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any future periods affected. There have been no significant or material
changes in the nature of critical accounting estimates and judgements since December 31, 2017.
The Company adopted IFRS 15 “Revenue from Contracts with Customers” and IFRS 9 “Financial Instruments” on January 1,
2018. The transitions had no material effect on the Company’s Financial Statements. Please refer to the consolidated financial
statements and related notes for further details on the adoption of these standards.
Management considers the following to be the most significant of the judgments, apart from those involved in making estimates,
made in preparation of the financial statements:
Business combinations
Through the eight quarters presented, the amount of revenue and net income (loss), adjusted for the effects of seasonality, have
fluctuated primarily due to changes in the utilization of equipment, changes in the day and hours billing rate, and the increase
in the number of drilling rigs, service rigs, swabbing rigs and coil tubing units over the period as detailed in the section titled
“Operational Overview”.
The consideration transferred on acquisitions of businesses is allocated to the identifiable assets acquired and liabilities
assumed at their estimated fair values on the acquisition date. All available information is used to estimate fair values, and
external consultants may be engaged to assist in the fair value determination of property, plant and equipment. The preliminary
allocation of consideration transferred may be adjusted, as necessary, up to one year after the acquisition closing date due to
Other significant impacts have been a result of:
(cid:120)
(cid:120)
(cid:120)
Q4 2018 saw the price differential between Canadian heavy crude oil, as represented by WCS, and WTI widened at times
to unprecedented levels of over US$50/bbl compared to the historical normalized range of US$10/bbl to US$15/bbl.
These significant WTI-WCS differential resulted in the Government of Alberta announcement on December 2, 2018
mandating a 325,000 bbls/day crude oil production curtailment on Alberta oil companies producing more than 10,000
bbls/day causing E&P customers to shorten or delay their workover and maintenance work on producing wells. During
Q4 2018, 7,858,000 common shares were purchased, cancelled and returned to treasury under the NCIB;
Q3 2018 saw the completion of significant customer driven capital expenditure upgrades on Drilling Rig #4 to meet
customer demands for deeper depths at cost effective prices. Wet weather conditions during the quarter significantly
impacted activity levels in both the Contract Drilling and Production Services segments resulting in 7% and 4% of lost
operating days and hours respectively. During Q3 2018, 1,175,500 common shares were purchased under the NCIB and
a total of 1,309,000 common shares were cancelled and returned to treasury;
Q2 2018 saw significant customer driven capital expenditure upgrades to two drilling rigs to meet customer demands
for deeper depths at cost effective prices. During Q2 2018, 1,023,000 common shares were purchased under the NCIB
and a total of 935,500 common shares were cancelled and returned to treasury;
additional information affecting asset valuation and liabilities assumed.
The allocation process for the consideration transferred involves uncertainty as management is required to make assumptions
and apply judgment to estimates of the fair value of the acquired assets and liabilities, including highest and best use of assets.
Quoted market prices and widely accepted valuation techniques, including discounted cash flows and market multiple analyses
are used to estimate the fair market value of the assets and liabilities and depreciated replacement costs are used for the
valuation of tangible assets. These estimates include assumptions on inputs within the discounted cash flow calculations related
to forecasted revenues, cash flows, contract renewals, asset lives, industry economic factors and business strategies.
Determination of cash generating units
For the purpose of assessing impairment of tangible and intangible assets, assets are grouped at the lowest level for which there
are separately identifiable cash flows (cash-generating units or “CGU’s”). The grouping of assets into CGU’s requires
management exercise significant judgment.
Impairment of tangible and intangible assets
Tangible and intangible assets are reviewed annually with respect to their useful lives, or more frequently, if events or changes
in circumstances indicate that the assets might be impaired. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is the higher of fair value less
Page | 18
CWC-AR-2018-2.indd 20
Page | 19
2019-05-03 8:47 AM
Commitments and Contractual Obligations
Under the terms of the Company’s amended Bank Loan, the borrowing under the Bank Loan are due in full on July 31, 2020. The
Company is committed to monthly payments of interest and bank charges until July 31, 2020. The Company’s Mortgage Loan is
being amortized over 22 years with blended monthly principal and interest payments and matures on June 28, 2023. There have
been no significant changes in other commitments or contractual obligations since December 31, 2017. Management believes
that there will be sufficient cash flows generated from operations to service the interest on the debt and finance the required
maintenance and growth capital of the Company in 2019.
Summary and Analysis of Quarterly Data
$ thousands, except per share
amounts
Three months ended
2018
2017
Dec.
31
Sept.
30
June
30
March
31
Dec.
31
Sept.
30
June
30
March
31
Revenue
Adjusted EBITDA
Net income (loss)
35,478
38,113
22,245
48,925
37,420
27,173
15,114
32,580
4,978
6,002
31
7,478
6,630
4,055
228
5,150
(157)
326
(3,067)
1,196
8,544
(638)
(2,677)
(368)
Net income (loss) per share: basic and
diluted
(0.00)
0.01
(0.01)
0.00
0.02
0.00
(0.01)
0.00
Total assets
Total long-term debt
Shareholders' equity
252,665
44,896
184,231
257,675
46,394
185,195
250,039
36,803
184,834
268,479
51,377
187,829
264,354
49,810
186,519
208,355
34,404
151,833
203,265
28,887
152,596
218,171
38,828
155,358
The table above summarizes CWC’s quarterly results for the previous eight financial quarters. CWC’s operations are carried out
in western Canada. The second quarter is typically expected to be the weakest financial and operating quarter for the Company
due to ground conditions being impacted by spring breakup. The ability to move heavy equipment in the Canadian crude oil and
natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter’s frost comes out of
the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until they have thoroughly
dried out. The duration of this spring breakup has a direct impact on the Company’s activity levels. In addition, many exploration
and production areas in northern Canada are accessible only in winter months when the ground is frozen enough to support
equipment. As a result, late March through May is traditionally the Company’s slowest time, and as such the revenue, operating
costs, and financial results of the Company will vary on a quarterly basis.
Through the eight quarters presented, the amount of revenue and net income (loss), adjusted for the effects of seasonality, have
fluctuated primarily due to changes in the utilization of equipment, changes in the day and hours billing rate, and the increase
in the number of drilling rigs, service rigs, swabbing rigs and coil tubing units over the period as detailed in the section titled
“Operational Overview”.
Other significant impacts have been a result of:
(cid:120)
(cid:120)
(cid:120)
Q4 2018 saw the price differential between Canadian heavy crude oil, as represented by WCS, and WTI widened at times
to unprecedented levels of over US$50/bbl compared to the historical normalized range of US$10/bbl to US$15/bbl.
These significant WTI-WCS differential resulted in the Government of Alberta announcement on December 2, 2018
mandating a 325,000 bbls/day crude oil production curtailment on Alberta oil companies producing more than 10,000
bbls/day causing E&P customers to shorten or delay their workover and maintenance work on producing wells. During
Q4 2018, 7,858,000 common shares were purchased, cancelled and returned to treasury under the NCIB;
Q3 2018 saw the completion of significant customer driven capital expenditure upgrades on Drilling Rig #4 to meet
customer demands for deeper depths at cost effective prices. Wet weather conditions during the quarter significantly
impacted activity levels in both the Contract Drilling and Production Services segments resulting in 7% and 4% of lost
operating days and hours respectively. During Q3 2018, 1,175,500 common shares were purchased under the NCIB and
a total of 1,309,000 common shares were cancelled and returned to treasury;
Q2 2018 saw significant customer driven capital expenditure upgrades to two drilling rigs to meet customer demands
for deeper depths at cost effective prices. During Q2 2018, 1,023,000 common shares were purchased under the NCIB
and a total of 935,500 common shares were cancelled and returned to treasury;
Page | 18
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Q1 2018 service rig fleet set a new Company record of 53,979 operating hours as a result of the increase in the number
of service rigs from the acquisition of the C&J Canada assets. During Q1 2018, 1,394,000 common shares were purchased
under the NCIB and a total of 1,318,500 common shares were cancelled and returned to treasury;
Q4 2017 saw the acquisition of C&J Canada’s service and swabbing rig assets for $37.5 million. Higher operating activity
and pricing in the Contract Drilling and Production Services’ segments also contributed to the improved financial results
compared to the previous seven quarters. CWC closed a rights offering for aggregate gross proceeds of $26.0 million
($25.9 million after deductions of share issue costs) to partially finance the acquisition of the C&J Canada assets. Under
the fully subscribed offering, 130,148,781 common shares were issued to shareholders who exercised their rights.
During Q4 2017, 405,000 common shares were purchased, cancelled and returned to treasury under the NCIB;
During Q3 2017, 1,402,000 common shares were purchased under the NCIB and a total of 1,441,500 common shares
were cancelled and returned to treasury;
During Q2 2017 saw the initiation of a process to review strategic alternatives. During Q2 2017, 1,404,000 common
shares were purchased under the NCIB and a total of 1,478,000 common shares were cancelled and returned to
treasury; and
Q1 2017 saw significantly higher operating activity in the Company’s Contract Drilling and Production Services
segments than what had been experienced in the last eight to twelve quarters.
Critical Accounting Estimates and Judgments
This MD&A of the Company’s financial condition and results of operations is based on the consolidated financial statements
which are prepared in accordance with IFRS. The preparation of the consolidated financial statements in conformity with IFRS
requires that certain estimates and judgments be made with respect to the reported amounts of revenue and expenses and the
carrying amounts of assets and liabilities. These estimates are based on historical experience and management’s judgment.
Anticipating future events involves uncertainty and consequently the estimates used by management in the preparation of the
consolidated financial statements may change as future events unfold, additional experience is acquired or the Company’s
operating environment changes. In many cases the use of judgment is required to make estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any future periods affected. There have been no significant or material
changes in the nature of critical accounting estimates and judgements since December 31, 2017.
The Company adopted IFRS 15 “Revenue from Contracts with Customers” and IFRS 9 “Financial Instruments” on January 1,
2018. The transitions had no material effect on the Company’s Financial Statements. Please refer to the consolidated financial
statements and related notes for further details on the adoption of these standards.
Management considers the following to be the most significant of the judgments, apart from those involved in making estimates,
made in preparation of the financial statements:
Business combinations
The consideration transferred on acquisitions of businesses is allocated to the identifiable assets acquired and liabilities
assumed at their estimated fair values on the acquisition date. All available information is used to estimate fair values, and
external consultants may be engaged to assist in the fair value determination of property, plant and equipment. The preliminary
allocation of consideration transferred may be adjusted, as necessary, up to one year after the acquisition closing date due to
additional information affecting asset valuation and liabilities assumed.
The allocation process for the consideration transferred involves uncertainty as management is required to make assumptions
and apply judgment to estimates of the fair value of the acquired assets and liabilities, including highest and best use of assets.
Quoted market prices and widely accepted valuation techniques, including discounted cash flows and market multiple analyses
are used to estimate the fair market value of the assets and liabilities and depreciated replacement costs are used for the
valuation of tangible assets. These estimates include assumptions on inputs within the discounted cash flow calculations related
to forecasted revenues, cash flows, contract renewals, asset lives, industry economic factors and business strategies.
Determination of cash generating units
For the purpose of assessing impairment of tangible and intangible assets, assets are grouped at the lowest level for which there
are separately identifiable cash flows (cash-generating units or “CGU’s”). The grouping of assets into CGU’s requires
management exercise significant judgment.
Impairment of tangible and intangible assets
Tangible and intangible assets are reviewed annually with respect to their useful lives, or more frequently, if events or changes
in circumstances indicate that the assets might be impaired. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is the higher of fair value less
Page | 19
CWC-AR-2018-2.indd 21
2019-05-03 8:47 AM
costs to dispose and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value
using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted. As a result, any impairment losses are a result of management’s
best estimates of expected revenue, expenses and cash flows at a specific point in time. These estimates are subject to
measurement uncertainty as they are dependent on factors outside of management’s control. In addition, by their nature
impairment tests involve a significant degree of judgment as expectations concerning future cash flows and the selection of
appropriate market inputs are subject to considerable risks and uncertainties.
Depreciation and amortization
Depreciation of property and equipment and intangible assets is carried out on the basis of the estimated useful lives of the
related assets. Assessing the reasonableness of the estimated useful lives of property and equipment and intangibles requires
judgment and is based on currently available information, including historical experience by the Company. Additionally, the
Company may consult with external equipment builders or manufacturers to assess whether the methodologies and rates
utilized are consistent with their expectations. Changes in circumstances, such as technological advances, changes to the
Company’s business strategy, changes in the Company’s capital strategy or changes in regulations may result in the actual useful
lives differing from the Company’s estimates. A change in the remaining useful life of a group of assets, or their expected residual
value, will affect the depreciation rate used to amortize the group of assets and thus affect depreciation expense as reported in
the Company’s results of operations. These changes are reported prospectively when they occur.
Income taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred income tax assets and
liabilities are recorded based on temporary differences between the carrying amount of an asset or liability and its tax base.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally
recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against
which those deductible temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at the end
of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered. The Company’s operations are complex and computation of the provision for
income taxes involves tax interpretations, regulations and legislation that are continually changing. Any changes in the estimated
amounts are recognized prospectively in the statement of income and comprehensive income.
New Accounting Pronouncements
A number of new standards, amendments to standards and interpretations have been issued by the IASB and are not yet effective
for the year ended December 31, 2018. The new standards, amendments to standards and interpretations are not expected to
have a significant effect on the annual financial statements, except for:
repayments will be reported as financing activities on the Consolidated Statement of Cash Flows. There will be no net
Related Party Transactions
impact on cash flows.
As at December 31, 2018, of the total outstanding shares of the Company, 79.3% are directly or indirectly owned by Brookfield
Capital Partners Ltd. and Brookfield Business Partners L.P. (together “Brookfield”). The Company is related to Brookfield by
virtue of control, and is therefore also related to Brookfield’s affiliates.
During 2018, the Company had revenue totaling $1.6 million (2017: $1.1 million) and accounts receivable as at December 31,
2018 of $0.2 million (December 31, 2017: $0.01 million) in the normal course of business with companies under common
control. The terms and conditions of these transactions were no more favourable than those available, or which might
reasonably be expected to be available, in similar transactions with non-related companies on an arm's length basis.
CEO and CFO Certifications
The CEO and CFO of TSX Venture Exchange listed companies, such as CWC, are not required to certify they have designed internal
control over financial reporting, or caused it to be designed under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Instead, an optional form of certification has been made available to TSX Venture Exchange listed companies and has been used
by CWC’s certifying officers for the December 31, 2018 annual filings. The certification reflects what the Company considers to
be a more appropriate level of CEO and CFO certification given the size and nature of the Company’s operations. This certification
requires that the certifying officer’s state:
They have reviewed the annual financial report and MD&A;
That, based on their knowledge, they have determined there is no untrue statement of a material fact, or any
omission of material fact required to be stated which would make any statement not misleading in light of the
circumstances under which it was made within the annual filings; and
That based upon their knowledge, the annual filings, together with the other financial information included in the
annual filings, fairly present in all material respects the financial condition, financial performance and cash flows
Risks and Uncertainties
of the Company as of the date and for the periods presented in the annual filings.
(cid:120)
(cid:120)
(cid:120)
On January 13, 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”) replacing International Accounting Standard 17,
“Leases” (“IAS 17”). This standard introduces a single lessee accounting model and requires a lessee to recognize assets
and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments.
Certain activities of the Company are affected by factors that are beyond its control or influence. Additional risks and
uncertainties that management may be unaware of at the present time may also become important factors which affect the
Company. Along with the risks discussed in this MD&A, other business risks faced by the Company may be found under “Risk
Factors” in the Company’s most recent Annual Information Form which is available under the Company’s profile at
www.sedar.com.
The new standard is effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted
if IFRS 15, Revenue from Contracts with Customers, has been adopted. The standard may be applied retrospectively or
using a modified retrospective approach. The Company has selected to use the modified approach which does not
require restatement of prior period financial information as the cumulative effect of applying the standard to prior
periods is recorded as an adjustment to opening retained earnings. The company has elected practical expedients
permitted under the standard for the initial adoption.
On adoption of IFRS 16, The Company will recognize lease liabilities in relation to leases under the principles of the new
standard measured at the present value of the remaining lease payments, discounted using the interest rate implicit in
the lease or our incremental borrowing rate as at January 1, 2019. The association right-of-use (“ROU”) asset will be
measured at the amount equal to the lease liability on January 1, 2019.
Adoption of the new standard will result in the recognition of additional lease liabilities and ROU assets. We have
identified ROU assets and leases liabilities primarily related to office and facility space. The impact will result in higher
adjusted EBITDA throughout the term of the lease. In addition, cash flow from operating activities and adjusted cash
flow from operating activities will increase and cash flow from financing activities will decrease as lease obligations
Page | 20
CWC-AR-2018-2.indd 22
2019-05-03 8:47 AM
CWC’s business is generally tied in large part to the oil and gas exploration and production industry in Western Canada. CWC’s
business is sensitive to and will be affected by changing industry conditions in the oil and gas industry including changes in the
level of demand, changes in pricing levels, changes in legislation or in regulation relating to exploration, development,
production, refining, transportation, or marketing in the oil and gas industry. The following is a summary of certain risk factors
Price Competition and Cyclical Nature of the Oilfield Services Business
relevant to CWC’s business. All of these risk factors could negatively impact CWC’s revenue, margins and cash flow.
The drilling rig, service rig, swabbing rig and coil tubing businesses are highly competitive with numerous industry participants.
Management believes pricing and rig availability are the primary factors considered by CWC's potential customers in
determining which drilling rig, service rig, swabbing rig or coil tubing contractor to select. Management believes other factors
are also important, including:
the capabilities and condition of drilling rigs, service rigs, swabbing rigs or coil tubing units;
the quality of service and experience of crews;
the safety record of the contractor and the particular drilling rig, service rig, swabbing rig or coil tubing unit;
the offering of ancillary services;
the ability to provide equipment adaptable to, and personnel familiar with, new technologies;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Page | 21
costs to dispose and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value
using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been adjusted. As a result, any impairment losses are a result of management’s
best estimates of expected revenue, expenses and cash flows at a specific point in time. These estimates are subject to
measurement uncertainty as they are dependent on factors outside of management’s control. In addition, by their nature
impairment tests involve a significant degree of judgment as expectations concerning future cash flows and the selection of
appropriate market inputs are subject to considerable risks and uncertainties.
Depreciation and amortization
Depreciation of property and equipment and intangible assets is carried out on the basis of the estimated useful lives of the
related assets. Assessing the reasonableness of the estimated useful lives of property and equipment and intangibles requires
judgment and is based on currently available information, including historical experience by the Company. Additionally, the
Company may consult with external equipment builders or manufacturers to assess whether the methodologies and rates
utilized are consistent with their expectations. Changes in circumstances, such as technological advances, changes to the
Company’s business strategy, changes in the Company’s capital strategy or changes in regulations may result in the actual useful
lives differing from the Company’s estimates. A change in the remaining useful life of a group of assets, or their expected residual
value, will affect the depreciation rate used to amortize the group of assets and thus affect depreciation expense as reported in
the Company’s results of operations. These changes are reported prospectively when they occur.
Income taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred income tax assets and
liabilities are recorded based on temporary differences between the carrying amount of an asset or liability and its tax base.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally
recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against
which those deductible temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at the end
of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to
allow all or part of the asset to be recovered. The Company’s operations are complex and computation of the provision for
income taxes involves tax interpretations, regulations and legislation that are continually changing. Any changes in the estimated
amounts are recognized prospectively in the statement of income and comprehensive income.
New Accounting Pronouncements
A number of new standards, amendments to standards and interpretations have been issued by the IASB and are not yet effective
for the year ended December 31, 2018. The new standards, amendments to standards and interpretations are not expected to
have a significant effect on the annual financial statements, except for:
repayments will be reported as financing activities on the Consolidated Statement of Cash Flows. There will be no net
impact on cash flows.
Related Party Transactions
As at December 31, 2018, of the total outstanding shares of the Company, 79.3% are directly or indirectly owned by Brookfield
Capital Partners Ltd. and Brookfield Business Partners L.P. (together “Brookfield”). The Company is related to Brookfield by
virtue of control, and is therefore also related to Brookfield’s affiliates.
During 2018, the Company had revenue totaling $1.6 million (2017: $1.1 million) and accounts receivable as at December 31,
2018 of $0.2 million (December 31, 2017: $0.01 million) in the normal course of business with companies under common
control. The terms and conditions of these transactions were no more favourable than those available, or which might
reasonably be expected to be available, in similar transactions with non-related companies on an arm's length basis.
CEO and CFO Certifications
The CEO and CFO of TSX Venture Exchange listed companies, such as CWC, are not required to certify they have designed internal
control over financial reporting, or caused it to be designed under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Instead, an optional form of certification has been made available to TSX Venture Exchange listed companies and has been used
by CWC’s certifying officers for the December 31, 2018 annual filings. The certification reflects what the Company considers to
be a more appropriate level of CEO and CFO certification given the size and nature of the Company’s operations. This certification
requires that the certifying officer’s state:
(cid:120)
(cid:120)
(cid:120)
They have reviewed the annual financial report and MD&A;
That, based on their knowledge, they have determined there is no untrue statement of a material fact, or any
omission of material fact required to be stated which would make any statement not misleading in light of the
circumstances under which it was made within the annual filings; and
That based upon their knowledge, the annual filings, together with the other financial information included in the
annual filings, fairly present in all material respects the financial condition, financial performance and cash flows
of the Company as of the date and for the periods presented in the annual filings.
Risks and Uncertainties
On January 13, 2016, the IASB issued IFRS 16, “Leases” (“IFRS 16”) replacing International Accounting Standard 17,
“Leases” (“IAS 17”). This standard introduces a single lessee accounting model and requires a lessee to recognize assets
and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments.
Certain activities of the Company are affected by factors that are beyond its control or influence. Additional risks and
uncertainties that management may be unaware of at the present time may also become important factors which affect the
Company. Along with the risks discussed in this MD&A, other business risks faced by the Company may be found under “Risk
Factors” in the Company’s most recent Annual Information Form which is available under the Company’s profile at
www.sedar.com.
CWC’s business is generally tied in large part to the oil and gas exploration and production industry in Western Canada. CWC’s
business is sensitive to and will be affected by changing industry conditions in the oil and gas industry including changes in the
level of demand, changes in pricing levels, changes in legislation or in regulation relating to exploration, development,
production, refining, transportation, or marketing in the oil and gas industry. The following is a summary of certain risk factors
Price Competition and Cyclical Nature of the Oilfield Services Business
relevant to CWC’s business. All of these risk factors could negatively impact CWC’s revenue, margins and cash flow.
The drilling rig, service rig, swabbing rig and coil tubing businesses are highly competitive with numerous industry participants.
Management believes pricing and rig availability are the primary factors considered by CWC's potential customers in
determining which drilling rig, service rig, swabbing rig or coil tubing contractor to select. Management believes other factors
are also important, including:
the capabilities and condition of drilling rigs, service rigs, swabbing rigs or coil tubing units;
the quality of service and experience of crews;
the safety record of the contractor and the particular drilling rig, service rig, swabbing rig or coil tubing unit;
the offering of ancillary services;
the ability to provide equipment adaptable to, and personnel familiar with, new technologies;
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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The new standard is effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted
if IFRS 15, Revenue from Contracts with Customers, has been adopted. The standard may be applied retrospectively or
using a modified retrospective approach. The Company has selected to use the modified approach which does not
require restatement of prior period financial information as the cumulative effect of applying the standard to prior
periods is recorded as an adjustment to opening retained earnings. The company has elected practical expedients
permitted under the standard for the initial adoption.
On adoption of IFRS 16, The Company will recognize lease liabilities in relation to leases under the principles of the new
standard measured at the present value of the remaining lease payments, discounted using the interest rate implicit in
the lease or our incremental borrowing rate as at January 1, 2019. The association right-of-use (“ROU”) asset will be
measured at the amount equal to the lease liability on January 1, 2019.
Adoption of the new standard will result in the recognition of additional lease liabilities and ROU assets. We have
identified ROU assets and leases liabilities primarily related to office and facility space. The impact will result in higher
adjusted EBITDA throughout the term of the lease. In addition, cash flow from operating activities and adjusted cash
flow from operating activities will increase and cash flow from financing activities will decrease as lease obligations
Page | 20
(cid:120)
(cid:120)
the mobility and efficiency of the drilling rigs, service rigs, swabbing rigs or coil tubing units; and
marketing relationships.
The drilling rig, service rig, swabbing rig and coil tubing industry historically has been cyclical and has experienced periods of
low demand, excess rig supply, and low day or hourly rates, followed by periods of high demand, short rig supply and increasing
day or hourly rates. Periods of excess rig supply intensify the competition in the industry and result in rigs being idle. There are
numerous drilling rig, service rig, swabbing rig and coil tubing unit suppliers in each of the markets in which CWC operates. In
all of those markets, an oversupply of equipment can cause greater price competition. Oilfield services companies compete
primarily on a regional basis, and the intensity of competition may vary significantly from region to region at any particular
time.
CWC provides services primarily to the field operation locations of oil and natural gas exploration and production companies
located in western Canada. The oil and natural gas services business in which CWC operates is highly competitive. To be
successful, CWC must provide services that meet the specific needs of its clients at competitive prices. CWC will compete with
several regional competitors that are both smaller and larger than it is. These competitors offer similar services in all geographic
regions in which CWC operates. As a result of competition, CWC may be unable to continue to provide its present services or to
acquire additional business opportunities, which could have a material adverse effect on CWC's business, financial condition,
results of operations and cash flows.
Oversupply of Oilfield Services Equipment in the Drilling Rig and Service Rig Industry
Because of the long life nature of drilling rigs, service rigs, swabbing rigs and coil tubing units and the lag between the moment
a decision to build a rig or unit is made and the moment the rig or unit is placed into service, the number of rigs or units in the
industry does not always correlate to the level of demand for those rigs or units. Periods of high demand often spur increased
capital expenditures on rigs or units, and those capital expenditures may exceed actual demand. An oversupply of oilfield
services equipment could cause CWC's competitors to lower their rates and could lead to a decrease in rates in the oilfield
services industry generally, which would have a material adverse effect on the revenue, cash flows and earnings of CWC.
Operational Risks
Demand and prices for CWC's products and services depend upon the level of activity in the Canadian oil and gas exploration
and production industry which in turn depends on the level of oil and gas prices, expectations about future oil and gas prices,
the cost of exploring for, producing and delivering oil and gas, the discovery rate of new oil and gas reserves, available pipeline
and other oil and gas transportation capacity, worldwide weather conditions, political, military, regulatory and economic
conditions and the ability of oil and gas companies to raise capital. The level of activity in the Canadian oil and gas exploration
and production industry is volatile. The marketability of any oil and natural gas acquired or discovered by CWC's customers will
be affected by numerous factors beyond the control of such customers. These factors include market fluctuations, the price of
crude oil, the price of natural gas, the supply and demand for oil and natural gas, the proximity and capacity of oil and natural
gas pipelines and processing equipment, and government regulations, including regulations relating to prices, taxes, royalties,
land tenure, allowable production, the import and export of oil and natural gas, and environmental protection. The effect of
these factors cannot be accurately predicted. No assurances can be given that current levels of oil and gas exploration and
production activities will improve, deteriorate further, or continue or that demand for the Company's services will continue to
reflect the level of activity in the industry generally. Industry conditions will continue to be influenced by numerous factors over
which the Company will have no control. Prices for oil and gas are expected to continue to be volatile and to affect the demand
for and pricing of the Company's products and services.
Merger and Acquisition Activity
Merger and acquisition activity in the oil and gas exploration and production sector may impact demand for CWC's services as
customers focus on reorganizing their business prior to committing funds to exploration and development projects. Further, in
any merger or acquisition transaction the resulting or acquired company may have preferred supplier relationships with oilfield
service providers other than CWC.
Oilfield Services Industry Risks
There are many risks inherent in the oilfield services industry, which even a combination of experience, knowledge and careful
evaluation may not be able to overcome. The Company's operations are subject to hazards inherent in the oilfield service
industry, such as explosions, fires and spills that can cause personal injury or loss of life, damage to or destruction of property,
equipment and the environment and suspension of operations. In addition, claims for loss of oil and gas production, damage to
formations, damage to facilities and business interruptions can occur. While the Company maintains insurance coverage that it
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CWC-AR-2018-2.indd 24
2019-05-03 8:47 AM
believes to be adequate and customary in the industry, there can be no assurances that insurance proceeds will be available or
sufficient or that CWC will be able to maintain adequate insurance in the future at rates considered reasonable. The single
occurrence of a significant uninsured claim or a claim in excess of the insurance coverage limits maintained by the Company
could have a material adverse effect on the Company's business, results of operation and prospects.
Hazards such as unusual or unexpected geological formations, pressures, blow-outs, fires or other conditions may be
encountered in drilling or servicing wells. CWC will have the benefit of insurance maintained by it, however, CWC may become
liable for damages arising from pollution, blowouts or other hazards against which it cannot insure or against which it may elect
not to insure because of high premium costs or other reasons.
Reputational Risk Associated with the Corporation's Operations
The Corporation's business, operations or financial condition may be negatively impacted as a result of any negative public
opinion towards the Corporation or as a result of any negative sentiment toward, or in respect of, the Corporation's reputation
with stakeholders, special interest groups, political leadership, the media or other entities. Public opinion may be influenced by
certain media and special interest groups' negative portrayal of the industry in which the Corporation operates as well as their
opposition to certain oil and natural gas projects. Potential impacts of negative public opinion or reputational issues may include
delays or interruptions in operations, legal or regulatory actions or challenges, blockades, increased regulatory oversight,
reduced support for, delays in, challenges to, or the revocation of regulatory approvals, permits and/or licenses and increased
costs and/or cost overruns. The Corporation's reputation and public opinion could also be impacted by the actions and activities
of other companies operating in the oil and natural gas industry, particularly other oilfield service providers, over which the
Corporation has no control. Similarly, the Corporation's reputation could be impacted by negative publicity related to loss of life,
injury or damage to property and environmental damage caused by the Corporation's operations. In addition, if the Corporation
develops a reputation of having an unsafe work site, it may impact the ability of the Corporation to attract and retain the
necessary skilled employees and consultants to operate its business. Opposition from special interest groups opposed to oil and
natural gas development and the possibility of climate related litigation against governments and fossil fuel companies may
impact the Corporation's reputation. Reputational risk cannot be managed in isolation from other forms of risk. Credit, market,
operational, insurance, regulatory and legal risks, among others, must all be managed effectively to safeguard the Corporation's
reputation. Damage to the Corporation's reputation could result in negative investor sentiment towards the Corporation, which
may result in limiting the Corporation's access to capital, increasing the cost of capital, and decreasing the price and liquidity of
the Corporation's securities.
Changing Investor Sentiment
A number of factors, including the concerns of the effects of the use of fossil fuels on climate change, the impact of oil and natural
gas operations on the environment, environmental damage relating to spills of petroleum products during transportation and
indigenous rights, have affected certain investors' sentiments towards investing in the oil and natural gas industry. As a result
of these concerns, some institutional, retail and public investors have announced that they no longer are willing to fund or invest
in oil and natural gas properties or companies, or are reducing the amount thereof over time. In addition, certain institutional
investors are requesting that issuers develop and implement more robust social, environmental and governance policies and
practices. Developing and implementing such policies and practices can involve significant costs and require a significant time
commitment from the Board, management and employees of the Corporation. Failing to implement the policies and practices,
as requested by institutional investors, may result in such investors reducing their investment in the Corporation, or not
investing in the Corporation at all. Any reduction in the investor base interested or willing to invest in the oil and natural gas
industry and more specifically, the Corporation, may result in limiting the Corporation's access to capital, increasing the cost of
capital, and decreasing the price and liquidity of the Corporation's securities even if the Corporation's operating results,
underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause a
decrease in the value of the Corporation's assets which may result in an impairment change.
Leverage and Restrictive Covenants
The ability of CWC to make payments or advances will be subject to applicable laws and contractual restrictions in the
instruments governing any indebtedness of those entities including the Credit Facilities. The degree to which CWC is leveraged
could have important consequences for investors including: (i) CWC's ability to obtain additional financing for working capital,
capital expenditures or future acquisitions; (ii) all or part of CWC's cash flow from operations may be dedicated to the payment
of the principal of and interest on CWC's indebtedness, thereby reducing funds available for future operations and to pay
dividends; (iii) certain of CWC's borrowings may be at variable rates of interest, which exposes CWC to the risk of increased
interest rates; and (iv) CWC may be more vulnerable to economic downturns and be limited in its ability to withstand competitor
pressures. These factors could have a material adverse effect on CWC's business, financial condition, results of operations and
cash flows.
Page | 23
(cid:120)
(cid:120)
time.
the mobility and efficiency of the drilling rigs, service rigs, swabbing rigs or coil tubing units; and
marketing relationships.
The drilling rig, service rig, swabbing rig and coil tubing industry historically has been cyclical and has experienced periods of
low demand, excess rig supply, and low day or hourly rates, followed by periods of high demand, short rig supply and increasing
day or hourly rates. Periods of excess rig supply intensify the competition in the industry and result in rigs being idle. There are
numerous drilling rig, service rig, swabbing rig and coil tubing unit suppliers in each of the markets in which CWC operates. In
all of those markets, an oversupply of equipment can cause greater price competition. Oilfield services companies compete
primarily on a regional basis, and the intensity of competition may vary significantly from region to region at any particular
believes to be adequate and customary in the industry, there can be no assurances that insurance proceeds will be available or
sufficient or that CWC will be able to maintain adequate insurance in the future at rates considered reasonable. The single
occurrence of a significant uninsured claim or a claim in excess of the insurance coverage limits maintained by the Company
could have a material adverse effect on the Company's business, results of operation and prospects.
Hazards such as unusual or unexpected geological formations, pressures, blow-outs, fires or other conditions may be
encountered in drilling or servicing wells. CWC will have the benefit of insurance maintained by it, however, CWC may become
liable for damages arising from pollution, blowouts or other hazards against which it cannot insure or against which it may elect
not to insure because of high premium costs or other reasons.
Reputational Risk Associated with the Corporation's Operations
CWC provides services primarily to the field operation locations of oil and natural gas exploration and production companies
located in western Canada. The oil and natural gas services business in which CWC operates is highly competitive. To be
successful, CWC must provide services that meet the specific needs of its clients at competitive prices. CWC will compete with
several regional competitors that are both smaller and larger than it is. These competitors offer similar services in all geographic
regions in which CWC operates. As a result of competition, CWC may be unable to continue to provide its present services or to
acquire additional business opportunities, which could have a material adverse effect on CWC's business, financial condition,
results of operations and cash flows.
Oversupply of Oilfield Services Equipment in the Drilling Rig and Service Rig Industry
Because of the long life nature of drilling rigs, service rigs, swabbing rigs and coil tubing units and the lag between the moment
a decision to build a rig or unit is made and the moment the rig or unit is placed into service, the number of rigs or units in the
industry does not always correlate to the level of demand for those rigs or units. Periods of high demand often spur increased
capital expenditures on rigs or units, and those capital expenditures may exceed actual demand. An oversupply of oilfield
services equipment could cause CWC's competitors to lower their rates and could lead to a decrease in rates in the oilfield
services industry generally, which would have a material adverse effect on the revenue, cash flows and earnings of CWC.
Operational Risks
Demand and prices for CWC's products and services depend upon the level of activity in the Canadian oil and gas exploration
and production industry which in turn depends on the level of oil and gas prices, expectations about future oil and gas prices,
the cost of exploring for, producing and delivering oil and gas, the discovery rate of new oil and gas reserves, available pipeline
and other oil and gas transportation capacity, worldwide weather conditions, political, military, regulatory and economic
conditions and the ability of oil and gas companies to raise capital. The level of activity in the Canadian oil and gas exploration
and production industry is volatile. The marketability of any oil and natural gas acquired or discovered by CWC's customers will
be affected by numerous factors beyond the control of such customers. These factors include market fluctuations, the price of
crude oil, the price of natural gas, the supply and demand for oil and natural gas, the proximity and capacity of oil and natural
gas pipelines and processing equipment, and government regulations, including regulations relating to prices, taxes, royalties,
land tenure, allowable production, the import and export of oil and natural gas, and environmental protection. The effect of
these factors cannot be accurately predicted. No assurances can be given that current levels of oil and gas exploration and
production activities will improve, deteriorate further, or continue or that demand for the Company's services will continue to
reflect the level of activity in the industry generally. Industry conditions will continue to be influenced by numerous factors over
which the Company will have no control. Prices for oil and gas are expected to continue to be volatile and to affect the demand
for and pricing of the Company's products and services.
Merger and Acquisition Activity
Merger and acquisition activity in the oil and gas exploration and production sector may impact demand for CWC's services as
customers focus on reorganizing their business prior to committing funds to exploration and development projects. Further, in
any merger or acquisition transaction the resulting or acquired company may have preferred supplier relationships with oilfield
service providers other than CWC.
Oilfield Services Industry Risks
There are many risks inherent in the oilfield services industry, which even a combination of experience, knowledge and careful
evaluation may not be able to overcome. The Company's operations are subject to hazards inherent in the oilfield service
industry, such as explosions, fires and spills that can cause personal injury or loss of life, damage to or destruction of property,
equipment and the environment and suspension of operations. In addition, claims for loss of oil and gas production, damage to
formations, damage to facilities and business interruptions can occur. While the Company maintains insurance coverage that it
Page | 22
The Corporation's business, operations or financial condition may be negatively impacted as a result of any negative public
opinion towards the Corporation or as a result of any negative sentiment toward, or in respect of, the Corporation's reputation
with stakeholders, special interest groups, political leadership, the media or other entities. Public opinion may be influenced by
certain media and special interest groups' negative portrayal of the industry in which the Corporation operates as well as their
opposition to certain oil and natural gas projects. Potential impacts of negative public opinion or reputational issues may include
delays or interruptions in operations, legal or regulatory actions or challenges, blockades, increased regulatory oversight,
reduced support for, delays in, challenges to, or the revocation of regulatory approvals, permits and/or licenses and increased
costs and/or cost overruns. The Corporation's reputation and public opinion could also be impacted by the actions and activities
of other companies operating in the oil and natural gas industry, particularly other oilfield service providers, over which the
Corporation has no control. Similarly, the Corporation's reputation could be impacted by negative publicity related to loss of life,
injury or damage to property and environmental damage caused by the Corporation's operations. In addition, if the Corporation
develops a reputation of having an unsafe work site, it may impact the ability of the Corporation to attract and retain the
necessary skilled employees and consultants to operate its business. Opposition from special interest groups opposed to oil and
natural gas development and the possibility of climate related litigation against governments and fossil fuel companies may
impact the Corporation's reputation. Reputational risk cannot be managed in isolation from other forms of risk. Credit, market,
operational, insurance, regulatory and legal risks, among others, must all be managed effectively to safeguard the Corporation's
reputation. Damage to the Corporation's reputation could result in negative investor sentiment towards the Corporation, which
may result in limiting the Corporation's access to capital, increasing the cost of capital, and decreasing the price and liquidity of
the Corporation's securities.
Changing Investor Sentiment
A number of factors, including the concerns of the effects of the use of fossil fuels on climate change, the impact of oil and natural
gas operations on the environment, environmental damage relating to spills of petroleum products during transportation and
indigenous rights, have affected certain investors' sentiments towards investing in the oil and natural gas industry. As a result
of these concerns, some institutional, retail and public investors have announced that they no longer are willing to fund or invest
in oil and natural gas properties or companies, or are reducing the amount thereof over time. In addition, certain institutional
investors are requesting that issuers develop and implement more robust social, environmental and governance policies and
practices. Developing and implementing such policies and practices can involve significant costs and require a significant time
commitment from the Board, management and employees of the Corporation. Failing to implement the policies and practices,
as requested by institutional investors, may result in such investors reducing their investment in the Corporation, or not
investing in the Corporation at all. Any reduction in the investor base interested or willing to invest in the oil and natural gas
industry and more specifically, the Corporation, may result in limiting the Corporation's access to capital, increasing the cost of
capital, and decreasing the price and liquidity of the Corporation's securities even if the Corporation's operating results,
underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause a
decrease in the value of the Corporation's assets which may result in an impairment change.
Leverage and Restrictive Covenants
The ability of CWC to make payments or advances will be subject to applicable laws and contractual restrictions in the
instruments governing any indebtedness of those entities including the Credit Facilities. The degree to which CWC is leveraged
could have important consequences for investors including: (i) CWC's ability to obtain additional financing for working capital,
capital expenditures or future acquisitions; (ii) all or part of CWC's cash flow from operations may be dedicated to the payment
of the principal of and interest on CWC's indebtedness, thereby reducing funds available for future operations and to pay
dividends; (iii) certain of CWC's borrowings may be at variable rates of interest, which exposes CWC to the risk of increased
interest rates; and (iv) CWC may be more vulnerable to economic downturns and be limited in its ability to withstand competitor
pressures. These factors could have a material adverse effect on CWC's business, financial condition, results of operations and
cash flows.
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The Credit Facilities contain numerous covenants that limit the discretion of management with respect to certain business
matters. These covenants will place restrictions on, among other things, the ability of CWC to create liens or other encumbrances;
to pay dividends or make other distributions, or make certain other investments, loans and guarantees; to sell or otherwise
dispose of assets or repurchase stock, merge, amalgamate or consolidate with another entity. In addition, the credit facilities,
contain a number of financial covenants that require CWC to meet certain financial ratios and financial condition tests. CWC's
ability to meet such tests could be affected by events beyond its control, and it may not be able to meet such tests.
A failure to comply with the obligations in the credit facilities, including financial ratios and financial condition tests, could result
in a default which, if not cured or waived, would permit acceleration of the repayment of the relevant indebtedness as the lenders
could elect to declare all amounts outstanding under the credit facilities to be immediately due and payable and terminate all
commitments to extend further credit. If the lenders were to accelerate the repayment of borrowings, CWC may not have
sufficient assets to repay balances owing on the credit facilities as well as its unsecured indebtedness as the acceleration of
CWC's indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-
default or cross-acceleration provisions. If CWC's indebtedness is accelerated and the Corporation was not able to repay its
indebtedness or borrow sufficient funds to refinance it, the lenders under the credit facilities could proceed to realize upon the
collateral granted to them to secure that indebtedness which could have a material adverse effect on CWC and its cash flows.
Even if CWC is able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to
CWC and may impose financial restrictions and other covenants on it that may be more restrictive than the credit facilities.
Notwithstanding an event of default, there is also no assurance that CWC will be able to refinance any or all of the credit facilities
at their maturity dates on acceptable terms, or on any basis.
Liquidity Risk
accurately estimated at this time.
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due or can do so
only at excessive cost. The Company's liquidity could be adversely affected by a material negative change in the oilfield services
industry, which in turn could lead to covenant breaches of the credit facilities, which, if not amended or waived, could limit the
Company's access to the credit facilities. If available liquidity is not sufficient to meet CWC's operating and debt obligations as
they come due, CWC will need to significantly reduce expenditure, pursue alternative financing arrangements, dispose of
significant assets, or pursue other corporate strategic alternatives, the ability of which to do so is uncertain.
Government Regulation
CWC operations are subject to a variety of federal, provincial and local laws, regulations and guidelines, including laws and
regulations related to health and safety, transportation, the conduct of operations, the manufacture, management,
transportation and disposal of certain materials used in the Company's operations. Changes in any such laws, regulations or
guidelines could have a material adverse effect on CWC’s operations.
In addition, the oil and gas industry in general is subject to extensive government policies and regulations, which result in
additional cost and risk for industry participants or parties, such as CWC, that service the industry. Royalty rates, carbon taxes,
transportation regulations, other laws or government incentive programs relating to the oil and gas industry generally may in
the future be changed or interpreted in a manner that adversely affects the Company and its shareholders.
Seasonal Nature of CWC's Business
The Company's operations are carried on generally in Western Canada. The ability to move heavy equipment in the Western
Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter's
frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until
they have thoroughly dried out. The duration of this "spring breakup" has a direct impact on the Company's activity levels. In
addition, many exploration and production areas in northern Canada are accessible only in winter months when the ground is
frozen enough to support equipment. The timing of freeze-up and spring breakup affects the ability to move equipment in and
out of these areas. As a result, mid-March through June is traditionally the Company's slowest time, and as such, the operating
results of the Company will vary on a quarterly basis.
Dependence on Key Personnel
ability to attract, develop and retain skilled employees in all areas of its business. The ability of the Company to expand its
services is dependent upon its ability to attract additional qualified employees. The ability to secure the services of additional
personnel is constrained in times of strong industry activity.
Climate Change
United
Climate change policy is evolving at regional, national and international levels, and political and economic events may
Nations Framework Convention on Climate Change
significantly affect the scope and timing of climate change measures that are ultimately put in place. As a signatory to the
and a signatory to the
Paris Agreement, which was ratified in Canada on
October 3, 2016, the Government of Canada pledged to cut its greenhouse gases ("GHG") emissions by 30 per cent from 2005
levels by 2030. One of the pertinent policies announced to date by the Government of Canada to reduce GHG emission is the
planned implementation of a nation-wide price on carbon emissions. The federal carbon levy goes into effect on April 1, 2019
and will affect provinces which have not implemented their own carbon taxes, cap-and-trade systems or other plans for carbon
pricing, namely Ontario, Manitoba, Saskatchewan and New Brunswick. The federal carbon levy will be at an initial rate of $20
per tonne. Provincially, the Government of Alberta has already implemented a carbon levy on almost all sources of GHG
emissions, now at a rate of $30 per tonne. The implementation of the federal carbon levy is currently subject to constitutional
challenges submitted by the Provinces of Saskatchewan and Ontario, which are supported by the province of New Brunswick.
The direct or indirect costs of compliance with GHG-related regulations may have a material adverse effect on CWC's business,
financial condition, results of operations and prospects. Additional changes to provincial climate change legislation may
adversely affect the Corporation's business, financial condition, results of operations and cash flows which cannot be reliably or
Concerns about climate change have resulted in a number of environmental activists and members of the public opposing the
continued exploitation and development of fossil fuels. Historically, political and legal opposition to the fossil fuel industry
focused on public opinion and the regulatory process. More recently, however, there has been a movement to more directly hold
governments and oil and natural gas companies responsible for climate change through climate litigation. In November 2018,
ENvironment JEUnesse, a Quebec advocacy group, applied to the Quebec Superior Court to certify a class action against the
Government of Canada for climate related matters. In January 2019, the City of Victoria became the first municipality in Canada
to endorse a class action lawsuit against oil and natural gas producers for climate-related harms.
Given the evolving nature of the debate related to climate change and the control of GHG and resulting requirements, it is
expected that current and future climate change regulations will have the affect of increasing the CWC's operating expenses and
in the long-term reducing the demand for its services oil, resulting in a decrease in the Corporation's profitability and a reduction
in the value of its assets or asset write-offs.
In addition, there has been public discussion that climate change may be associated with extreme weather conditions and
increased volatility in seasonal temperatures. Extreme weather could interfere with CWC's operations. At this time, CWC is
unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting its operations.
Carbon Pricing Risk
The majority of countries across the globe have agreed to reduce their carbon emissions. In Canada, the federal and certain
provincial governments have implemented legislation aimed at incentivizing the use of alternative fuels and in turn reducing
carbon emissions. The taxes placed on carbon emissions may have the effect of decreasing the demand for oil and natural gas
products and at the same time, increasing CWC's operating expenses, each of which may have a material adverse effect on the
CWC's profitability and financial condition. Further, the imposition of carbon taxes puts CWC at a disadvantage with its
counterparts who operate in jurisdictions where there are less costly carbon regulations.
Geopolitical Risks
Political changes in North America and political instability in the Middle East and elsewhere may cause disruptions in the supply
of oil that affects the oil and gas industry. Conflicts, or conversely peaceful developments, arising outside of Canada, including
changes in political regimes or parties in power, may have a significant impact on the price of oil and natural gas. Any particular
event could result in a material decline in prices and result in a reduction of the Corporation's profitability.
Non-Governmental Organizations and Eco-Terrorism Risks
CWC's future performance and development will depend, to a significant extent, on the efforts and abilities of its executive
officers and key management personnel, and on the ability to attract and retain qualified field staff. The loss of the services of
one or more of its management team could harm the Company. Also CWC's success largely depends on the Company's continuing
The business activities conducted by the Corporation may, at times, be subject to public opposition. Such public opposition
could expose the Corporation to the risk of higher costs, delays or even project cancellations due to increased pressure on
governments and regulators by special interest groups including Aboriginal groups, landowners, environmental interest groups
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The Credit Facilities contain numerous covenants that limit the discretion of management with respect to certain business
matters. These covenants will place restrictions on, among other things, the ability of CWC to create liens or other encumbrances;
to pay dividends or make other distributions, or make certain other investments, loans and guarantees; to sell or otherwise
dispose of assets or repurchase stock, merge, amalgamate or consolidate with another entity. In addition, the credit facilities,
contain a number of financial covenants that require CWC to meet certain financial ratios and financial condition tests. CWC's
ability to meet such tests could be affected by events beyond its control, and it may not be able to meet such tests.
A failure to comply with the obligations in the credit facilities, including financial ratios and financial condition tests, could result
in a default which, if not cured or waived, would permit acceleration of the repayment of the relevant indebtedness as the lenders
could elect to declare all amounts outstanding under the credit facilities to be immediately due and payable and terminate all
commitments to extend further credit. If the lenders were to accelerate the repayment of borrowings, CWC may not have
sufficient assets to repay balances owing on the credit facilities as well as its unsecured indebtedness as the acceleration of
CWC's indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-
default or cross-acceleration provisions. If CWC's indebtedness is accelerated and the Corporation was not able to repay its
indebtedness or borrow sufficient funds to refinance it, the lenders under the credit facilities could proceed to realize upon the
collateral granted to them to secure that indebtedness which could have a material adverse effect on CWC and its cash flows.
Even if CWC is able to obtain new financing, it may not be on commercially reasonable terms or on terms that are acceptable to
CWC and may impose financial restrictions and other covenants on it that may be more restrictive than the credit facilities.
Notwithstanding an event of default, there is also no assurance that CWC will be able to refinance any or all of the credit facilities
at their maturity dates on acceptable terms, or on any basis.
Liquidity Risk
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due or can do so
only at excessive cost. The Company's liquidity could be adversely affected by a material negative change in the oilfield services
industry, which in turn could lead to covenant breaches of the credit facilities, which, if not amended or waived, could limit the
Company's access to the credit facilities. If available liquidity is not sufficient to meet CWC's operating and debt obligations as
they come due, CWC will need to significantly reduce expenditure, pursue alternative financing arrangements, dispose of
significant assets, or pursue other corporate strategic alternatives, the ability of which to do so is uncertain.
Government Regulation
CWC operations are subject to a variety of federal, provincial and local laws, regulations and guidelines, including laws and
regulations related to health and safety, transportation, the conduct of operations, the manufacture, management,
transportation and disposal of certain materials used in the Company's operations. Changes in any such laws, regulations or
guidelines could have a material adverse effect on CWC’s operations.
In addition, the oil and gas industry in general is subject to extensive government policies and regulations, which result in
additional cost and risk for industry participants or parties, such as CWC, that service the industry. Royalty rates, carbon taxes,
transportation regulations, other laws or government incentive programs relating to the oil and gas industry generally may in
the future be changed or interpreted in a manner that adversely affects the Company and its shareholders.
Seasonal Nature of CWC's Business
The Company's operations are carried on generally in Western Canada. The ability to move heavy equipment in the Western
Canadian oil and natural gas fields is dependent on weather conditions. As warm weather returns in the spring, the winter's
frost comes out of the ground rendering many secondary roads incapable of supporting the weight of heavy equipment until
they have thoroughly dried out. The duration of this "spring breakup" has a direct impact on the Company's activity levels. In
addition, many exploration and production areas in northern Canada are accessible only in winter months when the ground is
frozen enough to support equipment. The timing of freeze-up and spring breakup affects the ability to move equipment in and
out of these areas. As a result, mid-March through June is traditionally the Company's slowest time, and as such, the operating
results of the Company will vary on a quarterly basis.
Dependence on Key Personnel
ability to attract, develop and retain skilled employees in all areas of its business. The ability of the Company to expand its
services is dependent upon its ability to attract additional qualified employees. The ability to secure the services of additional
personnel is constrained in times of strong industry activity.
Climate Change
United
Climate change policy is evolving at regional, national and international levels, and political and economic events may
Nations Framework Convention on Climate Change
significantly affect the scope and timing of climate change measures that are ultimately put in place. As a signatory to the
Paris Agreement, which was ratified in Canada on
and a signatory to the
October 3, 2016, the Government of Canada pledged to cut its greenhouse gases ("GHG") emissions by 30 per cent from 2005
levels by 2030. One of the pertinent policies announced to date by the Government of Canada to reduce GHG emission is the
planned implementation of a nation-wide price on carbon emissions. The federal carbon levy goes into effect on April 1, 2019
and will affect provinces which have not implemented their own carbon taxes, cap-and-trade systems or other plans for carbon
pricing, namely Ontario, Manitoba, Saskatchewan and New Brunswick. The federal carbon levy will be at an initial rate of $20
per tonne. Provincially, the Government of Alberta has already implemented a carbon levy on almost all sources of GHG
emissions, now at a rate of $30 per tonne. The implementation of the federal carbon levy is currently subject to constitutional
challenges submitted by the Provinces of Saskatchewan and Ontario, which are supported by the province of New Brunswick.
The direct or indirect costs of compliance with GHG-related regulations may have a material adverse effect on CWC's business,
financial condition, results of operations and prospects. Additional changes to provincial climate change legislation may
adversely affect the Corporation's business, financial condition, results of operations and cash flows which cannot be reliably or
accurately estimated at this time.
Concerns about climate change have resulted in a number of environmental activists and members of the public opposing the
continued exploitation and development of fossil fuels. Historically, political and legal opposition to the fossil fuel industry
focused on public opinion and the regulatory process. More recently, however, there has been a movement to more directly hold
governments and oil and natural gas companies responsible for climate change through climate litigation. In November 2018,
ENvironment JEUnesse, a Quebec advocacy group, applied to the Quebec Superior Court to certify a class action against the
Government of Canada for climate related matters. In January 2019, the City of Victoria became the first municipality in Canada
to endorse a class action lawsuit against oil and natural gas producers for climate-related harms.
Given the evolving nature of the debate related to climate change and the control of GHG and resulting requirements, it is
expected that current and future climate change regulations will have the affect of increasing the CWC's operating expenses and
in the long-term reducing the demand for its services oil, resulting in a decrease in the Corporation's profitability and a reduction
in the value of its assets or asset write-offs.
In addition, there has been public discussion that climate change may be associated with extreme weather conditions and
increased volatility in seasonal temperatures. Extreme weather could interfere with CWC's operations. At this time, CWC is
unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting its operations.
Carbon Pricing Risk
The majority of countries across the globe have agreed to reduce their carbon emissions. In Canada, the federal and certain
provincial governments have implemented legislation aimed at incentivizing the use of alternative fuels and in turn reducing
carbon emissions. The taxes placed on carbon emissions may have the effect of decreasing the demand for oil and natural gas
products and at the same time, increasing CWC's operating expenses, each of which may have a material adverse effect on the
CWC's profitability and financial condition. Further, the imposition of carbon taxes puts CWC at a disadvantage with its
counterparts who operate in jurisdictions where there are less costly carbon regulations.
Geopolitical Risks
Political changes in North America and political instability in the Middle East and elsewhere may cause disruptions in the supply
of oil that affects the oil and gas industry. Conflicts, or conversely peaceful developments, arising outside of Canada, including
changes in political regimes or parties in power, may have a significant impact on the price of oil and natural gas. Any particular
event could result in a material decline in prices and result in a reduction of the Corporation's profitability.
Non-Governmental Organizations and Eco-Terrorism Risks
CWC's future performance and development will depend, to a significant extent, on the efforts and abilities of its executive
officers and key management personnel, and on the ability to attract and retain qualified field staff. The loss of the services of
one or more of its management team could harm the Company. Also CWC's success largely depends on the Company's continuing
The business activities conducted by the Corporation may, at times, be subject to public opposition. Such public opposition
could expose the Corporation to the risk of higher costs, delays or even project cancellations due to increased pressure on
governments and regulators by special interest groups including Aboriginal groups, landowners, environmental interest groups
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(including those opposed to oil and natural gas production operations) and other non-governmental organizations, blockades,
legal or regulatory actions or challenges, increased regulatory oversight, reduced support of the federal, provincial or municipal
governments, delays in, challenges to, or the revocation of regulatory approvals, permits and/or licenses, and direct legal
challenges, including the possibility of climate-related litigation. There is no guarantee that the Corporation will be able to satisfy
the concerns of the special interest groups and non-governmental organizations and attempting to address such concerns may
require the Corporation to incur significant and unanticipated capital and operating expenditures.
In addition, the Corporation's oilfield services equipment could be the subject of a terrorist attack. If any of the Corporation's
equipment are the subject of a terrorist attack it may have a material adverse effect on the Corporation's business, financial
condition, results of operations and prospects. The Corporation does not have insurance to protect against the risk from
terrorism.
Equipment and Technology Risks
Complex drilling programs for the exploration and development of remaining conventional and unconventional oil and natural
gas reserves in North America places high demands on drilling rigs, service rigs, swabbing rigs, coil tubing units and related
equipment. CWC's ability to deliver equipment and services that are more efficient than equipment and services offered by its
competitors is critical to continued success. There is no assurance that competitors will not achieve technological improvements
that are more advantageous, timely or cost effective than improvements developed by CWC.
The ability of CWC to meet customer demands in respect of performance and cost will depend upon continuous improvements
in operating equipment and there can be no assurance that CWC will be successful in its efforts in this regard or that it will have
the resources available to meet this continuing demand. Failure by CWC to do so could have a material adverse effect on CWC's
business, financial condition, results of operations and cash flows. No assurances can be given that competitors will not achieve
technological advantages over CWC.
In the future, the Company may seek patents or other similar protections in respect of particular tools, equipment and
technology; however, the Company may not be successful in such efforts. Competitors may also develop similar tools, equipment
and technology to those of the Company thereby adversely affecting the Company's competitive advantage in one or more of its
businesses. Additionally, there can be no assurance that certain tools, equipment or technology developed by the Company may
not be the subject of future patent infringement claims or other similar matters which could result in litigation, the requirement
to pay licensing fees or other results that could have a material adverse effect on the business, results of operations and financial
condition of the Company.
Significant Shareholder
Brookfield Capital Partners Ltd. and its affiliates (collectively, “Brookfield”), through its ownership of 79.3% of CWC's
outstanding voting shares is a significant shareholder. As such, Brookfield will have, subject to applicable law, the ability to
determine the outcome of certain matters submitted to shareholders for approval in the future, including the election and
removal of directors, amendments to the CWC's corporate governance documents and certain business combinations. CWC's
interests and those of its controlling shareholder may at times conflict, and this conflict might be resolved against CWC's
interests. The concentration of control in the hands of a significant shareholder may impact the potential for the initiation, or
the success, of an unsolicited bid for CWC's securities.
Drilling Rig, Service Rig, Swabbing Rig and Coil Tubing Unit Construction Risks
When CWC contracts for the construction of a drilling rig, service rig, swabbing rig or coil tubing unit, the cost of construction of
the rig or a coil tubing unit and the timeline for completing the construction, are estimated at that time. Actual costs of
construction may, however, vary significantly from those estimated as a result of numerous factors, including, without
limitation, changes in input costs such as the price of steel; variations in labour rates; and, to the extent that component parts
must be sourced from other countries, fluctuations in exchange rates. In addition, several factors could cause delays in the
construction of a drilling rig, service rig, swabbing rig or coil tubing unit, including, and without limitation, shortages in skilled
labour and delays or shortages in the supply of component parts. Construction delays may lead to postponements of the
anticipated date for deployment of the newly constructed rig or coil tubing unit into operation and any such postponement could
have a negative effect on cash flows generated from operations, of which the effect may be material.
Equipment and Parts Availability
The Company's ability to expand its operations and provide reliable service is dependent upon timely delivery of new equipment
and replacement parts from fabricators and suppliers. A lack of skilled labour to build equipment combined with new
competitors entering the oilfield service sector has resulted in increased order times on new equipment and increased
uncertainty surrounding final delivery dates. Significant delays in the arrival of new equipment from expected dates may impact
future growth and the financial performance of the Company. CWC attempts to mitigate this risk by maintaining strong relations
with key fabricators and suppliers.
Dependence on Suppliers
The ability of the Company to compete and grow will be dependent on the Company having access, at a reasonable cost and in a
timely manner, to equipment, parts, components and consumables. Failure of suppliers to deliver such equipment, parts,
components and consumables at a reasonable cost and in a timely manner would be detrimental to the Company's ability to
maintain existing customers and expand its customer list. No assurances can be given that the Company will be successful in
maintaining its required supply of equipment, parts, components and consumables.
The Company's ability to provide services to its customers is also dependent upon the availability at reasonable prices of raw
materials which the Company purchases from various suppliers, most of whom are located in Canada or the United States.
Alternate suppliers exist for all raw materials. In periods of high industry activity periodic industry shortages of certain materials
have been experienced and costs may be affected. In contrast, periods of low industry activity levels may cause financial distress
on a supplier, thus limiting their ability to continue to operate and provide the Company with necessary services and supplies.
Management maintains relationships with a number of suppliers in an attempt to mitigate this risk. However, if the current
suppliers are unable to provide the necessary raw materials, or otherwise fail to deliver products in the quantities required, any
resulting delays in the provision of services to the Company's customers could have a material adverse effect on CWC's business,
financial condition, results of operations and cash flows.
Risks of Interruption and Casualty Losses
CWC's operations are, or will be, subject to many hazards inherent in the well drilling, workover and completion industry,
including blowouts, cratering, explosions, fires, loss of well control, loss of hole, damaged or lost drilling equipment and damage
or loss from inclement weather or natural disasters and reservoir damage. Any of these hazards could result in personal injury
or death, damage to or destruction of equipment and facilities, suspension of operations, environmental damage, damage to the
property of others and damage to producing or potentially productive oil and natural gas formations. Generally, drilling rig,
service rig, swabbing rig and coil tubing contracts provide for the division of responsibilities between a drilling rig, service rig,
swabbing rig or coil tubing unit provider and its customer, and CWC will seek to obtain indemnification from its customers by
contract for certain of these risks. CWC will also seek protection through insurance. However, CWC cannot ensure that such
insurance or indemnification agreements will adequately protect it against liability from all of the consequences of the hazards
described above. The occurrence of an event not fully insured or indemnified against, or the failure of a customer or insurer to
meet its indemnification or insurance obligations, could result in substantial losses. In addition, insurance may not be available
to cover any or all of these risks, or, even if available, may not be adequate. Insurance premiums or other costs may rise
significantly in the future, so as to make such insurance prohibitively expensive or uneconomic.
Future Capital Requirements and Future Sales of Common Shares by CWC
CWC may require additional financing in the future to implement its strategies and business objectives. It is possible that such
financing will not be available, or if available, will not be available on favorable terms. CWC may issue additional common shares
in the future, which may dilute a shareholder's holdings in CWC or negatively affect the market price of common shares. CWC's
articles permit the issuance of an unlimited number of common shares. The directors of CWC have the discretion to determine
the price and the terms of issue of further issuances of common shares, subject to applicable law. Also, additional common shares
will be issued by CWC on the exercise of stock options granted pursuant to CWC's stock option plan, or pursuant to its restricted
share unit plan.
Capital and Financial Markets
As future capital expenditures and potential acquisitions will need to be financed out of cash generated from operations, through
debt or, if available, equity offerings, the Company's ability to access new capital is dependent on, among other factors, the
overall state of capital markets generally, and the appetite for investments in the energy industry and the Company's securities
specifically. All of these factors could have a negative effect on CWC's ability to obtain new capital on acceptable terms, or at all,
and this could have a material adverse effect on operations and share price.
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(including those opposed to oil and natural gas production operations) and other non-governmental organizations, blockades,
legal or regulatory actions or challenges, increased regulatory oversight, reduced support of the federal, provincial or municipal
governments, delays in, challenges to, or the revocation of regulatory approvals, permits and/or licenses, and direct legal
challenges, including the possibility of climate-related litigation. There is no guarantee that the Corporation will be able to satisfy
the concerns of the special interest groups and non-governmental organizations and attempting to address such concerns may
require the Corporation to incur significant and unanticipated capital and operating expenditures.
In addition, the Corporation's oilfield services equipment could be the subject of a terrorist attack. If any of the Corporation's
equipment are the subject of a terrorist attack it may have a material adverse effect on the Corporation's business, financial
condition, results of operations and prospects. The Corporation does not have insurance to protect against the risk from
terrorism.
Equipment and Technology Risks
Complex drilling programs for the exploration and development of remaining conventional and unconventional oil and natural
gas reserves in North America places high demands on drilling rigs, service rigs, swabbing rigs, coil tubing units and related
equipment. CWC's ability to deliver equipment and services that are more efficient than equipment and services offered by its
competitors is critical to continued success. There is no assurance that competitors will not achieve technological improvements
that are more advantageous, timely or cost effective than improvements developed by CWC.
The ability of CWC to meet customer demands in respect of performance and cost will depend upon continuous improvements
in operating equipment and there can be no assurance that CWC will be successful in its efforts in this regard or that it will have
the resources available to meet this continuing demand. Failure by CWC to do so could have a material adverse effect on CWC's
business, financial condition, results of operations and cash flows. No assurances can be given that competitors will not achieve
technological advantages over CWC.
In the future, the Company may seek patents or other similar protections in respect of particular tools, equipment and
technology; however, the Company may not be successful in such efforts. Competitors may also develop similar tools, equipment
and technology to those of the Company thereby adversely affecting the Company's competitive advantage in one or more of its
businesses. Additionally, there can be no assurance that certain tools, equipment or technology developed by the Company may
not be the subject of future patent infringement claims or other similar matters which could result in litigation, the requirement
to pay licensing fees or other results that could have a material adverse effect on the business, results of operations and financial
condition of the Company.
Significant Shareholder
Brookfield Capital Partners Ltd. and its affiliates (collectively, “Brookfield”), through its ownership of 79.3% of CWC's
outstanding voting shares is a significant shareholder. As such, Brookfield will have, subject to applicable law, the ability to
determine the outcome of certain matters submitted to shareholders for approval in the future, including the election and
removal of directors, amendments to the CWC's corporate governance documents and certain business combinations. CWC's
interests and those of its controlling shareholder may at times conflict, and this conflict might be resolved against CWC's
interests. The concentration of control in the hands of a significant shareholder may impact the potential for the initiation, or
the success, of an unsolicited bid for CWC's securities.
Drilling Rig, Service Rig, Swabbing Rig and Coil Tubing Unit Construction Risks
When CWC contracts for the construction of a drilling rig, service rig, swabbing rig or coil tubing unit, the cost of construction of
the rig or a coil tubing unit and the timeline for completing the construction, are estimated at that time. Actual costs of
construction may, however, vary significantly from those estimated as a result of numerous factors, including, without
limitation, changes in input costs such as the price of steel; variations in labour rates; and, to the extent that component parts
must be sourced from other countries, fluctuations in exchange rates. In addition, several factors could cause delays in the
construction of a drilling rig, service rig, swabbing rig or coil tubing unit, including, and without limitation, shortages in skilled
labour and delays or shortages in the supply of component parts. Construction delays may lead to postponements of the
anticipated date for deployment of the newly constructed rig or coil tubing unit into operation and any such postponement could
have a negative effect on cash flows generated from operations, of which the effect may be material.
Equipment and Parts Availability
The Company's ability to expand its operations and provide reliable service is dependent upon timely delivery of new equipment
and replacement parts from fabricators and suppliers. A lack of skilled labour to build equipment combined with new
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competitors entering the oilfield service sector has resulted in increased order times on new equipment and increased
uncertainty surrounding final delivery dates. Significant delays in the arrival of new equipment from expected dates may impact
future growth and the financial performance of the Company. CWC attempts to mitigate this risk by maintaining strong relations
with key fabricators and suppliers.
Dependence on Suppliers
The ability of the Company to compete and grow will be dependent on the Company having access, at a reasonable cost and in a
timely manner, to equipment, parts, components and consumables. Failure of suppliers to deliver such equipment, parts,
components and consumables at a reasonable cost and in a timely manner would be detrimental to the Company's ability to
maintain existing customers and expand its customer list. No assurances can be given that the Company will be successful in
maintaining its required supply of equipment, parts, components and consumables.
The Company's ability to provide services to its customers is also dependent upon the availability at reasonable prices of raw
materials which the Company purchases from various suppliers, most of whom are located in Canada or the United States.
Alternate suppliers exist for all raw materials. In periods of high industry activity periodic industry shortages of certain materials
have been experienced and costs may be affected. In contrast, periods of low industry activity levels may cause financial distress
on a supplier, thus limiting their ability to continue to operate and provide the Company with necessary services and supplies.
Management maintains relationships with a number of suppliers in an attempt to mitigate this risk. However, if the current
suppliers are unable to provide the necessary raw materials, or otherwise fail to deliver products in the quantities required, any
resulting delays in the provision of services to the Company's customers could have a material adverse effect on CWC's business,
financial condition, results of operations and cash flows.
Risks of Interruption and Casualty Losses
CWC's operations are, or will be, subject to many hazards inherent in the well drilling, workover and completion industry,
including blowouts, cratering, explosions, fires, loss of well control, loss of hole, damaged or lost drilling equipment and damage
or loss from inclement weather or natural disasters and reservoir damage. Any of these hazards could result in personal injury
or death, damage to or destruction of equipment and facilities, suspension of operations, environmental damage, damage to the
property of others and damage to producing or potentially productive oil and natural gas formations. Generally, drilling rig,
service rig, swabbing rig and coil tubing contracts provide for the division of responsibilities between a drilling rig, service rig,
swabbing rig or coil tubing unit provider and its customer, and CWC will seek to obtain indemnification from its customers by
contract for certain of these risks. CWC will also seek protection through insurance. However, CWC cannot ensure that such
insurance or indemnification agreements will adequately protect it against liability from all of the consequences of the hazards
described above. The occurrence of an event not fully insured or indemnified against, or the failure of a customer or insurer to
meet its indemnification or insurance obligations, could result in substantial losses. In addition, insurance may not be available
to cover any or all of these risks, or, even if available, may not be adequate. Insurance premiums or other costs may rise
significantly in the future, so as to make such insurance prohibitively expensive or uneconomic.
Future Capital Requirements and Future Sales of Common Shares by CWC
CWC may require additional financing in the future to implement its strategies and business objectives. It is possible that such
financing will not be available, or if available, will not be available on favorable terms. CWC may issue additional common shares
in the future, which may dilute a shareholder's holdings in CWC or negatively affect the market price of common shares. CWC's
articles permit the issuance of an unlimited number of common shares. The directors of CWC have the discretion to determine
the price and the terms of issue of further issuances of common shares, subject to applicable law. Also, additional common shares
will be issued by CWC on the exercise of stock options granted pursuant to CWC's stock option plan, or pursuant to its restricted
share unit plan.
Capital and Financial Markets
As future capital expenditures and potential acquisitions will need to be financed out of cash generated from operations, through
debt or, if available, equity offerings, the Company's ability to access new capital is dependent on, among other factors, the
overall state of capital markets generally, and the appetite for investments in the energy industry and the Company's securities
specifically. All of these factors could have a negative effect on CWC's ability to obtain new capital on acceptable terms, or at all,
and this could have a material adverse effect on operations and share price.
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Environmental Protection
CWC, is subject to various environmental laws and regulations enacted in most jurisdictions in which the Company operates,
which primarily govern the manufacture, processing, importation, transportation, handling and disposal of certain materials
used in the Company's operations. CWC believes that all CWC's business lines are currently in compliance with such laws and
regulations. CWC's customers are subject to similar laws and regulations, as well as limits on emissions into the air and
discharges into surface and sub-surface waters. While regulatory developments that may follow in subsequent years could have
the effect of reducing industry activity, CWC cannot predict the nature of the restrictions that may be imposed. CWC may be
required to increase operating expenses or capital expenditures in order to comply with any new restrictions or regulations.
Historically, environmental protection requirements have not had a significant financial operational effect on capital
expenditures, earnings or competitive position of the Company. Environmental protection requirements are not presently
anticipated to have a significant effect on such matters in the future.
The services provided by CWC, in some cases, involve flammable products being pumped under high pressure. To address these
risks, CWC has developed and implemented safety and training programs. In addition, a comprehensive insurance and risk
management program has been established to protect CWC's assets and operations. CWC also complies with current
environmental requirements and maintains an ongoing participation in various industry-related committees and programs.
The Company has established procedures to address compliance with current environmental laws and regulations and monitors
its practices concerning the handling of environmentally hazardous materials. However, there can be no assurance that the
Company's procedures will prevent environmental damage occurring from spills of materials handled by the Company or that
such damage has not already occurred. On occasion, substantial liabilities to third parties may be incurred. The Company may
have the benefit of insurance maintained by it or the operator; however the Company may become liable for damages against
which it cannot adequately insure or against which it may elect not to insure because of high costs or other reasons.
Third Party Credit Risk
CWC is exposed to third party credit risk through its contractual arrangements with other parties. In the event such entities fail
to meet their contractual obligations to the Company, such failures could have a material adverse effect on the Company.
Failure to Realize Anticipated Benefits of Acquisitions
expectations of future interest rates.
Conflicts of Interest
The Company makes acquisitions of businesses and assets in the ordinary course of business. Achieving the benefits of
acquisitions depends in part on successfully consolidating functions, retaining key employees and customer relationships and
integrating operations and procedures in a timely and efficient manner. Such integration may require substantial management
effort, time and resources, may divert management's focus from other strategic opportunities and operational matters and
ultimately the Company may fail to realize anticipated benefits of acquisitions.
CWC May Make Dispositions of Businesses and Assets in the Ordinary Course of Business
Management continually assesses the value and contribution of services provided and assets required to provide such services.
In this regard, non-core assets are periodically disposed of, so that CWC can focus its efforts and resources more efficiently.
Depending on the state of the market for such non-core assets, certain non-core assets of CWC, if disposed of, could be expected
to realize less than their carrying value on the financial statements of CWC.
Tax Matters
The taxation of companies is complex. In the ordinary course of business, CWC is subject to ongoing audits by tax authorities.
While CWC believes that its tax filing positions are appropriate and supportable, it is possible that tax matters, including the
calculation and determination of revenue, expenditures, deductions, credits and other tax attributes, taxable income and taxes
payable, may be reviewed and challenged by the tax authorities. In addition, the tax filing positions of businesses acquired by
CWC may be reviewed and challenged by the tax authorities. If such challenge were to succeed, it could have a material adverse
effect on CWC's tax position. Further, the interpretation of, and changes in, tax laws, whether by legislative or judicial action or
decision, and the administrative policies and assessing practices of taxation authorities, could materially adversely affect CWC's
tax position. As a consequence, CWC is unable to predict with certainty the effect of the foregoing on CWC's effective tax rate and
earnings.
CWC regularly reviews the adequacy of its tax provisions and believes that it has adequately provided for those matters. Should
the ultimate outcomes materially differ from the provisions, CWC's effective tax rate and earnings may be affected positively or
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2019-05-03 8:47 AM
negatively in the period in which the matters are resolved. CWC intends to mitigate this risk through ensuring staff is well trained
and supervised and that tax filing positions are carefully scrutinized by management and external consultants, as appropriate.
There can be no assurance that income tax laws or the interpretation thereof in any of the jurisdictions in which CWC operates
Tax Agencies
will not be changed or interpreted or administered in a manner which adversely affects CWC and its shareholders. In addition,
there is no assurance that the Canada Revenue Agency, or a provincial or foreign tax agency (collectively the "
")
will agree with the manner in which CWC or its subsidiaries calculate their income or taxable income for tax purposes or that
any of the Tax Agencies will not change their administrative practices to the detriment of CWC or its shareholders (or both).
Vulnerability to Market Changes
Fixed costs, including costs associated with leases, labour and depreciation will account for a significant portion of the
Company's costs and expenses. As a result, reduced utilization of equipment and other fixed assets resulting from reduced
demand, equipment failure, weather or other factors could significantly affect financial results.
Alternatives to and Changing Demand for Petroleum Products
Regulation, fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and
natural gas, and technological advances in fuel economy and energy generation devices could reduce the demand for crude oil
and other liquid hydrocarbons. The Company cannot predict the impact of changing demand for oil and natural gas products,
and any major changes may have a material adverse effect on the Company's business, financial condition, results of operations
and cash flows.
Interest Rate Risk
The Company is exposed to interest rate price risk as its bank loan has floating interest rate terms. However, the floating interest
rate terms do give rise to interest rate cash flow risk as interest payments are recalculated as the market rates change.
Management currently does not see this risk as significant due to Canada's history of reasonably stable interest rates and their
Certain of the directors and officers of the Company are also directors and officers of other oil and natural gas exploration and/or
production entities and oil and natural gas services companies, and conflicts of interest may arise between their duties as officers
and directors of the Company and as officers and directors of such other companies. Such conflicts must be disclosed in
accordance with, and are subject to such other procedures and remedies as apply, under the ABCA.
Legal Proceedings
The Company is involved in litigation from time to time in the ordinary course of business. No assurance can be given as to the
final outcome of any legal proceedings or that the ultimate resolution of any legal proceedings will not have a material adverse
effect on the Company.
Intellectual Property Litigation
Due to the rapid development of oil and natural gas technology, in the normal course of the Corporation's operations, the
Corporation may become involved in, named as a party to, or be the subject of, various legal proceedings in which it is alleged
that the Corporation has infringed the intellectual property rights of others or which the Corporation initiates against others it
believes are infringing upon its intellectual property rights. The Corporation's involvement in intellectual property litigation
could result in significant expense, adversely affecting the development of its assets or intellectual property or diverting the
efforts of its technical and management personnel, whether or not such litigation is resolved in the Corporation's favour. In the
event of an adverse outcome as a defendant in any such litigation, the Corporation may, among other things, be required to: (a)
pay substantial damages and/or cease the development, use, sale or importation of processes that infringe upon other patented
intellectual property; (b) expend significant resources to develop or acquire non-infringing intellectual property; (c) discontinue
processes incorporating infringing technology; or (d) obtain licences to the infringing intellectual property. However, the
Corporation may not be successful in such development or acquisition, or such licences may not be available on reasonable
terms. Any such development, acquisition or licence could require the expenditure of substantial time and other resources and
could have a material adverse effect on the Corporation's business and financial results.
Environmental Protection
CWC, is subject to various environmental laws and regulations enacted in most jurisdictions in which the Company operates,
which primarily govern the manufacture, processing, importation, transportation, handling and disposal of certain materials
used in the Company's operations. CWC believes that all CWC's business lines are currently in compliance with such laws and
regulations. CWC's customers are subject to similar laws and regulations, as well as limits on emissions into the air and
discharges into surface and sub-surface waters. While regulatory developments that may follow in subsequent years could have
the effect of reducing industry activity, CWC cannot predict the nature of the restrictions that may be imposed. CWC may be
required to increase operating expenses or capital expenditures in order to comply with any new restrictions or regulations.
Historically, environmental protection requirements have not had a significant financial operational effect on capital
expenditures, earnings or competitive position of the Company. Environmental protection requirements are not presently
anticipated to have a significant effect on such matters in the future.
The services provided by CWC, in some cases, involve flammable products being pumped under high pressure. To address these
risks, CWC has developed and implemented safety and training programs. In addition, a comprehensive insurance and risk
management program has been established to protect CWC's assets and operations. CWC also complies with current
environmental requirements and maintains an ongoing participation in various industry-related committees and programs.
The Company has established procedures to address compliance with current environmental laws and regulations and monitors
its practices concerning the handling of environmentally hazardous materials. However, there can be no assurance that the
Company's procedures will prevent environmental damage occurring from spills of materials handled by the Company or that
such damage has not already occurred. On occasion, substantial liabilities to third parties may be incurred. The Company may
have the benefit of insurance maintained by it or the operator; however the Company may become liable for damages against
which it cannot adequately insure or against which it may elect not to insure because of high costs or other reasons.
Third Party Credit Risk
CWC is exposed to third party credit risk through its contractual arrangements with other parties. In the event such entities fail
to meet their contractual obligations to the Company, such failures could have a material adverse effect on the Company.
Failure to Realize Anticipated Benefits of Acquisitions
The Company makes acquisitions of businesses and assets in the ordinary course of business. Achieving the benefits of
acquisitions depends in part on successfully consolidating functions, retaining key employees and customer relationships and
integrating operations and procedures in a timely and efficient manner. Such integration may require substantial management
effort, time and resources, may divert management's focus from other strategic opportunities and operational matters and
ultimately the Company may fail to realize anticipated benefits of acquisitions.
CWC May Make Dispositions of Businesses and Assets in the Ordinary Course of Business
Management continually assesses the value and contribution of services provided and assets required to provide such services.
In this regard, non-core assets are periodically disposed of, so that CWC can focus its efforts and resources more efficiently.
Depending on the state of the market for such non-core assets, certain non-core assets of CWC, if disposed of, could be expected
to realize less than their carrying value on the financial statements of CWC.
Tax Matters
The taxation of companies is complex. In the ordinary course of business, CWC is subject to ongoing audits by tax authorities.
While CWC believes that its tax filing positions are appropriate and supportable, it is possible that tax matters, including the
calculation and determination of revenue, expenditures, deductions, credits and other tax attributes, taxable income and taxes
payable, may be reviewed and challenged by the tax authorities. In addition, the tax filing positions of businesses acquired by
CWC may be reviewed and challenged by the tax authorities. If such challenge were to succeed, it could have a material adverse
effect on CWC's tax position. Further, the interpretation of, and changes in, tax laws, whether by legislative or judicial action or
decision, and the administrative policies and assessing practices of taxation authorities, could materially adversely affect CWC's
tax position. As a consequence, CWC is unable to predict with certainty the effect of the foregoing on CWC's effective tax rate and
CWC regularly reviews the adequacy of its tax provisions and believes that it has adequately provided for those matters. Should
the ultimate outcomes materially differ from the provisions, CWC's effective tax rate and earnings may be affected positively or
earnings.
Page | 28
negatively in the period in which the matters are resolved. CWC intends to mitigate this risk through ensuring staff is well trained
and supervised and that tax filing positions are carefully scrutinized by management and external consultants, as appropriate.
There can be no assurance that income tax laws or the interpretation thereof in any of the jurisdictions in which CWC operates
will not be changed or interpreted or administered in a manner which adversely affects CWC and its shareholders. In addition,
there is no assurance that the Canada Revenue Agency, or a provincial or foreign tax agency (collectively the "
")
will agree with the manner in which CWC or its subsidiaries calculate their income or taxable income for tax purposes or that
any of the Tax Agencies will not change their administrative practices to the detriment of CWC or its shareholders (or both).
Vulnerability to Market Changes
Tax Agencies
Fixed costs, including costs associated with leases, labour and depreciation will account for a significant portion of the
Company's costs and expenses. As a result, reduced utilization of equipment and other fixed assets resulting from reduced
demand, equipment failure, weather or other factors could significantly affect financial results.
Alternatives to and Changing Demand for Petroleum Products
Regulation, fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and
natural gas, and technological advances in fuel economy and energy generation devices could reduce the demand for crude oil
and other liquid hydrocarbons. The Company cannot predict the impact of changing demand for oil and natural gas products,
and any major changes may have a material adverse effect on the Company's business, financial condition, results of operations
and cash flows.
Interest Rate Risk
The Company is exposed to interest rate price risk as its bank loan has floating interest rate terms. However, the floating interest
rate terms do give rise to interest rate cash flow risk as interest payments are recalculated as the market rates change.
Management currently does not see this risk as significant due to Canada's history of reasonably stable interest rates and their
expectations of future interest rates.
Conflicts of Interest
Certain of the directors and officers of the Company are also directors and officers of other oil and natural gas exploration and/or
production entities and oil and natural gas services companies, and conflicts of interest may arise between their duties as officers
and directors of the Company and as officers and directors of such other companies. Such conflicts must be disclosed in
accordance with, and are subject to such other procedures and remedies as apply, under the ABCA.
Legal Proceedings
The Company is involved in litigation from time to time in the ordinary course of business. No assurance can be given as to the
final outcome of any legal proceedings or that the ultimate resolution of any legal proceedings will not have a material adverse
effect on the Company.
Intellectual Property Litigation
Due to the rapid development of oil and natural gas technology, in the normal course of the Corporation's operations, the
Corporation may become involved in, named as a party to, or be the subject of, various legal proceedings in which it is alleged
that the Corporation has infringed the intellectual property rights of others or which the Corporation initiates against others it
believes are infringing upon its intellectual property rights. The Corporation's involvement in intellectual property litigation
could result in significant expense, adversely affecting the development of its assets or intellectual property or diverting the
efforts of its technical and management personnel, whether or not such litigation is resolved in the Corporation's favour. In the
event of an adverse outcome as a defendant in any such litigation, the Corporation may, among other things, be required to: (a)
pay substantial damages and/or cease the development, use, sale or importation of processes that infringe upon other patented
intellectual property; (b) expend significant resources to develop or acquire non-infringing intellectual property; (c) discontinue
processes incorporating infringing technology; or (d) obtain licences to the infringing intellectual property. However, the
Corporation may not be successful in such development or acquisition, or such licences may not be available on reasonable
terms. Any such development, acquisition or licence could require the expenditure of substantial time and other resources and
could have a material adverse effect on the Corporation's business and financial results.
Page | 29
CWC-AR-2018-2.indd 31
2019-05-03 8:47 AM
This MD&A contains certain forward-looking information and statements within the meaning of applicable Canadian securities
legislation. Certain statements contained in this MD&A, 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 MD&A 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 and the ability to pay dividends, 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, 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. These include, but are not limited to, the risks
associated with the drilling and oilfield services sector (ie. 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), 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 and the inability to pay dividends.
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 MD&A 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.
Breach of Confidentiality
Forward-Looking Information
While discussing potential business relationships or other transactions with third parties, the Corporation may disclose
confidential information relating to its business, operations or affairs. Although confidentiality agreements are generally signed
by third parties prior to the disclosure of any confidential information, a breach could put the Corporation at competitive risk
and may cause significant damage to its business. The harm to the Corporation's business from a breach of confidentiality cannot
presently be quantified, but may be material and may not be compensable in damages. There is no assurance that, in the event
of a breach of confidentiality, the Corporation will be able to obtain equitable remedies, such as injunctive relief, from a court of
competent jurisdiction in a timely manner, if at all, in order to prevent or mitigate any damage to its business that such a breach
of confidentiality may cause.
Cyber-Security Threats and Reliance on Information Technology
CWC's operations are dependent on the functioning of several information technology systems. Exposure of CWC's information
technology systems to external threats poses a risk to the security of these systems. Such cyber-security threats include
unauthorized access to information technology systems due to hacking, viruses and other causes that can result in service
disruptions, system failures and the disclosure, deliberate or inadvertent, of confidential business information. Significant
interruption or failure of any or all of these systems could result in operational outages, delays, lost profits, lost data, increased
costs, and other adverse outcomes. These factors could include a loss of communication links or reliable information, security
breaches by computer hackers and cyber terrorists, and the inability to automatically process commercial transactions or
engage in similar automated or computerized business activities.
Further, the Company is subject to a variety of information technology and system risks as a part of its normal course operations,
including potential breakdown, invasion, virus, cyber-attack, cyber-fraud, security breach, and destruction or interruption of
the Company's information technology systems by third parties or insiders. Unauthorized access to these systems by employees
or third parties could lead to corruption or exposure of confidential, fiduciary or proprietary information, interruption to
communications or operations or disruption to our business activities or our competitive position. In addition, cyber phishing
attempts, in which a malicious party attempts to obtain sensitive information such as usernames, passwords, and credit card
details (and money) by disguising as a trustworthy entity in an electronic communication, have become more widespread and
sophisticated in recent years. If the Company becomes a victim to a cyber phishing attack it could result in a loss or theft of the
Company's financial resources or critical data and information or could result in a loss of control of the Company's technological
infrastructure or financial resources. The Company applies technical and process controls in line with industry-accepted
standards to protect our information assets and systems; however, these controls may not adequately prevent cyber-security
breaches. Disruption of critical information technology services, or breaches of information security, could have a negative effect
on our performance and earnings, as well as on our reputation. The significance of any such event is difficult to quantify, but
may in certain circumstances be material and could have a material adverse effect on the Company's business, financial
condition and results of operations.
Social Media
Increasingly, social media is used as a vehicle to carry out cyber phishing attacks. Information posted on social media sites, for
business or personal purposes, may be used by attackers to gain entry into the Corporation's systems and obtain confidential
information. The Corporation restricts the social media access of its employees and periodically reviews, supervises, retains and
maintains the ability to retrieve social media content. Despite these efforts, as social media continues to grow in influence and
access to social media platforms becomes increasingly prevalent, there are significant risks that the Corporation may not be able
to properly regulate social media use and preserve adequate records of business activities and client communications conducted
through the use of social media platforms.
Forward-Looking Information may Prove Inaccurate
Shareholders and prospective investors are cautioned not to place undue reliance on the company’s forward-looking
information. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and
uncertainties, of both a general and specific nature, that could cause actual results to differ materially from those suggested by
the forward-looking information or contribute to the possibility that predictions, forecasts or projections will prove to be
materially inaccurate.
Page | 30
CWC-AR-2018-2.indd 32
Page | 31
2019-05-03 8:47 AM
Breach of Confidentiality
Forward-Looking Information
This MD&A contains certain forward-looking information and statements within the meaning of applicable Canadian securities
legislation. Certain statements contained in this MD&A, 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 MD&A 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 and the ability to pay dividends, 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, 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. These include, but are not limited to, the risks
associated with the drilling and oilfield services sector (ie. 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), 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 and the inability to pay dividends.
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 MD&A 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.
While discussing potential business relationships or other transactions with third parties, the Corporation may disclose
confidential information relating to its business, operations or affairs. Although confidentiality agreements are generally signed
by third parties prior to the disclosure of any confidential information, a breach could put the Corporation at competitive risk
and may cause significant damage to its business. The harm to the Corporation's business from a breach of confidentiality cannot
presently be quantified, but may be material and may not be compensable in damages. There is no assurance that, in the event
of a breach of confidentiality, the Corporation will be able to obtain equitable remedies, such as injunctive relief, from a court of
competent jurisdiction in a timely manner, if at all, in order to prevent or mitigate any damage to its business that such a breach
of confidentiality may cause.
Cyber-Security Threats and Reliance on Information Technology
CWC's operations are dependent on the functioning of several information technology systems. Exposure of CWC's information
technology systems to external threats poses a risk to the security of these systems. Such cyber-security threats include
unauthorized access to information technology systems due to hacking, viruses and other causes that can result in service
disruptions, system failures and the disclosure, deliberate or inadvertent, of confidential business information. Significant
interruption or failure of any or all of these systems could result in operational outages, delays, lost profits, lost data, increased
costs, and other adverse outcomes. These factors could include a loss of communication links or reliable information, security
breaches by computer hackers and cyber terrorists, and the inability to automatically process commercial transactions or
engage in similar automated or computerized business activities.
Further, the Company is subject to a variety of information technology and system risks as a part of its normal course operations,
including potential breakdown, invasion, virus, cyber-attack, cyber-fraud, security breach, and destruction or interruption of
the Company's information technology systems by third parties or insiders. Unauthorized access to these systems by employees
or third parties could lead to corruption or exposure of confidential, fiduciary or proprietary information, interruption to
communications or operations or disruption to our business activities or our competitive position. In addition, cyber phishing
attempts, in which a malicious party attempts to obtain sensitive information such as usernames, passwords, and credit card
details (and money) by disguising as a trustworthy entity in an electronic communication, have become more widespread and
sophisticated in recent years. If the Company becomes a victim to a cyber phishing attack it could result in a loss or theft of the
Company's financial resources or critical data and information or could result in a loss of control of the Company's technological
infrastructure or financial resources. The Company applies technical and process controls in line with industry-accepted
standards to protect our information assets and systems; however, these controls may not adequately prevent cyber-security
breaches. Disruption of critical information technology services, or breaches of information security, could have a negative effect
on our performance and earnings, as well as on our reputation. The significance of any such event is difficult to quantify, but
may in certain circumstances be material and could have a material adverse effect on the Company's business, financial
condition and results of operations.
Social Media
Increasingly, social media is used as a vehicle to carry out cyber phishing attacks. Information posted on social media sites, for
business or personal purposes, may be used by attackers to gain entry into the Corporation's systems and obtain confidential
information. The Corporation restricts the social media access of its employees and periodically reviews, supervises, retains and
maintains the ability to retrieve social media content. Despite these efforts, as social media continues to grow in influence and
access to social media platforms becomes increasingly prevalent, there are significant risks that the Corporation may not be able
to properly regulate social media use and preserve adequate records of business activities and client communications conducted
through the use of social media platforms.
Forward-Looking Information may Prove Inaccurate
Shareholders and prospective investors are cautioned not to place undue reliance on the company’s forward-looking
information. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and
uncertainties, of both a general and specific nature, that could cause actual results to differ materially from those suggested by
the forward-looking information or contribute to the possibility that predictions, forecasts or projections will prove to be
materially inaccurate.
Page | 30
Page | 31
CWC-AR-2018-2.indd 33
2019-05-03 8:47 AM
Reconciliation of Non-IFRS Measures
$ thousands except share and per share amounts
NON-IFRS MEASURES
Adjusted EBITDA:
Net income (loss) and comprehensive income (loss)
Add:
Depreciation
Finance costs
Transaction costs
Deferred income tax expense (recovery)
Stock based compensation
Gain on acquisition
Adjusted EBITDA
(Gain) Loss on sale of equipment
Adjusted EBITDA per share – basic and diluted
(1)
Adjusted EBITDA margin (Adjusted
EBITDA/Revenue)
(1)
(1)
Weighted average number of shares
outstanding – basic
Weighted average number of shares
outstanding - diluted
Funds from operations:
Cash flows from operating activities
Funds from operations
Add (deduct): Change in non-cash working capital
Gross margin:
Revenue
Gross margin (2)
Gross margin percentage
Less: Direct operating expenses
(2)
$ thousands
Working capital (excluding debt):
Current assets
Less: Current liabilities
Working capital (excluding debt)
Add: Current portion of long-term debt
Working capital (excluding debt) ratio
(3)
(3)
Net debt:
Long-term debt
Net debt (4)
Less: Current assets
Add: Current liabilities
are non-IFRS measures and do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures provided by other
companies.
(3)
(4)
Working capital (excluding debt) is calculated based on current assets less current liabilities excluding the current portion of long-term debt. Working capital
(excluding debt) is used to assist management and investors in assessing the Company’s liquidity. Working capital (excluding debt) does not have any meaning
prescribed under IFRS and may not be comparable to similar measures provided by other companies. Working capital (excluding debt) ratio is calculated as
current assets divided by the difference of current liabilities less the current portion of long term debt.
Net debt is not a recognized measure under IFRS and does not have any standardized meaning prescribed by IFRS and may not be comparable to similar
measures provided by other companies. Management believes net debt is a useful indicator of a company’s debt position.
Three months ended
December 31,
2018
2017
Year ended
December 31,
2017
2018
2016
(157)
3,853
857
-
140
339
-
(54)
4,978
$0.01
14%
8,544
(1,702)
4,861
(7,468)
4,811
606
1,549
(142)
278
(9,128)
112
6,630
$0.02
16,441
2,756
-
(150)
1,102
-
42
18,489
$0.04
17,103
2,054
1,549
(1,285)
869
(9,128)
40
16,063
$0.04
14,248
2,515
-
(2,414)
945
-
394
8,220
$0.02
18%
13%
14%
11%
518,513,776
418,913,266
520,576,582
399,008,915
349,836,144
518,513,776
423,221,202
520,576,582
403,359,537
349,836,144
5,773
(795)
4,978
(2,116)
7,197
5,081
19,417
(928)
18,849
4,260
10,254
14,514
8,788
(568)
8,220
73,122
144,762
35,478
53,209
107,984
25,788
19,913
36,778
9,690
27%
27%
25%
December 31, 2018 December 31, 2017 December 31, 2016
112,215
82,361
29,854
27%
37,420
26,620
10,800
29%
26,893
(8,793)
928
19,028
3.4:1
43,968
(26,893)
8,793
25,868
31,745
(12,378)
176
19,543
2.6:1
49,634
(31,745)
12,378
30,267
16,501
(7,535)
176
9,142
2.2:1
32,966
(16,501)
7,535
24,000
(1)
(2)
Adjusted EBITDA (Earnings before interest and finance costs, income tax expense, depreciation, amortization, gain or loss on disposal of asset, goodwill
impairment, stock based compensation and other one-time gains and losses) is not a recognized measure under IFRS. Management believes that in addition
to net income, Adjusted EBITDA is a useful supplemental measure as it provides an indication of the Company’s ability to generate cash flow in order to fund
working capital, service debt, pay current income taxes, pay dividends, repurchase common shares under the Normal Course Issuer Bid, and fund capital
programs. Investors should be cautioned, however, that Adjusted EBITDA should not be construed as an alternative to net income (loss) determined in
accordance with IFRS as an indicator of the Company’s performance. CWC’s method of calculating Adjusted EBITDA may differ from other entities and
accordingly, Adjusted EBITDA may not be comparable to measures used by other entities. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided
by revenue and provides a measure of the percentage of Adjusted EBITDA per dollar of revenue. Adjusted EBITDA per share is calculated by dividing Adjusted
EBITDA by the weighted average number of shares outstanding as used for calculation of earnings per share.
Gross margin is calculated from the statement of comprehensive loss as revenue less direct operating costs and is used to assist management and investors
in assessing the Company’s financial results from operations excluding fixed overhead costs. Gross margin percentage is calculated as gross margin divided
by revenue. The Company believes the relationship between revenue and costs expressed by the gross margin percentage is a useful measure when compared
over different financial periods as it demonstrates the trending relationship between revenue, costs and margins. Gross margin and gross margin percentage
Page | 32
CWC-AR-2018-2.indd 34
Page | 33
2019-05-03 8:47 AM
Reconciliation of Non-IFRS Measures
$ thousands except share and per share amounts
2018
2017
2018
2017
2016
Three months ended
December 31,
Year ended
December 31,
Net income (loss) and comprehensive income (loss)
8,544
(1,702)
4,861
(7,468)
are non-IFRS measures and do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures provided by other
companies.
Working capital (excluding debt) is calculated based on current assets less current liabilities excluding the current portion of long-term debt. Working capital
(excluding debt) is used to assist management and investors in assessing the Company’s liquidity. Working capital (excluding debt) does not have any meaning
prescribed under IFRS and may not be comparable to similar measures provided by other companies. Working capital (excluding debt) ratio is calculated as
current assets divided by the difference of current liabilities less the current portion of long term debt.
(3)
(4)
Net debt is not a recognized measure under IFRS and does not have any standardized meaning prescribed by IFRS and may not be comparable to similar
measures provided by other companies. Management believes net debt is a useful indicator of a company’s debt position.
Page | 33
CWC-AR-2018-2.indd 35
2019-05-03 8:47 AM
NON-IFRS MEASURES
Adjusted EBITDA:
Add:
Depreciation
Finance costs
Transaction costs
Deferred income tax expense (recovery)
Stock based compensation
Gain on acquisition
Adjusted EBITDA
(Gain) Loss on sale of equipment
Adjusted EBITDA per share – basic and diluted
(1)
Adjusted EBITDA margin (Adjusted
(1)
EBITDA/Revenue)
(1)
Weighted average number of shares
outstanding – basic
Weighted average number of shares
outstanding - diluted
Funds from operations:
Cash flows from operating activities
Funds from operations
Add (deduct): Change in non-cash working capital
Gross margin:
Revenue
Gross margin (2)
Less: Direct operating expenses
Gross margin percentage
(2)
$ thousands
Working capital (excluding debt):
Current assets
Less: Current liabilities
Working capital (excluding debt)
Add: Current portion of long-term debt
Working capital (excluding debt) ratio
(3)
(3)
Net debt:
Long-term debt
Less: Current assets
Net debt (4)
Add: Current liabilities
(157)
3,853
857
140
339
-
-
(54)
4,978
$0.01
14%
5,773
(795)
4,978
35,478
25,788
9,690
27%
4,811
606
1,549
(142)
278
(9,128)
112
6,630
$0.02
16,441
2,756
-
(150)
1,102
-
42
18,489
$0.04
17,103
2,054
1,549
(1,285)
869
(9,128)
40
16,063
$0.04
18%
13%
14%
518,513,776
418,913,266
520,576,582
399,008,915
349,836,144
518,513,776
423,221,202
520,576,582
403,359,537
349,836,144
(2,116)
7,197
5,081
37,420
26,620
10,800
29%
19,417
(928)
18,849
144,762
107,984
36,778
25%
4,260
10,254
14,514
112,215
82,361
29,854
27%
December 31, 2018 December 31, 2017 December 31, 2016
26,893
(8,793)
928
19,028
3.4:1
43,968
(26,893)
8,793
25,868
31,745
(12,378)
176
19,543
2.6:1
49,634
(31,745)
12,378
30,267
14,248
2,515
(2,414)
945
-
-
394
8,220
$0.02
11%
8,788
(568)
8,220
73,122
53,209
19,913
27%
16,501
(7,535)
176
9,142
2.2:1
32,966
(16,501)
7,535
24,000
(1)
(2)
Adjusted EBITDA (Earnings before interest and finance costs, income tax expense, depreciation, amortization, gain or loss on disposal of asset, goodwill
impairment, stock based compensation and other one-time gains and losses) is not a recognized measure under IFRS. Management believes that in addition
to net income, Adjusted EBITDA is a useful supplemental measure as it provides an indication of the Company’s ability to generate cash flow in order to fund
working capital, service debt, pay current income taxes, pay dividends, repurchase common shares under the Normal Course Issuer Bid, and fund capital
programs. Investors should be cautioned, however, that Adjusted EBITDA should not be construed as an alternative to net income (loss) determined in
accordance with IFRS as an indicator of the Company’s performance. CWC’s method of calculating Adjusted EBITDA may differ from other entities and
accordingly, Adjusted EBITDA may not be comparable to measures used by other entities. Adjusted EBITDA margin is calculated as Adjusted EBITDA divided
by revenue and provides a measure of the percentage of Adjusted EBITDA per dollar of revenue. Adjusted EBITDA per share is calculated by dividing Adjusted
EBITDA by the weighted average number of shares outstanding as used for calculation of earnings per share.
Gross margin is calculated from the statement of comprehensive loss as revenue less direct operating costs and is used to assist management and investors
in assessing the Company’s financial results from operations excluding fixed overhead costs. Gross margin percentage is calculated as gross margin divided
by revenue. The Company believes the relationship between revenue and costs expressed by the gross margin percentage is a useful measure when compared
over different financial periods as it demonstrates the trending relationship between revenue, costs and margins. Gross margin and gross margin percentage
Page | 32
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of CWC Energy Services Corp.
Opinion
Other Matter
Basis for Opinion
thereon.
this regard.
We have audited the consolidated financial statements of CWC Energy Services Corp. and its subsidiaries (the “Company”), which comprise the
consolidated statement of financial position as at December 31, 2018, and the consolidated statement of comprehensive loss, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the
Company as at December 31, 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards (“IFRS”).
The financial statements of the Company for the year ended December 31, 2017, were audited by another auditor who expressed an unmodified
opinion on those financial statements on February 28, 2018.
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
(cid:120) Management’s Discussion and Analysis
(cid:120)
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other
information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such
internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
CWC ENERGY SERVICES CORP.
Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
Page | 34
CWC-AR-2018-2.indd 36
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2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of CWC Energy Services Corp.
Opinion
We have audited the consolidated financial statements of CWC Energy Services Corp. and its subsidiaries (the “Company”), which comprise the
consolidated statement of financial position as at December 31, 2018, and the consolidated statement of comprehensive loss, consolidated
statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the
Company as at December 31, 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended in
accordance with International Financial Reporting Standards (“IFRS”).
Other Matter
The financial statements of the Company for the year ended December 31, 2017, were audited by another auditor who expressed an unmodified
opinion on those financial statements on February 28, 2018.
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
(cid:120) Management’s Discussion and Analysis
(cid:120)
The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion
thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in
this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other
information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such
internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Page | 34
Page | 35
CWC-AR-2018-2.indd 37
2019-05-03 8:47 AM
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
(cid:120)
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2018 and December 31, 2017
December 31, Stated in thousands of Canadian dollars
2018
(cid:120) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Accounts receivable
Prepaid expenses and deposits
(cid:120)
(cid:120)
(cid:120)
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by management.
Property, plant and equipment
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
(cid:120) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to
express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the
Company audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Robert Jubenvill.
Calgary, Canada
February 28, 2019
Note
2017
$ 508
23,579
2,806
26,893
$
14,15
5
6
7
8
7
9
225,658
114
$ 252,665
$ 7,865
928
8,793
15,673
43,968
68,434
261,353
13,390
(90,512)
184,231
$ 252,665
95
30,119
1,531
31,745
232,190
419
$
264,354
$
12,202
176
12,378
15,823
49,634
77,835
266,720
8,609
(88,810)
186,519
$
264,354
ASSETS
Current
Cash
Intangibles
LIABILITIES
Current
Accounts payable and accrued liabilities
Current portion of long-term debt
Deferred tax liability
Long-term debt
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Deficit
Comments and contingencies (note 13)
See accompanying notes to the consolidated financial statements.
Approved on behalf of the board:
(signed) “Gary Bentham”
(signed) “Jim Reid”
Gary Bentham, Director
Jim Reid, Director
Page | 36
CWC-AR-2018-2.indd 38
Page | 37
2019-05-03 8:47 AM
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
(cid:120) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may
cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to
express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the
Company audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence,
and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Robert Jubenvill.
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2018 and December 31, 2017
December 31, Stated in thousands of Canadian dollars
2018
ASSETS
Current
Cash
Accounts receivable
Prepaid expenses and deposits
Property, plant and equipment
Intangibles
LIABILITIES
Current
Accounts payable and accrued liabilities
Current portion of long-term debt
Deferred tax liability
Long-term debt
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Deficit
Note
2017
$ 508
23,579
2,806
26,893
$
14,15
5
6
7
8
7
9
225,658
114
$ 252,665
$ 7,865
928
8,793
$
$
15,673
43,968
68,434
261,353
13,390
(90,512)
184,231
$ 252,665
95
30,119
1,531
31,745
232,190
419
264,354
12,202
176
12,378
15,823
49,634
77,835
266,720
8,609
(88,810)
186,519
Comments and contingencies (note 13)
See accompanying notes to the consolidated financial statements.
$
264,354
Approved on behalf of the board:
(signed) “Gary Bentham”
(signed) “Jim Reid”
Gary Bentham, Director
Jim Reid, Director
Page | 37
CWC-AR-2018-2.indd 39
2019-05-03 8:47 AM
Calgary, Canada
February 28, 2019
Page | 36
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2018 and 2017
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except per share amounts
2018
Stated in thousands of Canadian dollars
except share amounts
Number of
Shares
Share
Capital
Contributed
Surplus
Deficit
Total
Equity
Revenue
Expenses
Direct operating expenses
Selling and administrative expenses
Transaction costs
Stock based compensation
Finance costs
Depreciation and amortization
Loss on disposal of equipment
Gain on acquisition
(Loss) income before income taxes
Deferred income tax recovery
Net (loss) income and comprehensive (loss) income
Net (loss) income per share
Note
$ 144,762
2017
Balance - January 1, 2017
Note
17
12
9(d)(e)
5
8
$ 112,215
82,361
13,791
1,549
869
2,054
17,103
40
(9,128)
108,639
3,576
(1,285)
$
4,861
107,984
18,289
-
1,102
2,756
16,441
42
-
146,614
(1,852)
(150)
$ (1,702)
$ (0.00)
Basic and diluted
See accompanying notes to the consolidated financial statements.
9(f)
$
0.01
391,920,676 $ 242,306
$
6,847
$ (93,671)
$ 155,482
4,861
4,861
Net income and comprehensive income
Stock based compensation expense
9(d)(e)
Exercise of stock options
Settlement of restricted share units
Cancellation of common shares
purchased under normal course issuer
9(d)
9(e)
983,333
1,819,668
-
-
194
441
-
869
(67)
(441)
bid
Balance – December 31, 2017
Rights offering, net of share issue costs
9(c)
9(b)
(3,493,500)
130,148,781
(2,157)
25,936
1,401
-
Balance – January 1, 2018
521,378,958 $ 266,720
$
8,609
$ (88,810) $ 186,519
Net loss and comprehensive loss
Stock based compensation expense
9(d)(e)
Exercise of stock options
Settlement of restricted share units
Cancellation of common shares
purchased under normal course issuer
Balance – December 31, 2018
bid
9(d)
9(e)
1,033,335
1,517,998
See accompanying notes to the consolidated financial statements.
521,378,958
$ 266,720
$ 8,609
$ (88,810)
$ 186,519
-
(1,702)
(1,702)
-
-
230
266
1,102
(82)
(266)
9(c)
(11,421,000)
(5,863)
4,027
(1,836)
512,509,291
$ 261,353
$ 13,390
$ (90,512)
$ 184,231
869
127
-
(756)
25,936
1,102
148
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Page | 38
CWC-AR-2018-2.indd 40
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2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2018 and 2017
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars
except share amounts
Number of
Shares
Share
Capital
Contributed
Surplus
Deficit
Total
Equity
Balance - January 1, 2017
Net income and comprehensive income
Stock based compensation expense
Exercise of stock options
Settlement of restricted share units
Cancellation of common shares
purchased under normal course issuer
bid
Balance – December 31, 2017
Rights offering, net of share issue costs
Balance – January 1, 2018
Note
9(d)(e)
9(d)
9(e)
391,920,676 $ 242,306
-
-
194
441
-
-
983,333
1,819,668
$
6,847
-
869
(67)
(441)
$ (93,671)
4,861
-
-
-
$ 155,482
4,861
869
127
-
9(c)
9(b)
(3,493,500)
130,148,781
(2,157)
25,936
521,378,958 $ 266,720
$
1,401
-
8,609
-
-
(756)
25,936
$ (88,810) $ 186,519
Stated in thousands of Canadian dollars except per share amounts
2018
Revenue
Expenses
Direct operating expenses
Selling and administrative expenses
Transaction costs
Stock based compensation
Finance costs
Depreciation and amortization
Loss on disposal of equipment
Gain on acquisition
(Loss) income before income taxes
Deferred income tax recovery
Net (loss) income per share
Note
$ 144,762
2017
$ 112,215
9(d)(e)
17
12
5
8
107,984
18,289
-
1,102
2,756
16,441
42
-
146,614
(1,852)
(150)
82,361
13,791
1,549
869
2,054
17,103
40
(9,128)
108,639
3,576
(1,285)
$
4,861
$ (0.00)
Net (loss) income and comprehensive (loss) income
$ (1,702)
Basic and diluted
See accompanying notes to the consolidated financial statements.
9(f)
$
0.01
Net loss and comprehensive loss
Stock based compensation expense
Exercise of stock options
Settlement of restricted share units
Cancellation of common shares
purchased under normal course issuer
Balance – December 31, 2018
bid
9(d)(e)
9(d)
9(e)
9(c)
521,378,958
-
-
1,033,335
1,517,998
$ 266,720
-
-
230
266
$ 8,609
-
1,102
(82)
(266)
$ (88,810)
(1,702)
-
-
-
$ 186,519
(1,702)
1,102
148
-
(11,421,000)
512,509,291
(5,863)
$ 261,353
4,027
$ 13,390
-
$ (90,512)
(1,836)
$ 184,231
See accompanying notes to the consolidated financial statements.
Page | 38
Page | 39
CWC-AR-2018-2.indd 41
2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2018 and 2017
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
Stated in thousands of Canadian dollars
Operating activities:
Net (loss) income
Adjustments for:
Stock based compensation expense
Finance costs
Depreciation and amortization
Gain on acquisition
Loss on disposal of equipment
Deferred income tax recovery
Funds from operations
Changes in non-cash working capital balances
Operating cash flow
Investing activities:
Purchase of equipment
Business acquisition
Proceeds on disposal of equipment
Investing cash flow
Financing activities:
Increase (repayment) of debt
Interest paid
Finance costs paid
Finance lease repayments
Common shares issued, net of share issue costs
Common shares purchased under NCIB
Financing cash flow
Increase in cash during the year
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements
.
2018
Note
$ (1,702)
2017
1.
Reporting entity
9(d)(e)
5
8
10
(5)
9(d)
9(c)
1,102
2,756
16,441
-
42
(150)
18,489
928
19,417
(11,060)
-
2,105
(8,955)
(5,404)
(2,594)
(58)
(305)
148
(1,836)
(10,049)
413
95
$ 508
$
4,861
869
2,054
17,103
(9,128)
40
(1,285)
14,514
(10,254)
4,260
(6,800)
(37,500)
530
(43,770)
16,667
(1,812)
(309)
(217)
26,030
(756)
39,603
93
2
95
$
2.
at the address noted above.
Basis of presentation
(a)
Statement of compliance
Standards (“IFRS”).
CWC Energy Services Corp. (“CWC” or the “Company”) is incorporated under the Business Corporations Act (Alberta).
The address of the Company’s head office is Suite 610, 205 – 5th Avenue SW, Calgary, Alberta, Canada. The Company is
an oilfield services company providing drilling and production services to oil and gas exploration and development
companies throughout the Western Canadian Sedimentary Basin (“WCSB”). These consolidated financial statements
reflect only the Company’s proportionate interests in such activities and are comprised of the Company and its
subsidiaries. The Company's common stock is listed and traded on the TSX Venture Exchange under the symbol CWC.
Additional information regarding CWC’s business is available in CWC’s most recent Annual Information Form available
on SEDAR at www.sedar.com, on the Company’s website www.cwcenergyservices.com, or by contacting the Company
These consolidated financial statements have been prepared in accordance with International Financial Reporting
These consolidated financial statements were approved by the Board of Directors on February 28, 2019.
(b)
Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis.
(c)
Functional and presentation currency
These annual consolidated financial statements are presented in Canadian dollars, which is the Company’s functional
currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand except
where otherwise noted.
(d)
Use of estimates and judgments
The preparation of the consolidated financial statements in conformity with IFRS requires that certain estimates and
judgments be made with respect to the reported amounts of revenue and expenses and the carrying amounts of assets
and liabilities. These estimates are based on historical experience and management’s judgment. Anticipating future
events involves uncertainty and consequently the estimates used by management in the preparation of the consolidated
financial statements may change as future events unfold, additional experience is acquired or the Company’s operating
environment changes. In many cases the use of judgment is required to make estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected. Further details of the
nature of these estimates and assumptions may be found in the relevant notes to the consolidated financial statements.
Management considers the following to be the most significant of the judgments, apart from those involved in making
estimates, made in preparation of the consolidated financial statements:
Business combinations
The consideration transferred on acquisitions of businesses is allocated to the identifiable assets acquired and liabilities
assumed at their estimated fair values on the acquisition date. All available information is used to estimate fair values,
and external consultants may be engaged to assist in the fair value determination of property, plant and equipment.
The preliminary allocation of consideration transferred may be adjusted, as necessary, up to one year after the
acquisition closing date due to additional information affecting asset valuation and liabilities assumed.
The allocation process for the consideration transferred involves uncertainty as management is required to make
assumptions and apply judgment to estimates of the fair value of the acquired assets and liabilities, including highest
and best use of assets. Quoted market prices and widely accepted valuation techniques, including discounted cash flows
Page | 40
CWC-AR-2018-2.indd 42
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2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2018 and 2017
Stock based compensation expense
9(d)(e)
Stated in thousands of Canadian dollars
Operating activities:
Net (loss) income
Adjustments for:
Finance costs
Depreciation and amortization
Gain on acquisition
Loss on disposal of equipment
Deferred income tax recovery
Changes in non-cash working capital balances
Funds from operations
Operating cash flow
Investing activities:
Purchase of equipment
Business acquisition
Proceeds on disposal of equipment
Investing cash flow
Financing activities:
Increase (repayment) of debt
Interest paid
Finance costs paid
Finance lease repayments
Common shares issued, net of share issue costs
Common shares purchased under NCIB
Financing cash flow
Note
$ (1,702)
2017
$
4,861
2018
1,102
2,756
16,441
-
42
(150)
18,489
928
19,417
(11,060)
-
2,105
(8,955)
(5,404)
(2,594)
(58)
(305)
148
(1,836)
(10,049)
5
8
10
(5)
9(d)
9(c)
869
2,054
17,103
(9,128)
40
(1,285)
14,514
(10,254)
4,260
(6,800)
(37,500)
530
(43,770)
16,667
(1,812)
(309)
(217)
26,030
(756)
39,603
Increase in cash during the year
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements
.
413
95
$ 508
93
2
95
$
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
1.
Reporting entity
CWC Energy Services Corp. (“CWC” or the “Company”) is incorporated under the Business Corporations Act (Alberta).
The address of the Company’s head office is Suite 610, 205 – 5th Avenue SW, Calgary, Alberta, Canada. The Company is
an oilfield services company providing drilling and production services to oil and gas exploration and development
companies throughout the Western Canadian Sedimentary Basin (“WCSB”). These consolidated financial statements
reflect only the Company’s proportionate interests in such activities and are comprised of the Company and its
subsidiaries. The Company's common stock is listed and traded on the TSX Venture Exchange under the symbol CWC.
Additional information regarding CWC’s business is available in CWC’s most recent Annual Information Form available
on SEDAR at www.sedar.com, on the Company’s website www.cwcenergyservices.com, or by contacting the Company
at the address noted above.
Basis of presentation
2.
Statement of compliance
(a)
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
These consolidated financial statements were approved by the Board of Directors on February 28, 2019.
Basis of measurement
(b)
The consolidated financial statements have been prepared on the historical cost basis.
Functional and presentation currency
(c)
These annual consolidated financial statements are presented in Canadian dollars, which is the Company’s functional
currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand except
where otherwise noted.
Use of estimates and judgments
(d)
The preparation of the consolidated financial statements in conformity with IFRS requires that certain estimates and
judgments be made with respect to the reported amounts of revenue and expenses and the carrying amounts of assets
and liabilities. These estimates are based on historical experience and management’s judgment. Anticipating future
events involves uncertainty and consequently the estimates used by management in the preparation of the consolidated
financial statements may change as future events unfold, additional experience is acquired or the Company’s operating
environment changes. In many cases the use of judgment is required to make estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected. Further details of the
nature of these estimates and assumptions may be found in the relevant notes to the consolidated financial statements.
Management considers the following to be the most significant of the judgments, apart from those involved in making
estimates, made in preparation of the consolidated financial statements:
Business combinations
The consideration transferred on acquisitions of businesses is allocated to the identifiable assets acquired and liabilities
assumed at their estimated fair values on the acquisition date. All available information is used to estimate fair values,
and external consultants may be engaged to assist in the fair value determination of property, plant and equipment.
The preliminary allocation of consideration transferred may be adjusted, as necessary, up to one year after the
acquisition closing date due to additional information affecting asset valuation and liabilities assumed.
The allocation process for the consideration transferred involves uncertainty as management is required to make
assumptions and apply judgment to estimates of the fair value of the acquired assets and liabilities, including highest
and best use of assets. Quoted market prices and widely accepted valuation techniques, including discounted cash flows
Page | 40
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CWC-AR-2018-2.indd 43
2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
3.
Significant accounting policies
and market multiple analyses are used to estimate the fair market value of the assets and liabilities and depreciated
replacement costs are used for the valuation of tangible assets. These estimates include assumptions on inputs within
the discounted cash flow calculations related to forecasted revenues, cash flows, contract renewals, asset lives, industry
economic factors and business strategies.
Determination of cash generating units
For the purpose of assessing impairment of tangible and intangible assets, assets are grouped at the lowest level for
which there are separately identifiable cash flows (cash-generating units or “CGU’s”). The grouping of assets into CGU’s
requires management exercise significant judgment.
Management considers the following to be the most significant of the estimates made in preparation of the consolidated
financial statements:
Impairment of tangible and intangible assets
Tangible and intangible assets are reviewed annually with respect to their useful lives, or more frequently, if events or
changes in circumstances indicate that the assets might be impaired. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is
the higher of fair value less costs to dispose (“FVLCD”) and value in use (“VIU”). In assessing value in use, the estimated
future cash flows are discounted to their present value using a discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been
adjusted. As a result, any impairment losses are a result of management’s best estimates of expected revenue, expenses
and cash flows at a specific point in time. These estimates are subject to measurement uncertainty as they are dependent
on factors outside of management’s control. In addition, by their nature impairment tests involve a significant degree
of judgment as expectations concerning future cash flows and the selection of appropriate market inputs are subject to
considerable risks and uncertainties.
Depreciation and amortization
Depreciation and amortization of property and equipment and intangible assets is carried out on the basis of the
estimated useful lives of the related assets. Assessing the reasonableness of the estimated useful lives of property and
equipment and intangibles requires judgment and is based on currently available information, including historical
experience by the Company. Additionally, the Company may consult with external equipment builders or manufacturers
to assess whether the methodologies and rates utilized are consistent with their expectations. Changes in
circumstances, such as technological advances, changes to the Company’s business strategy, changes in the Company’s
capital strategy or changes in regulations may result in the actual useful lives differing from the Company’s estimates.
A change in the remaining useful life of a group of assets, or their expected residual value, will affect the depreciation
rate used to amortize the group of assets and thus affect depreciation expense as reported in the Company’s results of
operations. These changes are reported prospectively when they occur.
Income taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred income tax assets
and liabilities are recorded based on temporary differences between the carrying amount of an asset or liability and its
tax base. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are
generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will
be available against which those deductible temporary differences can be utilized. The carrying amount of deferred tax
assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered. The Company’s operations are
complex and computation of the provision for income taxes involves tax interpretations, regulations and legislation that
are continually changing. Any changes in the estimated amounts are recognized prospectively in the statement of
income (loss) and comprehensive income (loss).
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements.
(a)
Business combinations
The Company uses the acquisition method to account for business acquisitions. The Company measures goodwill as the
fair value of the consideration transferred, less the net recognized amount (generally fair value) of the identifiable assets
acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a gain on
acquisition is recognized immediately in net income. Goodwill is allocated as of the date of the business combination to
the CGU and groups of CGU's that are expected to benefit from the business combination and represents the lowest level
within the entity at which the goodwill is monitored for internal management purposes, which can be no higher than
the operating segment level. Goodwill is not amortized and is tested for impairment annually. Additionally, goodwill is
reviewed at each reporting date to determine if events or changes in circumstances indicate that the asset might be
impaired, in which case an impairment test is performed. Goodwill is measured at cost less accumulated impairment
losses. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs
in connection with a business combination are expensed as incurred and recognized in other items within net income.
(b)
Property and equipment and depreciation
Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost
includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets
includes the following:
(cid:120)
(cid:120)
use.
the cost of materials and direct labour; and
any other costs directly attributable to bringing the assets to a working condition for their intended
The costs of replacing a component of property and equipment are capitalized only when it is probable that the future
economic benefits associated with the component will flow to the Company. The carrying amount of the replaced
component is derecognized. Cost of routine repairs and maintenance is expensed as incurred.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items
(major components) of property and equipment.
Any gain or loss on disposal of an item of property and equipment (calculated as the difference between the net proceeds
from disposal and the carrying amount of the item) is recognized in profit or loss.
Items of property and equipment are depreciated from the date that they are inspected and determined to be ready for
field use, or in respect of internally constructed assets, from the date that the asset is completed or ready for use.
Depreciation is recorded annually over the estimated useful lives of the assets using the following deprecation methods
and rates:
Assets
Buildings
Drilling rigs and related equipment
Unit of production with residual values
1,500 to 5,000 operating
Straight-line with residual values of up
Production equipment – service and
recertifications
Production equipment – coil
swabbing rigs and Level IV
Unit of production with residual values
Straight-line with residual values of up
24,000 operating hours
Support equipment
Straight-line with residual values of up
Miscellaneous equipment
Straight-line with no residual value
Rate
days
25 years
10 years
2 to 10 years
3 to 5 years
Method
up to-20%
to-20%
up to-20%
to-20%
to-15%
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CWC-AR-2018-2.indd 44
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2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
3.
Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated
financial statements.
Business combinations
(a)
The Company uses the acquisition method to account for business acquisitions. The Company measures goodwill as the
fair value of the consideration transferred, less the net recognized amount (generally fair value) of the identifiable assets
acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a gain on
acquisition is recognized immediately in net income. Goodwill is allocated as of the date of the business combination to
the CGU and groups of CGU's that are expected to benefit from the business combination and represents the lowest level
within the entity at which the goodwill is monitored for internal management purposes, which can be no higher than
the operating segment level. Goodwill is not amortized and is tested for impairment annually. Additionally, goodwill is
reviewed at each reporting date to determine if events or changes in circumstances indicate that the asset might be
impaired, in which case an impairment test is performed. Goodwill is measured at cost less accumulated impairment
losses. Transaction costs, other than those associated with the issue of debt or equity securities, that the Company incurs
in connection with a business combination are expensed as incurred and recognized in other items within net income.
Property and equipment and depreciation
(b)
Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost
includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets
includes the following:
(cid:120)
(cid:120)
the cost of materials and direct labour; and
any other costs directly attributable to bringing the assets to a working condition for their intended
use.
The costs of replacing a component of property and equipment are capitalized only when it is probable that the future
economic benefits associated with the component will flow to the Company. The carrying amount of the replaced
component is derecognized. Cost of routine repairs and maintenance is expensed as incurred.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items
(major components) of property and equipment.
Any gain or loss on disposal of an item of property and equipment (calculated as the difference between the net proceeds
from disposal and the carrying amount of the item) is recognized in profit or loss.
Items of property and equipment are depreciated from the date that they are inspected and determined to be ready for
field use, or in respect of internally constructed assets, from the date that the asset is completed or ready for use.
Depreciation is recorded annually over the estimated useful lives of the assets using the following deprecation methods
and rates:
Assets
Drilling rigs and related equipment
Buildings
Production equipment – service and
swabbing rigs and Level IV
recertifications
Production equipment – coil
Support equipment
Miscellaneous equipment
Method
Unit of production with residual values
up to-20%
Straight-line with residual values of up
to-20%
Rate
1,500 to 5,000 operating
days
25 years
Unit of production with residual values
up to-20%
Straight-line with residual values of up
to-20%
Straight-line with residual values of up
to-15%
Straight-line with no residual value
24,000 operating hours
10 years
2 to 10 years
3 to 5 years
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CWC-AR-2018-2.indd 45
2019-05-03 8:47 AM
and market multiple analyses are used to estimate the fair market value of the assets and liabilities and depreciated
replacement costs are used for the valuation of tangible assets. These estimates include assumptions on inputs within
the discounted cash flow calculations related to forecasted revenues, cash flows, contract renewals, asset lives, industry
economic factors and business strategies.
Determination of cash generating units
For the purpose of assessing impairment of tangible and intangible assets, assets are grouped at the lowest level for
which there are separately identifiable cash flows (cash-generating units or “CGU’s”). The grouping of assets into CGU’s
requires management exercise significant judgment.
Management considers the following to be the most significant of the estimates made in preparation of the consolidated
financial statements:
Impairment of tangible and intangible assets
Tangible and intangible assets are reviewed annually with respect to their useful lives, or more frequently, if events or
changes in circumstances indicate that the assets might be impaired. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is
the higher of fair value less costs to dispose (“FVLCD”) and value in use (“VIU”). In assessing value in use, the estimated
future cash flows are discounted to their present value using a discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been
adjusted. As a result, any impairment losses are a result of management’s best estimates of expected revenue, expenses
and cash flows at a specific point in time. These estimates are subject to measurement uncertainty as they are dependent
on factors outside of management’s control. In addition, by their nature impairment tests involve a significant degree
of judgment as expectations concerning future cash flows and the selection of appropriate market inputs are subject to
considerable risks and uncertainties.
Depreciation and amortization
Depreciation and amortization of property and equipment and intangible assets is carried out on the basis of the
estimated useful lives of the related assets. Assessing the reasonableness of the estimated useful lives of property and
equipment and intangibles requires judgment and is based on currently available information, including historical
experience by the Company. Additionally, the Company may consult with external equipment builders or manufacturers
to assess whether the methodologies and rates utilized are consistent with their expectations. Changes in
circumstances, such as technological advances, changes to the Company’s business strategy, changes in the Company’s
capital strategy or changes in regulations may result in the actual useful lives differing from the Company’s estimates.
A change in the remaining useful life of a group of assets, or their expected residual value, will affect the depreciation
rate used to amortize the group of assets and thus affect depreciation expense as reported in the Company’s results of
operations. These changes are reported prospectively when they occur.
Income taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred income tax assets
and liabilities are recorded based on temporary differences between the carrying amount of an asset or liability and its
tax base. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are
generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will
be available against which those deductible temporary differences can be utilized. The carrying amount of deferred tax
assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered. The Company’s operations are
complex and computation of the provision for income taxes involves tax interpretations, regulations and legislation that
are continually changing. Any changes in the estimated amounts are recognized prospectively in the statement of
income (loss) and comprehensive income (loss).
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
Intangible assets acquired in business combinations consist of trade names which are amortized over five years and
customer contracts which are amortized over the remaining contractual term of up to two years.
Assets under construction are not depreciated until they are available for use. Leased assets are depreciated over the
shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership
by the end of the lease term. Land is not depreciated.
Depreciation method, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
Impairment of non-financial assets excluding inventories and deferred tax assets
(c)
Non-financial assets excluding inventories and deferred tax assets are assessed at the end of each reporting period to
determine if any indication of impairment exists. If any such indication exists, the Company estimates the recoverable
amount of the asset. An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable
amount.
The recoverable amount of an asset or CGU is the greater of its VIU and its FVLCD. In assessing VIU, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets are
grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGU’s.
Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first
to reduce the carrying amount of goodwill, if any, allocated to the CGU (group of CGUs), and then to reduce the carrying
amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.
CWC’s corporate assets, which do not generate separate cash inflows, are allocated to the CGU’s on a reasonable basis
for impairment testing purposes.
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are
recognized as a deduction from equity, net of any tax effects.
Financial instruments
(d)
Financial assets include accounts receivable and marketable securities (if any). The Company determines the
classification of its financial assets at initial recognition and records the assets at their fair value. Subsequently, financial
assets are carried at fair value or amortized cost less impairment charges. Where non-derivative financial assets are
carried at fair value, gains and losses on remeasurement are recognized directly in equity unless the financial assets
have been designated as being held at fair value through profit or loss, in which case the gains and losses are recognized
directly in net earnings.
All financial liabilities are initially recognized at fair value net of transaction costs and subsequently carried at amortized
cost. The Company determines the classification of its financial liabilities at initial recognition.
The Company initially recognizes accounts receivable on the date that they originate. All other financial assets
(including assets designated at fair value through profit or loss) are recognized initially on the trade date at which it
becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all
the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets
that is created or retained is recognized as a separate asset or liability.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
Page | 44
CWC-AR-2018-2.indd 46
sheets and field tickets.
Page | 45
2019-05-03 8:47 AM
Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial
position when, and only when, there is a legal right to offset the amounts and the Company intends either to settle on a
net basis or to realize the asset and settle the liability simultaneously.
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as
such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Company manages
such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s
documented risk management or investment strategy. Attributable transaction costs are recognized in profit or loss as
incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes
into account any dividend income, are recognized in profit or loss.
Financial assets designated as at fair value through profit or loss comprise equity securities that would otherwise would
have been classified as available for sale.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.
Such assets are recognized initially at fair value plus any directly attributable transactions costs. Subsequent to initial
recognition, loans and receivables are measured at amortized cost using the effective interest method, less any
Cash comprises cash balances that are subject to an insignificant risk of changes in their fair value, and are used by the
Company in the management of its short-term commitments.
impairment losses.
(e)
Cash
(f)
Common shares
When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are returned to
treasury and cancelled no more than six months from repurchase.
(g)
Provisions
A provision is recognized in the consolidated financial statements when the Company has an obligation, whether
existing or potential as a result of a past event and it is probable that an outflow of economic benefits will be required
to settle the obligation. If the obligation is determined to be material, then the estimated amount of the provision is
determined by discounting the expected future cash outflows. At December 31, 2018 and December 31, 2017 there
were no provisions recognized in the consolidated financial statements.
(h)
Revenue recognition
Contract Drilling provides drilling rigs and related ancillary equipment to oil and gas exploration and production
companies. Customer contracts may be for a single well, multiple wells or a fixed term and are based upon daily, hourly
or contracted rates. The Company recognizes revenue in when it has a right to invoice for all contracts in which the
value of the performance completed to date directly corresponds with the right to consideration. Operating time is
measured through industry standard tour sheets that document the daily activity of the rig.
Production Services provides well services to oil and gas exploration and production companies through the use of
service rigs, swabbing rigs or coil tubing units. In general, Production Services are not performed under long-term
contracts and do not include penalties for termination. Contracts are based upon daily, hourly or contracted rates and
the Company recognizes revenue when it has a right to invoice for all contracts in which the value of the performance
completed to date directly corresponds with the right to consideration. Operating time is measured through daily tour
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
Intangible assets acquired in business combinations consist of trade names which are amortized over five years and
customer contracts which are amortized over the remaining contractual term of up to two years.
Assets under construction are not depreciated until they are available for use. Leased assets are depreciated over the
shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership
by the end of the lease term. Land is not depreciated.
Depreciation method, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(c)
Impairment of non-financial assets excluding inventories and deferred tax assets
Non-financial assets excluding inventories and deferred tax assets are assessed at the end of each reporting period to
determine if any indication of impairment exists. If any such indication exists, the Company estimates the recoverable
amount of the asset. An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable
amount.
The recoverable amount of an asset or CGU is the greater of its VIU and its FVLCD. In assessing VIU, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets are
grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGU’s.
Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first
to reduce the carrying amount of goodwill, if any, allocated to the CGU (group of CGUs), and then to reduce the carrying
amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.
CWC’s corporate assets, which do not generate separate cash inflows, are allocated to the CGU’s on a reasonable basis
for impairment testing purposes.
(d)
Financial instruments
Financial assets include accounts receivable and marketable securities (if any). The Company determines the
classification of its financial assets at initial recognition and records the assets at their fair value. Subsequently, financial
assets are carried at fair value or amortized cost less impairment charges. Where non-derivative financial assets are
carried at fair value, gains and losses on remeasurement are recognized directly in equity unless the financial assets
have been designated as being held at fair value through profit or loss, in which case the gains and losses are recognized
directly in net earnings.
All financial liabilities are initially recognized at fair value net of transaction costs and subsequently carried at amortized
cost. The Company determines the classification of its financial liabilities at initial recognition.
The Company initially recognizes accounts receivable on the date that they originate. All other financial assets
(including assets designated at fair value through profit or loss) are recognized initially on the trade date at which it
becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it
transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all
the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets
that is created or retained is recognized as a separate asset or liability.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial
position when, and only when, there is a legal right to offset the amounts and the Company intends either to settle on a
net basis or to realize the asset and settle the liability simultaneously.
Financial assets at fair value through profit or loss
A financial asset is classified as at fair value through profit or loss if it is classified as held for trading or is designated as
such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Company manages
such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s
documented risk management or investment strategy. Attributable transaction costs are recognized in profit or loss as
incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes
into account any dividend income, are recognized in profit or loss.
Financial assets designated as at fair value through profit or loss comprise equity securities that would otherwise would
have been classified as available for sale.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.
Such assets are recognized initially at fair value plus any directly attributable transactions costs. Subsequent to initial
recognition, loans and receivables are measured at amortized cost using the effective interest method, less any
impairment losses.
Cash
(e)
Cash comprises cash balances that are subject to an insignificant risk of changes in their fair value, and are used by the
Company in the management of its short-term commitments.
Common shares
(f)
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are
recognized as a deduction from equity, net of any tax effects.
When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognized as a deduction from equity. Repurchased shares are returned to
treasury and cancelled no more than six months from repurchase.
Provisions
(g)
A provision is recognized in the consolidated financial statements when the Company has an obligation, whether
existing or potential as a result of a past event and it is probable that an outflow of economic benefits will be required
to settle the obligation. If the obligation is determined to be material, then the estimated amount of the provision is
determined by discounting the expected future cash outflows. At December 31, 2018 and December 31, 2017 there
were no provisions recognized in the consolidated financial statements.
Revenue recognition
(h)
Contract Drilling provides drilling rigs and related ancillary equipment to oil and gas exploration and production
companies. Customer contracts may be for a single well, multiple wells or a fixed term and are based upon daily, hourly
or contracted rates. The Company recognizes revenue in when it has a right to invoice for all contracts in which the
value of the performance completed to date directly corresponds with the right to consideration. Operating time is
measured through industry standard tour sheets that document the daily activity of the rig.
Production Services provides well services to oil and gas exploration and production companies through the use of
service rigs, swabbing rigs or coil tubing units. In general, Production Services are not performed under long-term
contracts and do not include penalties for termination. Contracts are based upon daily, hourly or contracted rates and
the Company recognizes revenue when it has a right to invoice for all contracts in which the value of the performance
completed to date directly corresponds with the right to consideration. Operating time is measured through daily tour
sheets and field tickets.
Page | 44
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CWC-AR-2018-2.indd 47
2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
For both its Contract Drilling Services and its Production Services, the Company does not expect to have any revenue
contracts where the period between the transfer of the promised goods or services to the customer and payments by
the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the
time value of money. The Company does not incur material costs to obtain contracts with customers and consequently,
does not recognize any contract assets. The Company does not have any contract liabilities associated with its contract
drilling or production services customer contracts. As revenue from Contract Drilling Services and Production Services
contracts is recognized as-invoiced, the transaction price allocated to remaining performance obligations and an
explanation of when the Company expects to recognize such amounts as revenue are not disclosed.
(i)
At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. This will
be the case if the following two criteria are met:
Leases
(cid:120)
(cid:120)
the fulfillment of the arrangement is dependent on the use of a specific asset or assets; and
the arrangement contains a right to use the asset(s).
At the inception or on reassessment of the arrangement, the Company separates payments and other consideration
required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair
values. If the Company concludes for a finance lease that it is impracticable to separate the payments reliably, then an
asset and a liability are recognized at an amount equal to the fair value of the underlying asset. Subsequently, the liability
is reduced as payments are made and an imputed finance cost on the liability is recognized using the Company’s
incremental borrowing rate.
Leasing contracts are classified as either finance or operating leases.
The Company classifies a lease as a finance lease if it transfers substantially all of the risks and rewards of ownership
to the lessee. Upon the initial recognition of the lease asset it is measured at an amount equal to the lower of its fair
value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance
leases are apportioned between the finance lease and the reduction of the outstanding liability. The finance expense is
allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining
balance of the liability.
Other leases are operating leases and are not recognized in the Company’s consolidated statement of financial position.
Payments made under operating leases are recognized in the statement of comprehensive income (loss) on a straight-
line basis over the term of the lease.
Finance costs
(j)
Finance costs encompass interest expense on financial liabilities and accretion expense on debt issuance costs and are
recognized in profit or loss in the period in which they are incurred using the effective interest method.
Foreign currency transactions
(k)
These consolidated financial statements are presented in Canadian dollars, which is the functional and reporting
currency of the Company. Transactions in foreign currency are translated at exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into
the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the
difference between amortized cost in the functional currency at the beginning of the year and the amortized cost in
foreign currency translated at the exchange rate at the end of the year. Non-monetary assets are translated into
Canadian dollars at the exchange rate prevailing on the date of acquisition.
Income Tax
(l)
Tax is recognized in profit or loss, except to the extent that it relates to a business combination or items recognized in
other comprehensive income or directly in equity.
Page | 46
CWC-AR-2018-2.indd 48
Page | 47
2019-05-03 8:47 AM
Current tax is the expected tax on taxable income less adjustments to prior periods using tax rates enacted, or
substantively enacted as at the reporting date in jurisdictions where the Company operates.
Deferred income taxes are recognized based on temporary differences arising between the tax value of assets and
liabilities and their carrying amounts in the consolidated financial statements. Deferred tax liabilities are not recognized
if they arise from the initial recognition of goodwill and are not accounted for if they arise from the initial recognition
of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable income. Deferred income taxes are calculated on the basis of the tax laws enacted or
substantively enacted as at the reporting date and apply to when the related deferred income tax asset is realized or
the deferred income tax liability is settled.
Current and deferred income tax assets and liabilities are offset when there is a legally enforceable right to settle on a
net basis and when such assets and liabilities relate to income taxes imposed by the same taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent
that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realized.
(m)
Employee costs
reasonably be estimated.
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A liability is recognized for the amount expected to be paid under the bonus plan when a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can
Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic
possibility of withdrawal to a formal detailed plan to either terminate employment before the normal retirement date,
or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits
for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it
is probable that the offer will be accepted and the number of acceptances can be measured reliably. If benefits are
payable more than twelve months after the reporting date, then they are discounted to their present value.
Under the Company’s stock option plan described in note 9(d), options to purchase common shares are granted to
directors, officers and employees. The fair value of common share purchase options is calculated at the date of grant
using the Black-Scholes option pricing model and that value is recorded as compensation expense over the vesting
period of the option with an offsetting credit to contributed surplus. Upon exercise of the share purchase options: i) if
shares are issued from treasury, consideration paid together with the amount previously recognized in contributed
surplus is recorded as an increase in common share capital, or ii) if a cash payment is made to the participant,
contributed surplus is reduced by the amount of the cash payment. It is the Company’s intent to settle future common
share purchase options by means of the issue of shares from treasury.
Under the Company’s restricted share unit plan described in note 9(e), RSUs are granted to directors, officers and
employees. The fair value of RSUs is calculated at the date of grant using the market price of the common shares and
that value is recorded as compensation expense over the vesting period of the RSU with an offsetting credit to
contributed surplus. Upon settlement of the RSUs: i) if shares are issued from treasury, share capital is increased and
contributed surplus is decreased by the amount previously expensed for stock based compensation for the RSUs, or ii)
if common shares are purchased in open market purchases or purchases pursuant to private transactions with third
parties, the amount paid for such purchases is recorded as a reduction in contributed surplus, or iii) if a cash payment
is made to the participant, contributed surplus is reduced by the amount of the cash payment. It is the Company’s intent
to settle future RSUs by means of the issue of shares from treasury.
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
For both its Contract Drilling Services and its Production Services, the Company does not expect to have any revenue
contracts where the period between the transfer of the promised goods or services to the customer and payments by
the customer exceeds one year. As a consequence, the Company does not adjust any of the transaction prices for the
time value of money. The Company does not incur material costs to obtain contracts with customers and consequently,
does not recognize any contract assets. The Company does not have any contract liabilities associated with its contract
drilling or production services customer contracts. As revenue from Contract Drilling Services and Production Services
contracts is recognized as-invoiced, the transaction price allocated to remaining performance obligations and an
explanation of when the Company expects to recognize such amounts as revenue are not disclosed.
At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. This will
(i)
Leases
(cid:120)
(cid:120)
be the case if the following two criteria are met:
the fulfillment of the arrangement is dependent on the use of a specific asset or assets; and
the arrangement contains a right to use the asset(s).
At the inception or on reassessment of the arrangement, the Company separates payments and other consideration
required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair
values. If the Company concludes for a finance lease that it is impracticable to separate the payments reliably, then an
asset and a liability are recognized at an amount equal to the fair value of the underlying asset. Subsequently, the liability
is reduced as payments are made and an imputed finance cost on the liability is recognized using the Company’s
incremental borrowing rate.
Leasing contracts are classified as either finance or operating leases.
The Company classifies a lease as a finance lease if it transfers substantially all of the risks and rewards of ownership
to the lessee. Upon the initial recognition of the lease asset it is measured at an amount equal to the lower of its fair
value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted
for in accordance with the accounting policy applicable to that asset. Minimum lease payments made under finance
leases are apportioned between the finance lease and the reduction of the outstanding liability. The finance expense is
allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining
balance of the liability.
Other leases are operating leases and are not recognized in the Company’s consolidated statement of financial position.
Payments made under operating leases are recognized in the statement of comprehensive income (loss) on a straight-
line basis over the term of the lease.
(j)
Finance costs
Finance costs encompass interest expense on financial liabilities and accretion expense on debt issuance costs and are
recognized in profit or loss in the period in which they are incurred using the effective interest method.
(k)
Foreign currency transactions
These consolidated financial statements are presented in Canadian dollars, which is the functional and reporting
currency of the Company. Transactions in foreign currency are translated at exchange rates at the dates of the
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into
the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the
difference between amortized cost in the functional currency at the beginning of the year and the amortized cost in
foreign currency translated at the exchange rate at the end of the year. Non-monetary assets are translated into
Canadian dollars at the exchange rate prevailing on the date of acquisition.
Tax is recognized in profit or loss, except to the extent that it relates to a business combination or items recognized in
other comprehensive income or directly in equity.
(l)
Income Tax
Page | 46
Current tax is the expected tax on taxable income less adjustments to prior periods using tax rates enacted, or
substantively enacted as at the reporting date in jurisdictions where the Company operates.
Deferred income taxes are recognized based on temporary differences arising between the tax value of assets and
liabilities and their carrying amounts in the consolidated financial statements. Deferred tax liabilities are not recognized
if they arise from the initial recognition of goodwill and are not accounted for if they arise from the initial recognition
of an asset or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting nor taxable income. Deferred income taxes are calculated on the basis of the tax laws enacted or
substantively enacted as at the reporting date and apply to when the related deferred income tax asset is realized or
the deferred income tax liability is settled.
Current and deferred income tax assets and liabilities are offset when there is a legally enforceable right to settle on a
net basis and when such assets and liabilities relate to income taxes imposed by the same taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent
that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit
will be realized.
Employee costs
(m)
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service
is provided. A liability is recognized for the amount expected to be paid under the bonus plan when a present legal or
constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can
reasonably be estimated.
Termination benefits are recognized as an expense when the Company is demonstrably committed, without realistic
possibility of withdrawal to a formal detailed plan to either terminate employment before the normal retirement date,
or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits
for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it
is probable that the offer will be accepted and the number of acceptances can be measured reliably. If benefits are
payable more than twelve months after the reporting date, then they are discounted to their present value.
Under the Company’s stock option plan described in note 9(d), options to purchase common shares are granted to
directors, officers and employees. The fair value of common share purchase options is calculated at the date of grant
using the Black-Scholes option pricing model and that value is recorded as compensation expense over the vesting
period of the option with an offsetting credit to contributed surplus. Upon exercise of the share purchase options: i) if
shares are issued from treasury, consideration paid together with the amount previously recognized in contributed
surplus is recorded as an increase in common share capital, or ii) if a cash payment is made to the participant,
contributed surplus is reduced by the amount of the cash payment. It is the Company’s intent to settle future common
share purchase options by means of the issue of shares from treasury.
Under the Company’s restricted share unit plan described in note 9(e), RSUs are granted to directors, officers and
employees. The fair value of RSUs is calculated at the date of grant using the market price of the common shares and
that value is recorded as compensation expense over the vesting period of the RSU with an offsetting credit to
contributed surplus. Upon settlement of the RSUs: i) if shares are issued from treasury, share capital is increased and
contributed surplus is decreased by the amount previously expensed for stock based compensation for the RSUs, or ii)
if common shares are purchased in open market purchases or purchases pursuant to private transactions with third
parties, the amount paid for such purchases is recorded as a reduction in contributed surplus, or iii) if a cash payment
is made to the participant, contributed surplus is reduced by the amount of the cash payment. It is the Company’s intent
to settle future RSUs by means of the issue of shares from treasury.
Page | 47
CWC-AR-2018-2.indd 49
2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The Company estimates future forfeitures for both stock options and RSUs and expenses stock options and RSUs based
on the Company’s estimate of stock options and RSUs expected to reach vesting. Any difference between the number of
stock options and RSUs expected to vest and the number of stock options and RSUs which actually vest is accounted for
as a change in estimate when those stock options or RSUs become vested or are forfeited before vesting.
The Company has a dividend bonus plan to compensate stock option holders for dividends paid on common shares.
Under the terms of the plan option holders of vested, in-the-money options are entitled to a bonus payment equal to
the dividend amount grossed up to negate the tax consequences of receiving employment income versus dividend
income. These amounts are accrued at each dividend declaration date and paid out annually, at the time of option
exercise or on termination of employment, whichever event occurs first.
Per share amounts
(n)
Basic per share amounts are calculated using the weighted average number of common shares outstanding during the
period. Diluted per share amounts are calculated considering the effects of all dilutive potential common shares. The
Company’s dilutive potential common shares assumes that all dilutive stock options and restricted share units are
exercised and the proceeds obtained on the exercise of dilutive stock options would be used to purchase common shares
at the average market price during the period. The weighted average number of common shares outstanding is then
adjusted accordingly.
Segmented information
(o)
The operating divisions are grouped into two distinct reporting segments: Contract Drilling and Production Services
and are supported by the Corporate reporting segment. The reporting segments share common economic
characteristics and are differentiated by the type of service provided and customer needs. The reporting segments
financial results are reviewed regularly by the Company’s senior management. Senior management makes decisions
about resource allocation and assesses segment performance based on the internally prepared segment information.
IFRS 15
(p)
The Company adopted IFRS 15, “Revenue from Contracts with Customers” on January 1, 2018. The Company reviewed
its revenue streams and major contracts with customers using the IFRS 15 five-step model and there were no material
changes to net earnings. Under this method, there was no effect to opening deficit from the application of IFRS 15 to
revenue contracts in progress at January 1, 2018. Revenue has been disaggregated into categories based on type of
services provided consistent with its reportable operating segments outlined in Note 17.
IFRS 9
(r)
The Company adopted IFRS 9, “Financial Instruments” on January 1, 2018. The transition to IFRS 9 had no material
effect on the Company’s consolidated financial statements.
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value
through other comprehensive income (“FVOCI”); or fair value through profit or loss (“FVTPL”). The classification of
financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its
contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and
receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset
in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for
classification. The new standard also introduces an expected credit loss model for evaluating impairment of financial
assets, which results in credit losses being recognized earlier than the previous standard.
Cash and accounts receivable continue to be measured at amortized cost and are now classified as “amortized costs”.
There was no change to the Company’s classification of accounts payable and accrued liabilities or long-term debt. The
Company has identified the Mortgage Loan interest rate swap as a FVTPL.
(s)
Future Accounting Pronouncements
IFRS 16, Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and
liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. The Company intends to adopt IFRS 16 in its consolidated financial
statements for the annual period beginning on January 1, 2019. The Company anticipates that the most significant
impact of adopting IFRS 16 will be the recognition of right-of-use (“ROU”) assets and corresponding lease obligations
on its operating leases for office space. As a result, the nature of the expenses related to these leases will change as IFRS
16 replaces the straight-line operating lease expense with depreciation expense on the ROU asset and a finance charge
on the lease obligation. On adoption of IFRS 16. The Company will recognize lease liabilities in relation to leases under
the principles of the new standard. These liabilities will be measured at the present value of the remaining lease
payments, discounted using the Company’s incremental borrowing rate as of January 1, 2019. The associated ROU asset
will initially be measured at the amount equal to the lease liability on January 1, 2019 with no impact on retained
earnings. The Company has identified ROU assets and lease liabilities primarily related to office space. The impact will
result in higher adjusted EBITDA throughout the term of the lease. In addition, cash flow from operating activities and
adjusted cash flow from operating activities will increase and cash flow from financing activities will decrease as lease
obligations repayments will be reported as financing activities on the Consolidated Statement of Cash Flows. There will
be no net impact on cash flows.
4.
Determination of fair values
A number of the Company’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities.
The fair value of long-term debt approximates its carrying value as the debt bears interest at floating rates and the credit
spreads approximate current market rates.
Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific
to that asset or liability.
(a)
Property and equipment
The fair value of property and equipment recognized as a result of a business combination is the estimated amount for
which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s
length transaction after proper marketing wherein the parties had each acted knowledgeably. The fair value of
equipment, fixtures and fittings is based on the market approach and cost approaches using quoted market prices for
similar items when available and depreciated replacement cost when appropriate. Depreciated replacement cost
estimates reflect adjustments for physical deterioration as well as functional and economic obsolescence.
(b)
Share based compensation transactions
The fair value of employee stock options is measured using the Black-Scholes option pricing model. Measurement inputs
include the share price on measurement date, the exercise price of the instrument, the expected volatility, the weighted
average expected life of the instruments, the expected dividends, the expected forfeiture rate, and the risk-free interest
rate (based on government bonds). Service and non-market performance conditions are not taken into account in
The fair value of RSUs issued is determined on the grant date based on the market price of the common shares on the
determining fair value.
grant date.
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CWC-AR-2018-2.indd 50
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2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The Company estimates future forfeitures for both stock options and RSUs and expenses stock options and RSUs based
on the Company’s estimate of stock options and RSUs expected to reach vesting. Any difference between the number of
stock options and RSUs expected to vest and the number of stock options and RSUs which actually vest is accounted for
as a change in estimate when those stock options or RSUs become vested or are forfeited before vesting.
The Company has a dividend bonus plan to compensate stock option holders for dividends paid on common shares.
Under the terms of the plan option holders of vested, in-the-money options are entitled to a bonus payment equal to
the dividend amount grossed up to negate the tax consequences of receiving employment income versus dividend
income. These amounts are accrued at each dividend declaration date and paid out annually, at the time of option
exercise or on termination of employment, whichever event occurs first.
(n)
Per share amounts
Basic per share amounts are calculated using the weighted average number of common shares outstanding during the
period. Diluted per share amounts are calculated considering the effects of all dilutive potential common shares. The
Company’s dilutive potential common shares assumes that all dilutive stock options and restricted share units are
exercised and the proceeds obtained on the exercise of dilutive stock options would be used to purchase common shares
at the average market price during the period. The weighted average number of common shares outstanding is then
adjusted accordingly.
(o)
Segmented information
The operating divisions are grouped into two distinct reporting segments: Contract Drilling and Production Services
and are supported by the Corporate reporting segment. The reporting segments share common economic
characteristics and are differentiated by the type of service provided and customer needs. The reporting segments
financial results are reviewed regularly by the Company’s senior management. Senior management makes decisions
about resource allocation and assesses segment performance based on the internally prepared segment information.
(p)
IFRS 15
(r)
IFRS 9
The Company adopted IFRS 15, “Revenue from Contracts with Customers” on January 1, 2018. The Company reviewed
its revenue streams and major contracts with customers using the IFRS 15 five-step model and there were no material
changes to net earnings. Under this method, there was no effect to opening deficit from the application of IFRS 15 to
revenue contracts in progress at January 1, 2018. Revenue has been disaggregated into categories based on type of
services provided consistent with its reportable operating segments outlined in Note 17.
The Company adopted IFRS 9, “Financial Instruments” on January 1, 2018. The transition to IFRS 9 had no material
effect on the Company’s consolidated financial statements.
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value
through other comprehensive income (“FVOCI”); or fair value through profit or loss (“FVTPL”). The classification of
financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its
contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and
receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset
in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for
classification. The new standard also introduces an expected credit loss model for evaluating impairment of financial
assets, which results in credit losses being recognized earlier than the previous standard.
Cash and accounts receivable continue to be measured at amortized cost and are now classified as “amortized costs”.
There was no change to the Company’s classification of accounts payable and accrued liabilities or long-term debt. The
Company has identified the Mortgage Loan interest rate swap as a FVTPL.
(s)
Future Accounting Pronouncements
IFRS 16, Leases. This standard introduces a single lessee accounting model and requires a lessee to recognize assets and
liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is
required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. The Company intends to adopt IFRS 16 in its consolidated financial
statements for the annual period beginning on January 1, 2019. The Company anticipates that the most significant
impact of adopting IFRS 16 will be the recognition of right-of-use (“ROU”) assets and corresponding lease obligations
on its operating leases for office space. As a result, the nature of the expenses related to these leases will change as IFRS
16 replaces the straight-line operating lease expense with depreciation expense on the ROU asset and a finance charge
on the lease obligation. On adoption of IFRS 16. The Company will recognize lease liabilities in relation to leases under
the principles of the new standard. These liabilities will be measured at the present value of the remaining lease
payments, discounted using the Company’s incremental borrowing rate as of January 1, 2019. The associated ROU asset
will initially be measured at the amount equal to the lease liability on January 1, 2019 with no impact on retained
earnings. The Company has identified ROU assets and lease liabilities primarily related to office space. The impact will
result in higher adjusted EBITDA throughout the term of the lease. In addition, cash flow from operating activities and
adjusted cash flow from operating activities will increase and cash flow from financing activities will decrease as lease
obligations repayments will be reported as financing activities on the Consolidated Statement of Cash Flows. There will
be no net impact on cash flows.
Determination of fair values
4.
A number of the Company’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities.
The fair value of long-term debt approximates its carrying value as the debt bears interest at floating rates and the credit
spreads approximate current market rates.
Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific
to that asset or liability.
Property and equipment
(a)
The fair value of property and equipment recognized as a result of a business combination is the estimated amount for
which a property could be exchanged on the date of acquisition between a willing buyer and a willing seller in an arm’s
length transaction after proper marketing wherein the parties had each acted knowledgeably. The fair value of
equipment, fixtures and fittings is based on the market approach and cost approaches using quoted market prices for
similar items when available and depreciated replacement cost when appropriate. Depreciated replacement cost
estimates reflect adjustments for physical deterioration as well as functional and economic obsolescence.
Share based compensation transactions
(b)
The fair value of employee stock options is measured using the Black-Scholes option pricing model. Measurement inputs
include the share price on measurement date, the exercise price of the instrument, the expected volatility, the weighted
average expected life of the instruments, the expected dividends, the expected forfeiture rate, and the risk-free interest
rate (based on government bonds). Service and non-market performance conditions are not taken into account in
determining fair value.
The fair value of RSUs issued is determined on the grant date based on the market price of the common shares on the
grant date.
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CWC-AR-2018-2.indd 51
2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
5.
Property, plant and equipment
Fair value hierarchy
(c)
Financial instruments that are measured subsequent to initial recognition at fair value are grouped in Levels 1 to 3
based on the degree to which the fair value is observable:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quote prices that are observable for the asset or liability either directly or indirectly;
and
Level 3 – Inputs that are not based on observable market data.
Balance, January 1, 2018
Costs
Additions
Disposals
Transfers
Accumulated depreciation and
Balance, December 31, 2018
impairment losses
Balance, January 1, 2018
Depreciation
Disposals
Net book value
Balance, December 31, 2018
Balance, December 31, 2018
Costs
Additions
Disposals
Transfers
Accumulated depreciation and
impairment losses
Balance, January 1, 2017
Depreciation
Disposals
Balance, December 31, 2017
Net book value
Balance, December 31, 2017
Production
services
property,
plant and
Contract
drilling
Other
equipment
equipment
equipment
Total
$ 112,478
$ 256,984
$ 1,883
$ 371,345
7,116
(62)
-
119,532
20,618
5,717
(53)
26,282
4,609
(5,907)
(31)
255,655
116,831
10,312
(3,767)
123,376
28
-
31
11,753
(5,969)
-
1,942
377,129
1,706
107
-
1,813
139,155
16,136
(3,820)
151,471
$ 93,250
$ 132,279 $ 129
$ 225,658
Production
services
property,
plant and
Contract
drilling
Other
equipment
equipment
equipment
Total
3,964
(433)
-
206,269
52,062
(1,347)
-
9
-
-
56,035
(1,780)
-
371,345
15,073
5,910
(365)
20,618
106,944
10,730
(843)
116,831
1,548
158
-
1,706
123,565
16,798
(1,208)
139,155
$
91,860
$
140,153
$
177
$
232,190
Balance, January 1, 2017
$
108,947
$
$
1,874
$
317,090
Balance, December 31, 2017
112,478
256,984
1,883
At December 31, 2018, property and equipment includes equipment under finance leases which are recorded at cost
totaling $1,144 (December 31, 2017: $878), less accumulated depreciation of $435 (December 31, 2017: $547).
Given the degree of uncertainty regarding oil and natural gas activity and pricing for 2018 and into 2019, and the impact
thereof, the Company concluded indicators of impairment existed and performed an impairment test for each CGU using
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CWC-AR-2018-2.indd 52
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2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
5.
Property, plant and equipment
(c)
Fair value hierarchy
Financial instruments that are measured subsequent to initial recognition at fair value are grouped in Levels 1 to 3
based on the degree to which the fair value is observable:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quote prices that are observable for the asset or liability either directly or indirectly;
and
Level 3 – Inputs that are not based on observable market data.
Page | 50
Costs
Balance, January 1, 2018
Additions
Disposals
Transfers
Accumulated depreciation and
Balance, December 31, 2018
impairment losses
Balance, January 1, 2018
Depreciation
Disposals
Net book value
Balance, December 31, 2018
Balance, December 31, 2018
Costs
Balance, January 1, 2017
Additions
Disposals
Transfers
Balance, December 31, 2017
Accumulated depreciation and
impairment losses
Balance, January 1, 2017
Depreciation
Disposals
Balance, December 31, 2017
Net book value
Balance, December 31, 2017
Contract
drilling
equipment
Production
services
property,
plant and
equipment
Other
equipment
Total
$ 112,478
7,116
(62)
-
119,532
$ 256,984
4,609
(5,907)
(31)
255,655
$ 1,883
28
-
31
1,942
$ 371,345
11,753
(5,969)
-
377,129
20,618
5,717
(53)
26,282
116,831
10,312
(3,767)
123,376
1,706
107
-
1,813
139,155
16,136
(3,820)
151,471
$ 93,250
$ 132,279 $ 129
$ 225,658
Contract
drilling
equipment
Production
services
property,
plant and
equipment
Other
equipment
$
$
$
108,947
3,964
(433)
-
112,478
206,269
52,062
(1,347)
-
256,984
15,073
5,910
(365)
20,618
106,944
10,730
(843)
116,831
1,874
9
-
-
1,883
1,548
158
-
1,706
$
Total
317,090
56,035
(1,780)
-
371,345
123,565
16,798
(1,208)
139,155
$
91,860
$
140,153
$
177
$
232,190
At December 31, 2018, property and equipment includes equipment under finance leases which are recorded at cost
totaling $1,144 (December 31, 2017: $878), less accumulated depreciation of $435 (December 31, 2017: $547).
Given the degree of uncertainty regarding oil and natural gas activity and pricing for 2018 and into 2019, and the impact
thereof, the Company concluded indicators of impairment existed and performed an impairment test for each CGU using
Page | 51
CWC-AR-2018-2.indd 53
2019-05-03 8:47 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
value-in-use to determine the recoverable amounts. For each CGU, the recoverable amount exceeded its carrying
amount and therefore no impairment was recognized.
Acquisition of C&J Canada Assets
On November 5, 2017, the Company completed the acquisition of all of the service and swabbing rig assets and ongoing
operations of C&J Energy Production Services-Canada Ltd. (“C&J Canada”) from C&J Energy Services, Inc. for total
consideration of $37.5 million in cash. The acquisition of C&J Canada has been accounted for as a business combination
under IFRS 3. The purchase equation is as follows:
Consideration transferred
Purchase Price Equation
Cash
Identifiable assets (liabilities) acquired
Buildings
Land
Rigs
Other Equipment
Property taxes & other deposits
Deferred tax liabilities
Bargain purchase gain
$ 37,500
$ 7,432
11,467
29,580
470
54
(2,375)
(9,128)
$ 37,500
C&J Canada’s identifiable assets and liabilities have been measured at their fair values on the date of acquisition.
Determinations of fair value often require management to make assumptions and estimates about future events. CWC
has determined the fair value of assets acquired and liabilities assumed as of the date of acquisition. The fair value of
buildings, land and rigs were determined based on third party appraisal. Prepaid expenses and deposits and other
equipment book value was determined to be equal to the fair value. Deferred tax liabilities were determined by
applying statutory tax rate to assets acquired fair value less available tax pools.
Intangible assets
6.
Costs
Balance, January 1, 2018 & December 31, 2018
Accumulated depreciation and impairment losses
Balance, January 1, 2018
Depreciation of intangible assets
Balance, December 31, 2018
Net book value
Balance, December 31, 2018
Intangible
assets
$ 1,588
1,169
305
1,474
$ 114
syndicate, the Maturity Date will remain unchanged
The Company has credit facilities with a syndicate of four Canadian financial institutions (the “Credit Facility”). During
the second quarter of 2018, at the request of the Company, the Credit Facility was reduced from $100 million to $75
million. The Credit Facility provides the Company with a $75 million extendible revolving term facility (the “Bank Loan”)
and other credit instruments. Of the Bank Loan, $65 million is a syndicated facility with the remaining $10 million being
an operating facility. On August 4, 2017, the Bank Loan was extended for a committed term until July 31, 2020 (“Maturity
Date”). No principal payments are required under the Bank Loan until the Maturity Date, at which time any amounts
outstanding are due and payable. The Company may, on an annual basis, request the Maturity Date be extended for a
period not to exceed three years from the date of the request. If a request for an extension is not approved by the banking
The Bank Loan bears interest based on a sliding scale pricing grid tied to the Company’s trailing Consolidated Debt
(1)
to
Consolidated EBITDA
ratio from a minimum of the bank’s prime rate plus 0.75% to a maximum of the bank’s prime
rate plus 3.75% or from a minimum of the bankers acceptances rate plus a stamping fee of 1.75% to a maximum of the
bankers acceptances rate plus a stamping fee of 4.75%. Standby fees under the Bank Loan range between 0.39% and
1.07%. Interest and fees under the Bank Loan are payable monthly. The Company has the option to borrow funds
denominated in either Canadian or United States dollars under the Credit Facility. Borrowings under the Bank Loan are
limited to an aggregate of 75% of accounts receivable outstanding less than 90 days plus 60% of the net book value of
property and equipment less certain priority payables. As at December 31, 2018, of the $75,000 Bank Loan facility,
(2)
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CWC-AR-2018-2.indd 54
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2019-05-03 8:47 AM
Costs
Balance, January 1, 2017 and December 31, 2017
Accumulated depreciation and impairment losses
Balance, January 1, 2017
Depreciation of intangible assets
Balance, December 31, 2017
Net book value
Balance, December 31, 2017
7.
Loans and borrowings
As at December 31,
Current liabilities:
Current portion of finance lease liabilities
Current portion of Mortgage Loan
Non-current liabilities:
Bank Loan
Mortgage Loan
Finance lease liabilities
Financing fees
Total loans and borrowings
Intangible
assets
$
1,588
864
305
1,169
$
419
2018
$ 346
2017
582
$ 928
$ 32,087
11,927
381
(427)
$ 43,968
$ 44,896
$
$
$
$
$
176
176
50,000
-
165
(531)
49,634
49,810
The following table provides information with respect to amounts included in the consolidated statement of financial
position related to loans and borrowings:
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
value-in-use to determine the recoverable amounts. For each CGU, the recoverable amount exceeded its carrying
amount and therefore no impairment was recognized.
Acquisition of C&J Canada Assets
On November 5, 2017, the Company completed the acquisition of all of the service and swabbing rig assets and ongoing
operations of C&J Energy Production Services-Canada Ltd. (“C&J Canada”) from C&J Energy Services, Inc. for total
consideration of $37.5 million in cash. The acquisition of C&J Canada has been accounted for as a business combination
under IFRS 3. The purchase equation is as follows:
Consideration transferred
Costs
Balance, January 1, 2017 and December 31, 2017
Accumulated depreciation and impairment losses
Balance, January 1, 2017
Depreciation of intangible assets
Balance, December 31, 2017
Net book value
Balance, December 31, 2017
7.
Loans and borrowings
Intangible
assets
$
1,588
864
305
1,169
$
419
The following table provides information with respect to amounts included in the consolidated statement of financial
position related to loans and borrowings:
As at December 31,
Current liabilities:
Current portion of finance lease liabilities
Current portion of Mortgage Loan
Non-current liabilities:
Bank Loan
Mortgage Loan
Finance lease liabilities
Financing fees
Total loans and borrowings
2018
$ 346
582
$ 928
$ 32,087
11,927
381
(427)
$ 43,968
$ 44,896
2017
176
176
50,000
-
165
(531)
49,634
49,810
$
$
$
$
$
The Company has credit facilities with a syndicate of four Canadian financial institutions (the “Credit Facility”). During
the second quarter of 2018, at the request of the Company, the Credit Facility was reduced from $100 million to $75
million. The Credit Facility provides the Company with a $75 million extendible revolving term facility (the “Bank Loan”)
and other credit instruments. Of the Bank Loan, $65 million is a syndicated facility with the remaining $10 million being
an operating facility. On August 4, 2017, the Bank Loan was extended for a committed term until July 31, 2020 (“Maturity
Date”). No principal payments are required under the Bank Loan until the Maturity Date, at which time any amounts
outstanding are due and payable. The Company may, on an annual basis, request the Maturity Date be extended for a
period not to exceed three years from the date of the request. If a request for an extension is not approved by the banking
syndicate, the Maturity Date will remain unchanged
(1)
to
The Bank Loan bears interest based on a sliding scale pricing grid tied to the Company’s trailing Consolidated Debt
ratio from a minimum of the bank’s prime rate plus 0.75% to a maximum of the bank’s prime
Consolidated EBITDA
rate plus 3.75% or from a minimum of the bankers acceptances rate plus a stamping fee of 1.75% to a maximum of the
bankers acceptances rate plus a stamping fee of 4.75%. Standby fees under the Bank Loan range between 0.39% and
1.07%. Interest and fees under the Bank Loan are payable monthly. The Company has the option to borrow funds
denominated in either Canadian or United States dollars under the Credit Facility. Borrowings under the Bank Loan are
limited to an aggregate of 75% of accounts receivable outstanding less than 90 days plus 60% of the net book value of
property and equipment less certain priority payables. As at December 31, 2018, of the $75,000 Bank Loan facility,
(2)
Identifiable assets (liabilities) acquired
Cash
Buildings
Land
Rigs
Other Equipment
Property taxes & other deposits
Deferred tax liabilities
Bargain purchase gain
6.
Intangible assets
Costs
Balance, January 1, 2018 & December 31, 2018
Accumulated depreciation and impairment losses
Balance, January 1, 2018
Depreciation of intangible assets
Balance, December 31, 2018
Net book value
Balance, December 31, 2018
Purchase Price Equation
$ 37,500
$ 7,432
11,467
29,580
470
54
(2,375)
(9,128)
$ 37,500
Intangible
assets
$ 1,588
1,169
305
1,474
$ 114
C&J Canada’s identifiable assets and liabilities have been measured at their fair values on the date of acquisition.
Determinations of fair value often require management to make assumptions and estimates about future events. CWC
has determined the fair value of assets acquired and liabilities assumed as of the date of acquisition. The fair value of
buildings, land and rigs were determined based on third party appraisal. Prepaid expenses and deposits and other
equipment book value was determined to be equal to the fair value. Deferred tax liabilities were determined by
applying statutory tax rate to assets acquired fair value less available tax pools.
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CWC-AR-2018-2.indd 55
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CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
8.
Income taxes
$42,913 was available for immediate borrowing and $32,087 was outstanding (December 31, 2017: $50,000). The Bank
Loan has an accordion feature which provides the Company with an ability to increase the maximum borrowings up to
$125,000, subject to the approval of the lenders. The Bank Loan is secured by a security agreement covering all of the
assets of the Company and a first charge Security Interest covering all assets of the Company (other than real estate
assets related to the Mortgage Loan). Effective December 31, 2018, the applicable rates under the Bank Loan are: bank
prime rate plus 1.00%, banker’s acceptances rate plus a stamping fee of 2.00%, and standby fee rate of 0.45%.
Under the terms of the Credit Facility, the Company is required to comply with the following financial covenants:
Actual
December 31,
2018
1.35:1.00
0.20:1.00
8.10:1.00
Consolidated Debt
Consolidated Debt
Consolidated Adjusted Cash Flow
Covenant limits
4.00:1.00 or less
0.50:1.00 or less
1.15:1.00 or more
to Consolidated Adjusted EBITDA
(3)
to Capitalization
to Consolidated Finance Obligations
(1)
(5)
(2)
(2)
(4)
(1)
Consolidated Adjusted EBITDA is calculated as net income plus finance costs, plus current and deferred income taxes, plus depreciation, plus
stock based compensation, plus any non-recurring losses or impairment losses, or permitted severance costs, minus any non-recurring gain, plus
any expenses related to corporate or business acquisitions with all amounts being for the twelve month period ended the calculation date.
Consolidated Adjusted EBITDA is adjusted to reflect the inclusion of material acquisitions or material dispositions on a pro forma basis for the
twelve month period ended the calculation date. Consolidated Adjusted EBITDA is increased if debt repayments from the proceeds of equity
issuance are used to repay the syndicated facility and designated by the Company as an Equity Cure amount.
(2)
Consolidated Debt is calculated as total loans and borrowings as shown in the schedule above adjusted to exclude the funds held in the
segregated account and to remove any financing fees included.
(3)
(4)
Capitalization is calculated as Consolidated Debt plus Shareholders’ Equity as at the calculation date.
Consolidated Adjusted Cash Flow is calculated as Consolidated Adjusted EBITDA minus amounts paid for transaction costs, dividends or share
repurchases in the twelve month period ended the calculation date. The Calculation of Adjusted Cash Flow excludes Consolidated Adjusted EBITDA
resulting from an Equity Cure.
(5)
Consolidated Finance Obligations is calculated as finance costs plus scheduled principal payments on debt including scheduled principal payments
under finance leases minus accretion of finance fees included in finance costs for the twelve month period ended the calculation date.
On December 18, 2017, the Company received gross proceeds of $26,027 from a rights offering of common shares of
which $10,000 was placed in a segregated bank account. On July 5, 2018, $5,000 was paid on the Bank Loan. Additionally
on October 5, 2018 the remaining $5,098 held in the segregated account was paid on the Bank Loan. Consolidated Debt
to Consolidated EBITDA at December 31, 2018 includes the impact of a $10,098 equity cure designated on July 5, 2018
and October 5, 2018.
Mortgage Loan is a loan maturing on June 28, 2023 that is amortized over 22 years with blended monthly principal and
interest payments of $86. At maturity, approximately $9,891 of principal will become payable assuming only regular
monthly payments are made. On July 27, 2018 the Company entered into an interest rate swap to exchange the floating
rate interest payments for fixed rate interest payments, which fix the Bankers Acceptance-Canadian Dollar Offered Rate
components of its interest payment on the outstanding term debt. Under the interest rate swap agreement, the
Company pays a fixed rate of 2.65% per annum plus the applicable credit spread of 1.35%, for an effective fixed rate of
4.0%. The fair value of the interest rate swap arrangement is the difference between the forward interest rates and the
discounted contract rate. As of December 31, 2018 the mark-to-market value of the interest rate swap resulted in a net
loss of $206 included within finance costs on the statement of net loss.
Obligations under finance leases are primarily for leased automobiles with an expected term of three years and a one
year minimum term. Interest rates on finance leases are specific to each leased asset, are fixed for the lease term and
vary between 4.5% and 6.4% per annum.
Financing fees consist of commitment fees and legal expenses relating to the Credit Facility and are being amortized
using the effective interest rate method over the term of the Credit Facility. For the year ended of December 31, 2018
financing fees of $162 were amortized and included in finance costs (December 31, 2017: $242).
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CWC-AR-2018-2.indd 56
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2019-05-03 8:47 AM
The provision for income taxes differs from that which would be expected by applying statutory rates. A reconciliation
of the difference is as follows:
2018
$ (1,852)
27%
(500)
79
-
297
(26)
$ (150)
2017
$
3,576
27%
965
36
(2,465)
235
(56)
$
(1,285)
Years ended December 31,
Income (loss) before income taxes
Combined federal and provincial income tax rate
Expected income taxes
Increase (decrease) resulting from:
Non-deductible items
Gain on acquisition
Stock based compensation
Other
The deferred income tax liability is comprised of:
Deferred tax assets
Non capital losses
Share issue costs
Finance lease liabilities
Other
Deferred tax liabilities:
Property and equipment
December
31, 2017
Recognized
in Earnings
$ 11,358
(1)
144
93
15
(27,433)
(2,460)
(111)
104
40
2,577
150
11,610
(2,427)
December
31, 2018
$ 8,898 (1)
33
197
55
9,183
(24,856)
$ (15,673)
(1)
Net deferred income tax liability
$ (15,823)
The Company has $32,949 (2017: $42,063) of non-capital loss carry forwards for income tax purposes which are available for application against
future taxable income. These non-capital loss carry forwards expire between 2029 and 2032.
All changes in deferred income tax temporary differences were recognized in income in the years ended December 31,
2018 and 2017.
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
8.
Income taxes
$42,913 was available for immediate borrowing and $32,087 was outstanding (December 31, 2017: $50,000). The Bank
Loan has an accordion feature which provides the Company with an ability to increase the maximum borrowings up to
$125,000, subject to the approval of the lenders. The Bank Loan is secured by a security agreement covering all of the
assets of the Company and a first charge Security Interest covering all assets of the Company (other than real estate
assets related to the Mortgage Loan). Effective December 31, 2018, the applicable rates under the Bank Loan are: bank
prime rate plus 1.00%, banker’s acceptances rate plus a stamping fee of 2.00%, and standby fee rate of 0.45%.
Under the terms of the Credit Facility, the Company is required to comply with the following financial covenants:
Actual
December 31,
2018
1.35:1.00
0.20:1.00
8.10:1.00
Consolidated Debt
to Consolidated Adjusted EBITDA
(3)
(2)
(2)
(1)
Consolidated Debt
to Capitalization
(4)
Consolidated Adjusted Cash Flow
to Consolidated Finance Obligations
Covenant limits
4.00:1.00 or less
0.50:1.00 or less
1.15:1.00 or more
(5)
(1)
(2)
(3)
(4)
Consolidated Adjusted EBITDA is calculated as net income plus finance costs, plus current and deferred income taxes, plus depreciation, plus
stock based compensation, plus any non-recurring losses or impairment losses, or permitted severance costs, minus any non-recurring gain, plus
any expenses related to corporate or business acquisitions with all amounts being for the twelve month period ended the calculation date.
Consolidated Adjusted EBITDA is adjusted to reflect the inclusion of material acquisitions or material dispositions on a pro forma basis for the
twelve month period ended the calculation date. Consolidated Adjusted EBITDA is increased if debt repayments from the proceeds of equity
issuance are used to repay the syndicated facility and designated by the Company as an Equity Cure amount.
Consolidated Debt is calculated as total loans and borrowings as shown in the schedule above adjusted to exclude the funds held in the
segregated account and to remove any financing fees included.
Capitalization is calculated as Consolidated Debt plus Shareholders’ Equity as at the calculation date.
Consolidated Adjusted Cash Flow is calculated as Consolidated Adjusted EBITDA minus amounts paid for transaction costs, dividends or share
repurchases in the twelve month period ended the calculation date. The Calculation of Adjusted Cash Flow excludes Consolidated Adjusted EBITDA
resulting from an Equity Cure.
(5)
Consolidated Finance Obligations is calculated as finance costs plus scheduled principal payments on debt including scheduled principal payments
under finance leases minus accretion of finance fees included in finance costs for the twelve month period ended the calculation date.
On December 18, 2017, the Company received gross proceeds of $26,027 from a rights offering of common shares of
which $10,000 was placed in a segregated bank account. On July 5, 2018, $5,000 was paid on the Bank Loan. Additionally
on October 5, 2018 the remaining $5,098 held in the segregated account was paid on the Bank Loan. Consolidated Debt
to Consolidated EBITDA at December 31, 2018 includes the impact of a $10,098 equity cure designated on July 5, 2018
and October 5, 2018.
Mortgage Loan is a loan maturing on June 28, 2023 that is amortized over 22 years with blended monthly principal and
interest payments of $86. At maturity, approximately $9,891 of principal will become payable assuming only regular
monthly payments are made. On July 27, 2018 the Company entered into an interest rate swap to exchange the floating
rate interest payments for fixed rate interest payments, which fix the Bankers Acceptance-Canadian Dollar Offered Rate
components of its interest payment on the outstanding term debt. Under the interest rate swap agreement, the
Company pays a fixed rate of 2.65% per annum plus the applicable credit spread of 1.35%, for an effective fixed rate of
4.0%. The fair value of the interest rate swap arrangement is the difference between the forward interest rates and the
discounted contract rate. As of December 31, 2018 the mark-to-market value of the interest rate swap resulted in a net
loss of $206 included within finance costs on the statement of net loss.
Obligations under finance leases are primarily for leased automobiles with an expected term of three years and a one
year minimum term. Interest rates on finance leases are specific to each leased asset, are fixed for the lease term and
vary between 4.5% and 6.4% per annum.
Financing fees consist of commitment fees and legal expenses relating to the Credit Facility and are being amortized
using the effective interest rate method over the term of the Credit Facility. For the year ended of December 31, 2018
financing fees of $162 were amortized and included in finance costs (December 31, 2017: $242).
The provision for income taxes differs from that which would be expected by applying statutory rates. A reconciliation
of the difference is as follows:
Years ended December 31,
Income (loss) before income taxes
Combined federal and provincial income tax rate
Expected income taxes
Increase (decrease) resulting from:
Non-deductible items
Gain on acquisition
Stock based compensation
Other
The deferred income tax liability is comprised of:
Deferred tax assets
Non capital losses
Share issue costs
Finance lease liabilities
Other
Deferred tax liabilities:
Property and equipment
December
31, 2017
Recognized
in Earnings
(1)
$ 11,358
144
93
15
11,610
(2,460)
(111)
104
40
(2,427)
(27,433)
$ (15,823)
2,577
150
2018
$ (1,852)
27%
(500)
79
-
297
(26)
$ (150)
December
31, 2018
$ 8,898 (1)
33
197
55
9,183
(24,856)
$ (15,673)
2017
$
3,576
27%
965
36
(2,465)
235
(56)
(1,285)
$
(1)
Net deferred income tax liability
The Company has $32,949 (2017: $42,063) of non-capital loss carry forwards for income tax purposes which are available for application against
future taxable income. These non-capital loss carry forwards expire between 2029 and 2032.
All changes in deferred income tax temporary differences were recognized in income in the years ended December 31,
2018 and 2017.
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2019-05-03 8:48 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
9.
Share capital
(a)
Authorized
Unlimited number of Common voting shares without par value.
Unlimited number of Preferred shares without par value.
(b)
Rights offering
On December 13, 2017, CWC closed a rights offering for aggregate gross proceeds of $26,027 ($25,936 after
deductions of $125 in share issue costs plus deferred taxes of $34). Under the fully subscribed offering, 130,148,781
common shares were issued to shareholders who exercised their rights. Each eligible shareholder received one
right for every three common shares held and each right was exercisable for one common share at a price of $0.20
per share.
(c)
Normal course issuer bid
On April 10, 2018, the Company replaced its expired Normal Course Issuer Bid (NCIB) with a new NCIB which now
expires on April 9, 2019. Under the new NCIB the Company may purchase, from time to time as it considers
advisable, up to 26,057,889 of issued and outstanding common shares through the facilities of the TSXV or other
recognized marketplaces.
In addition, CWC entered into an automatic securities purchase plan (the “ASPP”) (as defined under applicable
securities laws) with Raymond James Ltd. ("Raymond James") for the purpose of making purchases under the
ASPP. Such purchases will be determined by Raymond James in its sole discretion, without consultation with CWC
having regard to the price limitation and aggregate purchase limitation and other terms of the ASPP and the rules
of the TSXV. Conducting the NCIB as an ASPP allows common shares to be purchased at times when CWC would
otherwise be prohibited from doing so pursuant to securities laws and its internal trading policies.
For the year ended December 31, 2018, 11,421,000 shares (2017: 3,493,500) for consideration of $1,836, including
commissions (2017: $756) were purchased under the NCIB. In the year ended December 31, 2018, a total of
11,421,000 shares were cancelled and returned to treasury (2017: 3,493,500).
(d)
Stock options
The Company has a stock option plan which allows the Company to issue options to purchase common shares at
prevailing market prices on the date of the option grant. The aggregate number of stock options and RSUs
outstanding is limited to a maximum of ten percent of the outstanding common shares. The Company has granted
stock options to directors, officers and key employees. Stock options vest annually over three years from the date
of grant as employees or directors render continuous service to the Corporation and have a maximum term of five
years. The Company may choose to settle stock options for the intrinsic value of the stock option on the exercise
date, but the Company has no current intention or obligation to do so.
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The following table summarizes changes in the number of stock options outstanding:
Balance at January 1, 2017
Exercised for common shares
Granted
Forfeited
Granted
Forfeited
Balance at December 31, 2017
Exercised for common shares
Balance at December 31, 2018
Number of
options
Weighted
average exercise
price
21,791,000
8,307,000
(983,333)
(1,568,000)
-
27,546,667
(1,033,335)
(2,161,999)
24,351,333
0.28
0.20
0.13
0.43
-
0.25
0.14
0.31
0.25
$ 0.20
$ 0.19
$0.175
$ 0.11
$ 0.45
$1.04
$0.25
n/a
n/a
n/a
n/a
n/a
2,643,000
3,092,656
2,933,350
4,350,000
1,200,000
1,700,000
15,919,006
2017
1.6%
4.7
75%
12%
0.00
$
The following table summarizes information about stock options outstanding as at December 31, 2018:
remaining life (years)
Exercise price
average
options
options
Number of
Weighted average
Weighted
Number of
outstanding
contractual
exercise price
exercisable
$ 0.20
$ 0.19
$ 0.175
$0.11
$0.45
$ 1.04
7,929,000
4,639,000
4,533,333
4,350,000
1,200,000
1,700,000
$ 0.11 - $ 1.04
24,351,333
3.96
2.94
2.20
1.94
0.98
0.37
2.74
The fair value of stock options is estimated as at the grant date using the Black-Scholes option pricing model, with the
2018
following weighted average assumptions used for stock options issued during the years ended December 31:
Risk free interest rate (%)
Expected life (years)
Expected volatility (%)
Expected forfeiture rate (%)
Expected dividend per share
No stock options were issued during the year ended December 31, 2018. The weighted average fair value of the stock
options issued during the year ended December 31, 2017 was $0.20. For the year ended December 31, 2018, stock-
based compensation expense relating to stock options totaled $732 (year ended December 31, 2017: $592).
(e)
Restricted share unit plan
The Company has a restricted share unit plan which allows CWC to issue RSUs which are redeemable for common shares
at future vesting dates. The aggregate number of RSUs and stock options outstanding is limited to a maximum of ten
percent of the outstanding common shares. The Corporation has granted RSUs to officers and key employees. RSUs vest
annually over three years from the date of grant as employees or directors render continuous service to the Company
and have a maximum term of the end of the third year following their grant date. The Company may choose to settle
RSUs for the intrinsic value of the RSUs on the settlement date, but the Company has no current intention or obligation
to do so.
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2019-05-03 8:48 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
9.
Share capital
(a)
Authorized
Unlimited number of Common voting shares without par value.
Unlimited number of Preferred shares without par value.
(b)
Rights offering
On December 13, 2017, CWC closed a rights offering for aggregate gross proceeds of $26,027 ($25,936 after
deductions of $125 in share issue costs plus deferred taxes of $34). Under the fully subscribed offering, 130,148,781
common shares were issued to shareholders who exercised their rights. Each eligible shareholder received one
right for every three common shares held and each right was exercisable for one common share at a price of $0.20
per share.
(c)
Normal course issuer bid
On April 10, 2018, the Company replaced its expired Normal Course Issuer Bid (NCIB) with a new NCIB which now
expires on April 9, 2019. Under the new NCIB the Company may purchase, from time to time as it considers
advisable, up to 26,057,889 of issued and outstanding common shares through the facilities of the TSXV or other
recognized marketplaces.
In addition, CWC entered into an automatic securities purchase plan (the “ASPP”) (as defined under applicable
securities laws) with Raymond James Ltd. ("Raymond James") for the purpose of making purchases under the
ASPP. Such purchases will be determined by Raymond James in its sole discretion, without consultation with CWC
having regard to the price limitation and aggregate purchase limitation and other terms of the ASPP and the rules
of the TSXV. Conducting the NCIB as an ASPP allows common shares to be purchased at times when CWC would
otherwise be prohibited from doing so pursuant to securities laws and its internal trading policies.
For the year ended December 31, 2018, 11,421,000 shares (2017: 3,493,500) for consideration of $1,836, including
commissions (2017: $756) were purchased under the NCIB. In the year ended December 31, 2018, a total of
11,421,000 shares were cancelled and returned to treasury (2017: 3,493,500).
(d)
Stock options
The Company has a stock option plan which allows the Company to issue options to purchase common shares at
prevailing market prices on the date of the option grant. The aggregate number of stock options and RSUs
outstanding is limited to a maximum of ten percent of the outstanding common shares. The Company has granted
stock options to directors, officers and key employees. Stock options vest annually over three years from the date
of grant as employees or directors render continuous service to the Corporation and have a maximum term of five
years. The Company may choose to settle stock options for the intrinsic value of the stock option on the exercise
date, but the Company has no current intention or obligation to do so.
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The following table summarizes changes in the number of stock options outstanding:
Number of
options
Weighted
average exercise
price
Balance at January 1, 2017
Granted
Exercised for common shares
Forfeited
Granted
Balance at December 31, 2017
Exercised for common shares
Forfeited
Balance at December 31, 2018
21,791,000
8,307,000
(983,333)
(1,568,000)
-
27,546,667
(1,033,335)
(2,161,999)
24,351,333
0.28
0.20
0.13
0.43
-
0.25
0.14
0.31
0.25
The following table summarizes information about stock options outstanding as at December 31, 2018:
Exercise price
Number of
options
outstanding
7,929,000
4,639,000
4,533,333
4,350,000
1,200,000
1,700,000
24,351,333
Weighted average
remaining life (years)
contractual
3.96
2.94
2.20
1.94
0.98
0.37
2.74
Weighted
average
exercise price
$ 0.20
$ 0.19
$0.175
$ 0.11
$ 0.45
$1.04
$0.25
Number of
options
exercisable
2,643,000
3,092,656
2,933,350
4,350,000
1,200,000
1,700,000
15,919,006
$ 0.20
$ 0.19
$ 0.175
$0.11
$0.45
$ 1.04
$ 0.11 - $ 1.04
The fair value of stock options is estimated as at the grant date using the Black-Scholes option pricing model, with the
following weighted average assumptions used for stock options issued during the years ended December 31:
2018
Risk free interest rate (%)
Expected life (years)
Expected volatility (%)
Expected forfeiture rate (%)
Expected dividend per share
n/a
n/a
n/a
n/a
n/a
2017
1.6%
4.7
75%
12%
0.00
$
No stock options were issued during the year ended December 31, 2018. The weighted average fair value of the stock
options issued during the year ended December 31, 2017 was $0.20. For the year ended December 31, 2018, stock-
based compensation expense relating to stock options totaled $732 (year ended December 31, 2017: $592).
Restricted share unit plan
(e)
The Company has a restricted share unit plan which allows CWC to issue RSUs which are redeemable for common shares
at future vesting dates. The aggregate number of RSUs and stock options outstanding is limited to a maximum of ten
percent of the outstanding common shares. The Corporation has granted RSUs to officers and key employees. RSUs vest
annually over three years from the date of grant as employees or directors render continuous service to the Company
and have a maximum term of the end of the third year following their grant date. The Company may choose to settle
RSUs for the intrinsic value of the RSUs on the settlement date, but the Company has no current intention or obligation
to do so.
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CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
10.
Supplemental cash flow information
For the years ended December 31,
Change in non-cash working capital items:
Accounts receivable
Prepaid expenses and deposits
Accounts payable and accrued liabilities
11.
Operating segments
$ 6,540
2017
2018
(1,275)
(4,337)
$ 928
$ (14,784)
(313)
4,843
$ (10,254)
The Company operates in the western Canadian oilfield service industry through its Contract Drilling and Production
Services segments. The Contract Drilling segment provides drilling rigs and related ancillary equipment to oil and gas
exploration and production companies. The Production Services segment provides well services to oil and gas
exploration and production companies through the use of service rigs, swabbing rigs and coil tubing units.
Management uses net income before depreciation and income taxes (“segment profit”) in management reports
reviewed by key management personnel and the board of directors to measure performance at a segment basis.
Segment profit is used to measure performance as management believes this is the most relevant measure in evaluating
the results of our segments relative to each other and other entities that operate within the respective industries.
The Corporate segment captures general and administrative expenses associated with supporting each of the reporting
segments operations, plus costs associated with being a public company. Also included in the Corporate segment is
interest expense for debt servicing, income tax expense and other amounts not directly related to the two primary
segments.
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The following table summarizes changes in the number of Restricted Share Units (“RSUs”) outstanding:
Balance at January 1, 2017
Granted
Redeemed for common shares
Forfeited – unvested
Balance at December 31, 2017
Granted
Redeemed for common shares
Forfeited - unvested
Balance at December 31, 2018
Number of RSUs
4,473,000
2,682,000
(1,819,668)
(200,000)
2,715,000
5,135,332
(1,517,998)
(422,333)
5,910,001
Weighted
average fair
value at issue
date
0.19
0.20
0.24
0.21
0.14
0.19
0.18
0.17
0.17
The following table summarizes information about RSUs outstanding as at December 31, 2018:
$0.14 -$0.23
Issue date fair value
Number of RSUs
5,910,001
outstanding
Weighted average
remaining life (years)
2.95
contractual
Weighted
average exercise
n/a
price ($)
Number of RSUs
959,999
exercisable
For the year ended December 31, 2018, stock based compensation expense relating to RSUs totaled $370 (year ended
December 31, 2017: $274).
Weighted average common shares outstanding
(f)
Year ended December 31,
The following table reconciles the common shares used in computing per share amounts for the periods noted:
2018
Weighted average common shares outstanding – basic
Dilutive stock options & RSUs
Weighted average common shares outstanding – diluted
520,576,582
-
520,576,582
2017
399,008,915
4,350,622
403,359,537
Outstanding stock options and RSUs are currently the only instruments which could potentially dilute earnings per
share. For the year ended December 31, 2018, 24,351,333 (year ended December 31, 2017: 27,546,667) stock options
and 5,910,001 (year ended December 31, 2017: 5,135,332) RSUs were not included in the computation of net (loss)
income per common share because to do so would be anti-dilutive.
Contributed surplus
(g)
Contributed surplus comprises amounts paid in by equity holders. Contributed surplus in the form of surplus paid in by
equity holders includes premiums on shares issued, any portion of the proceeds of issue of shares without par value
not allocated to share capital, gain on forfeited shares, proceeds arising from shares donated by equity holders, credits
resulting from redemption or conversion of shares at less than the amount set up as share capital, and any other
contribution by equity holders in excess of amounts allocated to share capital. Contributed surplus also includes
increases and decreases in equity as a result of share based payments under the Company’s stock option and RSU plans.
Page | 58
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CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
10.
Supplemental cash flow information
For the years ended December 31,
Change in non-cash working capital items:
Accounts receivable
Prepaid expenses and deposits
Accounts payable and accrued liabilities
11.
Operating segments
2018
$ 6,540
(1,275)
(4,337)
$ 928
2017
$ (14,784)
(313)
4,843
$ (10,254)
The Company operates in the western Canadian oilfield service industry through its Contract Drilling and Production
Services segments. The Contract Drilling segment provides drilling rigs and related ancillary equipment to oil and gas
exploration and production companies. The Production Services segment provides well services to oil and gas
exploration and production companies through the use of service rigs, swabbing rigs and coil tubing units.
Management uses net income before depreciation and income taxes (“segment profit”) in management reports
reviewed by key management personnel and the board of directors to measure performance at a segment basis.
Segment profit is used to measure performance as management believes this is the most relevant measure in evaluating
the results of our segments relative to each other and other entities that operate within the respective industries.
The Corporate segment captures general and administrative expenses associated with supporting each of the reporting
segments operations, plus costs associated with being a public company. Also included in the Corporate segment is
interest expense for debt servicing, income tax expense and other amounts not directly related to the two primary
segments.
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The following table summarizes changes in the number of Restricted Share Units (“RSUs”) outstanding:
Balance at January 1, 2017
Granted
Redeemed for common shares
Forfeited – unvested
Balance at December 31, 2017
Granted
Redeemed for common shares
Forfeited - unvested
Balance at December 31, 2018
Weighted
average fair
value at issue
Number of RSUs
date
4,473,000
2,682,000
(1,819,668)
(200,000)
2,715,000
(1,517,998)
5,135,332
(422,333)
5,910,001
0.19
0.20
0.24
0.21
0.14
0.19
0.18
0.17
0.17
The following table summarizes information about RSUs outstanding as at December 31, 2018:
Weighted average
Weighted
$0.14 -$0.23
Issue date fair value
Number of RSUs
5,910,001
outstanding
remaining life (years)
2.95
average exercise
n/a
Number of RSUs
959,999
contractual
price ($)
exercisable
For the year ended December 31, 2018, stock based compensation expense relating to RSUs totaled $370 (year ended
December 31, 2017: $274).
(f)
Weighted average common shares outstanding
Year ended December 31,
The following table reconciles the common shares used in computing per share amounts for the periods noted:
2018
520,576,582
-
520,576,582
2017
399,008,915
4,350,622
403,359,537
Weighted average common shares outstanding – basic
Dilutive stock options & RSUs
Weighted average common shares outstanding – diluted
Outstanding stock options and RSUs are currently the only instruments which could potentially dilute earnings per
share. For the year ended December 31, 2018, 24,351,333 (year ended December 31, 2017: 27,546,667) stock options
and 5,910,001 (year ended December 31, 2017: 5,135,332) RSUs were not included in the computation of net (loss)
income per common share because to do so would be anti-dilutive.
(g)
Contributed surplus
Contributed surplus comprises amounts paid in by equity holders. Contributed surplus in the form of surplus paid in by
equity holders includes premiums on shares issued, any portion of the proceeds of issue of shares without par value
not allocated to share capital, gain on forfeited shares, proceeds arising from shares donated by equity holders, credits
resulting from redemption or conversion of shares at less than the amount set up as share capital, and any other
contribution by equity holders in excess of amounts allocated to share capital. Contributed surplus also includes
increases and decreases in equity as a result of share based payments under the Company’s stock option and RSU plans.
Page | 58
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CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
12.
Expenses by nature
The amounts related to each industry segment are as follows:
For the year ended December 31, 2018
Contract
Drilling
$ 38,223
Production
Services
$ 106,539
Corporate
$ -
Total
$ 144,762
Selling and
Loss on
Direct operating
administrative
Stock based
Depreciation
disposal of
expenses
expenses
compensation Finance costs
expense
equipment
Total
$ 71,451 $ 11,052 $ 1,102 $ - $ - $ -
$ 83,605
Revenue
Direct operating expenses
Selling and administrative expenses
Stock based compensation
Finance costs
Loss on disposal of equipment
Net income before (loss) depreciation and
taxes
Depreciation
Net income (loss) before tax
Deferred income tax recovery
Net income (loss)
27,691
1,300
-
-
-
80,293
10,696
-
-
42
-
6,293
1,102
2,756
-
107,984
18,289
1,102
2,756
42
9,232
6,034
3,198
-
$ 3,198
15,508
9,523
5,985
-
$ 5,985
(10,151)
884
(11,035)
(150)
$ (10,885)
14,589
16,441
(1,852)
(150)
$ (1,702)
Capital expenditures
7,116
4,609
28
11,753
As at December 31, 2018
Property and equipment
Intangibles
93,250
114
132,279
-
129
-
225,658
114
For the year ended December 31, 2017
Contract
Drilling
Production
Services
Corporate
Total
Revenue
$
35,222
$
76,993
$
-
$ 112,215
Direct operating expenses
Selling and administrative expenses
Transaction costs
Stock based compensation
Finance costs
Gain on acquisition
Loss (gain) on disposal of equipment
Net income before depreciation and taxes
Depreciation
Net income (loss) before tax
Deferred income tax recovery
Net income
24,690
941
-
-
-
-
48
9,543
6,215
3,328
-
$ 3,328
57,671
8,249
-
-
-
-
(8)
11,081
10,730
351
-
$ 351
-
4,601
1,549
869
2,054
(9,128)
-
55
158
(103)
(1,285)
$ 1,182
82,361
13,791
1,549
869
2,054
(9,128)
40
20,679
17,103
3,576
(1,285)
$ 4,861
Capital expenditures
As at December 31, 2017
3,964
52,062
9
56,035
Property and equipment
Intangibles
91,860
419
140,153
-
177
-
232,190
419
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CWC-AR-2018-2.indd 62
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2019-05-03 8:48 AM
For the year ended
December 31, 2018
Personnel expenses
Third party charges
Repairs and
maintenance
Other selling and
administrative
expenses
Bad debt expense
Facility expenses
Depreciation expense
Finance costs
Loss on disposal of
equipment
Total
For the year ended
December 31, 2017
Personnel expenses
Third party charges
Repairs and
maintenance
Other selling and
administrative
expenses
Transaction costs
Bad debt expense
Facility expenses
Depreciation expense
Finance costs
Loss on disposal of
equipment
Total
16,410
20,123
-
-
-
-
-
-
-
-
-
-
-
-
-
14,196
11,688
-
-
-
-
-
4,221
694
2,322
-
-
9
-
-
-
3,621
1,549
1,974
16,441
2,756
$ 107,984
$ 18,289
$ 1,102 $ 2,756 $ 16,441 $ 42
$146,614
42
42
Selling and
administrative
expenses &
transaction
Direct
operating
expenses
Stock based
Depreciation
disposal of
costs
compensation
Finance costs
expense
equipment
Total
Loss on
$ 56,477 $
8,187
$
869 $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,410
20,123
4,221
694
2,322
16,441
2,756
$ 65,533
14,196
11,688
3,621
1,549
9
1,974
17,103
2,054
17,103
2,054
$ 82,361 $
15,340
$
869 $
2,054 $ 17,103 $
40
40
40
$ 117,767
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
12.
Expenses by nature
The amounts related to each industry segment are as follows:
For the year ended December 31, 2018
Contract
Drilling
Production
Services
Corporate
Total
Revenue
$ 38,223
$ 106,539
$ -
$ 144,762
Direct operating expenses
Selling and administrative expenses
Stock based compensation
Finance costs
Loss on disposal of equipment
Net income before (loss) depreciation and
taxes
Depreciation
Net income (loss) before tax
Deferred income tax recovery
Net income (loss)
27,691
1,300
-
-
-
-
9,232
6,034
3,198
80,293
10,696
-
-
42
15,508
9,523
5,985
-
6,293
1,102
2,756
-
-
(10,151)
884
(11,035)
(150)
107,984
18,289
1,102
2,756
42
14,589
16,441
(1,852)
(150)
$ 3,198
$ 5,985
$ (10,885)
$ (1,702)
Capital expenditures
7,116
4,609
28
11,753
As at December 31, 2018
Property and equipment
Intangibles
93,250
114
132,279
-
129
-
225,658
114
For the year ended December 31, 2017
Contract
Drilling
Production
Services
Corporate
Total
Revenue
$
35,222
$
76,993
$
$ 112,215
Direct operating expenses
Selling and administrative expenses
Transaction costs
Stock based compensation
Finance costs
Gain on acquisition
Loss (gain) on disposal of equipment
Net income before depreciation and taxes
Depreciation
Net income (loss) before tax
Deferred income tax recovery
Net income
Capital expenditures
As at December 31, 2017
24,690
941
-
-
-
-
48
9,543
6,215
3,328
-
57,671
8,249
-
-
-
-
(8)
11,081
10,730
351
-
-
-
4,601
1,549
869
2,054
(9,128)
-
55
158
(103)
(1,285)
82,361
13,791
1,549
869
2,054
(9,128)
40
20,679
17,103
3,576
(1,285)
$ 3,328
$ 351
$ 1,182
$ 4,861
3,964
52,062
9
56,035
Property and equipment
Intangibles
91,860
419
140,153
-
177
-
232,190
419
For the year ended
December 31, 2018
Personnel expenses
Third party charges
Repairs and
maintenance
Other selling and
administrative
expenses
Bad debt expense
Facility expenses
Depreciation expense
Finance costs
Loss on disposal of
equipment
Total
For the year ended
December 31, 2017
Personnel expenses
Third party charges
Repairs and
maintenance
Other selling and
administrative
expenses
Transaction costs
Bad debt expense
Facility expenses
Depreciation expense
Finance costs
Loss on disposal of
equipment
Total
Direct operating
expenses
Selling and
administrative
expenses
Loss on
disposal of
Stock based
equipment
compensation Finance costs
$ 71,451 $ 11,052 $ 1,102 $ - $ - $ -
-
-
Depreciation
expense
16,410
-
-
-
Total
$ 83,605
16,410
20,123
-
-
-
-
-
-
4,221
694
2,322
-
-
-
$ 107,984
-
$ 18,289
Selling and
administrative
expenses &
transaction
costs
Direct
operating
expenses
11,688
-
3,621
1,549
9
1,974
-
-
-
-
-
-
-
-
-
$ 82,361 $
-
-
-
-
-
-
-
-
-
-
-
-
2,756
-
-
-
16,441
-
-
-
-
-
-
-
20,123
4,221
694
2,322
16,441
2,756
42
-
$ 1,102 $ 2,756 $ 16,441 $ 42
-
-
Stock based
compensation
Finance costs
Depreciation
expense
Loss on
disposal of
equipment
- $
-
-
- $
-
-
-
-
-
-
-
2,054
-
-
-
-
17,103
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
42
$146,614
Total
$ 65,533
14,196
11,688
3,621
1,549
9
1,974
17,103
2,054
-
15,340
$
-
869 $
-
-
2,054 $ 17,103 $
40
40
40
$ 117,767
$ 56,477 $
14,196
8,187
-
$
869 $
-
Page | 60
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CWC-AR-2018-2.indd 63
2019-05-03 8:48 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
13.
Commitments and contingencies:
15.
Financial risk management
As at December 31, 2018, the Company has lease commitments and other contractual obligations as follows:
Next 12
months
$ -
582
346
698
Between 1
and 3 years
Payments due by period
Between 4
and 5 years
Greater than
5 years
$ 32,087 $ - $ -
-
-
-
10,181
-
-
1,746
381
149
Total
$ 32,087
12,509
727
847
$ 1,626
$ 34,363
$ 10,181 $ -
$ 46,170
Contractual obligations:
Bank Loan
Mortgage Loan
Finance lease liabilities
Operating lease payments
Total contractual
obligations
Operating leases relate primarily to buildings and lands leased for use in day-to-day operating activities. In the normal
course of business the Company makes short term commitments for the purchase and delivery of new items of property
and equipment.
The Company is a party to legal proceedings and claims that arise during the ordinary course of business. It is the
opinion of the Company that the ultimate outcome of these matters will not have a material effect upon the Company’s
financial position, results of operations, or cash flows.
Related parties
14.
Of the total outstanding shares of the Company, 79.3% are directly or indirectly owned by Brookfield Capital Partners
Ltd and Brookfield Business Partners LP (together “Brookfield”). The Company is related to Brookfield by virtue of
control, and is therefore also related to Brookfield’s affiliates. During 2018, the Company had revenue totaling $1,587
(2017: $1,101) $231 in accounts receivable as at December 31, 2018 (December 31, 2017: $14) in the normal course of
business with companies under common control. The terms and conditions of these transactions were no more
favorable than those available, or which might reasonably be expected to be available, in similar transactions with non-
related companies on an arm's length basis.
Key management personnel include the Company’s directors and officers. The following table summarizes
compensation provided to key management personnel for the years ended:
Short term employee benefits (including directors’ fees)
Share based payments (stock options and RSUs)
Termination benefits
Total compensation to key management including directors and officers
December 31,
2018
$ 1,837
201
-
$ 2,038
December 31,
2017
$
1,268
718
200
2,186
$
Certain executive officers are subject to a mutual term of notice of three months. On resignation at the Company’s
request, they are entitled to termination benefits of 18 to 24 months gross salary, bonus and benefits.
The Board of Directors of the Company has a Compensation and Corporate Governance Committee which recommends
compensation for directors and key executives of the Company for review and approval by the Board of Directors.
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The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework. The Company’s audit committee is also responsible for developing and monitoring the
Company’s risk management policies. The committee reports regularly to the Board of Directors on its activities.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company,
through its policies and procedures and training, aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations.
The Company has exposure to credit risk, liquidity risk and market risk as follows:
a)
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Company’s receivables from customers. The carrying
amount of accounts receivable and cash, prior to the amount offset against long-term debt, represents the maximum
exposure to credit risk as at December 31, 2018 and 2017.
Accounts receivable include balances from a large number of customers primarily operating in the oil and gas industry.
The Company assesses the credit worthiness of its customers on an ongoing basis as well as monitoring the amount and
age of balances outstanding.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer, however,
management also considers the demographics of the Company’s customer base. Currently, all of the Company’s sales
are concentrated within the Western Canadian Sedimentary Basin (“WCSB”). For the year ended December 31, 2018,
ten customers comprised 57% of revenue (2017: 62%) and one customer comprised 18% of revenue (2017: 21%). At
December 31, 2018, ten customers comprised 64% of trade accounts receivable (2017: 62%) and one customer
comprised 14% of trade accounts receivable (2017: 23%).
The Company has a credit policy under which each new customer is analyzed individually for creditworthiness before
the Company begins to provide services to the customer and prior to offering standard payment terms and conditions.
The Company’s review includes external ratings, when available, as well as contacting credit references and evaluating
banking information provided by the customer. Customers that fail to meet the Company’s benchmark creditworthiness
may be required to provide a cash deposit for part or all of the anticipated job cost until they have sufficient payment
history with the Company. Under some circumstances the Company may lien a customer’s location where the services
The following table details the age of the outstanding trade accounts receivable and the related allowance for
were provided.
impairment of accounts:
As at December 31,
Trade accounts receivable:
1 to 30 days outstanding – not past due
31 to 90 days outstanding
>90 days overdue
Allowance for impairment of accounts
$ 20,739
2017
2018
2,216
1,396
(772)
$ 23,579
$ 16,081
13,723
441
(126)
$
30,119
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
13.
Commitments and contingencies:
15.
Financial risk management
As at December 31, 2018, the Company has lease commitments and other contractual obligations as follows:
Payments due by period
Next 12
months
Between 1
and 3 years
Between 4
and 5 years
Greater than
5 years
Total
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework. The Company’s audit committee is also responsible for developing and monitoring the
Company’s risk management policies. The committee reports regularly to the Board of Directors on its activities.
Contractual obligations:
Bank Loan
Mortgage Loan
Finance lease liabilities
Operating lease payments
Total contractual
obligations
$ -
$ 32,087 $ - $ -
$ 32,087
582
346
698
1,746
381
149
10,181
-
-
-
-
-
12,509
727
847
$ 1,626
$ 34,363
$ 10,181 $ -
$ 46,170
Operating leases relate primarily to buildings and lands leased for use in day-to-day operating activities. In the normal
course of business the Company makes short term commitments for the purchase and delivery of new items of property
and equipment.
The Company is a party to legal proceedings and claims that arise during the ordinary course of business. It is the
opinion of the Company that the ultimate outcome of these matters will not have a material effect upon the Company’s
14.
financial position, results of operations, or cash flows.
Related parties
Of the total outstanding shares of the Company, 79.3% are directly or indirectly owned by Brookfield Capital Partners
Ltd and Brookfield Business Partners LP (together “Brookfield”). The Company is related to Brookfield by virtue of
control, and is therefore also related to Brookfield’s affiliates. During 2018, the Company had revenue totaling $1,587
(2017: $1,101) $231 in accounts receivable as at December 31, 2018 (December 31, 2017: $14) in the normal course of
business with companies under common control. The terms and conditions of these transactions were no more
favorable than those available, or which might reasonably be expected to be available, in similar transactions with non-
related companies on an arm's length basis.
Key management personnel include the Company’s directors and officers. The following table summarizes
December 31,
compensation provided to key management personnel for the years ended:
Short term employee benefits (including directors’ fees)
Share based payments (stock options and RSUs)
Termination benefits
Total compensation to key management including directors and officers
2018
$ 1,837
December 31,
201
-
$ 2,038
2017
$
$
1,268
718
200
2,186
Certain executive officers are subject to a mutual term of notice of three months. On resignation at the Company’s
request, they are entitled to termination benefits of 18 to 24 months gross salary, bonus and benefits.
The Board of Directors of the Company has a Compensation and Corporate Governance Committee which recommends
compensation for directors and key executives of the Company for review and approval by the Board of Directors.
The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company,
through its policies and procedures and training, aims to develop a disciplined and constructive control environment
in which all employees understand their roles and obligations.
The Company has exposure to credit risk, liquidity risk and market risk as follows:
Credit risk
a)
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from the Company’s receivables from customers. The carrying
amount of accounts receivable and cash, prior to the amount offset against long-term debt, represents the maximum
exposure to credit risk as at December 31, 2018 and 2017.
Accounts receivable include balances from a large number of customers primarily operating in the oil and gas industry.
The Company assesses the credit worthiness of its customers on an ongoing basis as well as monitoring the amount and
age of balances outstanding.
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer, however,
management also considers the demographics of the Company’s customer base. Currently, all of the Company’s sales
are concentrated within the Western Canadian Sedimentary Basin (“WCSB”). For the year ended December 31, 2018,
ten customers comprised 57% of revenue (2017: 62%) and one customer comprised 18% of revenue (2017: 21%). At
December 31, 2018, ten customers comprised 64% of trade accounts receivable (2017: 62%) and one customer
comprised 14% of trade accounts receivable (2017: 23%).
The Company has a credit policy under which each new customer is analyzed individually for creditworthiness before
the Company begins to provide services to the customer and prior to offering standard payment terms and conditions.
The Company’s review includes external ratings, when available, as well as contacting credit references and evaluating
banking information provided by the customer. Customers that fail to meet the Company’s benchmark creditworthiness
may be required to provide a cash deposit for part or all of the anticipated job cost until they have sufficient payment
history with the Company. Under some circumstances the Company may lien a customer’s location where the services
were provided.
The following table details the age of the outstanding trade accounts receivable and the related allowance for
impairment of accounts:
As at December 31,
2018
Trade accounts receivable:
1 to 30 days outstanding – not past due
31 to 90 days outstanding
>90 days overdue
Allowance for impairment of accounts
$ 20,739
2,216
1,396
(772)
$ 23,579
2017
$ 16,081
13,723
441
(126)
30,119
$
Page | 62
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CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The change in the allowance for impairment in respect of trade accounts receivable for the years ended December 31
is as follows:
Balance as at January 1
Additional allowance
Amounts recovered
Amounts used
Balance as at December 31
2018
$ 126
671
(25)
-
$ 772
2017
$
$
76
89
(13)
(26)
126
For accounts receivable, the Company applies a simplified approach and recognizes lifetime expected credit losses upon
initial recognition of the receivables. Historical customer default rates, age of balances outstanding, and forward-
looking information are used to determine the expected credit losses. When an expected credit loss is required to be
recognized, the carrying amount of the asset is reduced by the amount with an offsetting entry to net income.
Liquidity risk
b)
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Company’s reputation.
At December 31, 2018, the Company has available committed amounts under its Credit Facility in the amount of $42,913
(2017: $37,321), segregated cash of nil (2017: $10,000), plus trade and other receivables of $23,579 (2017: $30,119)
for a total of $65,772 (2017: $77,440) available to fund the cash outflows related to its financial liabilities.
The Company anticipates that its existing capital resources including its Credit Facility and cash flows from operations
will be adequate to satisfy its liquidity requirements through fiscal 2019. This expectation could be adversely affected
by a material negative change in the oilfield service industry, which in turn could lead to covenant breaches on the
Company's Credit Facility, which, if not amended or waived, could limit the Company's access to the credit facility. If
available liquidity is not sufficient to meet CWC's operating and debt servicing obligations as they come due,
management's plans include further expenditure reductions, pursuing alternative financing arrangements, asset
dispositions, or pursuing other corporate strategic alternatives.
The following table summarizes contractual maturities for non-derivative financial instruments:
Year ended December 31, 2018
2020
2021
2019
2022
2023 and
beyond
Accounts payable and accrued
liabilities
Long-term debt
Year ended December 31, 2017
Accounts payable and accrued
liabilities
Long-term debt
$ 7,865
928
$ 8,793
$ -
32,541
$ 32,541
$
$
-
664
664
$
$
-
582
582
$
-
10,181
$ 10,181
issuer bids.
2018
2019
2020
2021
2022 and
beyond
$
$
12,202
176
12,378
$
$
-
-
-
$
$
-
49,634
49,634
$
$
-
-
-
$
$
-
-
-
Page | 64
CWC-AR-2018-2.indd 66
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2019-05-03 8:48 AM
Market risk is the risk of changes in market prices, such as commodity prices, foreign currency exchange rates, and
interest rates will affect the net earnings or the value of financial instruments. The objective of managing market risk is
to control market risk exposures within acceptable limits, while maximizing returns. Market risks to which the
c)
Market risk
Company is subject include:
Foreign currency risk
Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes
in foreign exchange rates. The Company does not engage in significant foreign currency denominated transactions and
exposure to foreign currency risk is negligible.
Interest rate risk
Interest rate risk is the risk that future cash flow will fluctuate as a result of change in market interest rates. The
Company is exposed to interest rate fluctuations on its long-term debt which bears interest at floating market rates. For
the year ended December 31, 2018, if the prime interest rate increased by 1.0%, with all other variables held constant,
net loss would have been $470 higher (2017: $486).
Commodity price risk
The Company is not directly exposed to commodity price risk as it does not have any contracts that are directly based
on commodity prices, however, many of the Company's customers are exposed to commodity price risk which poses an
indirect risk to the Company. A change in commodity prices, specifically crude oil and natural gas prices may have a
material impact on cash flows of the Company’s customers and therefore affect the demand for our products or services
from these customers. However, given that this is an indirect influence, the financial impact for the Company of changing
16.
oil and natural gas prices is not reasonably determinable.
Capital management
The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence
and to sustain future development of the business. The Company strives to maintain a balance between debt and equity
to ensure the continued access to capital markets to fund growth and ensure long-term viability. The Company
continually assesses the cash flow from operations to make decisions regarding required capital maintenance, growth
capital and dividends to shareholders. When those cash flows are not anticipated to be sufficient, the Company then
assesses the impact on its capital structure of funding through additional debt.
The Company manages its capital structure and makes adjustments to it in accordance with the aforementioned
objectives, as well as in light of changes in economic conditions. In order to maintain or adjust its capital structure, the
Company may, but is not limited to, issue new shares, issue new debt, issue new debt replacing existing debt with
different characteristics, pay a dividend to shareholders, or purchase shares for cancellation pursuant to normal course
The Company monitors capital using a financial metric of Consolidated Debt to Consolidated Adjusted EBITDA ratio as
defined in the Credit Facility (see Note 7). Consolidated Debt to Consolidated Adjusted EBITDA is not a recognized
measure under IFRS and, therefore, is unlikely to be comparable to similar measures of other companies.
During the year ended December 31, 2018, the actual and forecasted Consolidated Debt to Consolidated Adjusted
EBITDA of the Company has declined, primarily due to the Mortgage Loan, increased pricing and utilization and
amendments to credit facility terms. The Consolidated Debt to Consolidated Adjusted EBITDA ratio at December 31,
2018 was 1.35:1.00 (at December 31, 2017: 1.75:1.00). The Company was in compliance with all externally imposed
capital requirements as at December 31, 2018 and 2017.
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
The change in the allowance for impairment in respect of trade accounts receivable for the years ended December 31
is as follows:
Balance as at January 1
Additional allowance
Amounts recovered
Amounts used
Balance as at December 31
2018
$ 126
671
(25)
-
$ 772
2017
$
$
76
89
(13)
(26)
126
For accounts receivable, the Company applies a simplified approach and recognizes lifetime expected credit losses upon
initial recognition of the receivables. Historical customer default rates, age of balances outstanding, and forward-
looking information are used to determine the expected credit losses. When an expected credit loss is required to be
recognized, the carrying amount of the asset is reduced by the amount with an offsetting entry to net income.
b)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The
Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to
meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or
risking damage to the Company’s reputation.
At December 31, 2018, the Company has available committed amounts under its Credit Facility in the amount of $42,913
(2017: $37,321), segregated cash of nil (2017: $10,000), plus trade and other receivables of $23,579 (2017: $30,119)
for a total of $65,772 (2017: $77,440) available to fund the cash outflows related to its financial liabilities.
The Company anticipates that its existing capital resources including its Credit Facility and cash flows from operations
will be adequate to satisfy its liquidity requirements through fiscal 2019. This expectation could be adversely affected
by a material negative change in the oilfield service industry, which in turn could lead to covenant breaches on the
Company's Credit Facility, which, if not amended or waived, could limit the Company's access to the credit facility. If
available liquidity is not sufficient to meet CWC's operating and debt servicing obligations as they come due,
management's plans include further expenditure reductions, pursuing alternative financing arrangements, asset
dispositions, or pursuing other corporate strategic alternatives.
The following table summarizes contractual maturities for non-derivative financial instruments:
Year ended December 31, 2018
2019
2020
2021
2022
2023 and
beyond
Accounts payable and accrued
928
32,541
$ 7,865
$ -
$
$
-
$
-
-
664
664
582
582
10,181
$ 10,181
$ 8,793
$ 32,541
$
$
liabilities
Long-term debt
Year ended December 31, 2017
Accounts payable and accrued
liabilities
Long-term debt
2018
2019
2020
2021
2022 and
beyond
$
$
12,202
176
12,378
$
$
-
-
-
$
-
49,634
49,634
$
$
$
-
-
-
$
$
-
-
-
Market risk
c)
Market risk is the risk of changes in market prices, such as commodity prices, foreign currency exchange rates, and
interest rates will affect the net earnings or the value of financial instruments. The objective of managing market risk is
to control market risk exposures within acceptable limits, while maximizing returns. Market risks to which the
Company is subject include:
Foreign currency risk
Foreign currency exchange rate risk is the risk that the fair value or future cash flows will fluctuate as a result of changes
in foreign exchange rates. The Company does not engage in significant foreign currency denominated transactions and
exposure to foreign currency risk is negligible.
Interest rate risk
Interest rate risk is the risk that future cash flow will fluctuate as a result of change in market interest rates. The
Company is exposed to interest rate fluctuations on its long-term debt which bears interest at floating market rates. For
the year ended December 31, 2018, if the prime interest rate increased by 1.0%, with all other variables held constant,
net loss would have been $470 higher (2017: $486).
Commodity price risk
The Company is not directly exposed to commodity price risk as it does not have any contracts that are directly based
on commodity prices, however, many of the Company's customers are exposed to commodity price risk which poses an
indirect risk to the Company. A change in commodity prices, specifically crude oil and natural gas prices may have a
material impact on cash flows of the Company’s customers and therefore affect the demand for our products or services
from these customers. However, given that this is an indirect influence, the financial impact for the Company of changing
oil and natural gas prices is not reasonably determinable.
Capital management
16.
The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence
and to sustain future development of the business. The Company strives to maintain a balance between debt and equity
to ensure the continued access to capital markets to fund growth and ensure long-term viability. The Company
continually assesses the cash flow from operations to make decisions regarding required capital maintenance, growth
capital and dividends to shareholders. When those cash flows are not anticipated to be sufficient, the Company then
assesses the impact on its capital structure of funding through additional debt.
The Company manages its capital structure and makes adjustments to it in accordance with the aforementioned
objectives, as well as in light of changes in economic conditions. In order to maintain or adjust its capital structure, the
Company may, but is not limited to, issue new shares, issue new debt, issue new debt replacing existing debt with
different characteristics, pay a dividend to shareholders, or purchase shares for cancellation pursuant to normal course
issuer bids.
The Company monitors capital using a financial metric of Consolidated Debt to Consolidated Adjusted EBITDA ratio as
defined in the Credit Facility (see Note 7). Consolidated Debt to Consolidated Adjusted EBITDA is not a recognized
measure under IFRS and, therefore, is unlikely to be comparable to similar measures of other companies.
During the year ended December 31, 2018, the actual and forecasted Consolidated Debt to Consolidated Adjusted
EBITDA of the Company has declined, primarily due to the Mortgage Loan, increased pricing and utilization and
amendments to credit facility terms. The Consolidated Debt to Consolidated Adjusted EBITDA ratio at December 31,
2018 was 1.35:1.00 (at December 31, 2017: 1.75:1.00). The Company was in compliance with all externally imposed
capital requirements as at December 31, 2018 and 2017.
Page | 64
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CWC-AR-2018-2.indd 67
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CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
17. Revenue
Revenue consists of amounts earned from sale of Contract Drilling and Production Services. Production Services
includes revenue from service rigs, swabbing rigs and coil tubing units.
The following table presents the Company’s revenue disaggregated by type:
For the years ended December 31,
Contract Drilling
Production Services
Service Rigs
Swabbing Rigs
Coil Tubing
Total
2018
$ 38,223
99,904
1,848
4,787
$ 144,762
2017
$
35,222
70,919
303
5,771
112,215
$
Included in accounts receivable at December 31, 2018 was $1,789 (December 31, 2017: $2,322) of accrued revenue for
services provided in the month then ended. There have been no significant adjustments for prior period accrued
revenue in the current period.
As of December 31, 2018, the Company did not have any sales contracts beyond one year in term.
1
Corporate Secretary
1 2
Audit Committee
2
1.
2.
Compensation and Corporate Governance Committee
Ernst & Young LLP
Bankers
President & Chief Executive Of�icer
Duncan Au, FLPA, FLA, LFA
Chief Financial Of�icer
Stuart King, CPA, CA
Vice President Operations (Drilling)
Paul Donohue
Vice President Operations (Well Services)
Darwin McIntyre
Vice President, Sales and Marketing (Drilling)
Bob Apps
Mike Dubois
Vice President, Sales and Marketing (Well Services)
Page | 66
CWC-AR-2018-2.indd 68
2019-05-03 8:48 AM
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2018 and 2017
Stated in thousands of Canadian dollars except share and per share amounts
17. Revenue
Revenue consists of amounts earned from sale of Contract Drilling and Production Services. Production Services
includes revenue from service rigs, swabbing rigs and coil tubing units.
The following table presents the Company’s revenue disaggregated by type:
For the years ended December 31,
Contract Drilling
Production Services
Service Rigs
Swabbing Rigs
Coil Tubing
Total
2018
$ 38,223
99,904
1,848
4,787
$ 144,762
2017
$
35,222
70,919
303
5,771
$
112,215
Included in accounts receivable at December 31, 2018 was $1,789 (December 31, 2017: $2,322) of accrued revenue for
services provided in the month then ended. There have been no significant adjustments for prior period accrued
revenue in the current period.
As of December 31, 2018, the Company did not have any sales contracts beyond one year in term.
Corporate Secretary
Ernst & Young LLP
Bankers
1
1 2
Audit Committee
2
Compensation and Corporate Governance Committee
1.
2.
President & Chief Executive Of�icer
Duncan Au, FCPA, FCA, CFA
Chief Financial Of�icer
Stuart King, CPA, CA
Vice President Operations (Drilling)
Paul Donohue
Vice President Operations (Well Services)
Darwin McIntyre
Vice President, Sales and Marketing (Drilling)
Bob Apps
Vice President, Sales and Marketing (Well Services)
Mike Dubois
Page | 66
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