2019 Annual Report
Contents
1
3
6
Corporate Profile
President’s Message
33
Management’s Discussion & Analysis
41
Financial Statements
Notes to the Financial Statements
Corporate Pro�ile – April 2017
Corporate Profile – April 2020
TSX-V: CWC
Market Pro�ile
CWC Energy Services Corp.
is a premier
contract drilling and well servicing company
operating in Canada and the United States
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 for well
decommissioning. CWC’s services are provided
through two divisions: Contract Drilling and
Production Services.
Horn
River
Montney/
Deep Basin Devonian
Cardium
Heavy
Oil
Viking
Calgary
AB
Bakken
Horn
River
Bakken
Montney/
Deep Basin
Denver
DJ
Basin
Market Pro�ile
Shares outstanding
Price
Market
Financial Information
Shares outstanding
December 31, 2019
510.7 million
December 31, 2016
$0.10
$51.1 million
391.9 million
($ millions)
Price
2019
2018
2017
$0.195
$76.4 million
$108.4
2016
$144.8
2015
$112.2
2014
$12.2
$18.5
$16.1
$243.4
$252.7
$264.4
$73.1
$40.6
$81.3
$44.9
$143.7
$49.8
$8.2
$22.0
$210.8
$12.0
$25.9
$222.4
$34.1
$30.3
$275.4
$33.1
$21.8
$52.2
$40.4
$65.7
$45.1
Market
Financial Information
Revenue
($ millions)
Adjusted EBITDA
Total Assets
Revenue
Long-Term Debt
EBITDAS
Net Debt
Total Assets
Long-Term Debt
Net Debt
Devonian
Slave Lake
Grande Prairie
Pekisko &
Beaverhill Lake
Heavy
Oil
Drayton Valley
Lloydminster
Cardium
Red Deer
Provost
Viking
Permian
Eagle
Ford
Calgary
AB
Bakken
Brooks
th
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. 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 has expanded its drilling rig services into select
United States basins including the Eagle Ford, Denver-Julesburg (“DJ”)
and Bakken.
Market Pro�ile
December 31, 2016
Price
$0.195
($ millions)
391.9 million
Shares outstanding
Market
Financial Information
The Production Services division operates under the trade name CWC Well
Services and is the largest well servicing company in Canada as measured
by active fleet and operating hours with 146 service rigs. Rig services
include completions, maintenance, workovers and well decommissioning
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 3,200 metres. While the company continues to service steam-
assisted gravity drainage (“SAGD”) wells that are shallower in depth and
more appropriate for coil tubing operations, it has recently shifted its sales
and operational focus on well decommissioning. Finally, CWC operates 13
swabbing rigs in the WCSB. The swabbing rigs are used to remove liquids
from the wellbore and allow reservoir pressures to push the commodity up
the tubing. 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
2019
$76.4 million
Total Assets
EBITDAS
Net Debt
Revenue
$222.4
$275.4
$210.8
$143.7
2018
2017
$73.1
$81.3
$12.0
$40.4
$34.1
$52.2
$65.7
$45.1
$33.1
$21.8
2014
2016
2015
$8.2
2019
2019
2019
2018
2018
2018
2017
2017
2017
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
146
9
2019
13
2019
2019
2019
9
148
9
13
9
149
10
13
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
31%
31%
31%
31%
69%
69%
69%
69%
* Divisional contribution, corporate costs excluded
* Divisional contribution, corporate costs excluded
* Divisional contribution, corporate costs excluded
th
th
th
th
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(cid:44)(cid:75)(cid:116)(cid:3)(cid:17)(cid:4)(cid:24)(cid:3)(cid:47)(cid:94)(cid:3)(cid:100)(cid:44)(cid:28)(cid:3)(cid:69)(cid:856)(cid:4)(cid:856)(cid:3)(cid:75)(cid:104)(cid:100)(cid:62)(cid:75)(cid:75)(cid:60)(cid:3)(cid:47)(cid:69)(cid:3)(cid:100)(cid:44)(cid:28)(cid:3)(cid:18)(cid:75)(cid:69)(cid:100)(cid:28)(cid:121)(cid:100)(cid:3)(cid:75)(cid:38)(cid:3)(cid:44)(cid:47)(cid:94)(cid:100)(cid:75)(cid:90)(cid:122)(cid:845)(cid:3)
•
(cid:47)(cid:374)(cid:3)(cid:18)(cid:258)(cid:374)(cid:258)(cid:282)(cid:258)(cid:853)(cid:3)(cid:449)(cid:286)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:296)(cid:381)(cid:396)(cid:286)(cid:272)(cid:258)(cid:400)(cid:410)(cid:349)(cid:374)(cid:336)(cid:3)(cid:373)(cid:437)(cid:367)(cid:410)(cid:349)(cid:882)(cid:282)(cid:286)(cid:272)(cid:258)(cid:282)(cid:286)(cid:3)(cid:367)(cid:381)(cid:449)(cid:400)(cid:3)(cid:296)(cid:381)(cid:396)(cid:3)(cid:258)(cid:272)(cid:410)(cid:349)(cid:448)(cid:349)(cid:410)(cid:455)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:296)(cid:381)(cid:437)(cid:396)(cid:3)(cid:381)(cid:296)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:296)(cid:349)(cid:448)(cid:286)(cid:3)(cid:449)(cid:381)(cid:396)(cid:400)(cid:410)(cid:3)(cid:282)(cid:396)(cid:349)(cid:367)(cid:367)(cid:349)(cid:374)(cid:336)(cid:3)(cid:282)(cid:258)(cid:455)(cid:400)(cid:3)(cid:455)(cid:286)(cid:258)(cid:396)(cid:400)(cid:3)(cid:381)(cid:272)(cid:272)(cid:437)(cid:396)(cid:396)(cid:349)(cid:374)(cid:336)(cid:3)
• (cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:396)(cid:349)(cid:336)(cid:3)(cid:272)(cid:381)(cid:437)(cid:374)(cid:410)(cid:400)(cid:3)(cid:258)(cid:396)(cid:286)(cid:3)(cid:258)(cid:367)(cid:400)(cid:381)(cid:3)(cid:410)(cid:396)(cid:286)(cid:374)(cid:282)(cid:349)(cid:374)(cid:336)(cid:3)(cid:367)(cid:381)(cid:449)(cid:286)(cid:396)(cid:853)(cid:3)(cid:271)(cid:437)(cid:410)(cid:3)(cid:400)(cid:286)(cid:396)(cid:448)(cid:349)(cid:272)(cid:286)(cid:3)(cid:286)(cid:296)(cid:296)(cid:349)(cid:272)(cid:349)(cid:286)(cid:374)(cid:272)(cid:455)(cid:3)(cid:349)(cid:400)(cid:3)(cid:258)(cid:367)(cid:367)(cid:381)(cid:449)(cid:349)(cid:374)(cid:336)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:410)(cid:381)(cid:3)(cid:396)(cid:286)(cid:258)(cid:272)(cid:346)(cid:3)(cid:396)(cid:286)(cid:272)(cid:381)(cid:396)(cid:282)(cid:3)(cid:346)(cid:349)(cid:336)(cid:346)(cid:3)(cid:272)(cid:396)(cid:437)(cid:282)(cid:286)(cid:3)(cid:381)(cid:349)(cid:367)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)
Dear Fellow Shareholders,
President’s Message
(cid:100)(cid:346)(cid:286)(cid:3)(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:396)(cid:349)(cid:336)(cid:3)(cid:272)(cid:381)(cid:437)(cid:374)(cid:410)(cid:3)(cid:349)(cid:400)(cid:3)(cid:282)(cid:381)(cid:449)(cid:374)(cid:3)(cid:1008)(cid:1004)(cid:1081)(cid:3)(cid:296)(cid:396)(cid:381)(cid:373)(cid:3)(cid:393)(cid:396)(cid:286)(cid:448)(cid:349)(cid:381)(cid:437)(cid:400)(cid:3)(cid:393)(cid:286)(cid:258)(cid:364)(cid:400)(cid:3)(cid:258)(cid:374)(cid:282)(cid:3)(cid:349)(cid:374)(cid:3)(cid:367)(cid:349)(cid:374)(cid:286)(cid:3)(cid:449)(cid:349)(cid:410)(cid:346)(cid:3)(cid:410)(cid:346)(cid:286)(cid:3)(cid:296)(cid:349)(cid:374)(cid:258)(cid:374)(cid:272)(cid:349)(cid:258)(cid:367)(cid:3)(cid:272)(cid:396)(cid:349)(cid:400)(cid:349)(cid:400)(cid:3)(cid:349)(cid:374)(cid:3)(cid:1006)(cid:1004)(cid:1004)(cid:1013)(cid:856)(cid:3)
I wish to share with you CWC Energy Services Corp.’s (“CWC” or the
“Company”) 2019 Annual Report. 2019 can best be described as one of the
most challenging years for Canadian oilfield service companies in the last
five decades as the CAODC’s 2019 Canadian drilling rig operating days
of 45,426 days was the third lowest number of operating days on record
dating back to 1964.
Ranked Historical Canadian Drilling Days(64-21e)
(cid:90)(cid:258)(cid:374)(cid:364)(cid:286)(cid:282)(cid:3)(cid:44)(cid:349)(cid:400)(cid:410)(cid:381)(cid:396)(cid:349)(cid:272)(cid:258)(cid:367)(cid:3)(cid:18)(cid:258)(cid:374)(cid:258)(cid:282)(cid:349)(cid:258)(cid:374)(cid:3)(cid:24)(cid:396)(cid:349)(cid:367)(cid:367)(cid:349)(cid:374)(cid:336)(cid:3)(cid:24)(cid:258)(cid:455)(cid:400)(cid:3)(cid:894)(cid:1010)(cid:1008)(cid:882)(cid:1006)(cid:1005)(cid:286)(cid:895)
Revenue
EBITDAS
Total Assets
$73.1
$8.2
(cid:3)
(cid:1008)
(cid:1008)
(cid:3)
(cid:1012)
(cid:1009)
(cid:1009)
(cid:853)
(cid:1005)
$81.3
(cid:3)
(cid:1008)
(cid:1011)
(cid:1010)
(cid:853)
(cid:1005)
$12.0
(cid:3)
(cid:1006)
(cid:1007)
(cid:3)
(cid:1005)
(cid:1009)
(cid:1011)
(cid:853)
(cid:1005)
(cid:3)
(cid:1005)
$143.7
(cid:1012)
(cid:1011)
(cid:853)
(cid:1005)
(cid:3)
(cid:1006)
(cid:1005)
$34.1
(cid:1010)
(cid:853)
(cid:1005)
(cid:3)
(cid:1011)
(cid:1005)
(cid:1011)
(cid:853)
(cid:1005)
$210.8
(cid:1008)
(cid:853)
(cid:1005)
$222.4
(cid:1008)
(cid:853)
(cid:1005)
$275.4
(cid:3)
(cid:1005)
(cid:1008)
(cid:1012)
(cid:3)
(cid:1005)
(cid:1013)
(cid:1011)
(cid:3)
(cid:1009)
(cid:1009)
(cid:1011)
(cid:3)
(cid:1013)
(cid:1007)
(cid:3) (cid:1012)
(cid:1007)
(cid:1005)
(cid:1011)
(cid:3)
(cid:1007)
(cid:1007)
(cid:1011)
Long-Term Debt
Net Debt
(cid:3)
(cid:1009)
(cid:1011)
(cid:3) (cid:1011)
(cid:3)
(cid:1006)
(cid:1010)
(cid:1010)
(cid:3)
(cid:1007)
(cid:1005)
(cid:1010)
(cid:3)
(cid:1004)
(cid:1006)
(cid:1010)
(cid:3)
(cid:1006)
(cid:1006)
(cid:1010)
(cid:1009)
(cid:1007)
(cid:1010)
(cid:3)
(cid:1012)
(cid:1012)
(cid:1009)
(cid:3)
(cid:1004)
(cid:1008)
(cid:1013)
(cid:3)
(cid:1012)
(cid:1007)
(cid:1011)
(cid:3)
(cid:1011)
(cid:1010)
(cid:1010)
(cid:3)
(cid:1010)
(cid:1012)
(cid:1008)
(cid:3)
(cid:1008)
(cid:1012)
(cid:1005)
$33.1
(cid:853)
(cid:1005)
(cid:3)
(cid:1010)
(cid:1005)
(cid:1004)
(cid:853)
(cid:3) (cid:1005)
$21.8
(cid:1011)
(cid:1010)
(cid:1012)
$52.2
(cid:3)
(cid:1006)
(cid:1012)
$40.4
(cid:1013)
$65.7
$45.1
(cid:3)
(cid:1009)
(cid:1008)
(cid:1013)
(cid:3)
(cid:1008)
(cid:1005)
(cid:1004)
(cid:3) (cid:1005)
(cid:853)
(cid:1010)
(cid:1009)
(cid:1012)
(cid:3)
(cid:1005)
(cid:1006)
(cid:1013)
(cid:3)
(cid:1012)
(cid:1011)
(cid:1012)
(cid:3)
(cid:1013)
(cid:1013)
(cid:1012)
(cid:3)
(cid:1010)
(cid:1012)
(cid:1008)
(cid:3)
(cid:400)
(cid:455)
(cid:258)
(cid:24)
(cid:336)
(cid:374)
(cid:349)
(cid:410)
(cid:258)
(cid:396)
(cid:286)
(cid:393)
(cid:75)
(cid:3)(cid:1006)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1005)(cid:1012)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1005)(cid:1010)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1005)(cid:1008)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1005)(cid:1006)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1005)(cid:1004)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1012)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1010)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1008)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:1006)(cid:1004)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)(cid:882)
(cid:44)(cid:349)(cid:400)(cid:410)(cid:381)(cid:396)(cid:349)(cid:272)(cid:258)(cid:367)(cid:3)(cid:4)(cid:448)(cid:286)(cid:396)(cid:258)(cid:336)(cid:286)
(cid:400)(cid:349)(cid:374)(cid:272)(cid:286)(cid:3)(cid:1006)(cid:1004)(cid:1005)(cid:1010)(cid:856)(cid:3)
Corporate Pro�ile – April 2017
(cid:374)(cid:258)(cid:410)(cid:437)(cid:396)(cid:258)(cid:367)(cid:3)(cid:336)(cid:258)(cid:400)(cid:3)(cid:393)(cid:396)(cid:381)(cid:282)(cid:437)(cid:272)(cid:410)(cid:349)(cid:381)(cid:374)(cid:856)(cid:3)
•
Market Pro�ile
December 31, 2016
Shares outstanding
(cid:44)(cid:349)(cid:400)(cid:410)(cid:381)(cid:396)(cid:349)(cid:272)(cid:258)(cid:367)(cid:3)(cid:104)(cid:856)(cid:94)(cid:856)(cid:3)(cid:90)(cid:349)(cid:336)(cid:3)(cid:18)(cid:381)(cid:437)(cid:374)(cid:410)
391.9 million
Price
Market
Financial Information
$0.195
$76.4 million
($ millions)
2016
2015
2014
(cid:1007)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:3)
(cid:1012)
(cid:1006)
(cid:1008)
(cid:853)
(cid:1006)
(cid:1006)(cid:853)(cid:1009)(cid:1004)(cid:1004)
(cid:3)
(cid:1004)
(cid:1012)
(cid:1013)
(cid:853)
(cid:1005)
(cid:1006)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:1005)(cid:853)(cid:1009)(cid:1004)(cid:1004)
(cid:1005)(cid:853)(cid:1004)(cid:1004)(cid:1004)
(cid:1009)(cid:1004)(cid:1004)
(cid:1004)
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
Source: GMP FirstEnergy, Baker Hughes, Nickle’s Data Central
(cid:1005)(cid:1013)
Source: GMP FirstEnergy – PSAC Fall 2019 Update: Oilfield Services Outlook
Highlights of 2019
2019 started the year with the Government of Alberta helping our exploration and production (“E&P”)
companies deal with the low price of crude oil as a result of the unprecedented widening differential of over
US$50/bbl between West Texas Intermediate (“WTI”) and Western Canadian Select (“WCS”) in November
2018. Alberta mandated a production curtailment of 325,000 bbls/day and gradually reduced this production
curtailment throughout 2019 to end the year at 125,000 bbls/day. Alberta has stated that this production
th
Page | 3
Share Price Returns - January 1, 2016 to April 1, 2019
(cid:286)
(cid:1005)
(cid:1006)
(cid:1004)
(cid:1006)
(cid:286)
(cid:1004)
(cid:1006)
(cid:1004)
(cid:1006)
(cid:286)
(cid:1013)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1013)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1008)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1013)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1007)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1011)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1009)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1012)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1009)
(cid:1010)
(cid:1013)
(cid:1005)
(cid:1006)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1010)
(cid:1010)
(cid:1013)
(cid:1005)
(cid:1008)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1012)
(cid:1010)
(cid:1013)
(cid:1005)
(cid:1013)
(cid:1010)
(cid:1013)
(cid:1005)
(cid:1008)
(cid:1010)
(cid:1013)
(cid:1005)
(cid:1011)
(cid:1010)
(cid:1013)
(cid:1005)
(cid:1004)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1009)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1004)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1005)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1005)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1010)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1010)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1009)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1005)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1004)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1012)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1008)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1011)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1007)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1008)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1006)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1007)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1004)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1004)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1011)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1005)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1013)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1009)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1010)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1006)
(cid:1004)
(cid:1004)
(cid:1006)
(cid:1005)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1012)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1008)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1013)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1009)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1011)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1007)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1006)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1012)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1007)
(cid:1013)
(cid:1013)
(cid:1005)
(cid:1011)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1010)
(cid:1012)
(cid:1013)
(cid:1005)
(cid:1012)
(cid:1011)
(cid:1013)
(cid:1005)
(cid:1010)
(cid:1005)
(cid:1004)
(cid:1006)
(cid:1006)
(cid:1013)
(cid:1013)
(cid:1005)
curtailment is expected to last until the end of 2020 when it is expected that additional takeaway capacity is
expected to come online with the completion of the Enbridge Line 3 Replacement Project. While the Alberta
production curtailments helped our E&P customers obtain a reasonable crude oil price by reducing the WTI-
WCS differential back to a more normalized range of US$10 to US$20/bbl for 2019, its negative effect was
felt with lower Canadian drilling and well servicing activity throughout the year. To combat the decreased
Canadian activity levels, CWC was successful in attracting several U.S. customers and in May 2019, moved two
of its nine drilling rigs to serve the Texas, Wyoming and North Dakota drilling markets despite a significant
decline in U.S. drilling activity as well. The move to the U.S. allowed CWC to attract higher margin business
which helped CWC achieve better financial results in 2019 than it might otherwise have had. CWC’s revenue
of $108.5 million (a decrease of $36.3 million or 25% compared to 2018) and Adjusted EBITDA of $12.2
million (a decrease of $6.3 million or 34% compared to 2018) resulted in a net loss of $1.7 million (which was
the same as 2018).
On September 27, 2019, CWC and its syndicated lenders completed an extension of its credit facilities and
certain other amendments to provide financial security and flexibility to July 31, 2022. At the request of the
Company, the credit facilities were reduced from $75 million to $60 million to reduce borrowing costs and
standby charges. The amendments further provide the Company with access to another equity cure under
the same terms and conditions and a reduction in the minimum liquidity from $10 to $5 million. Additionally,
the amendments exclude the Mortgage Loan from the consolidated debt definition used in calculating the
quarterly financial covenants.
On April 10, 2019, the Company renewed its Normal Course Issuer Bid (“NCIB”) with an Automatic Securities
Purchase Plan (“ASPP”) with Raymond James Ltd. During 2019, CWC purchased 4,532,000 common shares
under the NCIB of which 4,402,500 common shares were cancelled and returned to treasury. These common
shares represented 38% of the 11,930,386 shares traded on the TSX Venture Exchange in 2019, as the
Company continued to add value for its remaining shareholders by reducing the number of common shares
Outlook For 2020
outstanding and providing liquidity for those shareholders looking to sell their shares.
Activity levels for the start of 2020 has been significantly stronger than 2019. However, the spread of the
global pandemic of COVID-19 (the “coronavirus”) in February and March 2020 has resulted in a disruption
to normal economic activity around the world, which may turn out to be the start of a global recession.
On March 6, 2020, OPEC+ failed to agree on a continuation of the production quotas with Russia unwilling
to participate in a cut to crude oil production of an additional 1.5 million bbls/day. As such, Saudi Arabia
responded by removing all OPEC production quotas and increased their own supply of crude oil to the
global market. This anticipated glut of crude oil supply resulted in an immediate price crash in crude oil
to the current US$20 to US$30/bbl range. At these crude oil price levels, CWC believes both Canadian and
U.S. drilling and well servicing activity will significantly decline for the remainder of 2020. Management is
monitoring the COVID-19 situation closely and will take the necessary steps on a timely basis to protect its
balance sheet. On March 17, 2020, CWC discontinued operations of its Coil Tubing division, thereby stopping
the recent negative Adjusted EBITDA and losses of this division. CWC will consider options to monetize these
assets once there is some stability in the oilfield services market so as to maximize its value. CWC will reduce
it 2020 capital expenditure budget from $6.7 million to approximately $3.0 million. Management will also
consider other cost cutting measures with the view of ensuring any cost reductions do not result in long-term
damages to our business.
Page | 4
Conclusion
Indeed these are very challenging times for the Canadian energy sector, but CWC will persevere with the
support of its debtholders and shareholders. In closing, I would like to express my sincere thanks to CWC’s
employees for their truly hard work and dedication to continue making CWC one of the best performing
contract drilling and well servicing companies in Canada and the U.S. To our customers, we cherish your
ongoing business and relationship and will be there to advocate for you in creating a healthier 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, these are dark days, but as
Confucius says, “Our greatest glory is not in never falling, but in rising every time we fall.”
Sincerely and submitted on behalf of the Board of Directors,
Duncan T. Au
President & Chief Executive Officer
March 20, 2020
Page | 5
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,
2020 and should be read in conjunction with audited consolidated financial statements for the year ended December 31, 2019.
Additional information regarding CWC can be found in the Company’s latest Annual Information Form (“AIF”). The consolidated
financial statements are prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”)
applicable to the preparation of financial statements. All amounts are expressed in Canadian dollars unless otherwise noted.
Additional information relating to CWC, is available on SEDAR at www.sedar.com.
Financial Highlights
$ thousands, except shares, per
share amounts and margins
2019
2018
Change
%
2019
2018
2017
Three months ended
December 31,
Year ended
December 31,
FINANCIAL RESULTS
Revenue
Contract Drilling
Production Services
Adjusted EBITDA (1)
Adjusted EBITDA margin (%) (1)
Net (loss) income
Net (loss) income margin (%) (1)
Capital expenditures
Per share information:
Weighted average number of shares
outstanding – basic
Weighted average number of shares
outstanding - diluted
Adjusted EBITDA (1) per share -
basic and diluted
Net (loss) income per share -
basic and diluted
$
$
7,705
22,962
30,667
3,491
11%
(854)
(3%)
1,185
13,081
22,397
35,478
4,978
14%
(157)
(0%)
(41%)
3%
(14%)
(30%)
444%
(2%)
28,497
79,949
108,446
12,166
11%
(1,700)
(2%)
1,983
(40%)
5,349
38,223
106,539
144,762
18,489
13%
(1,702)
(1%)
11,753
35,222
76,993
112,215
16,063
14%
4,861
4%
44,532
510,443,613
518,513,776
511,106,531
520,576,582
399,008,915
510,443,613
518,513,776
511,106,531
520,576,582
403,359,537
0.01
$
0.01
$
0.02 $
0.04 $
0.04
(0.00)
$
(0.00)
$
(0.00) $
(0.00) $
0.01
$ thousands, except ratios
FINANCIAL POSITION AND LIQUIDITY
Working capital (excluding debt) (1)
Working capital (excluding debt) ratio (1)
Total assets
Total long-term debt (including current portion)
Shareholders' equity
(1) Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
As at December 31,
2018
2017
2019
18,534
3.3:1
243,398
40,552
182,032
19,028
3.4:1
252,665
44,896
184,231
19,543
2.6:1
264,354
49,810
186,519
Page |
6
Working capital (excluding debt) for December 31, 2019 has decreased $0.5 million (2%) since December 31, 2018 driven by
decreases in cash ($0.4 million (76%)), accounts receivable ($0.9 million (4%)), and prepaid expenses and deposits ($0.1 million
(3%)) partially offset by a decrease in accounts payable of $0.9 million (11%). Long-term debt (including current portion) has
decreased $4.3 million (10%) from December 31, 2018 driven by cash generated from operations which was used to pay down
long-term debt. Shareholders’ equity has decreased since December 31, 2018 primarily due to the net loss for the year ended
December 31, 2019 and the purchase and cancellation of common shares under the NCIB program.
Highlights for the Three Months Ended December 31, 2019
• Average Q4 2019 crude oil pricing, as measured by WTI, of US$56.85/bbl was 1% higher than the Q3 2019 average price of
US$56.40/bbl (Q4 2018: US$59.32/bbl). The price differential in Q4 2019 between Canadian heavy crude oil, as represented
by WCS, and WTI widened to over US$20.00/bbl. The Government of Alberta announcements in Q3 2019 reducing the
production curtailment to 125,000 bbls/day and extending the curtailment end date to December 31, 2020 while increasing
the exemption limit from 10,000 to 20,000 bbls/day starting October 1, 2019, effectively reduced the number of Alberta
exploration and production (“E&P”) companies affected by the production curtailment. The widening price differential
between WTI and WCS is partially a result of this increased crude oil supply which saw an increase in Alberta crude oil
storage levels in November 2019 nearing all-time highs last achieved in 2018. Natural gas prices, as measured by AECO,
increased 141% from an average of $0.97/GJ in Q3 2019 to $2.34/GJ in Q4 2019 (Q4 2018 $1.53/GJ); a result of the Canadian
Energy Regulator’s approval of TC Energy’s Temporary Service Protocol (“TSP”) application which caused the differential
between Alberta gas prices and other North American natural gas prices, such as NYMEX, to narrow.
• CWC’s Canadian drilling rig utilization in Q4 2019 of 36% (Q4 2018: 59%) exceeded the Canadian Association of Oilwell
Drilling Contractors (“CAODC”) industry average of 23%. Canadian activity levels in Q4 2019 decreased 53% to 232 drilling
rig operating days from seven Canadian drilling rigs (Q4 2018: 491 drilling rig operating days from nine Canadian drilling
rigs) as E&P customers deferred their drilling programs into Q1 2020. U.S. drilling rig activity levels in Q4 2019 were 56
drilling rig operating days from two U.S. drilling rigs for a utilization of 31% (Q4 2018: nil) as the Company moved one
drilling rig from Texas to Wyoming in November 2019 to start operations in late December 2019. U.S. Contract Drilling
revenue of $2.6 million represented 34% of CWC’s total Contract Drilling revenue in Q4 2019 with the average revenue per
operating day of US$45,461 from U.S. operations (which includes a one-time recovery of mobilization costs). CWC's service
rig utilization in Q4 2019 of 61% (Q4 2018: 51%) was driven by 33,656 operating hours being 8% higher than the 31,232
operating hours in Q4 2018; a result of E&P customers choosing to do workovers to optimize production on their wells prior
to the end of the year.
• Revenue of $30.7 million, a decrease of $4.8 million (14%) compared to $35.5 million in Q4 2018. The decrease in Q4 2019
revenue is a direct result of lower utilizations in the Canadian drilling rig division partially offset by increased activity and
higher day rates in the U.S. drilling rig division and increased activity in the Canadian service rig divisions.
• Adjusted EBITDA(1) of $3.5 million, a decrease of $1.5 million (30%) compared to $5.0 million in Q4 2018, is a result of the
decrease in revenue offset by lower costs associated with the reduced activity levels in the Canadian drilling rig division.
CWC has achieved 26 consecutive quarters of positive Adjusted EBITDA(1) since Q2 2013.
• Net loss of $0.9 million, an increase of $0.7 million compared to a net loss of $0.2 million in Q4 2018. The increase in net loss
in Q4 2019 is partially due to a loss on disposal of equipment of $0.4 million in Q4 2019.
• During Q4 2019, 1,453,500 common shares (Q4 2018: 7,828,000) were purchased under the Normal Course Issuer Bid
(“NCIB”) and 1,342,000 common shares (Q4 2018: 7,828,000) were cancelled and returned to treasury.
(1) Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Page |
7
Highlights for the Year Ended December 31, 2019
• CWC’s Canadian drilling rig utilization in 2019 of 30% (2018: 49%) exceeded the CAODC industry average of 22% (2018:
28%). CWC’s U.S. drilling rig utilization in 2019 was 60% (2018: n/a) after CWC started its U.S. drilling operations in mid-
June 2019. CWC's service rig utilization in 2019 was 51% compared to 59% in 2018. Activity levels in both the Canadian
drilling rig and service rig divisions dropped in 2019 as a result of CWC’s E&P customers reducing or delaying their drilling
and well maintenance programs due to lower crude oil prices and the Government of Alberta mandated production
curtailment program temporarily slowing down the need for newly drilled wells and workover and maintenance work on
producing wells.
• Revenue of $108.5 million, a decrease of $36.3 million (25%) compared to $144.8 million in 2018. The decrease is primarily
a result of reduced activity levels in the Contract Drilling and Production Services segments due to the aforementioned
Alberta production curtailments and lower crude oil prices.
• Adjusted EBITDA(1) of $12.2 million, a decrease of $6.3 million (34%) compared to $18.5 million in 2018. The decrease in
Adjusted EBITDA(1) is consistent with the reduced revenue from lower activity levels in both segments as a result of the
aforementioned Alberta production curtailments and lower crude oil prices partially offset by significantly lower selling
and administrative expenses as a result of lower bad debt expenses in 2019 compared to 2018.
• Net loss of $1.7 million, unchanged from a net loss of $1.7 million in 2018. Net loss in 2019 is a result of the decreased
Adjusted EBITDA(1) partially offset by a reduction in selling and administrative expenses and depreciation and amortization
expenses, and deferred income tax recoveries as a result of a reduction in the Alberta provincial corporate tax rates from
12% to 8% by 2022.
• On September 27, 2019, CWC and its syndicated lenders completed an extension of its credit facilities and certain other
amendments to provide financial security and flexibility to July 31, 2022. At the request of the Company, the credit facilities
were reduced from $75.0 million to $60.0 million to reduce borrowing costs and standby charges. The amendments further
provide the Company access to another equity cure under the same terms and conditions and a reduction in the minimum
liquidity from $10.0 million to $5.0 million. Additionally, the amendments exclude the Mortgage Loan from the consolidated
debt definition used in calculating the quarterly financial covenants. The covenant for Consolidated Debt to Consolidated
EBITDA ratio is as follows:
For the Quarter Ended
December 31, 2019
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
March 31, 2021
June 30, 2021
September 30, 2021 and thereafter
Previously
4.00 : 1.00
4.00 : 1.00
4.00 : 1.00
n/a
n/a
n/a
n/a
n/a
Currently
3.75 : 1.00
3.75 : 1.00
3.75 : 1.00
3.50 : 1.00
3.50 : 1.00
3.25 : 1.00
3.25 : 1.00
3.00 : 1.00
• On April 10, 2019, the Company renewed its NCIB with an Automatic Securities Purchase Plan (“ASPP”) with Raymond
James Ltd., which expires on April 14, 2020. During 2019, the Company purchased 4,532,000 (2018: 11,421,000) common
shares under its NCIB. 4,402,500 shares which were cancelled and returned to treasury (2018:11,421,000). The 4,532,000
common shares purchased under the NCIB represented 38% of the 11,930,386 shares traded on the TSX Venture Exchange
(“TSXV”) in 2019 (2018: 47%).
(1) 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 Canada and the United States
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 a U.S. office in Denver, Colorado and 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”.
Page |
8
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 Western Canadian Sedimentary Basin (“WCSB”),
including the Montney, Cardium, Duvernay and other deep basin horizons. The Company has expanded its drilling rig services
into select United States basins including the Eagle Ford, Denver-Julesburg (“DJ”) and Bakken. One 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.
OPERATING HIGHLIGHTS
Drilling Rigs – Canada
Total drilling rigs, end of period
Dec. 31,
2019
Sep. 30,
2019
Three months ended
Jun. 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
7
7
7
9
9
9
9
9
Revenue per operating day (1)
Drilling rig operating days
Drilling rig utilization % (2)
CAODC industry average utilization %
$22,161
232
36%
23%
$20,685
130
19%
23%
$22,750
72
11%
18%
$23,895
382
47%
29%
$26,642
491
59%
28%
$21,263
500
60%
30%
$21,227
133
16%
17%
$23,485
498
61%
52%
Wells drilled
Average days per well
Meters drilled (thousands)
Meters drilled per day
Average meters per well
18
12.9
75.6
326
4,199
12
10.9
39.6
304
3,300
10
8.0
26.7
373
2,966
39
9.8
119.8
314
3,070
34
14.4
127.8
261
3,708
41
12.2
155.2
310
3,786
11
12.1
41.0
309
3,724
45
11.1
161.7
325
3,593
Drilling Rigs - United States
Total drilling rigs, end of period
2
2
2
Revenue per operating day (US$)(1)
Drilling rig operating days
Drilling rig utilization % (2)
$45,461(3)
56
31%
$36,097
155
84%
$54,188 (3)
25
69%
Wells drilled
Average days per well
Meters drilled (thousands)
Meters drilled per day
Average meters per well
5
11.3
14.5
258
2,942
16
9.7
50.7
327
978
1
16.6
2.9
177
2,939
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) 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
of field service.
(2) Drilling rig utilization is calculated based on operating days (i.e. spud to rig release basis).
(3) Revenue is enhanced by one-time recovery of mobilization costs.
Canadian Contract Drilling revenue of $5.1 million for Q4 2019 (Q4 2018: $13.1 million) was achieved with a utilization rate of
36% (Q4 2018: 59%), compared to the CAODC industry average of 23%, as CWC’s E&P customers deferred their drilling
programs into Q1 2020. CWC completed 232 Canadian drilling rig operating days with seven drilling rigs in Q4 2019, a 53%
decrease from the 491 Canadian drilling rig operating days with nine drilling rigs in Q4 2018 as activity levels in Q4 2019 were
reduced as a result of the Government of Alberta mandated production curtailment, which continued to temporarily slow down
the need for newly drilled wells. The Q4 2019 average revenue per operating day of $22,161 was a decrease of 17% from $26,642
in Q4 2018 which included a one-time contract payout amount of $0.7 million.
U.S. Contract Drilling revenue of $2.6 million for Q4 2019 (Q4 2018: nil) was achieved with a utilization rate of 31% (Q4 2018:
nil) with 56 U.S. drilling rig operating days completed. Q4 2019 average revenue per operating day in the U.S. was US$45,461
and included $0.8 million in one-time recovery of mobilization costs. CWC plans to move two more drilling rigs into the United
States by the end of 2020, subject to obtaining contracts with U.S. customers.
Page |
9
Production Services
With a fleet of 146 service rigs, CWC is the largest well servicing company in Canada as measured by active fleet and operating
hours. CWC’s service rig fleet consists of 75 single, 57 double, and 14 slant rigs providing services which include completions,
maintenance, workovers and well decommissioning with depth ratings from 1,500 to 5,000 metres. CWC has chosen to park 62
of its service rigs and focus its sales and operational efforts on the remaining 84 active service rigs due to the reduction in the
number of service rigs currently required to service the WCSB, in part as a result of the Government of Alberta’s mandated crude
oil production curtailments.
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. While the Company continues to service steam-assisted gravity drainage (“SAGD”) wells that are shallower in
depth and more appropriate for coil tubing operations, it has recently shifted its sales and operational focus on decommissioning
of abandoned wells.
CWC’s fleet of 13 swabbing rigs 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. The Company has chosen to park eight
of its swabbing rigs and focus its sales and operational efforts on the remaining five active swabbing rigs. In January 2020, CWC
sold one of its inactive swabbing rigs for a current fleet of 12 swabbing rigs.
OPERATING HIGHLIGHTS
Service Rigs
Active service rigs, end of period
Inactive service rigs, end of period
Total service rigs, end of period
Operating hours
Revenue per hour
Revenue per hour excluding top
volume customers
Service rig utilization % (1)
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 % (1)
Swabbing Rigs
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)
Dec. 31,
2019
Sep. 30,
2019
Jun. 30,
2019
Three months ended
Dec. 31,
2018
Mar. 31,
2019
Sep. 30,
2018
Jun. 30,
2018
Mar. 31,
2018
84
62
146
84
64
148
92
56
148
93
55
148
92
56
148
102
46
148
107
41
148
108
41
149
33,656
$664
29,528
$644
23,129
$646
30,875
$671
31,232
$663
42,316
$628
28,831
$642
53,979
$637
$682
62%
$660
52%
$687
39%
$690
53%
$696
51%
$664
63%
$677
41%
$681
78%
7
2
9
448
$646
10%
5
8
13
1,141
$282
35%
8
1
9
318
$730
6%
5
8
13
865
$284
19%
8
1
9
301
$830
6%
8
5
13
661
$262
13%
8
1
9
1,730
$555
34%
8
5
13
1,655
$288
32%
8
1
9
1,647
$625
31%
8
5
13
2,313
$283
41%
8
1
9
898
$731
17%
9
4
13
881
$273
15%
8
1
9
1,212
$762
23%
8
5
13
958
$265
18%
8
1
9
3,007
$724
54%
8
5
13
2,258
$310
44%
(1) Effective September 1, 2019, the CAODC changed its methodology on how it calculates service rig utilization. Service rig, coil tubing unit and swabbing rig
utilization is now calculated based on 10 operating hours a day x number of days per quarter x 5 days a week divided by 7 days in a week to reflect maximum
utilization available due to hours of service restrictions on rig crews. Utilization percentages have been retroactively updated to reflect this new CAODC
methodology. 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 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 $23.0 million in Q4 2019, up $0.6 million (3%) compared to $22.4 million in Q4 2018. The
increase in Q4 2019 activity levels for our production-oriented service rigs was a result of our E&P customers choosing to do
workovers to optimize production on their wells prior to the end of the year. CWC’s Production Services segment was affected
by a tight labour market for field employees during Q4 2019. Had rig crews been available, CWC believes it could activate 19 of
the 62 inactive service rigs with minimal capital expenditure resulting in a 103 active service rig fleet.
Page |
10
CWC's service rig utilization in Q4 2019 of 61% (Q4 2018: 51%) was driven by 33,656 operating hours being 8% higher than
the 31,232 operating hours in Q4 2018. In addition, the Q4 2019 average revenue per hour of $664 remained relatively
unchanged compared to the $663 per hour in Q4 2018. Q4 2019 average revenue per hour excluding the Company’s top volume
customers of $682 was $14 per hour (2%) lower than Q4 2018 average revenue per hour of $696 as CWC was able to increase
its hourly rate with its largest volume customers while being more competitive at slightly lower rates offered by our competitors
for its smaller volume customers.
CWC’s coil tubing utilization in Q4 2019 of 10% (Q4 2018: 31%) with 448 operating hours was 73% lower than the 1,647
operating hours in Q4 2018. Average revenue per hour for coil tubing services of $646 in Q4 2019 is $21 per hour higher (3%)
than $625 in Q4 2018. The lower utilization reflects the continuing challenge of lower crude oil prices during the quarter,
compared to a year ago, as well as the Government of Alberta mandated production curtailments temporarily slowing down the
need for work on SAGD wells.
CWC swabbing rig utilization in Q4 2019 of 35% (Q4 2018: 41%) with 1,141 operating hours was 51% lower than the 2,313
operating hours in Q4 2018 as CWC had three less swabbing rigs active during the quarter compared to the prior year, due to
lower customer demand from continued low natural gas prices. Average revenue per hour for swabbing rigs of $282 in Q4 2019
is relatively unchanged from $283 in Q4 2018.
Outlook
Crude oil, as represented by WTI, averaged US$56.85/bbl in Q4 2019, an increase of 1% compared to Q3 2019 average price of
US$56.40/bbl (Q4 2018: US$59.32/bbl). The price differential in Q4 2019 between Canadian heavy crude oil, as represented by
WCS, and WTI widened to over US$20.00/bbl. The Government of Alberta announcements in Q3 2019 reducing the production
curtailment to 125,000 bbls/day and extending the curtailment end date to December 31, 2020 while increasing the exemption
limit from 10,000 to 20,000 bbls/day starting October 1, 2019, effectively reduced the number of Alberta E&P companies
affected by the production curtailment. The widening price differential between WTI and WCS is partially a result of this
increased crude oil supply which saw an increase in Alberta crude oil storage levels in November 2019 nearing all-time highs
last achieved in 2018. As more pipeline space gets freed up on existing pipelines, crude-by-rail continues to grow and once
construction of the Enbridge Line 3 Replacement Project is completed, the WTI – WCS differential should begin to narrow,
thereby allowing increased activity level for oilfield services in the WCSB. Natural gas prices, as measured by AECO, increased
141% from an average of $0.97/GJ in Q3 2019 to $2.34/GJ in Q4 2019 (Q4 2018 $1.53/GJ); a result of the Canadian Energy
Regulator’s approval of the TSP application which caused the differential between Alberta gas prices and other North American
natural gas prices, such as NYMEX, to narrow. The TSP was enacted with the goal of providing TC Energy more flexibility in how
they deal with curtailments on the Nova Gas Transmission System during times of maintenance.
In Q1 2020, CWC is currently experiencing higher utilization than at any point in 2019 for both drilling rigs and service rigs
which we believe will continue through to spring breakup. The Canadian Association of Petroleum Producers (“CAPP”) has
recently stated that it expects $37 billion, about $2 billion (6%) more than 2019, will be invested in the Canadian upstream
energy sector in 2020; the first increase since 2014 when investment levels were $81 billion. In addition, on January 30, 2020,
the Petroleum Services Association of Canada (“PSAC”) increased its forecast for the number of wells to be drilled in Canada for
2020 by 300 wells (7%) to 4,800 wells. These industry forecasts suggest that CWC’s Canadian activity levels should be stronger
throughout 2020 with its only significant constraint being able to find sufficient field labour. However, CWC cautions that the
current global uncertainty with respect to the spread of the COVID-19 virus (the “coronavirus”) and its effect on the disruption
of supply and demand for products and services to the broader global economy, including its effect on oil and natural gas
produced by our E&P customers, may have a significant negative effect to oilfield service activity levels in Canada and the U.S.
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
business combinations in North America and globally. 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
Discussion of Financial Results
Revenue, Direct Operating Expenses and Gross Margin
$ thousands
Revenue
Contract Drilling
Production Services
Direct operating expenses
Contract Drilling
Production Services
Gross margin (1)
Contract Drilling
Production Services
Gross margin percentage (1)
Contract Drilling
Production Services
Three months ended
December 31,
2019
2018
Change
$
Change
%
Year ended
December 31,
2018
2019
Change
$
Change
%
7,705
22,962
30,667
6,213
16,590
22,803
1,492
6,372
7,864
19%
28%
26%
13,081
22,397
35,478
8,600
17,188
25,788
4,481
5,209
9,690
34%
23%
27%
(5,376)
565
(4,811)
(2,387)
(598)
(2,985)
(2,989)
1,163
(1,826)
n/a
n/a
n/a
(41%)
3%
(14%)
(28%)
(3%)
(12%)
(67%)
22%
(19%)
(15%)
5%
(2%)
28,497
79,949
108,446
21,484
58,125
79,609
7,013
21,824
28,837
25%
27%
27%
38,223
106,539
144,762
27,691
80,293
107,984
10,532
26,246
36,778
28%
25%
25%
(9,726)
(26,590)
(36,316)
(6,207)
(22,168)
(28,375)
(3,519)
(4,422)
(7,941)
n/a
n/a
n/a
(25%)
(25%)
(25%)
(22%)
(28%)
(26%)
(33%)
(17%)
(22%)
(3%)
2%
1%
(1) Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Q4 2019 revenue of $30.7 million, a decrease of $4.8 million (14%) compared to $35.5 million in Q4 2018. Revenue decreased
$5.4 million (41%) in the Contract Drilling segment and increased $0.6 million (3%) in the Production Services segment in Q4
2019 compared to Q4 2018.
For the year ended December 31, 2019, revenue of $108.4 million, a decrease of $36.3 million (25%) compared to $144.8 million
in 2018. Revenue decreased $9.7 million (25%) in the Contract Drilling segment and $26.6 million (25%) in the Production
Services segment for 2019 compared to 2018. The decrease in revenue for both Contract Drilling and Production Services is a
result of lower crude oil prices during 2019, as compared to 2018, wet weather conditions, and the Government of Alberta
mandated production curtailment temporarily slowing down the need for newly drilled wells and workover and maintenance
work on producing wells.
Revenue contribution from the Company’s top ten customers remained relatively constant at 56% for 2019 compared to 57%
in 2018 with CWC’s top customer’s revenue contribution decreasing to 12% in 2019 from 18% in 2018, suggesting the loss in
CWC’s service rig revenue in 2019 was primarily from CWC’s top volume customer who were the most affected by the
Government of Alberta’s mandated production curtailment.
For the year ended December 31, 2019, approximately 86% of revenue (2018: 78%) was from work on crude oil wells while
13% (2018: 22%) was from natural gas wells. Further, approximately 36% of revenue (2018: 35%) was related to drilling and
completions work, 51% of revenue (2018: 53%) from maintenance and workovers on producing wells and 13% of revenue
(2018: 12%) from well decommissioning.
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 percentages of 19% in Q4 2019 and 25% for the year ended December 31, 2019 are
lower than the 34% in Q4 2018 and 28% for the year ended December 31, 2018 primarily as a result of U.S. operations where
one of the drilling rigs did not generate revenue for 21 days during the fourth quarter of 2019 as it was being moved from Texas
to Wyoming to start work for an E&P customer in late December 2019. Production Services’ gross margin of 28% in Q4 2019 is
higher than the 23% in Q4 2018 as a result of a combination of increased activity levels and management’s focus and relentless
controls over direct costs. For the year ended December 31, 2019, Production Services’ gross margin of 27% is higher than the
25% for the same period in 2018 primarily as a result of a drop in CWC’s top volume customer’s activity levels, which were most
affected by the Government of Alberta’s mandated production curtailment, and corresponding decreases in volume discounts
and revenue.
Page |
12
Selling and Administrative Expenses
$ thousands
Selling and administrative
expenses
Three months ended
December 31,
2019
2018
Change
$
Change
%
Year ended
December 31,
2018
2019
Change
$
Change
%
4,373
4,713
(340)
(7%)
16,671
18,289
(1,618)
(9%)
Selling and administrative expenses were $4.4 million in Q4 2019, a decrease of $0.3 million (7%) compared to $4.7 million in
Q4 2018.
Selling and administrative expenses were $16.7 million for the year ended December 31, 2019, a decrease of $1.6 million (9%)
compared to $18.3 million in 2018. The decrease in selling and administrative expenses for the year ended December 31, 2019
compared to 2018 is primarily due to a proactive focus on reducing personnel and facility expenses while ensuring staffing
levels are optimized for the Company based on current economic conditions. Severance costs totaling $0.4 million were paid in
2019 (2018: $0.3 million) and a bonus accrual of $0.6 million is included in 2019 (2018: $1.0 million).
Adjusted EBITDA(1)
$ thousands
Adjusted EBITDA(1)
Contract Drilling
Production Services
Corporate
Adjusted EBITDA margin (%) (1)
Three months ended
December 31,
2019
2018
Change
$
Change
%
Year ended
December 31,
2018
2019
Change
$
Change
%
1,074
3,892
(1,475)
3,491
11%
4,136
2,621
(1,779)
4,978
14%
(3,062)
1,271
304
(1,487)
n/a
(74%)
48%
(17%)
(30%)
(3%)
5,454
11,962
(5,250)
12,166
11%
9,232
15,550
(6,293)
18,489
13%
(3,778)
(3,588)
1,043
(6,323)
n/a
(41%)
(23%)
(17%)
(34%)
(2%)
(1) Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
Management uses Adjusted EBITDA(1) as a measure of the cash flow generated by the Company. Positive Adjusted EBITDA(1)
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(1) was $3.5 million for Q4 2019, a decrease of $1.5 million (30%) compared to $5.0 million in Q4 2018.
For the year ended December 31, 2019, Adjusted EBITDA(1) was $12.2 million, a decrease of $6.3 million (34%) compared to
$18.5 million for 2018. The decrease in Adjusted EBITDA(1) is a result of reduced activity levels for both Contract Drilling and
Production Services due to lower crude oil prices in 2019, compared to 2018, a prolonged spring breakup and wet weather
conditions and the Government of Alberta mandated production curtailment temporarily slowing down the need for newly
drilled wells and workover and maintenance work on producing wells.
Stock Based Compensation
$ thousands
Stock based compensation
Three months ended
December 31,
2019
2018
329
339
Change
$
(10)
Change
%
(3%)
Year ended
December 31,
2018
2019
921
1,102
Change
$
(181)
Change
%
(16%)
Stock based compensation is primarily a function of outstanding stock options and restricted share units (“RSUs”) being
expensed over their vesting periods.
Stock based compensation was $0.3 million in Q4 2019, a decrease of $0.01 million (3%) compared to $0.3 million in Q4 2018.
For the year ended December 31, 2019 stock based compensation was $0.9 million, a decrease of $0.2 million (16%) compared
to $1.1 million for 2018.
Page |
13
Finance Costs
$ thousands
Finance costs
Three months ended
December 31,
2019
2018
516
857
Change
$
(341)
Change
%
(40%)
Year ended
December 31,
2018
2019
2,431
2,756
Change
$
(325)
Change
%
(12%)
Finance costs were $0.5 million in Q4 2019, a decrease of $0.3 million (40%) compared to $0.9 million in Q4 2018.
For the year ended December 31, 2019, finance costs were $2.4 million, a decrease of $0.4 million (12%) compared to $2.8
million for 2018. Finance costs decreased in 2019 due to lower long-term debt levels compared to 2018.
Depreciation and Amortization
$ thousands
Depreciation and amortization
Contract Drilling
Production Services
Corporate
Three months ended
December 31,
2019
2018
Change
$
Change
%
Year ended
December 31,
2018
2019
Change
$
Change
%
1,104
1,806
273
3,183
1,840
1,794
219
3,853
(736)
12
54
(670)
(40%)
1%
25%
(17%)
4,566
7,545
1,057
13,168
6,034
9,523
884
16,441
(1,468)
(1,978)
173
(3,273)
(24%)
(21%)
20%
(20%)
Effective April 1, 2019, the Company changed the method for depreciating its drilling and service rigs from a unit of production
to a straight line method. In addition, the Company changed certain estimates relating to useful lives and salvage values. The
change in depreciation methodology reflects the current and future economic environment within the industry and the Company
believes that straight line depreciation better reflects the pattern in which the assets’ future economic benefits will be consumed
by the Company, primarily as a result of idle or underutilized assets being depreciated more quickly in periods of low activity.
These adjustments were applied prospectively. Coil tubing units, capitalized recertifications, and other production equipment
have been and will continue to be depreciated on a straight line basis.
The decrease in Contract Drilling and Production Services depreciation for Q4 2019 compared to Q4 2018 is a result of the
switch to straight line depreciation compared to the previously used unit of production method which varied greatly with
activity levels.
Loss (Gain) on Disposal of Equipment
$ thousands
Loss (gain) on disposal of
equipment
(1) Not meaningful.
Three months ended
December 31,
2019
2018
Change
$
Change
%
Year ended
December 31,
2018
2019
Change
$
Change
%
368
(54)
422
n/m(1)
290
42
248
n/m
Management continually monitors the asset mix and equipment needs of the Company and divests assets as needed to optimize
operations. For the year ended December 31, 2019, the loss on disposal of equipment was primarily the result of the disposal of
two inactive service rigs as well as disposals of ancillary equipment and vehicles with proceeds on sale of $0.3 million (2018:
$2.1 million).
Deferred Income Taxes (Recovery) Expense
$ thousands
Net loss before income taxes
Deferred income tax (recovery) expense
Deferred income tax (recovery) expense as a % of net loss before income taxes
Expected statutory income tax rate
(1) Not meaningful.
Three months ended
Year ended
December 31,
December 31,
2019
2018
(905)
(51)
6%
26.5%
(17)
140
n/m(1)
27%
2019
(4,644)
(2,944)
63%
26.5%
2018
(1,852)
(150)
8%
27%
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, and other differences.
Page |
14
The deferred income tax recovery in 2019 of $2.9 million (2018: $0.2 million) is a result of the reduction in the Alberta provincial
corporate tax rates from 12% to 8% by 2022.
The Company has substantial tax pools and non-capital losses available to reduce future taxable income in Canada such that the
Company does not expect to pay any Canadian cash taxes for the next several years.
Net Loss and Comprehensive Loss
$ thousands
Net loss
Unrealized loss on translation of
foreign operations
Comprehensive loss
(1) Not meaningful.
Three months ended
December 31,
2019
2018
(854)
(157)
Change
$
697
Change
%
444%
Year ended
December 31,
2018
(1,702)
2019
(1,700)
(915)
(1,769)
-
(157)
915
1,612
n/m(1)
1027%
(730)
(2,430)
-
(1,702)
Change
$
(2)
730
728
Change
%
(0%)
n/m(1)
43%
Net loss was $0.9 million in Q4 2019, an increase of $0.7 million compared to a net loss of $0.2 million in Q4 2018. Comprehensive
loss was $1.8 million in Q4 2019, an increase of $1.6 million compared to a comprehensive loss of $0.2 million in Q4 2018. The
increase in comprehensive loss was partially due to an unrealized loss on translation of foreign currency from the Company’s
U.S. operations.
For the year ended December 31, 2019, net loss of $1.7 million, unchanged from a net loss of $1.7 million in 2018. Comprehensive
loss for the year ended December 31, 2019 was $2.4 million, an increase of $0.7 million (40%) compared to $1.7 million in 2018.
Liquidity and Capital Resources
Source of Funds
The Company’s liquidity needs in the short 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.
During the year ended December 31, 2019, the Company’s operating cash flow of $12.2 million and $0.3 million proceeds on
disposal of equipment were used to fund a $4.4 million reduction in long-term debt, $4.3 million of capital expenditures, $3.4
million of interest on long-term debt and finance lease payments and $0.7 million in acquisitions of shares under the NCIB.
At December 31, 2019 the Company had working capital (excluding debt) of $18.6 million consistent with the $19.0 million at
December 31, 2018. (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.
On September 27, 2019, CWC and its syndicated lenders completed an extension of its credit facilities (the “Bank Loan”) and
certain other amendments to provide financial security and flexibility to July 31, 2022. At the request of the Company, the credit
facilities were reduced from $75.0 million to $60.0 million to reduce borrowing costs and standby charges. Additionally, the
amendments exclude the Mortgage Loan from the consolidated debt definition used in calculating the quarterly financial
covenants.
The covenant for Consolidated Debt to Consolidated EBITDA ratio is as follows:
For the Quarter Ended
December 31, 2019
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
March 31, 2021
June 30, 2021
September 30, 2021 and thereafter
Previously
4.00 : 1.00
4.00 : 1.00
4.00 : 1.00
n/a
n/a
n/a
n/a
n/a
Currently
3.75 : 1.00
3.75 : 1.00
3.75 : 1.00
3.50 : 1.00
3.50 : 1.00
3.25 : 1.00
3.25 : 1.00
3.00 : 1.00
The Bank Loan is secured by a general security agreement and a first charge security interest covering all of the assets of the
Company (other than real estate assets related to the Mortgage Loan). 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, 2019. As of December 31, 2019, the applicable rates under the Bank Loan are: bank prime rate plus 1.50%,
banker’s acceptances rate plus a stamping fee of 2.50%, and standby fee rate of 0.57%.
Page | 1
5
On June 28, 2018, the Company entered into a five year credit facility (the “Mortgage Loan”) originally in the principal amount
of $12.8 million. (December 31, 2019: $11.9 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 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. 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, 2019 the mark-to-market value of the interest rate swap of $0.2 million is included within accounts payable and accrued
liabilities on the Consolidated Statements of Financial Position (December 31, 2018: $0.2 million).
Capital Requirements
On December 12, 2019, the Company announced its capital expenditure budget for 2020 of $6.7 million, $6.0 million of which is
maintenance and infrastructure capital related to recertifications, additions and upgrades to field equipment for the drilling rig
and service rig divisions as well as information technology infrastructure, with the remaining $0.7 million being growth capital
to upgrade one of the drilling rigs. The increase of $1.4 million compared to the 2019 capital expenditure of $5.3 million is a
result of the Company’s more optimistic view of the 2020 economy and operating environment than in the prior year. CWC
intends to continue to finance its 2020 capital expenditure budget from operating cash flows.
In 2019, the Company’s capital expenditure is detailed in the section below titled “Capital Expenditure”. 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:
Common shares
Stock options
Restricted share units
February 28, 2020
511,287,849
20,666,667
6,768,154
December 31, 2019
510,831,849
20,666,667
7,224,154
December 31, 2018
512,509,291
24,351,333
5,910,001
During the year ended December 31, 2019, no stock options were exercised, 2,900,000 expired, 1,051,666 were forfeited and
267,000 were granted. In addition, 2,725,058 RSUs were exercised, 100,000 expired, 254,334 were forfeited and 4,393,545 were
granted.
On April 15, 2019, the Company replaced its expired NCIB with a new NCIB which now expires on April 14, 2020. Under the new
NCIB the Company may purchase, from time to time as it considers advisable, up to 25,535,115 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.
During the year ended December 31, 2019, 4,532,000 common shares were purchased under the NCIB and 4,402,500 common
shares were cancelled and returned to treasury.
Page | 1
6
Capital Expenditures
$ thousands
Capital expenditures
Contract drilling
Production services
Other equipment
Growth capital
Maintenance and infrastructure
capital
Total capital expenditures
(1) Not meaningful.
Three months ended
December 31,
2019
2018
Change
$
Change
%
Year ended
December 31,
2018
2019
Change
$
Change
%
24
1,156
5
1,185
414
1,569
-
1,983
(390)
(413)
5
(798)
(94%)
(26%)
n/m(1)
(40%)
1,477
3,616
256
5,349
7,116
4,609
28
11,753
(5,639)
(993)
228
(6,404)
(79%)
(22%)
814%
(54%)
-
-
-
n/m(1)
386
5,859
(5,473)
(93%)
1,185
1,185
1,983
1,983
(798)
(798)
(40%)
(40%)
4,963
5,349
5,894
11,753
(931)
(6,404)
(16%)
(54%)
Capital expenditures of $1.2 million in Q4 2019, a decrease of $0.8 million (40%) compared to $2.0 million in Q4 2018.
Capital expenditures were $5.3 million for the year ended December 31, 2019, a decrease of $6.4 million (54%) compared to
$11.8 million in 2018. The Company met its 2019 capital expenditure budget of $5.4 million which was announced on January
16, 2019.
The 2020 capital expenditure budget of $6.7 million was approved by the Board of Directors on December 12, 2019 and is
comprised of $6.0 million of maintenance and infrastructure capital related to recertifications, additions and upgrades to field
equipment for the drilling rig and service rig divisions as well as information technology infrastructure, and $0.7 million related
to growth capital to upgrade one of the drilling rigs.
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, 2022. The
Company is committed to monthly payments of interest and bank charges until July 31, 2022. 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, 2018. Management believes
that there will be sufficient cash flows generated from operations to service the interest on the debt and finance the required
maintenance capital of the Company in 2020.
Summary and Analysis of Quarterly Data
$ thousands, except per share
amounts
Three months ended
2019
2018
Dec.
31
Sept.
30
June
30
March
31
Dec.
31
Sept.
30
June
30
March
31
Revenue
30,667
27,775
18,745
31,259
35,478
38,113
22,245
48,925
Adjusted EBITDA(1)
3,491
3,868
113
4,694
4,978
6,002
31
7,478
Net (loss) income
(854)
(234)
(565)
(47)
(157)
326
(3,067)
1,196
Net (loss) income per share: basic and
diluted
(0.00)
(0.00)
(0.00)
(0.00)
(0.00)
0.01
(0.01)
0.00
Total assets
Total long-term debt
Shareholders' equity
243,398
40,552
182,032
243,647
41,549
183,621
240,603
36,618
183,526
250,358
43,296
184,041
252,665
44,896
184,231
257,675
46,394
185,195
250,038
36,803
184,834
268,479
51,377
187,829
(1) Please refer to the “Reconciliation of Non-IFRS Measures” section for further information.
The table above summarizes CWC’s quarterly results for the previous eight financial quarters. CWC’s operations are carried out
in western Canada and the United States. 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 in Canada. 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
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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 hourly 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:
• Q4 2019 saw the WTI-WCS differential widen to over US$20.00/bbl, compared to a historical normal range of US$10-
$15/bbl. Despite this widening differential, CWC saw increased activity in its service rig division with 33,656 hours
compared to the 29,528 hours in Q3 2019. Drilling rig operating days were impacted by the movement of one drilling
rig from Texas to Wyoming which resulted in approximately 21 days of lost revenue. During Q4 2019, 1,453,500
common shares were purchased under the NCIB and 1,342,000 common shares were cancelled and returned to
treasury;
• Q3 2019 saw the first full quarter of drilling operations in the United States. In addition, the Company extended its credit
facilities to July 31, 2022 and reduced the credit facilities from $75 million to $60 million, which now includes a separate
U.S. operating facility. During Q3 2019, 405,000 common shares were purchased under the NCIB and 524,500 common
shares were cancelled and returned to treasury;
• Q2 2019 saw CWC move two drilling rigs from Canada into the United States which commenced operations in mid-June
2019. Wet weather conditions during the quarter significantly impacted activity levels in both the Canadian Contract
Drilling and Production Services segments. During Q2 2019, 623,000 common shares were purchased under the NCIB
and a total of 744,000 common shares were cancelled and returned to treasury;
• Q1 2019 saw a continuation of reduced activity levels for both the drilling rigs and CWC’s production-oriented service
rigs as a direct result of lower WTI prices during the quarter and the Government of Alberta mandated 325,000 bbls/day
production curtailments taking effect in January 2019. During Q1 2019, 2,050,500 common shares were purchased
under the NCIB and a total of 1,792,000 common shares were cancelled and returned to treasury;
• Q4 2018 saw the price differential between Canadian heavy crude oil, as represented by WCS, and WTI widen 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;
• 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.
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.
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8
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.
Effective April 1, 2019 the Company changed the method for depreciating its drilling and service rigs from a unit of production
method to a straight-line method. In addition, the Company changed certain estimates relating to useful lives and salvage values.
The change in depreciation methodology reflects the current and future economic environment within the industry and the
Company believes that straight line deprecation better reflects the pattern in which the assets’ future economic benefits will be
consumed by the Company, primarily as a result of idle or underutilized assets being depreciated more quickly in periods of low
activity.
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:
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
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.
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9
Accounting Policies Adopted in 2019
IFRS 16
The Company adopted IFRS 16 on January 1, 2019 using the modified retrospective approach. The modified retrospective
approach does not require restatement of prior period financial information as it recognizes the cumulative effect as an
adjustment to opening retained earnings and applies the standard prospectively. Accordingly, comparative information in the
Company’s financial statements are not restated.
On adoption, lease liabilities were measured at the present value of the remaining lease payments discounted using the
Company’s incremental borrowing rate on January 1, 2019. ROU assets were measured at an amount equal to the lease liability.
For leases previously classified as operating leases, the Company applied the exemption not to recognize ROU assets and
liabilities for leases with a lease term of less than 12 months, excluded initial direct costs from measuring the ROU asset at the
date of initial application, and applied a single discount rate to a portfolio of leases with similar characteristics. For leases that
were previously classified as finance leases under IAS 17, the carrying amount of the ROU asset and lease liability remain
unchanged upon transition and were determined at the carrying amount immediately before the adoption date.
The recognition of the present value of minimum lease payments resulted in an additional $645,000 of ROU assets and
associated lease liabilities. The Company has recognized lease liabilities in relation to lease arrangements previously disclosed
as operating lease commitments under IAS 17 that meet the criteria of a lease under IFRS 16. Upon recognition, the Company’s
weighted average incremental borrowing rate used in measuring lease liabilities was 6%.
The nature of the Company’s leasing activities includes vehicles and office space.
Related Party Transactions
As at December 31, 2019, of the total outstanding shares of the Company, 79.6% 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 2019, the Company had revenue totaling $1.4 million (2018: $1.6 million) and accounts receivable as at December 31,
2019 of $0.1 million (December 31, 2018: $0.2 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, 2019 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 of
the Company as of the date and for the periods presented in the annual filings.
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Risks and Uncertainties
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 and the
Unites States. 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 relevant to CWC’s business. All of these risk factors could negatively impact CWC’s revenue, margins and
cash flow.
Price Competition and Cyclical Nature of the Oilfield Services Business
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;
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 and the United States. 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 oil and gas exploration and
production industry in Canada and the United States 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 oil and
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gas exploration and production industry in Canada and the United States 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
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 Company's Operations
The Company's business, operations or financial condition may be negatively impacted as a result of any negative public opinion
towards the Company or as a result of any negative sentiment toward, or in respect of, the Company'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 Company 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 Company'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
Company has no control. Similarly, the Company's reputation could be impacted by negative publicity related to loss of life,
injury or damage to property and environmental damage caused by the Company's operations. In addition, if the Company
develops a reputation of having an unsafe work site, it may impact the ability of the Company 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
Company'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 Company's reputation.
Damage to the Company's reputation could result in negative investor sentiment towards the Company, which may result in
limiting the Company's access to capital, increasing the cost of capital, and decreasing the price and liquidity of the Company'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
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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 Company. Failing to implement the policies and practices, as
requested by institutional investors, may result in such investors reducing their investment in the Company, or not investing in
the Company at all. Any reduction in the investor base interested or willing to invest in the oil and natural gas industry and more
specifically, the Company, may result in limiting the Company's access to capital, increasing the cost of capital, and decreasing
the price and liquidity of the Company's securities even if the Company'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 Company'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.
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 Company 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 Company 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.
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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 and the United States. 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
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
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
Climate change policy is evolving at regional, national and international levels, and political and economic events may
significantly affect the scope and timing of climate change measures that are ultimately put in place. As a signatory to the United
Nations Framework Convention on Climate Change 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 went into effect on April 1, 2019
and affects provinces which have not implemented their own carbon taxes, cap-and-trade systems or other plans for carbon
pricing. The federal carbon levy is currently $20 per tonne and will rise $10 a year on April 1 of each year until it hits $50 a tonne
in 2022. 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 Company'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,
ENvironnement 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 July, 2019, the Superior Court of Quesbec refused to grant the
authorization to institute the class action. 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 Company'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
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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 Company's profitability.
Non-Governmental Organizations and Eco-Terrorism Risks
The business activities conducted by the Company may, at times, be subject to public opposition. Such public opposition could
expose the Company 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 (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 Company 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 Company to incur significant and unanticipated capital and operating expenditures.
In addition, the Company's oilfield services equipment could be the subject of a terrorist attack. If any of the Company's
equipment are the subject of a terrorist attack it may have a material adverse effect on the Company's business, financial
condition, results of operations and prospects. The Company 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 79.6% 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
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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.
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6
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.
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
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7
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
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 "Tax Agencies")
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
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 and Regulatory Proceedings
The Company is involved in legal and regulatory proceedings from time to time in the ordinary course of business. No assurance
can be given as to the final outcome of any legal or regulatory 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 Company's operations, the Company
may become involved in, named as a party to, or be the subject of, various legal proceedings in which it is alleged that the
Company has infringed the intellectual property rights of others or which the Company initiates against others it believes are
infringing upon its intellectual property rights. The Company'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 Company's favour. In the event of an
adverse outcome as a defendant in any such litigation, the Company 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 Company 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 Company's business and financial results.
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8
Breach of Confidentiality
While discussing potential business relationships or other transactions with third parties, the Company 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 Company at competitive risk and
may cause significant damage to its business. The harm to the Company'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 Company 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 Company's systems and obtain confidential
information. The Company 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 Company 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.
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9
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, 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 (i.e. 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. 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.
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Reconciliation of Non-IFRS Measures
$ thousands, except shares, per share amounts and
margins
Three months ended
December 31,
2019
2018
2019
Year ended
December 31,
2018
2017
NON-IFRS MEASURES
Adjusted EBITDA:
Net (loss) income
Add:
Depreciation
Finance costs
Transaction costs
Income tax expense
Stock based compensation
Gain on acquisition
Loss (gain) on sale of equipment
Adjusted EBITDA(1)
Adjusted EBITDA per share – basic and diluted (1)
Adjusted EBITDA margin (Adjusted EBITDA/Revenue)(1)
Weighted average number of shares outstanding - basic
Weighted average number of shares outstanding - diluted
Gross margin:
Revenue
Less: Direct operating expenses
Gross margin (2)
Gross margin percentage (2)
$ thousands
Working capital (excluding debt):
Current assets
Less: Current liabilities
Add: Current portion of long term debt
Working capital (excluding debt) (3)
Working capital (excluding debt) ratio(3)
Net debt:
Long term debt
Less: Current assets
Add: Current liabilities
Net debt (4)
(854)
(157)
(1,700)
(1,702)
4,861
3,183
516
-
(51)
329
-
368
3,491
$ 0.01
11%
3,853
857
-
140
339
-
(54)
4,978
$ 0.01
14%
17,103
2,054
1,549
(1,285)
869
(9,128)
40
16,063
$ 0.04
14%
510,443,613 518,513,776 511,106,531 520,576,582 399,008,915
510,443,613 518,513,776 511,106,531 520,576,582 403,359,537
13,168
2,431
-
(2,944)
921
-
290
12,166
$ 0.02
11%
16,441
2,756
-
(150)
1,102
-
42
18,489
$ 0.04
13%
30,667
22,803
7,864
26%
35,478
25,788
9,690
27%
108,446
79,609
28,837
27%
144,762
107,984
36,778
25%
112,215
82,361
29,854
27%
December 31,
2019
December 31,
2018
December 31,
2017
26,642
(9,249)
1,141
18,534
3.3:1
39,411
(26,642)
9,249
22,018
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
(1) 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, 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.
(2) 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
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.
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(3) 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.
(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.
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CWC ENERGY SERVICES CORP.
Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
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33
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 statements of financial position as at December 31, 2019 and 2018,
and the consolidated statements of comprehensive loss, consolidated statements of changes in equity and
consolidated statements of cash flows for the years 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, 2019 and 2018, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (“IFRS”).
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:
• Management’s Discussion and Analysis
•
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.
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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.
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.
• 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.
•
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5
• 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 Kim Wiggins.
Calgary, Canada
February 28, 2020
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6
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at December 31, 2019 and December 31, 2018
Stated in thousands of Canadian dollars
Note
2019
2018
14,15
5
6
7
8
7
9
$
117 $
23,800
2,725
26,642
216,756
-
$
243,398 $
8,108
1,141
9,249
12,706
39,411
61,366
259,515
15,459
(730)
(92,212)
182,032
508
23,579
2,806
26,893
225,658
114
252,665
7,865
928
8,793
15,673
43,968
68,434
261,353
13,390
-
(90,512)
184,231
$
243,398 $
252,665
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
Long term
Deferred tax liability
Long-term debt
SHAREHOLDERS' EQUITY
Share capital
Contributed surplus
Accumulated other comprehensive loss
Deficit
Comments and contingencies (note 13)
See accompanying notes to the consolidated financial statements.
Approved on behalf of the board:
(signed) “Gary Bentham”
Gary Bentham, Director
(signed) “Jim Reid”
Jim Reid, Director
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7
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except per share
amounts
Revenue
Note
2019
2018
17
$
108,446 $
144,762
Expenses
Direct operating expenses
Selling and administrative expenses
Stock based compensation
Finance costs
Depreciation and amortization
Loss on disposal of equipment
12
9(c)(d)
7
79,609
16,671
921
2,431
13,168
290
113,090
107,984
18,289
1,102
2,756
16,441
42
146,614
Loss before income taxes
(4,644)
(1,852)
Income taxes
Current tax
Deferred tax
Total income taxes
Net loss
8
23
(2,967)
(2,944)
-
(150)
(150)
$
(1,700) $
(1,702)
Other comprehensive loss
Item that may be reclassified to profit or loss in subsequent periods:
Unrealized loss on translation of foreign operations
(730)
-
Comprehensive loss
$
(2,430) $
(1,702)
See accompanying notes to the consolidated financial statements.
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8
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars
except share amounts
Note
Number of
Shares
Share
Capital
Contributed
Surplus
Balance – January 1, 2018
Net loss
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, 2018
Balance – January 1, 2019
Net loss
Stock based compensation expense
Settlement of restricted share units
Cancellation of common shares
purchased under normal course
issuer bid
Other comprehensive loss
Balance – December 31, 2019
9(c)(d)
9(c)
9(d)
9(b)
9(c)(d)
9(d)
9(b)
521,378,958 $
266,720 $
8,609 $
-
-
1,033,335
1,517,998
-
-
230
266
-
1,102
(82)
(266)
(11,421,000)
512,509,291 $
(5,863)
261,353 $
4,027
13,390 $
512,509,291 $ 261,353 $
13,390 $
-
-
2,725,058
-
-
472
(4,532,000)
-
(2,310)
-
-
921
(472)
1,620
-
510,702,349 $ 259,515 $
15,459 $
Accumulated
Other
Comprehensive
Loss
- $
-
-
-
-
-
- $
Deficit
Total
Equity
(88,810) $
(1,702)
-
-
-
186,519
(1,702)
1,102
148
-
-
(90,512) $
(1,836)
184,231
- $ (90,512) $ 184,231
(1,700)
-
921
-
-
-
(1,700)
-
-
(690)
-
(730)
(730)
(730) $ (92,212) $ 182,032
-
-
See accompanying notes to the consolidated financial statements.
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9
Note
2019
2018
$
(1,700) $
(1,702)
CWC ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except per share
amounts
Operating activities:
Net loss
Adjustments for:
Stock based compensation
Finance costs
Depreciation and amortization
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
Proceeds on disposal of equipment
Investing cash flow
Financing activities:
Repayment of long-term debt
Interest paid
Finance costs paid
Lease repayments
Proceeds from exercise of options
Common shares purchased under NCIB
Financing cash flow
9(c)(d)
8
10
9(c)
9(b)
921
2,431
13,168
290
(2,967)
12,143
104
12,247
(4,341)
295
(4,046)
(4,365)
(2,145)
(373)
(866)
-
(690)
(8,439)
Increase (decrease) in cash during the year
Effect of exchange rate changes on cash and cash equivalents
Cash, beginning of year
Cash, end of year
(238)
(153)
508
117 $
$
See accompanying notes to the consolidated financial statements.
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40
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
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
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”) and
the Bakken, Denver-Julesburg (“DJ”), and Eagle Ford basins located in the United States. 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.
2.
Basis of presentation
(a) Statement of compliance
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, 2020.
(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
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41
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
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
revenue, 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
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42
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
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 loss and comprehensive loss.
3.
Significant accounting policies
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:
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.
Effective April 1, 2019 the Company changed the method for depreciating its drilling and service rigs from a
unit of production method to a straight-line method. In addition, the Company changed certain estimates
relating to useful lives and salvage values. The change in depreciation methodology reflects the current and
future economic environment within the industry and the Company believes that straight line deprecation
better reflects the pattern in which the assets’ future economic benefits will be consumed by the Company,
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43
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
primarily as a result of idle or underutilized assets being depreciated more quickly in periods of low activity.
These adjustments were applied prospectively.
The following is a summary of depreciation estimates for the Company’s property and equipment as of April 1,
2019:
Assets
Drilling rigs and related equipment
Buildings
Production equipment – service rigs
Production equipment - swabbing rigs
and Service Rig Level IV
recertifications
Production equipment – coil
Support equipment
Miscellaneous equipment
Method
Straight-line with residual values of up to-10%
Straight-line with residual values of up to-20%
Straight-line with residual values of up to-10%
Rate
25 years
25 years
25 years
Unit of production
24,000 operating
hours
Straight-line with residual values of up to-20%
Straight-line with residual values of up to-15%
Straight-line with no residual value
10 years
2 to 10 years
3 to 5 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
Non-financial 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 cash and accounts receivable. 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.
All financial liabilities are initially recognized at fair value net of transaction costs and subsequently carried at
amortized cost.
Derivative financial instruments are classified at fair value through profit of loss. The Company’s derivatives
are interest rate swaps with changes in fair value recorded in the consolidated statements of income and
comprehensive income.
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44
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
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.
(e) Cash
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.
(f) Common shares
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.
(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, 2019
and 2018 there were no provisions recognized in the consolidated financial statements.
(h) Leases
A contract is, or contains, a lease if the contract conveys the right of control of the use of an identified asset for
a period of time in exchange for considerations. A lease obligation is recognized at the commencement of the
lease term at the present value of the lease payments that are not paid at that date. Interest expense is
recognized on the lease obligations using the effective interest rate method and payments are applied against
the lease obligation. At the commencement date, a corresponding ROU is recognized at the amount of the lease
obligation, adjusted for lease incentives received and initial direct costs. Depreciation is recognized on the ROU
asset over the lease term.
The preparation of the condensed interim consolidated financial statements in accordance with IFRS requires
management to make judgements, estimates, and key assumptions that affect the reported amount of asset,
liabilities, income, and expense. Actual results could differ significantly from these estimates. Key areas where
management has made judgements, estimates, and assumptions related to the adoption of IFRS 16 include:
•
Incremental borrowing rate: The incremental borrowing rates are based on judgements including
economic environment, term, currency, and the underlying risk inherent to the asset. The carrying
balance of the ROU asset, lease obligations, and the resulting interest and depletion and depreciation
expense, may differ due to changes in the market conditions and lease term.
• Lease term: Lease terms are based on assumptions regarding extension terms that allow for
operational flexibility and future market conditions.
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5
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
(i) 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 sheets and field tickets.
For both its Contract Drilling 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 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.
(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 translation
Functional currency is the currency of the primary economic environment in which the Company and its
subsidiaries operate and is normally the currency in which the entity primarily generates and expends cash.
The financial statements of the Company’s subsidiaries are translated into Canadian dollars, which is the
presentation currency of the Company. The assets and liabilities of subsidiaries whose functional currencies
are other than Canadian dollars are translated into Canadian dollars at the foreign exchange rate at the balance
sheet date, while revenues and expenses of such subsidiaries are translated using average monthly foreign
exchange rates, which approximate the foreign exchange rates on the dates of the transactions. Foreign
exchange differences arising on translation are included in Other Comprehensive Income (“OCI”).
The Company’s transactions in foreign currencies are translated to the appropriate functional currency at the
foreign exchange rate on the dates of the transactions. Monetary assets and liabilities denominated in foreign
currencies are translated to the functional currency at the foreign exchange rate at the balance sheet date and
differences arising on translation are recognized in net earnings. Non-monetary assets that are measured in
terms of historical cost in foreign currency are translated using the exchange rate at the dates of the
transactions.
(l)
Income Tax
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.
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.
Page | 4
6
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
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
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(c), 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(d), 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 | 4
7
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
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 16
In January 2016, the IASB issued IFRS 16 Leases (“IFRS 16”), which replaces the existing IFRS guidance on
leases: IAS 17 Leases (“IAS 17”). Under IAS 17, lessees were required to determine if the lease is a finance or
operating lease, based on specified criteria of whether the lease transferred significantly all the risks and
rewards associated with ownership of the underlying asset. Finance leases are recognized on the balance sheet
while operating leases are recognized in the Consolidated Statements of Comprehensive Income (Loss) when
the expense is incurred. IFRS 16 introduced a single lease accounting model for lessees which require a Right-
of-Use (“ROU”) asset and lease liability to be recognized on the balance sheet for contracts that are, or contain,
a lease. The Company’s leases under IFRS 16 primarily consist of vehicle leases, which were previously
classified as finance leases, and office leases, which were previously classified as operating leases.
The Company has adopted IFRS 16 on January 1, 2019 using the modified retrospective approach. The modified
retrospective approach does not require restatement of prior period financial information as it recognizes the
cumulative effect as an adjustment to opening retained earnings and applies the standard prospectively.
Accordingly, comparative information in the Company’s financial statements are not restated.
For leases that were previously classified as finance leases under IAS 17, the carrying amount of the ROU asset
and lease liability remain unchanged upon transition and were determined at the carrying amount immediately
before the adoption date.
For leases that were previously classified as operating leases under IAS 17, lease liabilities were measured at
the present value of the remaining lease payments discounted using the Company’s incremental borrowing
rate on January 1, 2019. ROU assets were measured at an amount equal to the lease liability. The recognition
Page | 4
8
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
of the present value of minimum lease payments resulted in additional $645 of ROU assets and associated lease
liabilities.
The adoption of IFRS 16 included the following elections:
• Elected to not recognize ROU assets and liabilities for leases term of less than 12 months, or for leases
of low value.
• Elected to exclude initial direct costs from measuring the ROU asset at the date of initial application.
• Elected to apply a single discount rate to portfolio of leases with similar characteristics.
• Elected to use hindsight in determining lease term.
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.
(a) 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 quoted 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 | 4
9
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
5.
Property, plant and equipment
Contract
Drilling
equipment
Production
Services
property,
plant, and
equipment
Right-of-
use
assets
Other
equipment
Total
$
119,532 $
(167)
255,655 $
(771)
119,365
1,280
-
(587)
120,058
26,282
(5)
26,277
4,316
-
(10)
30,583
254,884
2,931
(1,937)
-
255,878
123,376
(250)
123,126
7,810
(1,338)
-
129,598
-
1,583
1,583
363
(40)
(1)
1,905
-
255
255
849
(20)
-
1,084
$
1,942 $ 377,129
645
-
1,942
130
-
377,774
4,704
(1,977)
-
2,072
(588)
379,913
1,813
-
1,813
79
-
151,471
-
151,471
13,054
(1,358)
-
1,892
(10)
163,157
$
89,475 $
126,280 $
821 $
180 $ 216,756
Costs
Balance, December 31, 2018
Right-of-use assets
Balance, January 1, 2019
Additions
Disposals
Effect of foreign currency
exchange differences
Balance, December 31, 2019
Accumulated depreciation
and impairment losses
Balance, December 31, 2018
Right-of-use assets
Balance, January 1, 2019
Depreciation
Disposals
Effect of foreign currency
exchange differences
Balance, December 31, 2019
Net book value
Balance, December 31, 2019
Page |
50
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
Costs
Balance, January 1, 2018
Additions
Disposals
Transfers
Balance, December 31, 2018
Accumulated depreciation and
impairment losses
Balance, January 1, 2018
Depreciation
Disposals
Balance, December 31, 2018
Net book value
Balance, December 31, 2018
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
Given the degree of uncertainty regarding oil and natural gas activity and pricing for 2019 and into 2020, and
the impact thereof, the Company concluded indicators of impairment existed and performed an impairment
test for each CGU using value-in-use to determine the recoverable amounts. For each CGU, the recoverable
amount exceeded its carrying amount and therefore no impairment was recognized.
6.
Intangible assets
Costs
Balance, January 1, 2019 & December 31, 2019
Accumulated depreciation and impairment losses
Balance, January 1, 2019
Depreciation of intangible assets
Balance, December 31, 2019
Net book value
Balance, December 31, 2019
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
Page |
51
Intangible
assets
1,588
1,474
114
1,588
-
Intangible
assets
1,588
1,169
305
1,474
114
$
$
$
$
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
7.
Loans and borrowings
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 lease liabilities
Current portion of Mortgage Loan
Non-current liabilities
Bank Loan
Mortgage Loan
Lease liabilities
Financing fees
Total loans and borrowings
2019
2018
559 $
582
1,141 $
28,304 $
11,345
276
(514)
39,411
346
582
928
32,087
11,927
381
(427)
43,968
40,552 $
44,896
$
$
$
$
$
The Company has credit facilities with a syndicate of four Canadian financial institutions (the “Credit Facility”).
The Credit Facility provides the Company with a $60.0 million extendible revolving term facility (the “Bank
Loan”) and other credit instruments. Of the Bank Loan, $42.5 million is a syndicated facility, $10.0 million is a
Canadian operating facility with the remaining $7.5 million (US$5.75 million) being a U.S. operating facility. On
September 27, 2019, the Bank Loan was extended for a committed term until July 31, 2022 (“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.
The Bank Loan bears interest based on a sliding scale pricing grid tied to the Company’s trailing Consolidated
Debt(2) to Consolidated EBITDA(1) 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, 2019, of the $60,000 Bank Loan facility, $31,696 was available for immediate
borrowing and $28,304 was outstanding (December 31, 2018: $32,087). 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, 2019, the applicable rates under the Bank
Loan are: bank prime rate plus 1.50%, banker’s acceptances rate plus a stamping fee of 2.50%, and standby fee
rate of 0.57%.
Page |
52
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
Under the terms of the Credit Facility, the Company is required to comply with the following financial
covenants:
Consolidated Debt(2) to Consolidated EBITDA(1)
Consolidated Debt(2) to Capitalization(3)
Consolidated Adjusted Cash Flow(4) to Consolidated
Adjusted Finance Obligations(5)
Covenant limits
3.75:1.00 or less
0.50:1.00 or less
December 31, 2019
2.51:1.00
0.14:1.00
1.15:1.00 or more
3.62:1.00
(1) Consolidated 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, minus all principal paid or payable in connection with the Mortgage Loan. Consolidated 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 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. The Consolidated Debt to Consolidated EBITDA covenant limit reduces to
3.50:1.00 at September 30, 2020, to 3.25:1.00 at March 31, 2021 and to 3.00:1.00 at September 30, 2021 and thereafter.
(2) Consolidated Debt is calculated as total loans and borrowings as shown in the schedule above adjusted to exclude: the Mortgage Loan,
the funds held in any segregated accounts and to remove any financing fees included.
(3) Capitalization is calculated as Consolidated Debt plus Shareholders’ Equity as at the calculation date.
(4) Consolidated Adjusted Cash Flow is calculated as Consolidated 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
EBITDA resulting from an Equity Cure.
(5) Consolidated Adjusted 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 (excluding scheduled principal payments attributed to the Mortgage Loan).
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, 2019,
the mark-to-market value of the interest rate swap of $246 is included within accounts payable and accrued
liabilities on the Consolidated Statements of Financial Position (December 31, 2018: $206).
Lease liabilities consist of vehicles and office space which mature in 1 to 3 years. The incremental borrowing
rate applied to the individual leases liabilities varies from 4.0% to 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
December 31, 2019 financing fees of $286 were amortized and included in finance costs (year ended December
31, 2018: $162).
Page |
53
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
8.
Income taxes
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
Tax rate changes
Stock based compensation
Other
The deferred income tax liability is comprised of:
2019
2018
(4,644) $
27%
(1,254)
(1,852)
27%
(500)
56
(1,933)
245
(58)
(2,944) $
79
-
297
(26)
(150)
$
$
Deferred tax assets
Non capital losses(1)
Share issue costs
Finance lease liabilities
Other
Deferred tax liabilities:
Property and equipment
Net deferred income tax liability
December 31,
2018
Recognized in
Earnings
December 31,
2019
$
$
8,898
33
197
55
9,183
$
3,466 $
(16)
(8)
31
3,473
12,364
17
189
86
12,656
(24,856)
(15,673)
$
(506)
2,967 $
(25,362)
(12,706)
(1) The Company has $50,227 (2018: $32,949) 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 2039.
All changes in deferred income tax temporary differences were recognized in income in the years ended
December 31, 2019 and 2018.
9.
Share capital
(a) Authorized
Unlimited number of Common voting shares without par value.
Unlimited number of Preferred shares without par value.
(b) Normal course issuer bid
On April 15, 2019, the Company replaced its expired NCIB with a new NCIB which now expires on April 14,
2020. Under the new NCIB the Company may purchase, from time to time as it considers advisable, up to
25,535,115 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 were determined by Raymond James in its sole discretion, without consultation with
Page |
54
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
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, 2019, 4,532,000 shares (2018: 11,421,000) for consideration of $690,
including commissions (2018: $1,836) were purchased under the NCIB. In the year ended December 31, 2019,
a total of 4,402,500 shares were cancelled and returned to treasury (2018: 11,421,000).
(c) 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.
The following table summarizes changes in the number of stock options outstanding:
Balance at January 1, 2018
Exercised for common shares
Forfeited
Balance at December 31, 2018
Issued
Expired
Forfeited
Balance at December 31, 2019
Number of
options
27,546,667
(1,033,335)
(2,161,999)
24,351,333
267,000
(2,900,000)
(1,051,666)
20,666,667
Weighted average
exercise price
0.25
0.14
0.31
0.25
0.10
0.80
0.19
0.17
$
$
$
The following table summarizes information about stock options outstanding as at December 31, 2019:
Number of options
outstanding
Weighted average
remaining life (years)
contractual
Weighted
average exercise
price
Number of
options
exercisable
267,000
7,245,000
4,438,000
4,400,000
4,316,667
20,666,667
4.93
2.96
1.94
1.21
0.94
1.98
0.10
$
0.20
$
0.19
$
$
0.175
$ 0.11
0.17
$
-
4,830,000
4,438,000
4,400,000
4,316,667
17,984,667
Exercise price
$ 0.10
$ 0.20
$ 0.19
$ 0.175
$ 0.11
$ 0.10 - $ 0.20
Page | 5
5
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
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:
Risk free interest rate (%)
Expected life (years)
Expected volatility (%)
Expected forfeiture rate (%)
Expected dividend per share
2019
1.5%
4.9
83%
12%
$ 0.00
2018
n/a
n/a
n/a
n/a
n/a
267,000 stock options were issued during the year ended December 31, 2019 (year ended December 31, 2018:
nil). The weighted average fair value of the stock options issued during the year ended December 31, 2019 was
$0.10. For the year ended December 31, 2019, stock based compensation expense relating to stock options
totaled $480(year ended December 31, 2018: $732).
(d) 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.
The following table summarizes changes in the number of Restricted Share Units (“RSUs”) outstanding:
Balance at January 1, 2018
Granted
Redeemed for common shares
Forfeited - unvested
Balance at December 31, 2018
Granted
Redeemed for common shares
Expired - vested
Forfeited - unvested
Balance at December 31, 2019
Number of
RSUs
5,135,332
2,715,000
(1,517,998)
(422,333)
5,910,001
4,393,545
(2,725,058)
(100,000)
(254,334)
7,224,154
$
Weighted average fair
value at issue date
0.19
0.14
0.18
0.17
0.17
0.09
0.17
0.17
0.17
0.12
$
$
The following table summarizes information about RSUs outstanding as at December 31, 2019:
Issue date fair
value
Number of RSUs
outstanding
Weighted average
remaining life (years)
contractual
Weighted
average exercise
price ($)
Number of RSUs
exercisable
$ 0.09 - $ 0.19
7,224,154
2.93
n/a
959,999
For the year ended December 31, 2019, stock based compensation expense relating to RSUs totaled $441 (year
ended December 31, 2018: $370).
Page | 5
6
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
(e) Weighted average common shares outstanding
The following table reconciles the common shares used in computing per share amounts for the periods noted:
Weighted average common shares outstanding – basic
Effect of dilutive share-based compensation plans
Weighted average common shares outstanding – diluted
Year ended December 31,
2019
511,106,531
-
511,106,531
2018
520,576,582
-
520,576,582
Outstanding stock options and RSUs are currently the only instruments which could potentially dilute earnings
per share. For the year ended December 31, 2019, 20,666,667 (year ended December 31, 2018: 24,351,333)
stock options and 7,224,154 (year ended December 31, 2018: 5,910,001) RSUs were not included in the
computation of net loss per common share because to do so would be anti-dilutive.
(f) 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.
10.
Supplemental cash flow information
For the years ended December 31,
Increase (decrease) in non-cash working capital items:
Accounts receivable
Prepaid expenses and deposits
Accounts payable and accrued liabilities
11. Operating segments
2019
2018
$
$
(220) $
81
243
104 $
6,540
(1,275)
(4,337)
928
The Company operates its Contract Drilling segment in both Canada and the United States while its Production
Services segment operates in Canada. 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 to 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.
Page | 5
7
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
The amounts related to each industry segment are as follows:
For the year ended December 31, 2019
$
Revenue
Direct operating expenses
Selling and administrative expenses
Stock based compensation
Finance costs
Loss on disposal of equipment
Depreciation
Income (loss) before tax
Income tax recovery
Net income (loss)
Capital expenditures
As at December 31, 2019
Property, plant and equipment
Right-of-use assets
$
$
$
$
Contract
Drilling
28,497 $
21,484
1,559
-
-
-
4,566
888
-
888 $
Production
Services
Corporate
Total
79,949 $
- $ 108,446
58,125
9,862
-
-
290
7,545
4,127
-
4,127 $
-
5,250
921
2,431
-
1,057
(9,659)
(2,989)
(6,670) $
79,609
16,671
921
2,431
290
13,168
(4,644)
(2,989)
(1,655)
1,477 $
3,616 $
256 $
5,349
89,475 $
230 $
126,280 $
473 $
180 $ 215,935
118 $
821
For the year ended December 31, 2018
Revenue
$
Contract
Drilling
38,223 $
Production
Services
106,539 $
27,691
1,300
-
-
-
6,034
3,198
-
3,198 $
80,293
10,696
-
-
42
9,523
5,985
-
5,985 $
Corporate
Total
- $
144,762
-
107,984
6,293
1,102
2,756
-
884
(11,035)
(150)
(10,885) $
18,289
1,102
2,756
42
16,441
(1,852)
(150)
(1,702)
7,116 $
4,609 $
28 $
11,753
93,250 $
114 $
132,279 $
$
-
129 $
- $
225,658
114
Direct operating expenses
Selling and administrative expenses
Stock based compensation
Finance costs
Loss on disposal of equipment
Depreciation
Income (loss) before tax
Deferred income tax recovery
Net income (loss)
Capital expenditures
As at December 31, 2018
Property, plant and equipment
Intangibles
$
$
$
$
Page | 5
8
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
12. Expenses by nature
For the year ended
December 31, 2019
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, 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
Loss on
disposal of
equipment
Selling and
administrative
expenses
Direct
operating
expenses
$ 52,536 $
11,830
Stock based
compensation
Finance
costs
Depreciation
expense
10,125 $
-
-
5,018
194
1,334
-
-
-
921 $
-
-
-
-
-
-
-
-
- $
-
-
- $
-
-
-
-
-
-
2,431
-
-
-
13,168
-
-
-
15,243
-
-
-
-
-
-
$ 79,609 $
16,671 $
921 $ 2,431 $
13,168 $
Direct
operating
expenses
$ 71,451 $
16,410
Selling and
administrative
expenses
Stock based
compensation
Finance
costs
Depreciation
expense
Loss on
disposal of
equipment
Total
11,052 $
1,102 $
20,123
-
-
-
-
-
-
-
4,221
694
2,322
-
-
-
- $
-
-
- $
-
-
-
-
-
-
2,756
-
-
-
-
16,441
-
-
-
-
-
-
-
-
-
-
Total
- $ 63,582
11,830
-
-
-
-
-
-
-
15,243
5,018
194
1,334
13,168
2,431
290
290
290 $ 113,090
- $
-
83,605
16,410
-
-
-
-
-
-
20,123
4,221
694
2,322
16,441
2,756
42
42
42 $ 146,614
$ 107,984 $
18,289 $
1,102 $ 2,756 $
16,441 $
13. Commitments and contingencies
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.
14. Related parties
Of the total outstanding shares of the Company, 79.6% 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 2019, the Company had
revenue totaling $1,369 (2018: $1,587) and $71 in accounts receivable as at December 31, 2019 (December 31,
Page | 5
9
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
2018: $231) 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:
December 31, 2019 December 31, 2018
Short term employee benefits (including directors' fees)
Share based payments (stock options and RSUs)
Total compensation to key management including directors
and officers
$
$
$
1,717
704
2,421
$
1,837
201
2,038
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.
15.
Financial risk management
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, 2019 and 2018.
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. For the year ended
December 31, 2019, ten customers comprised 53% of revenue (2018: 57%) and one customer comprised 12%
of revenue (2018: 18%). At December 31, 2019, ten customers comprised 55% of trade accounts receivable
(2018: 64%) and one customer comprised 15% of trade accounts receivable (2018: 14%).
Page |
60
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
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,
Trade accounts receivable:
1 to 30 days outstanding – not past due
31 to 90 days outstanding
>90 days overdue
Allowance for impairment of accounts
2019
2018
$
$
13,250 $
10,383
391
(225)
23,799 $
20,739
2,216
1,396
(772)
23,579
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
2019
2018
$
$
772 $
282
(57)
(772)
225 $
126
671
(25)
-
772
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, 2019, the Company has available committed amounts under its Credit Facility in the amount
of $31,696 (2018: $42,913) plus trade and other receivables of $23,799 (2018: $23,579) for a total of $55,495
(2018: $65,772) 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 2020. 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.
Page |
61
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
The following table summarizes contractual maturities for non-derivative financial instruments:
As at December 31, 2019
Accounts payable and accrued
liabilities
Long-term debt
As at December 31, 2018
Accounts payable and accrued
liabilities
Long-term debt
(c) Market risk
2020
2021
2022
2023
2024 and
beyond
8,108 $
1,141
9,249 $
- $
801
801 $
- $
- $
28,942
28,942 $
10,181
10,181 $
-
-
-
2019
2020
2021
2022
2023 and
beyond
7,865 $
928
8,793 $
- $
32,541
32,541 $
- $
664
664 $
- $
582
582 $
-
10,181
10,181
$
$
$
$
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 is exposed to foreign currency fluctuations on its operations
in the United States. At December 31, 2019, portions of the Company’s trade and other receivables and accounts
payable and accrued liabilities were denominated in United States dollars and subject to foreign currency
exchange fluctuations which are recorded in net income. In addition, the Company’s United States subsidiary
is subject to foreign currency translation adjustments upon consolidation, which is recorded separately within
other comprehensive income.
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, 2019, if the prime interest rate increased by 1.0%, with all other
variables held constant, net loss would have been $406 higher (2018: $470).
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.
Page |
62
CWC ENERGY SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
Stated in thousands of Canadian dollars except share and per share amounts
16. 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 issuer bids.
The Company monitors capital using a financial metric of Consolidated Debt to Consolidated EBITDA ratio as
defined in the Credit Facility (see Note 7). Consolidated Debt to Consolidated 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, 2019, the actual and forecasted Consolidated Debt to Consolidated
EBITDA of the Company has increased, primarily due to amendments to the terms of the credit facility. The
Consolidated Debt to Consolidated EBITDA ratio at December 31, 2019 was 2.51:1.00 (at December 31, 2018:
1.35:1.00). The Company was in compliance with all externally imposed capital requirements as at December
31, 2019 and 2018.
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 year ended
December 31, 2019
Canada
United States
Revenue
Contract Drilling
Drilling Rigs
Service Rigs
Coil Tubing
Production Services
Swabbing
Rigs
Total
$
$
18,587 $
9,910
28,497 $
77,001 $
-
77,001 $
1,218 $
-
1,218 $
1,730 $
-
98,536
9,910
1,730 $ 108,446
Contract Drilling
For the year ended
December 31, 2018
Canada
United States
Revenue
$
$
Drilling Rigs
Service Rigs
Coil Tubing
38,223 $
-
38,223 $
99,904 $
-
99,904 $
1,848 $
-
1,848 $
4,787 $
-
4,787 $
Total
144,762
-
144,762
Production Services
Swabbing
Rigs
Included in accounts receivable at December 31, 2019 was $2,669 (December 31, 2018: $1,789) 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, 2019, the Company did not have any sales contracts beyond one year in term.
Page |
63
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
2019
2021
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
2018
2019
2020
2021
2022 and
beyond
$
$
12,202
176
12,378
$
$
-
-
-
$
$
-
49,634
49,634
$
$
-
-
-
$
$
-
-
-
Page | 64
Corporate Secretary
1
1, 2
1, 2, 3
1.
2.
3.
Audit Committee
2, 3
Compensation and Corporate Governance Committee
Quality, Health, Safety and Environment Committee
Ernst & Young LLP
Bankers
President & Chief Executive Of�icer
Duncan T. 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