ENSIGN ENERGY SERVICES INC.
2019 ANNUAL REPORT
drilling
directional drilling
testing well servicing
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS ............................................................................... 1
MANAGEMENT’S REPORT ............................................................................................................ 23
INDEPENDENT AUDITOR’S REPORT .............................................................................................. 24
CONSOLIDATED FINANCIAL STATEMENTS .................................................................................... 28
SHARE TRADING SUMMARY ......................................................................................................... 61
10 YEAR FINANCIAL INFORMATION .............................................................................................. 62
CORPORATE INFORMATION ......................................................................................................... 64
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) for Ensign Energy Services Inc. and all of its subsidiaries and
affiliates (“Ensign” or the “Company”) should be read in conjunction with the audited consolidated financial statements
and notes thereto for the year ended December 31, 2019, which are available on SEDAR at www.sedar.com.
This MD&A and the audited consolidated financial statements and comparative information have been prepared in
accordance with International Financial Reporting Standards (“IFRS”). All financial measures presented in this MD&A
are expressed in Canadian dollars unless otherwise indicated and are stated in thousands, except for: per share amounts,
number of drilling rigs and operating days. This MD&A is dated March 5, 2020. Additional information, including the
Company's Annual Information Form for the year ended December 31, 2019, is available on SEDAR at www.sedar.com.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this document constitute forward-looking statements or information (collectively referred to herein
as “forward-looking statements”) within the meaning of applicable securities legislation. Forward-looking statements can
be identified by the words “believe”, “anticipate”, “expect”, “plan”, “estimate”, “target”, “continue”, “could”, “intend”, “may”,
“potential”, “predict”, “should”, “will”, “objective”, “project”, “forecast”, “goal”, “guidance”, “outlook”, “effort”, “seeks”,
“schedule” or other expressions of a similar nature suggesting future outcome or statements regarding an outlook.
Disclosure related to expected future commodity pricing or trends, revenue rates, equipment utilization or operating
activity levels, operating costs, capital expenditures and other prospective guidance provided throughout this MD&A,
including, but not limited to: information provided in the “Funds Flow from Operations and Working Capital” section
regarding the Company’s expectation that funds generated by operations combined with current and future credit facilities
will support current operating and capital requirements, information provided in the “New Builds and Major Retrofits”
section regarding the new build program for 2019, information provided in the "Financial Instruments" section regarding
Venezuela and information provided in the “Outlook” section regarding the general outlook for 2020, constitute forward-
looking statements. These statements are not representations or guarantees of future performance and are subject to
certain risks. The reader should not place undue reliance on forward-looking statements as there can be no assurance
that the plans, initiatives, projections, anticipations or expectations upon which they are based will occur. Previous
presentations included references to publicly disclosed analyst consensus estimates for 2020 Revenue and EBITDA.
The Company has since removed references to the consensus estimates as the Company does not have access and
ability to disclose the material factors and assumptions third-party analysts utilize to develop their forward-looking
estimates.
The forward-looking statements are based on current expectations, estimates and projections about the Company and
the industries in which the Company operates, which speak only as of the date such statements were made or as of the
date of the report or document in which they are contained. They are subject to known and unknown risks, uncertainties
and other factors that could cause the actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by such forward-looking statements. Such risk factors
include, among others: general economic and business conditions which will, among other things, impact demand for
and market prices of the Company’s services and the ability of the Company’s customers to pay accounts receivable
balances; volatility of and assumptions regarding crude oil and natural gas commodity prices; fluctuations in currency
and interest rates; economic conditions in the countries and regions in which the Company conducts business; political
uncertainty and civil unrest; the Company's ability to implement its business strategy; impact of competition; the
Company’s defence of lawsuits; availability and cost of labour and other equipment, supplies and services; the Company's
ability to complete its capital programs; operating hazards and other difficulties inherent in the operation of the Company’s
oilfield services equipment; availability and cost of financing and insurance; timing and success of integrating the business
and operations of acquired companies; actions by governmental authorities; government regulations and the
expenditures required to comply with them (including safety and environmental laws and regulations and the impact of
climate change initiatives on demand, capital and operating costs); the adequacy of the Company’s provision for taxes;
and other circumstances affecting the Company's business, revenues and expenses.
The Company’s operations and levels of demand for its services have been, and at times in the future may be, affected
by political risks and developments, such as expropriation, nationalization, or regime change, and by national, regional
and local laws and regulations such as changes in taxes, royalties and other amounts payable to governments or
governmental agencies and environmental protection regulations. Should one or more of these risks or uncertainties
materialize, or should any of the Company’s assumptions prove incorrect, actual results may vary in material respects
from those expressed or implied by the forward-looking statements. The impact of any one factor on a particular forward-
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
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looking statement is not determinable with certainty as such factors are interdependent upon other factors, and the
Company’s course of action would depend upon its assessment of the future considering all information then available.
For additional information refer to the “Risk and Uncertainties” section of this MD&A and the "Risk Factors" section of
the Company's Annual Information Form. Readers are cautioned that the lists of important factors contained herein are
not exhaustive. Unpredictable or unknown factors not discussed in this MD&A could also have material adverse effects
on forward-looking statements.
Although the Company believes the expectations conveyed by the forward-looking statements are reasonable based
on information available to it on the date such forward-looking statements are made, no assurances can be given as to
future results, levels of activity and achievements. Except as required by law, the Company assumes no obligation to
update forward-looking statements should circumstances or its projections, anticipations, estimates or opinions change.
NON-GAAP MEASURES
This MD&A contains references to Adjusted EBITDA, Adjusted EBITDA per share and Consolidated EBITDA. These
measures do not have any standardized meaning prescribed by IFRS and accordingly, may not be comparable to similar
measures used by other companies. The non-GAAP measures included in this MD&A should not be considered as an
alternative to, or more meaningful than, the IFRS measures from which they are derived or to which they are compared.
The definition and method of calculation of the non-GAAP measures included in this MD&A are included in the "Overview
and Selected Annual Information" section.
OVERVIEW AND SELECTED ANNUAL INFORMATION
($ thousands, except per share data and operating information)
2019
2018
Change
% change
2017
Change
% change
Revenue
Adjusted EBITDA 1
Adjusted EBITDA per
common share 1
Basic
Diluted
Net (loss) income
attributable to shareholders
Net (loss) income per
common share
Basic
Diluted
Cash provided by operating
activities
Funds flow from operations
Funds flow from operations
per common share
Basic
Diluted
Total assets
Long term debt
1,592,247
1,156,357
406,766
255,677
435,890
151,089
$
$
$
$
$
$
2.55
2.55
$
$
1.63
1.63
$
$
0.92
0.92
(162,905)
58,302
(221,207)
(1.02)
(1.02)
$
$
0.37
0.37
269,571
236,989
152,133
225,939
1.48
1.48
$
$
1.44
1.44
$
$
$
$
(1.39)
(1.39)
117,438
11,050
0.04
0.04
3,470,601
3,993,162
(522,561)
1,581,529
1,716,964
(135,435)
38
59
56
56
nm
nm
nm
77
5
3
3
(13)
(8)
1,000,650
201,784
155,707
53,893
$
$
$
$
$
$
1.29
1.29
$
$
0.34
0.34
(37,644)
95,946
(0.24)
(0.24)
$
$
0.61
0.61
135,147
141,438
16,986
84,501
0.90
0.90
$
$
0.54
0.54
2,958,465
1,034,697
738,497
978,467
Dividends per share
$
0.42
$
0.48
$
(0.06)
(13)
$
0.48
—
16
27
26
26
nm
nm
nm
13
60
60
60
35
nm
—
nm - calculation not meaningful
1 Adjusted EBITDA is used by management and investors to analyze the Company’s profitability based on the Company’s principal business activities
prior to how these activities are financed, how assets are depreciated and how the results are taxed in various jurisdictions. Additionally, in order to
focus on the core business alone, amounts are removed related to foreign exchange, share-based payment expense, impairment expenses, the sale
of assets, restructuring expenses and fair value adjustments on financial assets and liabilities, as the Company does not deem these to relate to its
core drilling and well services business. Adjusted EBITDA also takes into account the Company’s portion of the principal activities of the joint venture
arrangements by removing the loss (gain) from investments in joint ventures and including adjusted EBITDA from investments in joint ventures. Adjusted
EBITDA is not intended to represent net loss as calculated in accordance with IFRS.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
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Adjusted EBITDA is calculated as follows:
($ thousands)
Loss (income) before income taxes
Add-back/(deduct)
Interest expense
Depreciation
Gain on bargain purchase
Share-based compensation
Gain on asset sale
Gain on purchase of unsecured Senior Notes 1
Foreign exchange and other loss (gain)
Loss (gain) from investments in joint ventures
Restructuring
Adjusted EBITDA from investments in joint ventures 2
2019
(183,597)
2018
6,484
2017
(187,796)
149,159
363,144
52,416
415,036
—
(200,672)
41,210
325,811
—
656
—
—
707
—
—
(19,001)
21,903
(874)
1,492
89
—
—
—
4,047
(9,824)
(4,647)
25,426
39,892
12,644
10,522
Adjusted EBITDA
1See "Interest Expense" section for definition of Senior Notes.
2Adjusted EBITDA from investments in joint ventures is used by management and investors to analyze the results generated by the Company’s joint
venture operations prior to how these activities are financed, how assets are depreciated and how the results are taxed in various jurisdictions.
Additionally, in order to focus on its core drilling and well services business, amounts related to foreign exchange, dividend expense, dividend re-class,
impairment adjustments to property and equipment, as well as preferred share valuation and the sale of assets are removed. Lastly, amounts recorded
for the revaluation on the investment of the Trinidad Drilling International joint venture are removed as these are non-cash items and unrelated to the
operations of the business. Adjusted EBITDA from investments in joint ventures is not intended to represent net loss as calculated in accordance with
IFRS.
255,677
406,766
201,784
Adjusted EBITDA from investment in joint ventures is calculated below:
($ thousands)
(Loss) gain from investment in joint ventures
Add-back/(deduct)
TDI fair value adjustment
Depreciation
Foreign exchange and other loss (gain)
Interest expense
Loss on sale of assets
Income taxes
Preferred shares valuation
Adjusted EBITDA from investment in joint ventures
Consolidated EBITDA
2019
(39,892)
625
42,709
588
2,320
—
3,549
623
10,522
2018
874
—
1,125
(39)
54
395
14
(2,334)
89
2017
—
—
—
—
—
—
—
—
—
Consolidated EBITDA, as defined in the agreement governing the Company's Credit Facility (as defined below), is
used in determining the Company's compliance with its covenants. The Consolidated EBITDA differs from Adjusted
EBITDA by exclusion of restructuring costs and certain foreign exchange amounts. Consolidated EBITDA is calculated
on a rolling twelve-month basis.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
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NATURE OF OPERATIONS
The Company is in the business of providing oilfield services to the oil and natural gas industry in Canada, the United
States and internationally. Oilfield services provided by the Company include drilling and well servicing, oil sands coring,
directional drilling, underbalanced and managed pressure drilling, equipment rentals and transportation.
The Company’s Canadian operations span the four western provinces of British Columbia, Alberta, Saskatchewan and
Manitoba and include the Northwest Territories and the Yukon. In the United States, the Company operates predominantly
in the Rocky Mountain and southern regions, as well as the states of California, New Mexico, North Dakota, Pennsylvania
and South Dakota. Internationally, the Company currently operates in Australia, Argentina, Bahrain, Kurdistan, Kuwait,
Mexico, Oman, United Arab Emirates, and Venezuela. In addition to these international locations, the Company has
operated in several other countries in the past and may relocate equipment to other regions in the future depending on
bidding opportunities and anticipated levels of future demand.
2019 COMPARED WITH 2018
Revenue for the year ended December 31, 2019 was $1,592.2 million, an increase of 38 percent from 2018 revenue of
$1,156.4 million. Adjusted EBITDA for 2019 totaled $406.8 million ($2.55 per common share), 59 percent higher than
Adjusted EBITDA of $255.7 million ($1.63 per common share) for the year ended 2018.
Net loss attributed to shareholders for the year ended December 31, 2019 was $162.9 million ($1.02 per common share)
compared to net income attributed to shareholders of $58.3 million ($0.37 per common share) for the year ended
December 31, 2018.
During the fourth quarter of 2018, the Company acquired 89.3 percent of Trinidad Drilling Ltd. ("Trinidad"), common
shares. During the first quarter of 2019, the Company acquired the remaining 10.7 percent of Trinidad common shares,
completing the largest acquisition in the Company's history (the "Trinidad Acquisition"). The Trinidad Acquisition
increased the Company's rig fleet by 68 drilling rigs in Canada, 66 in the United States and one internationally.
The Trinidad Acquisition also included a 60 percent interest in Trinidad Drilling International ("TDI"), a joint venture with
a wholly-owned subsidiary of the Halliburton group of companies. TDI further expanded the Company’s geographic
footprint with the addition of three new countries of operation (Bahrain, Kuwait and Mexico).
Results for the year ended December 31, 2019 were materially impacted by the Trinidad Acquisition, notably through
increased activity levels due to the increase in rig fleet size, an expanded customer base and additional exposure
internationally and in key basins in the United States market.
In Canada, the Company moved five under-utilized drilling rigs into its reserve fleet, decommissioned 18 drilling rigs and
10 well servicing rigs, and transferred one ADR® drilling rig to the United States. In the United States, the Company
deployed one new well servicing rig and decommissioned 14 drilling rigs. The Company also deployed one new ADR®
drilling rig into its international operations, using various components from its spare capital inventory, and placed two
international under-utilized drilling rigs into its reserve fleet.
The Company declared total dividends of $0.42 per common share in 2019 (2018 - $0.48 per common share).
Working capital as of December 31, 2019 was a surplus of $127.0 million, compared to a working capital deficit of $156.2
million as of December 31, 2018. The increase in working capital year-over-year was largely due to the repayment of
the US $200.0 million Ensign senior unsecured notes (the "Ensign Notes") and the repayment of the Trinidad credit
facility (the "Trinidad Facility") of $98.0 million which had been classified as short term debt as of December 31, 2018.
The Company’s available liquidity consisting of cash and available borrowings under its $900.0 million revolving credit
facility (the "Credit Facility") totaled $178.4 million as of December 31, 2019, compared to $486.0 million at December
31, 2018. The available liquidity decreased by $307.6 million due to a reduction in the available credit amount under the
Credit Facility in accordance with its terms and debt repayments.
2018 COMPARED WITH 2017
As noted above, during the fourth quarter of 2018, the Company acquired 89.3 percent of Trinidad Drilling Ltd. The
Company's improved operating and financial results for 2018 resulted from increased demand for oilfield services caused
by price recovery of crude oil and natural gas commodity prices during the year as well as the Trinidad Acquisition.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
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Operating and financial results were lower in Canada in 2018 compared to 2017, mainly due to geopolitical factors and
the lack of transportation infrastructure to transport oil and natural gas to other markets.
REVENUE AND OILFIELD SERVICES EXPENSE
($ thousands)
Revenue
Canada
United States
International
Total revenue
2019
2018
Change
% change
293,333
1,005,536
293,378
241,034
641,558
273,765
1,592,247
1,156,357
52,299
363,978
19,613
435,890
22
57
7
38
33
Oilfield services expense
1,140,939
855,824
285,115
Revenue for the year ended December 31, 2019 totaled $1,592.2 million, a 38 percent increase from the year ended
December 31, 2018 of $1,156.4 million. Despite volatile commodity pricing and oilfield activity in 2019, the Company
has achieved increased activity and revenue as a result of the Trinidad Acquisition, while reducing operating costs on
a per day basis. The financial results from the Company's United States and international operations were positively
impacted on the currency translation, as the United States dollar strengthened relative to the Canadian dollar for year
ended December 31, 2019. This positive currency translation was partially offset the impact of revenue day rate decreases
experienced in 2019.
CANADIAN OILFIELD SERVICES
Revenue ($ thousands)
Marketed drilling rigs 1,2
Opening balance
Additions
Acquisition of Trinidad Drilling Ltd.
Transfers, net
Placed into reserve
Placed into marketed fleet
Decommissions
Ending balance
Drilling operating days 1,3
Drilling rig utilization (%) 1
Well servicing rigs
Opening balance
Decommissions
Ending balance
Well servicing operating hours
Well servicing utilization (%)
1Excludes coring rig fleet.
2Total rigs: 118, (2018 - 137).
3 Defined as contract drilling days, between spud to rig release.
2019
2018
$
293,333
$
241,034
$
Change
52,299
% change
22
125
—
—
(1)
(5)
—
(18)
101
8,949
18.2
62
(10)
52
46,718
23.3
58
—
68
(1)
(1)
1
—
125
6,002
21.9
65
(3)
62
57,068
25.2
(24)
2,947
(3.7)
(10)
(10,350)
(1.9)
(19)
49
(17)
(16)
(18)
(8)
The Company recorded revenue of $293.3 million in Canada for the year ended December 31, 2019, an increase of 22
percent from $241.0 million recorded for the year ended December 31, 2018. For the year ended December 31, 2019,
total revenues generated from the Company's Canadian operations were 18 percent of the Company's total revenue
compared with 21 percent in the prior year.
For the year ended December 31, 2019, the Company recorded 8,949 drilling operating days in Canada, an increase
of 49 percent as compared to 6,002 drilling operating days for the year ended December 31, 2018. Well servicing hours
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
5
decreased by 18 percent to 46,718 operating hours compared with 57,068 operating hours for the year ended
December 31, 2018.
The overall increase in activity levels for year ended December 31, 2019, when compared to 2018 was primarily a result
of the Trinidad Acquisition. The increase in overall activity was offset by lower revenue rates realized in 2019, due to
continuing challenges to commodity prices for the Canadian market, combined with rig mix in the second half of 2019.
During 2019, the Company transferred one ADR® drilling rig from Canada to the United States, moved five under-utilized
drilling rigs into its reserve fleet and decommissioned 18 drilling and 10 well servicing rigs that were fully depreciated.
UNITED STATES OILFIELD SERVICES
Revenue ($ thousands)
Marketed drilling rigs 1
Opening balance
Additions
Acquisition of Trinidad Drilling Ltd.
Transfers, net
Placed into reserve
Decommissions 2
Ending balance
Drilling operating days 3
Drilling rig utilization (%)
Well servicing rigs
Opening balance
Additions
Decommissions
Ending balance
2019
2018
Change
% change
$
1,005,536
$
641,558
$
363,978
57
133
—
—
1
—
(12)
122
24,802
44.7
46
1
—
47
70
—
66
1
(3)
(1)
133
14,173
43.4
45
3
(2)
46
(11)
10,629
1.3
1
2,912
(2.6)
(8)
75
3
2
3
(4)
Well servicing operating hours
Well servicing utilization (%)
1Total rigs: 138, (2018 - 151).
2 Excludes two decommissioned rigs from reserve fleet.
3 Defined as contract drilling days, between spud to rig release.
115,136
67.5
112,224
70.1
For the year ended December 31, 2019, revenue of $1,005.5 million was recorded in the United States, an increase of
57 percent from the $641.6 million recorded in the prior year. The Company's United States operations accounted for
64 percent of the Company's total revenue in the 2019 fiscal year (2018 - 55 percent) and was the largest contributor
to the Company's total revenues in 2019, consistent with the prior year.
In the United States, drilling operating days increased by 75 percent from 14,173 drilling operating days in 2018 to 24,802
operating days in 2019. For the year ended December 31, 2019, well servicing activity increased three percent to 115,136
operating hours, from 112,224 operating hours in 2018.
Activity levels and revenues for the Company’s United States operations were positively impacted by the Trinidad
Acquisition. Furthermore, revenues were positively impacted by a strengthening of the United States dollar versus the
Canadian dollar year-over-year. The increases in activity and revenue were offset somewhat by a decrease in the average
revenue rates realized in 2019.
During 2019, the Company transferred one ADR® drilling rig from Canada to the United States and deployed one new
well servicing rig to the United States fleet. In addition, the Company decommissioned 14 drilling rigs that were fully
depreciated.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
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INTERNATIONAL OILFIELD SERVICES
Revenue ($ thousands)
Marketed drilling and workover rigs 1
Opening balance
Acquisition of Trinidad Drilling Ltd.
Additions
Placed into reserve
Ending balance 2
Drilling operating days 3
Drilling rig utilization (%)
1 Total rigs: 48, (2018 - 47).
2 Includes workover rigs.
3 Defined as contract drilling days, between spud to rig release.
2019
293,378
2018
273,765
Change
19,613
% change
7
44
—
1
(2)
43
5,360
31.1
44
1
—
(1)
44
6,061
36.1
(1)
(701)
(5.0)
(2)
(12)
(14)
The Company's international revenues for the year ended December 31, 2019 increased seven percent to $293.4 million
from $273.8 million recorded in the year ended December 31, 2018. The Company's international operations accounted
for 18 percent of the Company's total revenue in 2019 (2018 - 24 percent).
International drilling operating days totaled 5,360 in 2019 compared to 6,061 drilling operating days for the year ended
December 31, 2018, a decrease of 12 percent compared to the year prior.
Activity levels were lower for the year ended December 31, 2019 in the Company's international operations due to
reduced activity in Latin America where the number of operating rigs dropped from six active drilling rigs to four active
drilling rigs. The reduction in Latin American operations was offset somewhat by increases in the Australian and Middle
East operations and the strengthening United States dollar year-over-year versus the Canadian dollar. Furthermore, the
overall decrease in international activity was offset by higher revenue rates, leading to a seven percent increase in
revenue for the year ended December 31, 2019 compared to the similar period of 2018.
During 2019, the Company deployed one new ADR® drilling rig to its international operations, using various components
from its spare capital inventory. In addition, the Company moved two under-utilized drilling rigs into its reserve fleet.
DEPRECIATION
($ thousands)
Depreciation
2019
363,144
2018
415,036
Change
(51,892)
% change
(13)
Depreciation expense for the year decreased by 13 percent to $363.1 million compared with $415.0 million for the year
ended 2018. In the first quarter of 2019, the Company reviewed the makeup and the age of its drilling rig fleet and other
equipment and, based on age, specification and type of recertifications underway, determined the useful life estimates
previously used did not appropriately represent the useful life of the equipment. On this adjusted basis, the Company
believes the new useful life estimates for its equipment accurately reflect the future economic benefits related to these
assets. These adjustments were applied prospectively and, as such, have caused a decrease in depreciation expense
for the year ended December 31, 2019 when compared to the year ended December 31, 2018.
As a result of certain external impairment indicators existing in the market, in 2019 the Company completed impairment
tests in all of its cash generating units (each a "CGU"). The Company did not note any impairments for any CGUs based
on the following key assumptions: weighted average pre-tax discount rate of 12 percent to 14 percent based on cost of
capital and debt, asset and country risk, together with past experience; annual inflationary growth after five years and
limited to the assets' lives; and cash flow projections consistent with market conditions and estimated rig salvage values
of 10 percent. A five percent change in cash flow projections would not have resulted in any impairments. A one percent
change in the discount would result in an impairment of $17.0 million in one of the Company's CGU's.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
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GENERAL AND ADMINISTRATIVE EXPENSE
($ thousands)
General and administrative
% of revenue
2019
55,064
3.5
2018
44,945
3.9
Change
10,119
% change
23
For the year ended December 31, 2019, general and administrative expense totaled $55.1 million (3.5 percent of revenue)
compared to $44.9 million (3.9 percent of revenue) for the year ended December 31, 2018, an increase of 23 percent.
The increase was primarily due to the Trinidad Acquisition. However, synergies and cost savings realized following the
Trinidad Acquisition have led to a decrease in general and administrative expense as a percentage of revenue. The
Company continues to focus on initiatives to manage costs and realize further synergies and cost savings.
RESTRUCTURING EXPENSE
($ thousands)
Restructuring
nm - calculation not meaningful
2019
12,644
2018
1,492
Change
11,152
% change
nm
For the year ended December 31, 2019, restructuring expense totaled $12.6 million, which includes one-time severance
costs of $8.4 million (2018 - $nil). These costs were largely due to the Trinidad Acquisition.
FOREIGN EXCHANGE AND OTHER LOSS (GAIN)
($ thousands)
Foreign exchange and other loss
(gain)
nm - calculation not meaningful
2019
2018
Change
% change
25,426
(19,001)
44,427
nm
Included in this amount is the impact of foreign currency fluctuations in the Company’s subsidiaries that have functional
currencies other than the Canadian dollar.
JOINT VENTURE OILFIELD SERVICES
Amounts below are presented at 100 percent of the value included in the statement of operations and comprehensive
(loss) income for TDI. The Company owns 60 percent of the shares of TDI and each of the parties has equal voting
rights. The Company considers the investment to be a financial asset and fair values the investment through profit or
loss recognizing changes in fair value of the investment in consolidated statement of loss (income) as a loss/(gain) from
investments in joint venture.
Revenue ($ thousands)
Marketed drilling and workover rigs
Opening balance
Acquisition of Trinidad Drilling Ltd.
Ending balance
Drilling operating days 2
Drilling rig utilization (%)
nm - calculation not meaningful
2 Defined as contract drilling days, between spud to rig release.
2019
60,714
5
—
5
633
34.0
2018
3,643
—
5
5
47
30.3
Change
57,071
% change
nm
—
586
3.7
—
nm
12
For the year ended December 31, 2019, TDI recorded operating revenue of $60.7 million, an increase of $57.1 million
from the same period in 2018. The Company acquired TDI as part of the Trinidad Acquisition during the fourth quarter
of 2018 with 2019 being a full year of operations.
Operating days increased by 586 to 633 in 2019 from 47 days in 2018. The increase in operating days is a result of
2019 being a full year of operations and the start-up of operations in Kuwait, consisting of two drilling rigs.
During the year, TDI recorded an impairment of $48.1 million on two drilling rigs that are in Mexico. The Company's
share of the impairment was $28.9 million.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
8
GAIN ON ASSET SALE
($ thousands)
Gain on asset sale
nm - calculation not meaningful
2019
(9,824)
2018
—
Change
% change
(9,824)
nm
On April 30, 2019 the Company completed the sale of its testing and wireline assets in Canada and the United States
for cash proceeds of $24.0 million. The transaction resulted in a gain of $9.8 million before taxes (2018 - $nil).
INTEREST EXPENSE
($ thousands)
Interest expense
nm - calculation not meaningful
2019
149,159
2018
52,416
Change
96,743
% change
nm
Interest was incurred on the Company's $900.0 million Credit Facility, US $700 million unsecured Senior Notes (the
"Senior Notes"), $37.0 million subordinate convertible debentures (the "Convertible Debentures"), capital lease
obligations, and on certain other prior debt instruments until they were repaid during 2019. Included in interest expense
is the amortization of deferred financing costs associated with refinancing the Company's debt resulting from the Trinidad
Acquisition, which totaled $13.9 million (2018 - $1.8 million).
Due to payment delays for work performed in Venezuela, the Company recognized a discount on its receivable in the
amount of $3.8 million within interest expense. The receivable over 90 days is discounted at 14.5 percent over a five-
year period.
Interest expense increased by $96.7 million for the year ended December 31, 2019 compared to the same period in
2018. The increase is the result of the overall increase to the interest rate, additional debt incurred to fund the Trinidad
Acquisition and the discount applied on Venezuela receivables. The negative translation impact on US dollar-
denominated debt also impacted interest expense for the year ended December 31, 2019.
INCOME TAXES
($ thousands)
Current income tax
Deferred income tax
Total income tax
Effective income tax rate (%)
nm - calculation not meaningful
2019
3,416
(23,559)
(20,143)
11.2
2018
1,044
(53,224)
(52,180)
26.9
Change
% change
2,372
29,665
32,037
nm
(56)
(61)
The effective income tax rate for the year ended December 31, 2019 was 11.2 percent compared with 26.9 percent for
the year ended December 31, 2018. The effective tax rate was significantly lower than the effective tax rate of 2018
primarily due to the reduction in the provincial Alberta tax rate on the deferred tax asset and the denial of hybrid interest
deductions in the United States.
FUNDS FLOW FROM OPERATIONS AND WORKING CAPITAL
($ thousands, except per share data)
Funds flow from operations
Funds flow from operations per share
Working capital
nm - calculation not meaningful
2019
236,989
$1.48
126,987
2018
225,939
$1.44
(156,223)
Change
11,050
0.04
283,210
% change
5
3
nm
For the year ended December 31, 2019, the Company generated funds flow from operations of $237.0 million ($1.48
per common share) an increase of five percent from $225.9 million ($1.44 per common share) for the year ended
December 31, 2018. The increase in funds flow from operations in 2019 compared to 2018 is primarily due to increased
activity resulting from the Trinidad Acquisition, combined with a stronger United States dollar in 2019. This was partially
offset by increased interest costs when compared to 2018. The significant factors that may impact the Company's ability
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
9
to generate funds flow from operations in future periods are outlined in the "Risks and Uncertainties" section of this
MD&A.
As of December 31, 2019, the Company’s working capital was a surplus of $127.0 million, compared to a working capital
deficit of $156.2 million as of December 31, 2018. The increase in working capital in 2019 was mainly related to the
repayment of US $200.0 million Ensign Notes and the $98.0 million Trinidad Facility in the first quarter of 2019. The
Company's Credit Facility provides for total borrowings of $900.0 million of which $150.0 million was undrawn and
available at December 31, 2019.
INVESTING ACTIVITIES
($ thousands)
Purchase of property and equipment
Proceeds from disposals of property and equipment
Acquisition of Trinidad Drilling Ltd. (net)
Contributions to joint venture
Net change in non-cash working capital
Cash used in investing activities
nm - calculation not meaningful
2019
(136,006)
39,997
(49,214)
—
3,139
2018
(80,044)
6,748
(294,264)
(26,144)
17,734
(142,084)
(375,970)
Change
(55,962)
33,249
245,050
26,144
(14,595)
233,886
% change
70
nm
(83)
nm
(82)
(62)
Net purchases of property and equipment during the fiscal year ending 2019 totaled $96.0 million (2018 - $73.3 million).
The purchase of property and equipment relates predominantly to maintenance capital for certain drilling rigs, rig
upgrades, the deployment of one drilling rig to international operations and addition of one new well servicing rig in the
United States.
FINANCING ACTIVITIES
($ thousands)
2019
Proceeds from long-term debt, net if debt issuance cost
2,266,408
2018
490,886
Repayments of long-term debt
Lease obligation principle repayments
Purchase of shares held in trust
Convertible Debentures
Dividends
Net change in non-cash working capital
Cash (used in) provided by financing activities
nm - calculation not meaningful
(2,375,891)
(182,391)
(10,888)
(1,398)
—
(53,076)
(8,044)
(182,889)
—
(1,047)
37,000
(75,396)
11,609
280,661
Change
1,775,522
(2,193,500)
(10,888)
(351)
(37,000)
22,320
(19,653)
(463,550)
% change
nm
nm
nm
34
nm
(30)
nm
nm
The Company’s available credit facilities consist of a $900.0 million secured Credit Facility, which matures November
26, 2021, of which $150.0 million was available and undrawn as of December 31, 2019. In addition, the Company has
available to it a US $50.0 million secured letter of credit facility, of which US $6.9 million was available as of December
31, 2019.
During the second quarter of 2019, the Company issued US $700.0 million of Senior Notes due 2024 bearing interest
of 9.25% per annum. The net proceeds of the Senior Notes offering and cash on hand were used to repay all outstanding
loans under the Company's US $700.0 million senior loan. The Senior Notes may be redeemed by the Company on or
after April 15, 2021 at 104.625%, April 15, 2022 at 102.313% and April 15, 2023 and thereafter at 100%, plus accrued
interest. The current capital structure consisting of the Credit Facility and the Senior Notes allows the Company to utilize
funds flow generated to reduce debt in the near term with greater flexibility than a more non-callable weighted capital
structure.
The Company may at any time and from time to time acquire Senior Notes for cancellation by means of open market
purchases, negotiated transactions or otherwise. During the year ended December 31, 2019, the Company purchased
US $58.0 million of face value Senior Notes for cancellation, in the open market. The Company purchased a further US
$4.0 million of Senior Notes for cancellation subsequent to December 31, 2019. The cumulative purchase price was US
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
10
$54.6 million in addition to US $1.1 million of accrued interest. The Company recorded a gain on the purchase of US
$3.5 million.
Covenants
The following is a list of the Company's currently applicable covenants pursuant the Credit Facility and the covenant
calculations as at December 31, 2019:
Covenant
December 31, 2019
The Credit Facility
Consolidated Total Debt to Consolidated EBITDA1
Consolidated EBITDA to Consolidated Interest Expense1,2
Consolidated Senior Debt to Consolidated EBITDA1,3
1 Please refer to "Non-GAAP Measures: and "Overview and Select Annual Information" sections for Consolidated EBITDA definition.
2 Consolidated Interest Expense is defined as all interest expense calculated on twelve month rolling consolidated basis excluding amortized finance
cost and interest expense associated with the purchase of the Trinidad senior unsecured notes due February 2025 (the "Trinidad Notes").
3 Consolidated Senior Debt is defined as Consolidated Total Debt minus Subordinated Debt.
3.58
1.78
3.78
As at December 31, 2019 the Company was in compliance with all covenants related to the Credit Facility.
The Credit Facility
The Credit Facility agreement, which is available on SEDAR requires that the Company comply with certain covenants
including Consolidated Debt to Consolidated EBITDA, Consolidated Senior Debt to Consolidated EBITDA and
Consolidated EBITDA to Consolidated Interest Expense.
The Credit Facility also contains certain covenants that place restrictions on the Company's ability to create, incur or
assume additional indebtedness; change the Company's primary business; enter into mergers or amalgamations; dispose
of property; and for the aggregate amount of cash on a consolidated basis or available borrowings to be at least $50
million.
Senior Notes
The indenture governing the Senior Notes, which is available on SEDAR, contains certain restrictions and exemptions
on the Company’s ability to pay dividends, purchase and redeem shares and subordinated debt of the Company, and
make certain restricted investments. These restrictions are tempered by the existence of a number of exceptions to the
general prohibitions, including baskets allowing for restricted payments.
The indenture also restricts the Company's ability to incur additional indebtedness if the Fixed Charge Coverage Ratio
determined on a pro forma basis for the most recently ended four fiscal quarter period for which internal financial
statements are available is not at least 2.0 to 1.0. As is the case with restricted payments, there are a number of exceptions
to this prohibition on the incurrence of additional indebtedness, including the incurrence of additional debt under credit
facilities up to the greater of $900.0 million or 22.5 percent of the Company’s consolidated tangible assets. As at December
31, 2019, the Company has not incurred additional indebtedness that would require the Fixed Charge Coverage Ratio
to be calculated.
Dividends
The Board of Directors of the Company has declared a first quarter cash dividend of $0.06 per common share to be
payable on April 3, 2020 to all common shareholders of record as of March 20, 2020. The dividend is being paid pursuant
to subsection 89(1) of the Canadian Income Tax Act ("ITA") and is designated as an "eligible dividend" as defined in
subsection 89(1) therein. During 2019, the Company had re-implemented its Dividend Reinvestment Plan ("DRIP"). The
DRIP was in place for the settlement of the first, second and third quarter declared dividends. The DRIP was discontinued
in the fourth quarter.
Subsequent to December 31, 2019, the Company declared a dividend for the first quarter of 2020 of $0.06 per common
share or approximately $9,787, payable on or about April 3, 2020 to the shareholders of record at the close of business
on March 20, 2020. The dividend has not been provided for and is pursuant to the quarterly dividend policy adopted by
the Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act (“ITA”), the dividend being paid is designated
as an eligible dividend, as defined in subsection 89(1) of the ITA.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
11
CONTRACTUAL OBLIGATIONS
In the normal course of business, the Company enters into various commitments that will have an impact on future
operations. These commitments relate primarily to the Credit Facility, the Senior Notes, Convertible Debentures and
lease obligations.
A summary of the Company’s total contractual obligations including interest as of December 31, 2019, is as follows:
($ thousands)
Credit Facility
Senior Notes
Convertible Debentures
Lease obligations
FINANCIAL INSTRUMENTS
Less than 1 Year
1-3 Years
4-5 Years
After 5 Years
34,064
78,252
2,597
10,352
780,704
234,115
40,456
13,202
—
853,696
—
—
125,265
1,068,477
853,696
—
—
—
—
—
Total
814,768
1,166,063
43,053
23,554
2,047,438
As at December 31, 2019, the Company’s financial instruments include cash, accounts receivables, accounts payable
and accruals, operating lines of credit, dividends payable and long-term debt. The Company classifies and measures
cash and accounts receivable as financial assets at amortized cost, and classifies and measures accounts payable and
accruals, operating lines of credit, dividends payable and long-term debt as financial liabilities at amortized cost. The
fair values of these financial instruments (other than long-term debt) approximate their carrying amount due to the short
term maturity of these instruments. Long-term debt approximate their fair values due to the variable interest rates applied,
which approximate market interest rates.
In regards to the Company’s outstanding Debentures, the liability component of the Debentures was recognized initially
at the fair value and revalued quarterly using a similar liability that does not have an equity conversion option, which
was calculated based on an estimated market interest rate of 7.0%. The difference between the principal amount of the
Debentures and the fair value of the liability component was recognized in shareholders’ equity.
The Company’s financial instruments are associated with various risks, some of which are described below.
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. Credit risk arises principally from the Company’s accounts receivable balances owing from
customers operating primarily in the oil and natural gas industry in Canada, the United States and internationally. The
carrying amount of accounts receivable represents the maximum credit exposure as at December 31, 2019.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected
loss allowance for all trade receivables and contract assets.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics
and the days past due. The expected loss rates are based on the payment profiles of sales over a period of 36 months
before December 31, 2019 or January 1, 2019 respectively and the corresponding historical credit losses experienced
within this period. The historical loss rates are adjusted to reflect current and forward-looking information on
macroeconomic factors affecting the ability of the customer to settle the receivables.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
12
On that basis, the loss allowance as at December 31, 2019 and December 31, 2018 was determined as follows for trade
receivables:
As at December 31, 2019
Expected loss rate
Gross carrying amount 1
Loss allowances
As at December 31, 2018
Expected loss rate
Gross carrying amount 1
Current
0.5%
128,168
641
Current
0.5%
More than 30
days past due
More than 60
days past due
More than 90
days past due
2.0%
8.2%
34.6%
56,150
1,123
18,069
1,482
32,893
11,379
More than 30
days past due
More than 60
days past due
More than 90
days past due
2.0%
8.2%
43.2%
167,105
104,662
26,207
25,682
Loss allowances
836
1 Gross carrying amount excludes unbilled revenue and other receivables of $51,599 for year ended December 31, 2019 (2018 - $44,123).
11,105
2,149
2,093
Total
235,280
14,625
Total
323,656
16,183
As part of the Company’s international operations, it provides oilfield services in Venezuela pursuant to contractual
arrangements. As at December 31, 2019, the Company had accounts receivable of approximately $24.3 million for work
performed in Venezuela, of which receivables over 90 days were discounted at 14.5 percent over a five year period
(2018 - $nil). Though the Company has a history of collecting accounts receivable in Venezuela, due to the continuing
political unrest in the country there can be no assurance that the Company will be successful in collecting all of such
accounts receivable outstanding.
The loss allowance for trade receivables as at December 31, 2019 reconcile to the opening loss allowances as follows:
($ thousands)
Opening balance - January 1
Increase in loss allowance recognized in profit or loss
Unused amount reversed
Effect of movement in exchange rates
Closing balance - December 31
2019
$
16,183
$
100
(1,540)
(118)
2018
4,165
12,781
(633)
(130)
$
14,625
$
16,183
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no
reasonable expectation of recovery include, amongst others, the failure of debtor to engage in a repayment plan with
the Company, and failure to make contractual payments for a period of greater than 120 days past due.
Impairment losses on trade receivables are presented as net losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line item.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company
manages liquidity by forecasting cash flows on an annual basis and secures sufficient credit facilities to meet financing
requirements that exceed anticipated internally generated funds. As at December 31, 2019, the remaining contractual
maturities of accounts payable and accruals and cash dividends payable are less than one year.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the
Company’s net income or the value of its financial instruments.
Interest rate risk
The Company is exposed to interest rate risk with respect to its bank credit facilities which bear interest at floating market
rates. For the year ended December 31, 2019, if interest rates applicable to its bank credit facilities had been 0.25
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
13
percent higher or lower, with all other variables held constant, income before income taxes would have been $1,875
lower or higher.
Foreign currency exchange rate risk
Foreign currency risk can only arise on financial instruments that are denominated in a currency other than the functional
currency in which they are measured. The Company has hedged it's exposure to foreign exchange risk through the
issuance of a USD denominated Senior Note. Translation related risks are therefore not included in the assessment of
the entity’s exposure to currency risks.
Translation exposures arise from financial and non-financial items held by an entity (for example, a subsidiary) with a
functional currency different from the Company’s presentation currency. However, foreign currency denominated inter-
company receivables and payables which do not form part of a net investment in a foreign operation would be included
in the sensitivity analysis for foreign currency risks, because even though the balances eliminate in the consolidated
balance sheet, the effect on profit or loss of their revaluation under IAS 21 is not fully eliminated.
At December 31, 2019, had the Company dollar weakened or strengthened by $0.01 against the United States dollar,
with all other variables held constant, the Company's income loss before income taxes would have been $6,420 higher
or lower.
NEW BUILDS AND MAJOR RETROFITS
The Company continues to focus on innovative strategies and selective additions of new ADR® drilling rigs and servicing
rigs to meet the increasing technical demands of its customers.
During year ended December 31, 2019, the Company:
•
assembled and deployed one ADR® drilling rig to the Company's international operations, using various
components from its spare capital inventory,
transferred one ADR® drilling rig from Canada to the United States,
deployed one new well servicing rig in the United States,
•
•
• moved seven under-utilized drilling rigs into its reserve fleet, and
•
decommissioned 18 drilling and 10 well servicing rigs in Canada and 14 drilling rigs in United States.
SUMMARY QUARTERLY RESULTS
($ thousands, except per share data)
Q4-2019 Q3-2019 Q2-2019 Q1-2019 Q4-2018 Q3-2018 Q2-2018 Q1-2018
Revenue
Adjusted EBITDA 1
375,767
393,530
377,692
445,258
346,136
288,700
263,061
258,460
93,864
97,012
100,359
115,531
81,678
68,641
53,064
52,294
Adjusted EBITDA per common share
1
Basic
Diluted
$0.58
$0.58
$0.60
$0.60
$0.63
$0.63
$0.74
$0.74
$0.52
$0.52
$0.44
$0.44
$0.34
$0.34
$0.33
$0.33
Net (loss) income attributable to
shareholders
Net (loss) income per common share
Basic
Diluted
Cash provided by operating activities
Funds flow from operations
Funds flow from operations per
common share
(71,615)
(37,770)
(31,173)
(22,347)
154,472
(32,791)
(36,697)
(26,682)
$(0.44)
$(0.44)
93,079
54,795
$(0.24)
$(0.24)
77,363
53,465
$(0.20)
$(0.20)
47,258
42,417
$(0.14)
$(0.14)
51,871
86,312
$0.98
$0.98
$(0.21)
$(0.23)
$(0.17)
$(0.21)
$(0.23)
$(0.17)
61,037
51,792
19,306
19,998
63,834
60,390
47,808
53,907
Basic
Diluted
$0.33
$0.33
$0.33
$0.33
$0.27
$0.27
$0.55
$0.55
$0.41
$0.41
$0.38
$0.38
$0.31
$0.31
$0.34
$0.34
Total debt, net of cash
1,553,121 1,597,196 1,622,923 1,688,087 1,641,830
730,520
748,609
726,636
1 See definition of "Non-GAAP Measures" in the "Overview and Selected Annual Information" section of this MD&A.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
14
Variability in the Company’s quarterly results is driven primarily by the seasonal operating environment in Canada and
fluctuations in oil and natural gas commodity prices. Financial and operating results for the Company’s Canadian oilfield
services division are generally strongest during the first and fourth quarters, when the Company’s customers conduct
the majority of their drilling programs. Utilization rates typically decline during the second quarter as spring break-up
weather conditions hinder mobility of the Company’s equipment in Canada. Oil and natural gas commodity prices
ultimately drive the level of exploration and development activities carried out by the Company’s customers and the
resulting demand for the oilfield services provided by the Company.
In addition to the seasonality noted above, the variability noted in the Company’s quarterly results reflect continued
varying levels of demand for oilfield services and the Trinidad Acquisition.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
15
Net (loss) income attributable to shareholders
(71,615)
154,472
(226,087)
FOURTH QUARTER ANALYSIS
($thousands, except per share data and operating information)
Revenue
Adjusted EBITDA 1
Adjusted EBITDA per common share 1
Basic
Diluted
2019
375,767
93,864
$0.58
$0.58
Net (loss) income per common share
Basic
Diluted
Cash provided by operating activities
Funds flow from operations
Funds flow from operations per common share
Basic
Diluted
Weighted average common shares - basic (000s)
Weighted average common shares - diluted (000s)
Drilling
Operating days 2
Canada 3
United States
International 4
Drilling rig utilization (%)
Canada 3
United States
International 4
Well Servicing
Operating hours
Canada
United States
Well servicing rig utilization rate (%)
Canada
United States
$(0.44)
$(0.44)
93,079
54,795
$0.33
$0.33
165,547
165,593
2019
2,217
5,313
1,432
17.9
37.9
32.4
2019
11,646
28,395
23.0
65.7
Three months ended December 31
Change
2018
% change
346,136
81,678
$0.52
$0.52
29,631
12,186
$0.06
$0.06
$0.98
$0.98
61,037
63,834
$0.41
$0.41
156,794
156,976
$(1.42)
$(1.42)
32,042
(9,039)
$(0.08)
$(0.08)
8,753
8,617
9
15
12
12
nm
nm
nm
52
(14)
(20)
(20)
6
5
2018
Change
% change
1,691
4,711
1,588
19.7
47.9
37.5
2018
12,377
30,747
21.7
73.7
526
602
(156)
(1.8)
(10.0)
(5.1)
31
13
(10)
(9)
(21)
(14)
Change
% change
(731)
(2,352)
1.3
(8.0)
(6)
(8)
6
(11)
nm - calculation not meaningful
1
See definition of "Non-GAAP Measures" in the "Overview and Selected Annual Information" section of this MD&A.
2 Defined as contract drilling days, between spud to rig release.
3 Excludes coring rigs.
4Includes workover rigs.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
16
REVENUE AND OILFIELD SERVICES EXPENSE
($ thousands), three months ended December 31
2019
2018
Change
% change
Revenue
Canada
United States
International
Total revenue
Oilfield services expense
71,155
217,757
86,855
375,767
268,357
65,565
209,890
70,681
346,136
251,907
5,590
7,867
16,174
29,631
16,450
9
4
23
9
7
The Company recorded revenue of $375.8 million for the three months ended December 31, 2019, a nine percent
increase from the $346.1 million recorded in the three months ended December 31, 2018. Drilling operating days for
the fourth quarter of 2019 totaled 8,962 days, a 12 percent increase from the same quarter in the prior year of 7,990
drilling operating days. The Company has shown increased activity and revenue as a result of the Trinidad Acquisition
and relatively stable ongoing operations despite volatile commodity pricing in 2019. Furthermore, the financial results
from the Company's United States and international operations were positively impacted on currency translation, as the
United States dollar strengthened relative to the Canadian dollar in 2019. The increase in revenue was partially offset
by the impact of the revenue rate decreases experienced throughout 2019.
Depreciation expense totaled $93.5 million for the fourth quarter of 2019 compared with $113.6 million for the fourth
quarter of 2018. In the first quarter of 2019, the Company reviewed the makeup of and the age of its drilling rig fleet
and other equipment and, based on age, specification and type of recertifications that were underway, determined that
the useful life estimates previously used did not appropriately represent the useful life of this equipment. On this adjusted
basis the Company believes the new useful life estimates for its equipment accurately reflect the future economic benefits
related to these assets. These adjustments were applied prospectively and, as such, have caused a decrease in
depreciation expense for the three months ended December 31, 2019, compared to similar period in the previous year.
General and administrative expense increased seven percent to $13.5 million (3.6 percent of revenue) for the fourth
quarter of 2019 compared with $12.6 million (3.7 percent of revenue) for the fourth quarter of 2018. The increase in
general and administrative expense in the fourth quarter of 2019 compared to the prior year is primarily due to the
Trinidad Acquisition. Despite the increase in overall general and administrative expenses, cost synergies and savings
realized from the Trinidad Acquisition have led to a decrease in general and administrative expense as a percentage of
revenue. Management continues to focus on costs and will be working to realize ongoing synergies from the Trinidad
Acquisition.
OUTSTANDING SHARE DATA
The following common shares and stock options were outstanding as of March 5, 2020:
Common shares
Stock options (exercisable into common shares)
OUTLOOK
Industry Overview
Number
163,118,758
$
Outstanding
5,313,900
Amount ($)
207,404
Exercisable
2,627,980
The oil and natural gas industry continues to face commodity price volatility driving conservatism and caution in capital
allocation and oilfield activity. The industry continues to see spending limited to generated cash flow and budgets directed
towards maintaining production, resulting in a flat but steady outlook for oilfield services. The Company has responded
by reinforcing commitments to debt retirement, disciplined capital expenditures and driving cost efficiencies.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
17
Canadian Activity
Canadian operations improved at the end of the fourth quarter with takeaway capacity modestly increasing as a result
of crude-by-rail expansion. Although, activity is expected to increase in the first quarter of 2020, we expect Canadian
operations to be flat year over year for 2020 as customer budget expenditures are expected to be front-loaded to the
first half of the year. Day rates continue to remain firm in the high/super-spec rig market.
Of the Company's101 marketed Canadian drilling rigs, approximately 44 percent are engaged under term contracts.
Approximately 20 percent of the contracted rigs have a remaining contract term of six months or longer.
United States Activity
United States activity and day rates settled over the fourth quarter and are expected to remain flat into 2020. It is
anticipated that day rates in the high/super-spec rig market may begin to be driven upward by high utilization and
equipment shortages.
Of the Company's122 marketed United States drilling rigs, approximately 55 percent are contracted. Approximately 43
percent of the contracted rigs have a remaining contract term of six months or longer.
International Activity
International operations continue to be a steady operating segment for the Company, with long-term high margin contracts
throughout the Middle East and Australia. Australian activity has been firm and is expected to be flat in 2020. Latin
American operations remained steady through the fourth quarter and are expected to be flat to down slightly in 2020.
The Company's activity in the Middle East improved in the fourth quarter as the Company’s wholly owned Bahrain drilling
rig commenced operations. Middle East operations are expected to remain steady for 2020.
Of the Company's 48 marketed international drilling rigs (including the five joint venture drilling rigs), approximately 46
percent are contracted. Approximately 62 percent of the contracted rigs have a remaining contract term of six months
or longer.
2020 Capital Expenditures and Debt Reduction
The Company has budgeted net capital expenditures of approximately $100 million for 2020. The capital plan focuses
on certifications and preventative maintenance for its global high/super spec drilling rig fleet, other services lines, and
select equipment upgrade projects. In addition to a disciplined capital plan, the Company will continue to focus on net
debt reduction throughout 2020 and beyond. The Company also expects to recognize the full year impact of $50 million
of synergies, cost savings and economies of scale resulting from the Trinidad Acquisition. In addition, the proceeds of
any asset dispositions, such as duplicate operating facilities, are expected to be directed to debt retirement. As a result,
the Company expects to reduce net debt between $90 and $115 million in 2020.
CRITICAL ACCOUNTING ESTIMATES
Management is required to make judgments, assumptions and estimates in applying its accounting policies and practices,
which have a significant impact on the financial results of the Company. These significant accounting policies involve
critical accounting estimates due to complex judgments and assumptions. These estimates, judgments and assumptions
are based on the circumstances that exist at the reporting date and may affect the reported amounts of income and
expenses during the reporting periods and the carrying amounts of assets, liabilities, accruals, provisions, contingent
liabilities, other financial obligations, as well as the determination of fair values.
The critical accounting estimates identified and used by the Company are set out below. Each of the below estimates
may have an impact on all of the Company’s segments and on various line items in the Company’s financial statements.
Such estimates can have flow through effects on the Company’s financial position and performance as set out in the
Company’s financial statements. Readers are cautioned that the following list of critical accounting estimates is not
exhaustive and other items may also be affected by estimates and judgments.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
18
Joint Arrangements
The Company assesses the values of these instruments by using a discounted cash flow model. This calculation requires
the use of estimates, including: future drilling activity and utilization of the drilling rigs, future equipment deployment
milestones, prices, operating costs, discount rates, timing of new property and equipment and other assumptions.
Purchase Price Allocation
The measurement of each business combination requires management estimation in determining the fair values of
assets and liabilities acquired as well as the fair value of any intangible assets identified. Management is required to
estimate future cash flows, discount rates and market conditions at the effective acquisition date of the Trinidad
Acquisition, in order to determine the fair value of certain assets.
Property and Equipment
The estimated useful life, residual value and depreciation methods selected are the Company’s best estimate of such
and are based on industry practice, historical experience and other applicable factors. These assumptions and estimates
are subject to change as more experience is obtained or as general market conditions change, both of which could
impact the operations of the Company’s property and equipment.
Impairment
For impairment testing, the assessment of facts and circumstances is a subjective process that often involves a number
of estimates and is subject to interpretation. An impairment is recognized if the carrying value exceeds the recoverable
amount for a CGU. Property and equipment are aggregated into CGUs based on their ability to generate separately
identifiable and largely independent cash flows. The testing of assets or CGUs for impairment, as well as the assessment
of potential impairment reversals, requires that the Company estimate an asset’s or CGU’s recoverable amount. The
estimate of a recoverable amount requires a number of assumptions and estimates, including expected market prices,
market supply and demand, margins and discount rates. These assumptions and estimates are subject to change as
new information becomes available and changes in any of the assumptions could result in an impairment of an asset’s
or CGU’s carrying value.
Share-based Compensation
Measurement inputs include share price on measurement date, exercise price, expected volatility, expected life, expected
dividends and the risk-free interest rate. Significant estimates and assumptions are used in determining the expected
volatility based on weighted average historic volatility adjusted for changes expected due to publicly available information,
weighted average expected life and expected forfeitures, based on historical experience and general option holder
behavior. Changes to the input assumptions could have a significant impact on the share-based compensation liability
and expense.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, deferred income taxes
are recorded for the effect of any temporary difference between the accounting and income tax basis of an asset or
liability, using the substantively enacted income tax rates. Current income taxes for the current and prior periods are
measured at the amount expected to be recoverable from or payable to the taxation authorities based on the income
tax rates enacted or substantively enacted at the end of the reporting period. The deferred income tax assets and liabilities
are adjusted to reflect changes in enacted or substantively enacted income tax rates that are expected to apply, with
the corresponding adjustment recognized in net income or in shareholders’ equity depending on the item to which the
adjustment relates.
Tax interpretations, regulations and legislation in the various jurisdictions in which the Company and its subsidiaries
operate are subject to change. As such, income taxes are subject to measurement uncertainty and the interpretations
can impact net income through the income tax expense arising from the changes in deferred income tax assets or
liabilities.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
19
Allowance for Doubtful Accounts
The Company is subject to credit risk on accounts receivable balances and assesses the recoverability of accounts
receivable balances on an ongoing basis. The Company establishes an allowance for estimated losses for uncollectible
accounts as circumstances warrant. The allowance is determined based on customer credit risk characteristics and the
days past due. Assessing accounts receivable balances for recoverability involves significant judgment and uncertainty,
including estimates of future events. Changes in circumstances underlying these estimates may result in adjustments
to the allowance for doubtful accounts in future periods.
Functional Currency
The Company determines functional currency based on the primary economic environment in which the entity operates.
This includes a number of factors that must be considered by the Company in using its judgment to determine the
appropriate functional currency for each entity.
CHANGE IN ACCOUNTING POLICY
Effective January 1, 2019 the Company adopted IFRS 16 - Leases (“IFRS 16”). IFRS 16 introduces a single lessee
accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12
months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing
its right to use the underlying asset and a lease liability representing its obligation to make lease payments.
The Company elected to use the modified retrospective transition method with cumulative effect of adopting this standard
as an adjustment to the opening retained earnings. The Company did not adjust the opening balances of retained
earnings as at January 1, 2019 given that adoption of IFRS 16 did not result in any changes in measurements.
Upon transition, the Company recognized the right-of-use assets and corresponding liabilities of $13.8 million. For the
year ended December 31, 2019, Adjusted EBITDA was positively impacted by $5.7 million. The adoption of IFRS 16
had no material impact on the cash flows.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING
As of December 31, 2019, the Company's management evaluated the effectiveness of its disclosure controls and
procedures as defined in the rules of the Canadian Securities Administrators. This evaluation is performed under the
supervision of, and with the participation of, the President and Chief Operating Officer and the Chief Financial Officer.
The President and Chief Operating Officer and the Chief Financial Officer have concluded that the Company’s Disclosure
Controls and Procedures are effective as of December 31, 2019.
The President and Chief Operating Officer and Chief Financial Officer do not expect that the Company’s disclosure
controls and procedures will prevent or detect all errors, misstatements and fraud but they are designed to provide
reasonable assurance of achieving these objectives. A control system, no matter how well designed or operated, can
only provide reasonable, not absolute, assurance that the corresponding objectives are met.
As of December 31, 2019, the management of the Company evaluated the Company's effectiveness of internal controls
over financial reporting, as defined in the rules of the Canadian Securities Administrators. This evaluation is performed
under the supervision of, and with the participation of, the President and Chief Operating Officer and Chief Financial
Officer. The President and Chief Operating Officer and Chief Financial Officer concluded that the Company's internal
control over financial reporting was effective as of December 31, 2019.
Internal control over financial reporting, no matter how well designed, has inherent limitations and can provide only
reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements.
RISKS AND UNCERTAINTIES
The Company is subject to several risk factors including, but not limited to, those discussed below. A more comprehensive
discussion of risks and uncertainties is contained in the Company’s Annual Information Form for the year ended December
31, 2019 as filed on SEDAR and hereby incorporated by reference.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
20
Oil and Natural Gas Prices
The most significant factors affecting the overall business of the Company are oil and natural gas commodity prices.
Commodity price levels affect the capital programs of energy exploration and production companies, as the price they
receive for the oil and natural gas they produce has a direct impact on the cash flow available to them and the subsequent
demand for oilfield services provided by the Company. Oil and natural gas prices have been volatile in recent years and
may continue to be so, as supply/demand fundamentals, weather conditions, government regulations, political and
economic environments, pipeline capacity, storage levels and other factors outside of the Company’s control continue
to influence commodity prices. Demand for the Company’s services in the future will continue to be influenced by oil
and natural gas commodity prices and the resultant impact on the cash flow of its customers, and may not be reflective
of historical activity levels.
Competition and Industry Conditions
The oilfield services industry is, and will continue to be, highly competitive. Contract drilling companies compete primarily
on a regional basis and competition may vary significantly from region to region at any particular time. Most drilling and
workover contracts are awarded on the basis of competitive bids, which results in price competition. Many drilling,
workover and well servicing rigs can be moved from one region to another in response to changes in levels of activity,
which can result in an oversupply of rigs in an area. In many markets in which the Company operates, the supply of rigs
exceeds the demand for rigs, resulting in further price competition. Certain competitors are present in more than one of
the regions in which the Company operates, although no one competitor operates in all of these areas. In Canada, the
Company competes with several firms of varying size. In the United States there are many competitors with national,
regional or local rig operations. Internationally, there are several competitors in each country where the Company operates
and some of those international competitors may be better positioned in certain markets, allowing them to compete more
effectively. There is no assurance that the Company will be able to continue to compete successfully or that the level of
competition and pressure on pricing will not affect the Company’s margins.
Access to Credit Facilities and Debt Capital Markets
The Company and its customers require reasonable access to credit facilities and debt capital markets as an important
source of liquidity. Global economic events, outside the control of the Company or its customers, may restrict or reduce
the access to credit facilities and debt capital markets. Tightening credit markets may reduce the funds available to the
Company’s customers for paying accounts receivable balances and may also result in reduced levels of demand for the
Company’s services. Additionally, the Company relies on access to credit facilities, along with its reserves of cash and
cash flow from operating activities, to meet its obligations and finance operating activities. The Company believes it has
adequate bank credit facilities to provide liquidity.
Changes in Laws and Regulations
The Company and its customers are subject to numerous laws and regulations governing its operations and the
exploration and development of oil and natural gas, including environmental regulations. Existing and expected
environmental legislation and regulations may increase the costs associated with providing oilfield services, as the
Company may be required to incur additional operating costs or capital expenditures in order to comply with any new
regulations. The costs of complying with increased environmental and other regulatory changes in the future, such as
royalty regime changes, changes to taxation regimes and changes to international trade agreements, may also have
an adverse effect on the cash flows of the Company’s customers and may dampen demand for oilfield services provided
by the Company.
Foreign Operations
The Company provides oilfield services throughout much of North America and internationally in a number of onshore
drilling areas. The Canadian, United States, and Australian regulatory regimes are generally stable and, typically,
supportive of energy industry activity. Internationally, the Company's operations are subject to regulations in various
jurisdictions and support for the oil and natural gas industry can vary in these jurisdictions. There are risks inherent in
foreign operations such as unstable government regimes, civil and/or labor unrest, strikes, terrorist threats, regulatory
uncertainty and complex commercial arrangements. Risks to the Company's operations include, but are not limited to,
loss of revenue, expropriation and nationalization, restrictions on repatriation of income or capital, currency exchange
restrictions, contract deprivation, force majeure events and the potential for trade and economic sanctions or other
restrictions to be imposed by the Canadian government or other governments or organizations. To mitigate these risks,
the Company seeks to negotiate long-term service contracts for drilling services that ideally include early termination
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
21
provisions and other clauses for the Company's protection. However, there is, and there can be, no assurance that the
Company will be fully effective in mitigating foreign operation risks. Such risks could have material adverse impacts on
the Company's financial condition and operating results.
Foreign Exchange Exposure
The Company’s consolidated financial statements are presented in Canadian dollars. Operations in countries outside
of Canada result in foreign exchange risk to the Company. The principal foreign exchange risk relates to the conversion
of United States dollar-denominated activity to Canadian dollars. The United States/Canadian dollar exchange rate at
December 31, 2019 was approximately 1.29 compared with 1.36 at December 31, 2018 and 1.26 at December 31, 2017.
Fluctuations in the future period's exchange rates will impact the Canadian dollar equivalent of the results reported by
foreign subsidiaries.
Workforce
The Company’s operations are dependent on attracting, developing and maintaining a skilled workforce. During periods
of peak activity levels, the Company may be faced with a lack of personnel to operate its equipment. The Company is
also faced with the challenge of retaining its most experienced employees during periods of low utilization, while
maintaining a cost structure that varies with activity levels. To mitigate these risks, the Company has developed an
employee recruitment and training program, and continues to focus on creating a work environment that is safe for its
employees.
Litigation and Legal Proceedings
From time to time, the Company is subject to litigation and legal proceedings that may include employment, tort,
commercial and class action suits. Amounts claimed in such suits or actions may be material and accordingly decisions
against the Company could have an adverse effect on the Company’s financial condition or results of operations.
Operating Risks and Insurance
The Company’s operations are subject to risks inherent in the oilfield services industry. Where available and cost-
effective, the Company carries insurance to cover the risk to its equipment and people, and each year the Company
reviews the level of insurance for adequacy. Although the Company believes its level of insurance coverage to be
adequate, there can be no assurance that the level of insurance carried by the Company will be sufficient to cover all
potential liabilities.
Technology
As a result of growing technical demands of resource plays, the Company’s ability to meet customer demands is
dependent on continuous improvement to the performance and efficiency of existing oilfield services equipment. There
can be no assurance that competitors will not achieve technological advantages over the Company.
Reliance on Key Management Personnel
The success and growth of the Company is dependent upon its key management personnel. The loss of services of
such persons could have a material adverse effect on the business and operations of the Company. No assurance can
be provided that the Company will be able to retain or attract key management members.
Seasonality and Weather
The Company’s Canadian oilfield services operations are impacted by weather conditions that hinder the Company’s
ability to move heavy equipment. The timing and duration of “spring break-up”, during which time the Company is
prohibited from moving heavy equipment on secondary roads, restricts movement of equipment in and out of certain
areas, thereby negatively impacting equipment utilization levels. Further, the Company’s activities in certain areas in
northern Canada are restricted to winter months when the ground is frozen solid enough to support the Company’s
equipment. This seasonality is reflected in the Company’s operating results, as rig utilization is normally at its lowest
during the second and third quarters of the year. The Company continues to mitigate the impact of Canadian weather
conditions through expansion into markets not subject to the same seasonality and by working with customers in planning
the timing of their drilling programs. In addition, volatility and unpredictability in the weather across all areas of the
Company’s operations can create additional risk and unpredictability in equipment utilization rates and operating results.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
22
MANAGEMENT'S REPORT
The consolidated financial statements and other information contained in the annual report are the responsibility of the
management of the Company. The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards consistently applied, using management’s best estimates and judgments,
where appropriate.
Preparation of financial statements is an integral part of management’s broader responsibilities for the ongoing operations
of the Company. Management maintains a system of internal accounting controls to ensure that properly approved
transactions are accurately recorded on a timely basis and result in reliable financial statements. The Company’s external
auditors are appointed by the shareholders. They independently perform the necessary tests of the Company’s accounting
records and procedures to enable them to express an opinion as to the fairness of the consolidated financial statements,
in conformity with International Financial Reporting Standards.
The Audit Committee, which is comprised of independent directors, meets with management and the Company’s external
auditors to review the consolidated financial statements and reports on them to the Board of Directors. The consolidated
financial statements have been approved by the Board of Directors.
"Signed"
Robert H. Geddes
President and Chief Operating Officer
"Signed"
Michael Gray
Chief Financial Officer
March 5, 2020
President and Chief Operating Officer
"Signed"
Michael Gray
Chief Financial Officer
March 1, 2018
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
23
Independent auditor’s report
To the Shareholders of Ensign Energy Services Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Ensign Energy Services Inc. and its subsidiaries (together, the Company) as at
December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the consolidated statements of financial position as at December 31, 2019 and 2018;
the consolidated statements of income (loss) for the years then ended;
the consolidated statements of comprehensive income (loss) for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant
accounting policies.
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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
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. We have fulfilled our other ethical
responsibilities in accordance with these requirements.
Other information
Management is responsible for the other information. The other information comprises the Management’s
Discussion and Analysis, which we obtained prior to the date of this auditor’s report and the information,
PricewaterhouseCoopers LLP
111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T: +1 403 509 7500, F: +1 403 781 1825
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
24
other than the consolidated financial statements and our auditor’s report thereon, included in the annual
report, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not
and will not express an opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above 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.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard. When we read the information, other
than the consolidated financial statements and our auditor’s report thereon, included in the annual report,
if we conclude that there is a material misstatement therein, we are required to communicate the matter to
those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is necessary
to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
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.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
25
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
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.
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 group 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.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
26
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Reynold Tetzlaff.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants
Calgary, Alberta
March 5, 2020
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
27
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at
(in thousands of Canadian dollars)
Assets
Current Assets
Cash (Note 6)
Accounts receivable (Note 22)
Inventories, investments, prepaid and other
Asset held for sale (Note 7)
Income taxes receivable (Note 14)
Total current assets
Property and equipment (Note 8)
Investment in joint ventures (Note 9)
Deferred income taxes (Note 14)
Total assets
Liabilities
Current Liabilities
Accounts payable and accruals (Note 10)
Cash dividends payable
Share-based compensation (Note 11)
Income taxes payable (Note 14)
Current portion of long-term debt (Note 12)
Current portion of lease obligations (Note 13)
Total current liabilities
Long-term debt (Note 12)
Lease obligations (Note 13)
Share-based compensation (Note 11)
Deferred income taxes (Note 14)
Non-controlling interest
Total liabilities
Shareholders' Equity
Share capital (Note 15)
Contributed surplus
Equity component of subordinate convertible debentures
Accumulated other comprehensive income
Minority interest
Retained earnings
Total shareholders' equity
December 31
2019
December 31
2018
$
28,408
$
272,254
47,292
18,806
1,515
368,275
84,823
351,596
58,175
18,806
1,994
515,394
2,855,223
3,201,704
125,355
121,748
177,010
99,054
$
3,470,601
$
3,993,162
$
216,719
$
271,374
9,787
297
4,489
—
9,996
241,288
18,849
975
3,807
376,612
—
671,617
1,581,529
1,340,352
9,518
6,325
163,781
5,138
9,689
3,033
171,781
6,007
2,007,579
2,202,479
230,100
23,966
3,193
243,771
—
961,992
1,463,022
206,328
1,013
3,193
315,095
72,078
1,192,976
1,790,683
Total liabilities and shareholders' equity
$
3,470,601
$
3,993,162
See accompanying notes to the consolidated financial statements.
Approved by the Board of Directors:
Approved by the Board of Directors:
(cid:5)(cid:54)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:5)
John Schroeder
(cid:5)(cid:54)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:5)
James B. Howe
Chairman of the Audit Committee and Director
Director
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
28
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
For the years ended December 31
(in thousands of Canadian dollars, except per share data)
Revenue (Note 17)
Expenses
Oilfield services
Depreciation (Note 8)
General and administrative
Restructuring
Share-based compensation (Note 11)
Foreign exchange and other loss (gain)
Total expenses
Loss before interest, other (gains) losses and income taxes
Loss (gain) from investment in joint ventures (Note 9)
Gain on bargain purchase (Note 5)
Gain on asset sale (Note 7)
Gain on purchase of unsecured Senior Notes (Note 12)
Interest expense
(Loss) income before income taxes
Income tax (recovery) (Note 14)
Current tax
Deferred tax recovery
Total income tax recovery
Net (loss) income
Net (loss) income attributable to:
Shareholders
Non-controlling interests
Net (loss) income per common share (Note 16)
Basic
Diluted
See accompanying notes to the consolidated financial statements.
2019
2018
$
1,592,247
$
1,156,357
1,140,939
363,144
55,064
12,644
4,047
25,426
855,824
415,036
44,945
1,492
707
(19,001)
1,601,264
1,299,003
(9,017)
39,892
—
(9,824)
(4,647)
149,159
(183,597)
3,416
(23,559)
(20,143)
$
(163,454)
$
(142,646)
(874)
(200,672)
—
—
52,416
6,484
1,044
(53,224)
(52,180)
58,664
(162,905)
(549)
(163,454)
58,302
362
58,664
$
$
(1.02)
(1.02)
$
$
0.37
0.37
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
29
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
For the years ended December 31
(in thousands of Canadian dollars)
Net (loss) income
Other comprehensive (loss) income
Item that may be subsequently reclassified to profit or loss
Foreign currency translation adjustment
Comprehensive (loss) income
Other comprehensive income (loss) attributable to:
Shareholders
Non-controlling interests
See accompanying notes to the consolidated financial statements.
2019
2018
$
(163,454)
$
58,664
(71,350)
78,240
(234,804)
$
136,904
(71,324)
$
(26)
(71,350)
$
76,848
1,392
78,240
$
$
$
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
30
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S
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(in thousands of Canadian dollars)
Cash provided by (used in)
Operating activities
Net (loss) income
Items not affecting cash
Depreciation (Note 8)
Share-based compensation
Loss (gain) from investments in joint ventures (Note 9)
Gain on asset sale (Note 7)
Gain on purchase of unsecured Senior Notes (Note 12)
Unrealized foreign exchange and other losses
Accretion on long-term debt (Note 12)
Deferred income tax recovery
Gain on bargain purchase (Note 5)
Funds flow from operations
Net change in non-cash working capital (Note 6)
Cash provided by operating activities
Investing activities
Purchase of property and equipment (Note 8)
Proceeds from disposals of property and equipment
Acquisition of Trinidad Drilling Ltd. (net of cash) (Note 5)
Contributions to joint venture (Note 9)
Net change in non-cash working capital (Note 6)
Cash used in investing activities
Financing activities
Proceeds from long-term debt (Note 12)
Repayments of long-term debt (Note 12)
Lease obligation principal repayments (Note 13)
Purchase of shares held in trust (Note 15)
Issuance of subordinate convertible debentures (Note 12)
Cash dividends (Note 15)
Net change in non-cash working capital (Note 6)
Cash (used in) provided by financing activities
Net (decrease) increase in cash
Effects of foreign exchange on cash
Cash
Beginning of year
End of year
Supplemental information
Interest paid
Income taxes paid (recovered)
See accompanying notes to the consolidated financial statements.
2019
2018
$
(163,454)
$
58,664
363,144
415,036
4,047
39,892
(9,824)
(4,647)
17,476
13,914
(23,559)
—
236,989
32,582
269,571
(136,006)
39,997
(49,214)
—
3,139
707
(874)
—
—
5,571
731
(53,224)
(200,672)
225,939
(73,806)
152,133
(80,044)
6,748
(294,264)
(26,144)
17,734
(142,084)
(375,970)
2,266,408
(2,375,891)
(10,888)
(1,398)
—
(53,076)
(8,044)
(182,889)
(55,402)
(1,013)
84,823
28,408
140,308
(2,255)
$
$
$
$
$
$
490,886
(182,391)
—
(1,047)
37,000
(75,396)
11,609
280,661
56,824
(4,375)
32,374
84,823
39,784
896
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2019 and 2018
(in thousands of Canadian dollars, except share and per share data)
1. NATURE OF BUSINESS
Ensign Energy Services Inc. is incorporated under the laws of the Province of Alberta, Canada. The address of its
registered and head office is 400 – 5th Avenue S.W., Suite 1000, Calgary, Alberta, Canada, T2P 0L6. Ensign Energy
Services Inc. and its subsidiaries and partnerships (the “Company”) provide oilfield services to the oil and natural
gas industry in Canada, the United States and internationally.
2. BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were approved by the Company’s Board of Directors on March 5, 2020,
after review by the Company’s Audit Committee.
3.
SIGNIFICANT ACCOUNTING POLICIES
(a) Measurement basis
These consolidated financial statements have been prepared on an historical cost basis, except as discussed
in the significant accounting policies below.
(b) New and amended standards
The Company has applied the following standards and amendments for the first time for their annual reporting
period commencing January 1, 2019:
(i) IFRS 16 Leases
(ii) Long term interests in Associates and Joint Ventures - Amendments to IAS 28
The Company had to change its accounting policies as a result of adopting IFRS 16 - Leases using the modified
retrospective method with cumulative effect of adopting this standard as an adjustment to the opening retained
earnings as discussed in this note below.
(c) Basis of consolidation
These consolidated financial statements include the accounts of Ensign Energy Services Inc. and its subsidiaries
and partnerships, substantially all of which are wholly owned and controlled. The Company controls an entity
when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability
to affect those returns through its power over the entity. Intercompany balances and transactions, including
unrealized gains or losses between subsidiaries and partnerships are eliminated on consolidation.
(d) Non-controlling interest
Non-controlling interests are investments in which the Company holds less than a 100 percent interest. These
investments are initially measured at fair value or at the non-controlling interest’s proportionate share of the
acquiree’s identifiable assets. The investment is increased or decreased by the non-controlling interest’s share
of subsequent changes in net (loss) and comprehensive (loss), as well as dividends or cash disbursements
paid to the investors. A change in the ownership interests that does not result in a loss of control is accounted
for as an adjustment to equity, unless the investment is required to be classified as a liability.
For non-wholly owned subsidiaries, interests held by external parties that the Company consolidates are shown
as non-controlling interest and are included in total net (loss) and total other comprehensive (loss). These
interests are classified as a liability on the statement of financial position as the non-wholly owned subsidiary’s
shares are required to be redeemed for cash on a fixed or determinable date.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
33
(e) Joint arrangements
A joint arrangement is an arrangement in which two or more parties have joint control and must act together to
direct the activities that significantly affect the returns of the arrangement. Under IFRS 11 - Joint arrangements,
the Company classifies its interest in joint arrangements as either joint operations or joint venture. When making
this assessment, the Company considers structure and contractual terms of the arrangement, as well as the
legal form of any separate vehicles, in addition to all other relevant facts and circumstances.
Joint operations are recognized on proportionate consolidation basis by including the Company's share of
assets, liabilities, revenues and expenses and other comprehensive income in each of the respective
consolidated accounts. Joint ventures are recognized using equity method of accounting. The Company's share
of individual assets and liabilities are recognized as investments in the joint ventures account on the consolidated
statements of financial position, and revenue and expenses are recognized with net earnings as a (gain) loss
from investment in joint ventures account on the consolidated statements of operations and comprehensive
income.
The Company has a joint venture arrangement with a wholly-owned subsidiary of Halliburton Company. The
joint venture entity conducts business under the name Trinidad Drilling International ("TDI") through separately
incorporated companies. The Company owns 60 percent of the shares of TDI and each of the joint parties have
equal voting rights. The Company considers the investment in TDI to be a financial asset at fair value through
profit or loss, and recognizes changes in fair value of the investment in the statements of operations and
comprehensive income (loss) as gain (loss) from joint ventures.
The Company participates in other joint ventures that are considered immaterial for reporting purposes. In all
cases, the joint venture partners have joint control over the relevant activities of the joint venture, and such are
accounted for in these consolidated financial statements using the equity method of accounting.
(f) Cash and cash equivalents
Cash and cash equivalents consists of cash and cash equivalents with maturities of three months or less or
convertible to cash on demand without penalty.
(g) Inventories
Inventories, comprised of spare equipment parts and consumables, are recorded at the lower of cost and net
realizable value. Cost is determined on a specific item basis.
(h) Asset held for sale
Non-current assets, and disposal groups, are classified as assets held for sale when the carrying amount is to
be recovered principally through a sales transaction rather than through continued use. This condition is
regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate
sale in its present condition. Management must be committed to the sale and it should be expected to be
completed within one year from the date of classification. Non-current assets and disposal groups classified
as held for sale are measured at the lower of the carrying value amount and fair value less cost to sell. Assets
held for sale are not depreciated.
If an asset classified as an asset held for sale no longer meets the criteria required, whereby the completion
of the sale within one year from the classification date is no longer relevant, or the Company has changed their
plans of selling the asset, the asset is re-classified back to property and equipment. The value of the asset is
then adjusted to the lower of either the carrying amount before the asset was classified as an asset held for
sale, adjusted for depreciation and any other adjustments that would have taken place, or its recoverable
amount at the date of the subsequent decision not to sell.
(i) Property and equipment
Property and equipment is initially recorded at cost. Costs associated with equipment upgrades that result in
increased capabilities or performance enhancements of property and equipment are capitalized. Costs incurred
to repair or maintain property and equipment are expensed as incurred. Property and equipment is subsequently
carried at cost less accumulated depreciation and write-downs and is derecognized on disposal or when there
is no future economic benefit expected from its use or disposal. Gains or losses on derecognition of property
and equipment are recognized in net income.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
34
Depreciation is based on the estimated useful lives of the assets as follows:
Asset Class
Oilfield services equipment
Drawworks, mast and substructure
Building and electrical
Mud pumps and mud systems
Blow out preventer and boilers
Top drives
Drill pipe
Recertification
Service rig equipment
Heavy oilfield service equipment
Drilling rig spare equipment
Buildings
Automotive equipment
Office furniture
Expected Life Method
Residual
up to 25 years Straight-line
up to 15 years Straight-line
up to 15 years Straight-line
up to 15 years Straight-line
up to 15 years Straight-line
up to 6 years
Straight-line
up to 5 years
Straight-line
up to 25 years Straight-line
3- 15 years
Straight-line
up to 10 years Straight-line
up to 20 years Straight-line
up to 3 years
Straight-line
5- 10 years
Straight-line
10%
10%
10%
10%
10%
10%
—%
10%
10%
—%
—%
10%
—%
The calculation of depreciation includes assumptions related to useful lives and residual values. The
assumptions are based on experience with similar assets and are subject to change as new information becomes
available. During the first quarter on 2019, the Company reviewed the makeup of and the age of the drilling rig
fleet and equipment and determined that based on age, specification and type of recertifications that were
taking place, that the useful life estimates previously used did not appropriately represent the useful life of this
equipment. On this basis the Company believes the new useful life estimates for its equipment accurately reflect
the future economic benefits related to these assets. These adjustments were applied prospectively and caused
a decrease in depreciation for year ended December 31, 2019 of $109,849.
Property and equipment is reviewed for impairment when events or changes in circumstances indicate that its
carrying value may not be recoverable. The Company’s operations and business environment are routinely
monitored, and judgment and assessments are made to determine if an event has occurred that indicates
possible impairment.
If indicators of impairment exist, the recoverable amount of the asset or cash-generating unit (“CGU”) is
estimated. If the carrying value of the asset or CGU exceeds the recoverable amount, the asset or CGU is
written down to its recoverable amount. The recoverable amount of an asset or CGU is the greater of its fair
value less costs to dispose and value-in-use. Value-in-use is determined as the amount of estimated risk-
adjusted discounted future cash flows.
(j) Business combinations
The acquisition method of accounting is used to account for the acquisition of subsidiaries and businesses by
the Company at the date control of the business is obtained. The cost of the business combination is measured
as the aggregate of the fair value at the date of exchange of assets given, liabilities incurred or assumed, and
equity instruments issued by the Company in exchange for control of the acquiree. Acquisition-related costs
are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition are recognized at their fair values at the acquisition date.
(k) Revenue recognition
Revenue from oilfield services is generally earned based upon service orders or contracts with a customer that
include fixed or determinable prices based upon daily, hourly or job rates. Revenue is recognized when services
are performed and have been accepted by the customer, and collectability is reasonably assured. The
consideration for services rendered is measured at the fair value of the consideration received and allocated
based on their standalone selling prices. The standalone selling prices are determined based on the agreed
upon list prices at which the Company sells its services in separate transactions. Payment terms with customers
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
35
vary by country and contract. Standard payment terms are 30 days from invoice date. Customer contract terms
do not include provisions for significant post-service delivery obligations.
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 payment 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 customer contracts.
(l) Foreign currency translation
The consolidated financial statements are presented in Canadian dollars which is the Company’s functional
currency. Financial statements of the Company’s United States and international subsidiaries have a functional
currency different from Canadian dollars and are translated to Canadian dollars using the exchange rate in
effect at the year-end date for all assets and liabilities, and at average rates of exchange during the year for
revenues and expenses. All changes resulting from these translation adjustments are recognized in other
comprehensive (loss) income.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign
currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities
denominated in currencies other than an operation’s functional currency are recognized in the consolidated
statement of (loss) income.
(m) Borrowing costs
Interest and borrowing costs that are directly attributable to the acquisition, construction or production of
qualifying assets are capitalized as part of the cost of those assets. Qualifying assets are those which take a
substantial period of time to prepare for their intended use. Capitalization ceases when substantially all activities
necessary to prepare the qualifying asset for its intended use are complete. All other interest is recognized in
the consolidated statement of (loss) income in the period in which it is incurred.
(n) Income taxes
The Company follows the liability method of accounting for income taxes. Under this method, income tax liabilities
and assets are recognized for the estimated tax consequences attributable to differences between the amounts
reported in the consolidated financial statements and their respective tax bases, using enacted or substantively
enacted income tax rates. The effect of a change in income tax rates on deferred income tax liabilities and
assets is recognized in income in the period in which the change is substantively enacted.
Deferred tax assets are recognized to the extent that future taxable income will be available against which
temporary differences can be utilized.
(o) Leases
Effective January 1, 2019 the Company adopted IFRS 16 - Leases using the modified retrospective method
with cumulative effect of adopting this standard as an adjustment to the opening retained earnings. The company
did not adjust the opening balances of retained earnings as at January 1, 2019 given that adoption of IFRS 16
did not result in any changes in measurements.
On adoption of IFRS 16, the Company recognized lease obligation in relation to leases which had previously
been classified as "operating leases" under the principles of IAS 17 Leases. These obligations were measured
at the present value of remaining lease payments, discounted using the lessee's incremental borrowing rate
applied to the lease obligations on January 1, 2019 of 7.1 percent.
For leases previously classified as finance the entity recognized the carrying amount of the lease asset and
lease obligations immediately before transition as the carrying amount of the right of use asset and the lease
obligations at the date of initial application. The finance lease obligations was estimated using the rate of 2.85
percent at initial recognition and not revised with IFRS 16. The measurement principles of IFRS 16 are only
applied after that date. This did not result in material adjustments.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
36
Operating lease commitments disclosed as at December 31, 2018
Adjustment to lease commitments as at December 31, 2018
Undiscounted commitments as at December 31, 2018
Discounted using the incremental borrowing rate at the date of initial application
Add: finance lease obligations recognized as at December 31, 2018
(Less): short term leases recognized on a straight-line basis as expense
Lease obligations recognized as at January 1, 2019
January 1
2019
22,844
(5,968)
16,876
13,792
9,689
(760)
22,721
$
$
The associated right-of-use assets were measured at the amount equal to the lease obligations, adjusted by
the amount of any prepaid or accrued lease payments relating to that lease recognized in the balance sheet
as at December 31, 2018. There were no onerous lease contracts that would have required an adjustment to
the right-of-use assets at the date of initial application.
In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by
the standard:
i. The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
ii. Reliance on previous assessment on whether lease is onerous;
iii. The accounting for operating leases with a remaining lease term of less than 12 months as at January 1,
2019 as short-term leases;
iv. The exclusion of initial costs for the measurement of the right-of-use asset at the end of initial application;
v. The accounting for each lease component as a single lease component.
The Company leases various offices and vehicles. Rental contracts are typically made for fixed periods of 12
months to 3 years, but may have extension options as described below.
Contracts for leases or real estate may contain both lease and non-lease components. For such leases the
Company has elected not to separate lease and non-lease components and instead accounts for these as a
single lease component.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
The lease agreements do not impose any covenants other than the security interests in the leased assets that
are held by the lessor. Leased assets may not be used as security for borrowing purposes. The Company does
not have leases that contain variable payment terms.
Until the 2018 financial year, leases of property, plant and equipment were classified as either finance leases
or operating leases, see Note 3(o) for details. From January 1, 2019, leases are recognized as a right-of-use
asset and a corresponding liability at the date at which the leased asset is available for use by the group.
At inception, the Company assessed whether a contract contains a lease. This assessment involved the exercise
of judgment about whether it depends on a specified asset, whether the Company obtains substantially all the
economic benefits from the use of that asset, and whether the Company has the right to direct the use of the
asset.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include
the net present value of the following lease payments:
•
• variable lease payment that are based on an index or a rate, initially measured using the index or rate as
fixed payments (including in-substance fixed payments), less any lease incentives receivable,
at the commencement date,
• amounts expected to be payable by the group under residual value guarantees,
•
the exercise price of a purchase option if the group is reasonably certain to exercise that option, and
• Payments of penalties for terminating the lease, if the lease term reflects the group exercising that option.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
37
Lease payments to be made under reasonably certain extension options are also included in the measurement
of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
determined the Company's incremental borrowing rate is used which is the rate that the individual lessee would
have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and conditions.
Right-of-use assets are measured at cost comprising the following:
•
•
•
•
the amount of the initial measurement of lease liability,
any lease payments made at or before the commencement date less any lease incentives received,
any initial direct costs, and
restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on
a straight-line basis. If the Company is reasonably certain to exercise a purchase option, the right-of-use asset
is depreciated over the underlying asset’s useful life. The recognized right-of-use assets relate to the following
types of assets and is included in the property and equipment amount. Information regarding the right-of-use
assets is included in Note 13.
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets
are recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise IT equipment.
Extension and termination options are included in some property leases across the Company.
Accounting policy applied until December 31, 2018
Leases in which a significant portion of the risks and rewards of ownership were not transferred to the Company
as lessee were classified as operating leases. Payments made under operating leases (net of any incentives
received from the lessor) were charged to profit or loss on a straight-line basis over the period of the lease.
Lease income from operating leases where the Company is a lessor is recognized in income on a straight-line
basis over the lease term. Initial direct costs incurred in obtaining an operating lease are added to the carrying
amount of the underlying asset and recognized as expense over the lease term on the same basis as lease
income. The respective leased assets are included in the balance sheet based on their nature. The group did
not need to make any adjustments to the accounting for assets held as lessor as a result of adopting the new
leasing standard.
(p) Share-based compensation
The Company has an employee share option plan or equivalent that provides all option holders the right to
elect to receive either common shares or a direct cash payment in exchange for the options exercised. These
options are accounted for as a compound financial instrument, which requires the fair value of the liability
component to be determined first and the residual value, if any, allocated to the equity component. The fair
value of the settlement option under cash and shares is the same; therefore, these options are accounted for
as cash-settled awards.
The Company has other cash-settled share-based compensation plans. Cash-settled share-based
compensation plans are recognized as compensation expense over the vesting period using fair values with a
corresponding increase or decrease in liabilities. The liability is remeasured at each reporting date and at the
settlement date. Any changes in the fair value of the liability are recognized as share-based compensation
expense in the statement of income. The fair value is determined using the Black-Scholes option pricing model.
The Company has established a Performance Share Units (PSU) incentive plan measured at the fair value
when granted using the volume weighted average of the Company's stock price for the ten day period preceding
the reporting date, as well as certain performance factors assessed by management and subject to a two percent
cap based on certain financial performance metrics. The fair value is re-measured at each reporting date.
The Company has share savings plan for certain Canadian based employees, as well as a program whereby
a portion of the retainer paid to Directors is in the form of Common Shares of the Company. In all cases, any
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
38
Common Shares acquired for such plans are purchased in the open market and administered through trusts
until the shares are vested. The share purchase price is considered the fair value.
(q) Financial instruments
(i) Classification
The Company classifies its financial assets in the following measurement categories:
i. Those to be measured subsequently at fair value (either through other comprehensive income, or through
profit or loss), and
ii. Those to be measured at amortized cost.
The classification depends on the Company’s business model for managing the financial assets and the
contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive
income. The Company reclassifies financial assets when and only when its business model for managing those
assets changes.
(ii) Recognition and derecognition
Regular way purchases and sales of financial assets are recognized on trade date, being the date on which
the group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive
cash flows from the financial assets have expired or have been transferred and the group has transferred
substantially all the risks and rewards of ownership.
(iii) Measurement
At initial recognition, the Company measures a financial asset at its fair value plus transaction costs that are
directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair
value through profit or loss are expensed in profit or loss. Subsequent measurement of financial assets depends
on the Company’s business model for managing the asset and the cash flow characteristics of the asset.
There are three measurement categories into which the Company classifies its financial assets:
Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent
solely payments of principal and interest are measured at amortized cost. Interest income from these financial
assets is included in finance income using the effective interest rate method. Any gain or loss arising
on derecognition is recognized directly in profit or loss and presented together with foreign exchange gains
and losses. Impairment losses are presented as separate line item in profit or loss.
Fair value through other comprehensive income: Assets that are held for collection of contractual cash flows
and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and
interest, are measured at fair value through other comprehensive income. Movements in the carrying amount
are taken through other comprehensive income, except for the recognition of impairment gains or losses,
interest revenue and foreign exchange gains and losses which are recognized in profit or loss. When the
financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive
income is reclassified from equity to profit or loss and recognized in other gains and losses. Interest income
from these financial assets is included in finance income using the effective interest rate method. Foreign
exchange gains and losses are presented in other gains or losses and impairment expenses are presented as
separate line item in profit or loss.
Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or fair value through
other comprehensive income are measured at fair value through profit or less. A gain or loss on a financial
asset that is subsequently measured at fair value through profit or loss is recognized in profit or loss and
presented net within other gains or losses in the period in which it arises.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
39
(r) Critical judgments and accounting estimates
Preparation of the Company’s consolidated financial statements in accordance with IFRS requires management
to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, income
and expenses. Actual results could differ from those estimates. Estimates, judgments and assumptions are
continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The following are the most critical estimates and assumptions used in determining the value of assets and
liabilities:
Allowance for doubtful accounts
The Company establishes an allowance for estimated losses for uncollectible accounts. The allowance is
determined based on customer credit-worthiness, current economic trends and past experience. Information
regarding the allowance for doubtful accounts is included in Note 22.
Property and equipment
The calculation of depreciation includes assumptions related to useful lives and residual values. Assumptions
are based on experience with similar assets and is subject to change as new information becomes available.
In addition, assessing for impairment requires estimates and assumptions.
Assets are grouped into CGUs based on separately identifiable and largely independent cash inflows and are
used for impairment testing. Estimates of future cash flows used in the evaluation of impairment of assets are
made using management’s forecasts of market prices, market supply and demand, margins, and discount rates.
Information regarding property and equipment is included in Note 8.
Share-based compensation
Measurement inputs include share price on measurement date, exercise price, expected volatility, weighted
average expected life, expected dividends, and risk-free interest rate. Significant estimates and assumptions
are used in determining the expected volatility based on weighted average historic volatility adjusted for changes
expected due to publicly available information, weighted average expected life and expected forfeitures, based
on historical experience and general option-holder behavior. Changes to input assumptions will impact share-
based compensation liability and expense. Information regarding share-based compensation is included in
Note 11.
Income taxes
The Company is subject to income taxes in a number of tax jurisdictions. The amount expected to be settled
and the actual outcome and tax rates can change over time, depending on the facts and circumstances. Changes
to these assumptions will impact income tax and the deferred tax provision. Information regarding income taxes
is included in Note 14.
Critical judgments in applying accounting policies that have the most significant effect on the amounts recognized
in the consolidated financial statements are as follows:
Functional currency
The Company determines functional currency based on the primary economic environment in which the entity
operates. This includes a number of factors that must be considered by the Company in using its judgment to
determine the appropriate functional currency for each entity. These factors include currency of revenue
contracts and currency that mainly influences operating, financing and investing activities. Information regarding
the specific functional currencies by Subsidiaries and Partnerships is included in Note 22.
Impairments
Assessing for indicators of possible impairment requires judgment in the assessment of facts and circumstances
and is a subjective process that often involves a number of estimates and is subject to interpretation. Information
regarding impairment is included in Note 8.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
40
Deferred income tax assets
The recognition of deferred tax assets is based on judgments about future taxable profits.
Joint arrangements
The Company assesses the values of these instruments by using a discounted cash flow model. This calculation
requires the use of estimates, including: future drilling activity and utilization of the drilling rigs, future equipment
deployment milestones, prices, operating costs, discount rates, timing of new property and equipment and
other assumptions.
(s) Recent accounting pronouncements
Certain new accounting standards and interpretations have been published that are mandatory for December
31, 2019 reporting periods and have not been early adopted by the Company. These standards are not expected
to have a material impact on the entity in the current or future reporting periods and on foreseeable future
transactions.
4. FOREIGN OPERATIONS
The Company provides oilfield services throughout much of North America and internationally in a number of
onshore drilling areas. The Company’s foreign operations, with the general exception of operations in the United
States and Australia, are subject to a number of risks and uncertainties such as unstable government regimes,
civil and/or labor unrest, strikes, terrorist threats, regulatory uncertainty and complex commercial arrangements.
The Company’s operations in Venezuela and Argentina are subject to certain restrictions with respect to the transfer
of funds into or out of such countries; however, such restrictions are not considered significant to the Company at
this time due to the relatively small size of the operations and certain contractual provisions that have been put in
place designed to protect the Company. As such the Company is exposed to insignificant foreign exchange risks.
5. BUSINESS COMBINATIONS
During the fourth quarter of 2018 (the "Effective Date") the Company initially completed the acquisition of 56.4
percent of the issued and outstanding common shares of Trinidad Drilling Ltd. ("Trinidad"), a publicly traded oilfield
service company. Following the initial acquisition of control, the Company extended the period for the tender of
additional Trinidad shares, and subsequently acquired 89.3 percent through a series of transactions for total
consideration of $410,197. During the first quarter of 2019, the Company acquired the remaining 10.7 percent of
Trinidad common shares, resulting in a total acquisition price of $459,411. The strategic business combination
was completed to increase the Company's presence in the North American drilling market and certain international
markets.
The Trinidad acquisition was funded from the Company's cash resources and available debt facilities as described
in Note 12.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
41
The allocation of the purchase price for the Trinidad Acquisition is determined as follows:
Net assets acquired
Accounts receivable
Prepaid expenses
Assets held for sale
Property and equipment
Investment in joint ventures
Future income tax
Accounts payable
Deferred revenue
Long term debt
Non-controlling interests liability
Gain on bargain purchase
Net assets acquired
Minority interest
Consideration net of cash received1
1 Cash of $89,856 was acquired as part of Trinidad Acquisition
132,317
4,789
18,806
794,464
144,776
199,374
(124,911)
(1,909)
(591,818)
(5,661)
(200,672)
369,555
49,214
320,341
The purchase price consideration as at the effective acquisition date of the Trinidad Acquisition is as follows:
Cash consideration paid in 2017
Cash consideration paid in 2018
Fair value adjustment
Total consideration
24,302
384,120
1,775
410,197
The Company recognized the gain of $200,672 on bargain purchase in Consolidated Statements of Comprehensive
Income (Loss), which is largely related to the recording of the deferred tax assets at an undiscounted amount
versus fair value in the acquisition.
The Company recognizes minority interests in an acquired entity either at fair value or at the minority interest's
proportionate share of the acquired entity's net identifiable assets. This decision is made on an acquisition-by-
acquisition basis. For minority interests in Trinidad, the Company elected to recognize the minority interest at its
proportionate share of the acquired net identifiable assets. In the first quarter of 2019, the Company acquired the
remaining 10.7 percent of Trinidad shares and as a result Trinidad shares were delisted from trading on the Toronto
Stock Exchange.
The acquired Trinidad business contributed revenues of $49,766 and net profit of $3,386 to the Company for the
period December 1 to December 31, 2018. If acquisition had occurred on January 1, 2018, it is estimated that the
consolidated pro-forma revenue and loss for the year ended December 31, 2018 would be $1,724,648 and $563,787
respectively. Included in the loss was an impairment of property and equipment and goodwill and intangibles of
$564,874 recorded by Trinidad during Q3, 2018.
The Trinidad Acquisition was accounted for as a business combination using the acquisition method whereby the
net assets and liabilities assumed are recorded at fair value.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
42
6.
CASH
(a) Cash
Cash
Restricted cash
Total cash
(b) Non-cash working capital
Net change in non-cash working capital
Accounts receivable
Inventories, investments, prepaid and other
Accounts payable and accruals
Income taxes receivable/payable
Dividends payable
Relating to:
Operating activities
Investing activities
Financing activities
December 31
2019
December 31
2018
$
$
28,408
—
28,408
$
$
75,709
9,114
84,823
December 31
2019
December 31
2018
$
79,342
$
10,885
(54,655)
1,167
(9,062)
27,677
32,582
3,139
(8,044)
$
$
19,535
39,373
(45,186)
(58,185)
—
(44,463)
(73,806)
17,734
11,609
27,677
$
(44,463)
$
$
$
7. ASSET HELD FOR SALE AND DISPOSED
On April 30, 2019 the Company completed the sale of its testing and wireline assets in Canada and the United
States for cash proceeds of $24,000. The transaction resulted in a gain before tax of $9,824.
As at December 31, 2019 building and land classified as held for sale had not been sold. As such, they were still
classified as assets held for sale as at December 31, 2019.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
43
8.
PROPERTY AND EQUIPMENT
Cost:
Balance at December 31, 2017
$
4,902,519 $
128,858 $
69,467 $
5,100,844
Rig and related
equipment
Automotive and
other equipment
Land and
buildings
Total
Acquisition of Trinidad Drilling Ltd.
Additions
Additions of leased assets
Disposals
Asset decommissioning
Effects of foreign exchange
Balance at December 31, 2018
Additions
Additions of leased assets
Disposals
Asset decommissioning
Effects of foreign exchange
Balance at December 31, 2019
Accumulated depreciation and write-downs
Balance at December 31, 2017
Depreciation
Disposals
Asset decommissioning
Effects of foreign exchange
Balance at December 31, 2018
Depreciation
Disposals
Asset decommissioning
Effects of foreign exchange
Balance at December 31, 2019
Net book value:
At December 31, 2018
At December 31, 2019
768,464
77,318
—
(10,201)
(8,016)
246,779
5,976,863
134,794
—
(128,999)
(47,086)
(208,358)
—
2,130
9,807
(6,024)
—
5,383
140,154
548
8,147
(14,486)
—
(7,100)
26,000
596
—
(1,571)
—
3,029
97,521
664
13,683
(9,075)
—
(2,944)
794,464
80,044
9,807
(17,796)
(8,016)
255,191
6,214,538
136,006
21,830
(152,560)
(47,086)
(218,402)
5,727,214 $
127,263 $
99,849 $
5,954,326
(2,372,032) $
(105,601) $
(25,245) $
(2,502,878)
(399,086)
(13,618)
(2,505)
(415,209)
7,920
7,299
(108,655)
4,910
—
(4,312)
606
—
13,436
7,299
(2,515)
(115,482)
(2,864,554)
(118,621)
(29,659)
(3,012,834)
(342,318)
114,362
47,086
95,030
(17,514)
13,070
—
4,739
(3,312)
1,856
—
732
(363,144)
129,288
47,086
100,501
(2,950,394) $
(118,326) $
(30,383) $
(3,099,103)
3,112,309 $
2,776,820 $
21,533 $
8,937 $
67,862 $
3,201,704
69,466 $
2,855,223
$
$
$
$
$
Property and equipment includes equipment under construction of $32,107 (2018 - $32,277) that has not yet been
subject to depreciation. During the year, the Company added one drilling rig and one well servicing rig. Also during
the year, the Company decommissioned 32 drilling rigs and 10 well servicing rigs that had been fully depreciated.
For year ended December 31, 2019 leased asset depreciation was $11,723 which is included with total depreciation
of $363,144.
The adverse economic effects arising from the sustained low oil and natural gas prices are considered indicators
of possible impairment of the Company's assets, and accordingly an asset impairment test was performed by
Management. The Company completed impairment tests in each of its CGU's using five year cash flow projections
with a terminal value and concluded that no impairment charges were required for any CGU's as at December 31,
2019. The impairment tests were based on the following key assumptions:
• a weighted average pre-tax discount rate of 12% to 14% based on the cost of the Company's capital and
debt, asset and country risk, together with past experience;
• cash flow projections based on a 5% to 15% growth rate,
• a terminal growth rate of 2%.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
44
The Company performed a sensitivity analysis and noted there would be no impairment if cash flows were to be
5.0% higher or lower. An impairment in one of the Company's CGU's in the amount of $17,026 would result should
the discount rate increase by 1.0%.
9. INVESTMENT IN JOINT VENTURES
Joint venture loss (gain) reconciliation
Trinidad Drilling International loss (gain) from investment
Other joint arrangements net (gain) loss from investments
Loss (gain) from investment in joint ventures
Joint venture investment reconciliation
Trinidad Drilling International investment balance
Other joint arrangements net loss from investments
Investment in joint ventures
December 31
2019
December 31
2018
$
$
40,008
(116)
39,892
December 31
2019
$
$
125,376
(21)
125,355
$
$
$
$
(1,096)
222
(874)
December 31
2018
177,223
(213)
177,010
The Company owns an interest in a joint venture arrangement with a wholly-owned subsidiary of Halliburton
company, that operates rigs in Bahrain and Kuwait. The joint venture conducts business under the name Trinidad
Drilling International ("TDI") through separately incorporated companies. The Company owns 60% of the shares
of TDI and each of the joint parties have equal voting rights. The investment is held through common shares and
mandatory redeemable preferred shares ("MRPS") classified as liabilities. The investment is treated as a financial
asset and is fair valued through profit or loss and recognizes changes in fair value of the investment in the
consolidated statements of income (loss) and comprehensive income (loss) as gain from investment in joint venture.
Continuity of investment in TDI
Opening balance - January 1
Acquisition of Trinidad Drilling Ltd.
Contributions to the joint venture
(Loss) gain from investment in joint venture
Change in loan in joint venture
Elimination of downstream transactions
Fair value adjustment
Effect of foreign exchange
Closing balance - December 31
December 31
2019
December 31
2018
$
177,223
$
—
—
—
(40,008)
(4,592)
(136)
(625)
(6,486)
144,776
26,144
1,096
528
(48)
—
4,727
$
125,376
$
177,223
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
45
(a) Summarized financial information for TDI
Summarized statements of operations for TDI:
(in thousands of Canadian dollars)
Revenue
Oilfield service revenue
Expenses
Oilfield services
General and administrative
Depreciation 1
Foreign exchange and other loss (gain)
Interest expense
Loss on asset sale
Preferred share valuation
December 31 2019
TDI
Ensign 60%
Share
December 31 2018
TDI
Ensign 60%
Share
$
60,714
$
36,428
$
3,525
$
60,714
36,428
3,525
34,378
11,390
71,181
980
3,867
—
1,038
20,627
6,834
42,709
588
2,320
—
623
2,115
2,115
1,347
457
1,125
(39)
54
395
(2,334)
1,110
14
—
2,246
762
1,875
(65)
90
658
(3,890)
1,849
23
—
(Loss) income before income taxes
(62,120)
(37,273)
Current income tax
Deferred income tax
(1,357)
5,915
(814)
3,549
Net (loss) income
1
Includes impairment of $48,097 of which Ensign share is $28,858 (2018 - $nil)
$
(66,678)
$
(40,008)
$
1,826
$
1,096
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
46
Summarized statement of financial position for TDI:
Amounts are presented at 100% of the value included in the statements of financial position for TDI.
As at
(in thousands of Canadian dollars)
Assets
Current Assets
Cash and cash equivalents
Accounts receivable
Inventories, prepaid and other
Total current assets
Property and equipment
Deferred income taxes
Total assets
Liabilities
Current Liabilities
Accounts payable and accruals
Income taxes payable
Total current liabilities
Preferred shares
Notes payables to joint venture partners
Total liabilities
Shareholders' Equity
Common shares
Contributed surplus
Accumulated other comprehensive income
Retained earnings
Total shareholders' equity
December 31
2019
December 31
2018
$
11,023
$
23,180
9,066
43,269
255,847
—
54,380
16,146
6,309
76,835
268,010
5,915
$
299,116
$
350,760
$
25,173
$
14,052
2,397
27,570
281,208
18,653
327,431
23,508
102,500
9,679
(164,002)
(28,315)
—
14,052
274,534
27,053
315,639
23,508
102,500
6,437
(97,324)
35,121
Total liabilities and shareholders' equity
$
299,116
$
350,760
Related party transactions
The related party transaction exchange amounts are determined depending on the nature of the transaction, and
negotiations by both parties. They generally fall into two categories: shared services and sale of existing equipment.
• Shared services - TDI, and the shareholders of TDI, signed a shared-services agreement that outlines the costs
that will be reimbursed, and the rates based on an employee time allocation assessment.
• Sale of pre-existing equipment -This equipment is sold at a gain/loss on sale to the Company based on third-
party valuations.
The joint shareholders of TDI have loaned funds, via promissory notes, to fund the importation of drilling rigs into
Saudi Arabia. The funds are recoverable through operations in TDI within five years from date of advance and
earn interest at 4.25% and mature in December 2020. As at December 31, 2019, the loan payable to the joint
venture shareholders is $18,653, of which $11,351 is payable to the Company.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
47
Fair value of investment in TDI joint venture
The Company assesses the fair value of the investment using a discounted future cash flow model that compares
the estimated future cash flows to the net book value of the asset at the period end date. The model incorporates
the following assumptions:
1. A weighted average pre-tax discount rate of 14.0%, which considered industry average cost of capital, past
experience, asset specific risk and anticipated debt to equity levels.
2. Five year forecasted cash flows, taking into consideration current industry conditions, actual 2019 operating
results and past experience.
3. A terminal value was used for each of the 2019 fair value assessments assuming 1.5% annual growth rate and
a 1.5% terminal growth rate for cash flows through the remainder of the segment’s life.
10. ACCOUNTS PAYABLE AND ACCRUALS
Trade payables
Accrued liabilities
Accrued payroll
Interest payable
Deferred revenue
Other liabilities
11. SHARE-BASED COMPENSATION
Share option plan
December 31
2019
December 31
2018
$
67,520
$
117,783
80,103
42,748
16,094
8,718
1,536
60,025
45,800
24,383
16,859
6,524
$
216,719
$
271,374
The Company has an employee share option plan that provides all option holders the right to elect to receive either
common shares or a direct cash payment in exchange for the options exercised. The Company may grant options
to its employees for up to 14,885,900 (2018 - 14,886,400) Common Shares. The options’ exercise price equals the
market price of the Common Shares on the date of grant. Share options granted vest evenly over a period of five
years.
The total intrinsic value of the liability for vested benefits at December 31, 2019 was $1,249 (2018 - 1,320).
A summary of the Company’s share option plan as of December 31, 2019 and 2018 and the changes during the
years then ended, is presented below:
Outstanding – January 1
Granted
Exercised
Forfeited
Expired
Outstanding - December 31
Exercisable - December 31
Number of
Share Options
6,038,200
$
1,337,600
(3,300)
(710,600)
(1,253,000)
5,408,900
2,693,980
$
$
2019
Weighted
Average
Exercise Price
7.56
5.69
5.60
6.99
10.37
6.53
6.86
Number of
Share Options
6,724,900
$
1,358,700
(4,200)
(946,400)
(1,094,800)
6,038,200
2,861,040
$
$
2018
Weighted
Average
Exercise Price
9.67
5.60
5.80
9.81
16.13
7.56
8.33
The weighted average share price at the date of exercise of options in 2019 was $5.60 per common share (2018 -
$5.80).
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
48
The following table lists the options outstanding at December 31, 2019:
Exercise Price
$5.60 to $5.86
$5.87 to $7.64
$7.65 to $7.98
Outstanding
Options
Average Vesting
Remaining (in
years)
Weighted
Average
Exercise Price
Options
Exercisable
Weighted
Average
Exercise Price
2,407,850
2,087,300
913,750
5,408,900
3.51
$
1.62
2.00
2.52
$
5.64
6.91
7.98
6.53
726,030
$
1,417,900
550,050
2,693,980
$
5.63
7.06
7.98
6.86
The assumptions used to estimate the fair value of employee share options as at December 31, 2019 were:
Remaining expected life (years)
Volatility (percent)
Forfeiture rate (percent)
Risk-free interest rate (percent)
Expected dividend (percent)
December 31
2019
December 31
2018
2.4
40.0
6.9
1.7
8.4
2.4
40.0
6.7
1.9
10.0
The expected volatility is determined based on weighted average historic prices for the Company’s common shares.
The forfeiture rate is estimated based on historical experience and general option holder behavior.
Share Appreciation Rights (SARs)
The Company has granted share appreciation rights (“SARs”) to certain employees that entitle the employees to
a cash payment. The amount of the cash payment is determined based on the increase in the share price of the
Company between grant date and exercise date. Grants under the plan vest evenly over a period of five years.
A summary of the Company’s SARs plan as of December 31, 2019 and 2018 and the changes during the years
ended, is presented below:
Outstanding – January 1
Granted
Exercised
Forfeited
Expired
Outstanding - December 31, 2019
Exercisable - December 31, 2019
2019
Weighted
Average
Exercise Price
7.28
5.69
—
6.77
10.37
6.42
6.76
Number of
SARs
616,800
$
179,930
—
(70,275)
(94,500)
631,955
295,223
$
$
2018
Weighted
Average
Exercise Price
9.39
5.60
5.60
10.18
16.13
7.28
8.07
Number of
SARs
612,700
$
150,000
(800)
(40,600)
(104,500)
616,800
263,600
$
$
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
49
The following table lists the SARs outstanding at December 31, 2019:
Exercise Price
$5.60 to $5.65
$5.66 to $6.66
$6.67 to $7.98
SARs
Outstanding
Average Vesting
Remaining (in
years)
Weighted
Average
Exercise Price
SARs
Exercisable
Weighted
Average
Exercise Price
132,000
268,105
231,850
631,955
3.00
$
3.59
1.40
2.66
$
5.60
5.83
7.57
6.42
52,320
$
76,253
166,650
295,223
$
5.60
5.88
7.53
6.76
Performance Share Units (PSUs)
The Company grants Performance Share Units (PSUs) to certain officers and employees of the Company to
participate in the growth and development of the Company and to promote further alignment of interests between
employees and the shareholders. PSUs are subject to the Company's performance metrics assessed by
management with a three year performance period. Each PSU granted permits the holder to receive a cash payment
equal to the fair market value of a share as of the maturity date, adjusted for a performance multiplier.
A summary of the activity under this share based incentive plan is presented below:
Outstanding – January 1
Granted
Granted through dividend payment
Forfeited
Outstanding - December 31
2019
1,273,115
1,079,730
254,682
(43,357)
2,564,170
2018
694,983
771,917
98,703
(292,488)
1,273,115
Included in net earnings for the year ended December 31, 2019 is an expense of $3,463 (2018 - $544). This was
calculated using the trailing ten day volume weighted average share price of the Company's underlying common
shares, as the PSUs have no exercise price, adjusted for performance factors and subject to a two percent cap of
Adjusted EBITDA based on certain financial performance metrics.
12. LONG-TERM DEBT
Drawings on the Credit Facility
Unsecured Senior Notes, due April 2024, 9.25%
Ensign notes - Senior unsecured notes
Tranche B, due February 22, 2019, 3.97%
Tranche C, due February 22, 2022, 4.54%
Trinidad notes - Senior unsecured notes, February 2025, 6.63%
Subordinate convertible debentures, January 22, 2022, 7.00%
Unamortized deferred financing costs
Total
Less: current portion
Total long-term debt
The Credit Facility
December 31
2019
December 31
2018
$
750,000
$
946,531
832,108
—
—
—
—
33,846
(34,425)
136,444
136,444
477,554
34,538
(14,547)
$
$
1,581,529
—
1,581,529
$
$
1,716,964
(376,612)
1,340,352
As at December 31, 2019, the Company’s Credit Facility (the "Credit Facility") consists of a $900,000 (2018 -
$1,250,000) revolving secured facility. The Credit Facility may be drawn in Canadian or United States dollars, up
to the equivalent value of $900,000 Canadian dollars.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
50
Interest is incurred on the utilized balance of the Credit Facility based on the election of one of the following options
when funds are drawn:
•
•
•
•
•
The bank's Canadian prime lending rate plus 0.50% to 3.00%
The US base or US prime rate
The commitment rate of 0.375% to 1.00%
The BA rate plus 1.50% to 4.00%
The LIBOR and letters of credit
The Credit Facility matures November 26, 2021, unless extended. No principal payments are due until then.
The Credit Facility has the following covenant requirements:
• The Consolidated Total Debt to Consolidated EBITDA Ratio at the end of the Fiscal Quarter shall not exceed
5.00:1.00;
• The Consolidated EBITDA to Consolidated Interest Expense as at the end of any Fiscal Quarter shall not be
less than 2.50:1.00; and
• The Consolidated Senior Debt to Consolidated EBITDA Ratio at the end of the Fiscal Quarter shall not exceed
2.75:1.00.
As at December 31, 2019 the Company was in compliance with all covenants related to the Credit Facility.
Unsecured senior notes
On January 10, 2019 the Company utilized the Credit Facility to redeem in full its US $200,000 senior guaranteed
notes (Tranches B & C) due February 2019 and 2022. The total price for the redemption was US $205,100, which
included the principal, make whole amount and accrued interest.
In the first quarter 2019, the Company repurchased 99.93% of the outstanding US $350,000 of Trinidad Notes due
February 2025 and included related consent fees. The total cost for the repurchase of the Trinidad Notes was US
$350,000. The Trinidad Notes were tendered, and the consent fees were paid, pursuant to Trinidad’s change of
control offer to purchase and solicitation of consents announced on December 27, 2018. The Trinidad Notes were
repurchased at 101% plus accrued and unpaid interest. Consenting noteholders also received 0.5% as a consent
fee for their consent to certain amendments to the indenture governing the Trinidad Notes, among other things
eliminating or modifying substantially all of the restrictive covenants.
On April 10, 2019, the Company issued US $700,000 of unsecured Senior Notes (the "Senior Notes") due 2024
and bearing interest of 9.25%. Interest is payable semi-annually in arrears on April 15 and October 15 and have
maturing of April 15, 2024. The Senior Notes are callable on or after April 15, 2021 at 104.625%, April 15, 2022 at
102.313% and April 15, 2023 and thereafter at 100%. The Company incurred debt issue costs of $34,490 related
to the Senior Notes which will be amortized over the life of the Senior Notes using the effective interest method.
The net proceeds of the offering and cash on hand were used to repay all outstanding loans under the US $700,000
Senior Loan. In 2019, since issuance the Company purchased US $58,045 of the Senior Notes and recorded gain
on purchase of $4,647.
Interest accrued on the Senior Notes at December 31, 2019 was $16,677 and has been included in accounts payable
and accruals on the consolidated statement of financial position.
Subordinate convertible debentures
The Company has a non-brokered private placement of unsecured, subordinated convertible debentures (the
"Convertible Debentures") for aggregate gross proceeds of $37,000. The Convertible Debentures bear interest
from the date of closing at 7.0% per annum, payable semi-annually in arrears, on April 1 and October 1 each year.
The Convertible Debentures will mature on January 31, 2022.
If, on and after April 1, 2021, the closing price of the Company's Common Shares on the Toronto Stock Exchange
exceeds 125% of the Conversion Price for at least 30 consecutive trading days, the Convertible Debentures may
be redeemed by the Company for cash, in whole or in part from time to time, on not more than 90 days and not less
than 60 days prior notice, at a redemption price equal to the outstanding principal amount of the Convertible
Debentures plus accrued and unpaid interest thereon (if any), up to, but excluding, the date of redemption.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
51
The liability component of the Convertible Debentures was recognized initially at the fair value and revalued quarterly
using a similar liability that does not have an equity conversion option, which was calculated based on an estimated
market interest rate of 7.0%.
The difference between the principal amount of the Convertible Debentures and the fair value of the liability
component was recognized in shareholders’ equity.
Letter of Credit Facility
In addition, the Company has a US $50,000 secured Letters of Credit Facility. As of December 31, 2019, the available
amount was US $6,872.
Long term debt continuity
The following table sets out an analysis of long-term debts and the movements in the long term debt for the periods
presented:
Opening balance
Proceeds from long-term debt, net of debt issuance costs
Long-term debt repayments
Convertible Debentures fair value adjustment
Amortization of debt issuance costs
Foreign exchange adjustments
Ending balance
13. LEASE OBLIGATIONS
$
$
2019
1,716,964
2,266,408
(2,375,891)
(692)
13,914
(39,174)
1,581,529
The Consolidated Statement of Financial Position shows the following amounts relating to leases:
Right-of-use assets 1
Properties
Vehicles
Lease liabilities
Current
Non-current
December 31
2019
December 31
2018
$
$
$
$
6,637
10,516
17,153
9,996
9,518
19,514
$
$
$
$
13,792
6,952
20,744
—
9,689
9,689
1 In previous year, the Company only recognized lease assets and liabilities in relation to leases that were classified as "finance leases" under IAS17
Leases. The assets were presented in property, plant and equipment and the liabilities as part of the Company's long term debt. For adjustments
recognizes on adoption of IFRS 16 on January 1, 2019 please refer to Note 5.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
52
14.
INCOME TAXES
Analysis of deferred tax liability:
Property and equipment
Share-based compensation
Non-capital losses
Other
Net deferred tax liability
Deferred Tax:
Deferred tax asset recovered within 12 months
Deferred tax asset recovered after 12 months
Deferred tax liability recovered within 12 months
Deferred tax liability recovered after 12 months
December 31
2019
December 31
2018
$
479,109
$
501,508
$
$
(128)
(422,974)
(13,974)
(963)
(370,439)
(57,379)
42,033
$
72,727
(8,504)
$
(19,618)
(489,196)
(411,632)
4,593
535,140
2,470
501,507
Net deferred tax liability
$
42,033
$
72,727
Movement of deferred tax liability:
Opening deferred tax liability
Deferred tax recovery
Acquisition of Trinidad Drilling Ltd.
Foreign exchange impact
Net deferred tax liability
December 31
2019
December 31
2018
$
72,727
$
311,007
(23,559)
—
(7,135)
$
42,033
$
(53,224)
(200,672)
15,616
72,727
The provision for income taxes is different from the expected provision for income taxes using combined Canadian
federal and provincial income tax rates for the following reasons:
For the years ended
(Loss) income before income taxes
Gain on bargain purchase
Income tax rate
Expected income tax expense
Increase (decrease) from:
Higher effective tax rate on foreign operations
Non-deductible expenses
Withholding taxes and other
Functional currency translation adjustment and true up
Rate change impact on deferred taxes
Income tax expense
December 31
2019
December 31
2018
$
(183,597)
$
6,484
—
(183,597)
26.7%
(200,672)
(194,188)
27.0%
(49,020)
(52,431)
625
9,737
8,648
(6,965)
16,832
(1,818)
(1,083)
—
2,139
1,013
$
(20,143)
$
(52,180)
The statutory rate for 2019 decreased due to the reduction in Alberta provincial tax rates from July 1, 2019.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
53
15. SHARE CAPITAL
(a) Authorized
Unlimited common shares, no par value
Unlimited preferred shares, no par value, issuable in series
(b) Issued, fully paid and outstanding
Opening balance – January 1
Shares issue as part of the dividend reinvestment plan
Changes in unvested shares held in trust
Number of
Common
Shares
156,861,056 $
6,044,142
(239,622)
2019
Amount
206,328
24,094
Number of
Common
Shares
156,753,209 $
—
(322)
107,847
2018
Amount
206,042
—
286
Closing balance - December 31
162,665,576 $
230,100
156,861,056 $
206,328
The total number of unvested shares held in trust for share-based compensation plans as at December 31, 2019
was 453,047 (December 31, 2018 – 213,425).
(c) Dividends
During the year ended December 31, 2019, the Company declared dividends of $68,079 (2018 - $75,396), being
$0.42 per common share (2018 - $0.48 per common share).
16. NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share is calculated by dividing net income (loss) by the weighted average number of
common shares outstanding during the period.
Diluted net (loss) income per share is calculated by dividing net (loss) income by the weighted average number of
common shares outstanding during the period adjusted for conversion of all potentially dilutive common shares.
Diluted net (loss) income is calculated using the treasury share method, which assumes that all outstanding share
options are exercised, if dilutive, and the assumed proceeds are used to purchase the common shares at the average
market price during the period.
Net (loss) income attributable to common shareholders:
Basic and diluted
$
(162,905)
$
58,302
Weighted average number of common shares outstanding:
Basic
Potentially dilutive share-based compensation plans
Diluted
159,598,788
156,862,920
87,404
178,800
159,686,192
157,041,720
December 31
2019
December 31
2018
Share options of 5,408,900 (2018 – 3,923,750) were excluded from the calculation of diluted weighted average
number of common shares outstanding as they were anti-dilutive.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
54
17. SEGMENTED INFORMATION
The Company determines its operating segments based on internal information regularly reviewed by management
to allocate resources and assess performance. Oilfield services are provided in Canada, the United States and
internationally. The amounts related to each geographic area are as follows:
As at and for the year ended December 31, 2019
Canada
United States
International
Revenue
Depreciation
(Loss) income before interest, other gains (losses) and
income taxes
Total assets
Total liabilities
Purchase of property & equipment, net
As at and for the year ended December 31, 2018
Revenue
Depreciation
(Loss) income before interest, other gains (losses) and
income taxes
Total assets
Total liabilities
Purchase of property & equipment, net
293,333
125,160
(64,643)
947,715
1,672,963
(21,164)
Canada
241,034
118,521
123,781
907,011
1,404,756
14,355
1,005,536
197,273
52,573
1,824,340
267,436
75,052
293,378
40,711
3,053
698,546
67,180
42,121
United States
International
641,558
204,412
(47,323)
2,161,721
582,818
49,082
273,765
92,103
(17,558)
825,376
115,851
9,859
Total
1,592,247
363,144
(9,017)
3,470,601
2,007,579
96,009
Total
1,156,357
415,036
58,900
3,894,108
2,103,425
73,296
For the years ended December 31
Rig rental revenue
Service revenue
Total revenue
2019
2018
$
$
1,014,500
$
682,716
577,747
473,641
1,592,247
$
1,156,357
There are no material differences in the basis of accounting or the measurement of (loss) income, assets and
liabilities between the Company and reported segment information, except that certain inter-company liabilities and
equity are offset with the assets of the appropriate related segment. Revenues and expenses are attributed to
geographical areas based on the location in which the services are rendered. The segment presentation of assets
and liabilities is based on the geographical location of the assets.
During the year ended December 31, 2019 the Company had no customers that represented 10 percent or more
of the Company's revenue consistently with 2018.
18. EXPENSES BY NATURE
Salaries, wages and benefits
Share-based compensation
Total employee costs
Depreciation
Purchased materials, supplies and services
Foreign exchange and other
December 31
2019
December 31
2018
$
891,073
$
588,563
4,047
895,120
363,144
317,574
25,426
707
589,270
415,036
313,698
(19,001)
Total expenses before interest and income taxes
$
1,601,264
$
1,299,003
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
55
19. KEY MANAGEMENT COMPENSATION AND RELATED PARTY TRANSACTIONS
Key management personnel comprises of the Company’s directors and named executive officers. Compensation
for key management personnel consists of the following:
Short-term compensation
Share-based compensation
Total management compensation
20. SIGNIFICANT SUBSIDIARIES
December 31
2019
December 31
2018
$
$
2,972
610
3,582
$
$
2,744
717
3,461
The following table lists the Company’s principal operating subsidiaries, the functional currency, the jurisdiction of
formation, incorporation or continuance of such partnerships and subsidiaries and the percentage of shares owned,
directly or indirectly, by the Company as of December 31, 2019:
Name of Subsidiary
Ensign Drilling Inc.
Ensign Argentina S.A.
Ensign de Venezuela C.A.
Ensign International Energy Services Pty Limited
Ensign Australia Pty Limited
Ensign International Energy Services LLC
Tristate (Barbados) Holdings Inc.
Ensign United States Drilling Inc.
Ensign United States Drilling (California) Inc.
Ensign US Financial (Delaware) LP
Ensign US Southern Drilling LLC
OFS Global Inc.
Trinidad Drilling Ltd.
Trinidad Drilling USA Ltd.
Trinidad Drilling LP
21. CAPITAL MANAGEMENT STRATEGY
Jurisdiction of
Formation
Incorporation
or
Continuance
Functional
Currency
Percentage Ownership of
Shares Beneficially Owned or
Controlled Directly or Indirectly
by the Company
2019
2018
CAD
USD
USD
USD
AUD
USD
USD
USD
USD
USD
USD
USD
CAD
USD
USD
Canada
Argentina
Venezuela
Australia
Australia
Oman
Barbados
United States
United States
United States
United States
Canada
Canada
United States
United States
100
100
100
100
100
70
100
100
100
—
100
100
—
—
—
100
100
100
100
100
70
100
100
100
100
100
100
89
89
89
The Company’s objectives when managing capital are to exercise financial discipline, and to deliver positive returns
and stable dividend streams to its shareholders. The Company continues to be cognizant of the challenges
associated with operating in a cyclical, commodity-based industry and may make future adjustments to its capital
management strategy in light of changing economic conditions.
The Company considers its capital structure to include shareholders’ equity, Credit Facility, Convertible Debentures
and Senior Notes. In order to maintain or adjust its capital structure, the Company may from time to time adjust
its capital spending or dividend policy to manage the level of its borrowings, or may revise the terms of its bank
credit facilities to support future growth initiatives. The Company may consider additional long-term borrowings or
equity financing if deemed necessary. As at December 31, 2019, the Credit Facility's drawings totaled $750,000
(2018 - $946,531), Senior Notes totaled $832,108 (2018 - $750,442), Convertible Debentures totaled $37,000
(2018 - $37,000) and shareholders’ equity totaled $1,463,022 (2018 - $1,790,683).
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
56
The Company is subject to externally imposed capital requirements associated with its Credit Facility and Senior
Notes, including financial covenants that incorporate shareholders’ equity, earnings, consolidated interest expense
and level of indebtedness. The Company monitors its compliance with these requirements on an ongoing basis
and projects future operating cash flows, capital expenditure levels and dividend payments to assess how these
activities may impact compliance in future periods.
22. FINANCIAL INSTRUMENTS
Categories of financial instruments
The classification and measurement of financial instruments is presented below:
Cash, accounts receivable and income tax receivable are classified as financial assets at amortized cost.
Accounts payable and accruals, cash dividends payable, income tax payable, lease obligation and long-term debt
are classified as financial liabilities at amortized cost.
Fair values
The fair value of cash, accounts receivable, income tax receivable and payable, accounts payable and accruals
and cash dividends payable approximates their carrying value due to the short-term maturity of these financial
instruments. The fair value of the drawings on the bank credit facilities and lease obligations approximates its
carrying value.
The fair value of the Senior Notes are based on the closing market price at December 31, 2019.
Financial assets and liabilities recorded or disclosed at fair value in the consolidated statement of financial position
are categorized using a three-level hierarchy that reflects the level of judgment associated with the inputs used to
measure their fair value. The fair values of financial assets and liabilities included in Level 1 are determined by
reference to unadjusted quoted prices in active markets for identical assets and liabilities. Fair values of financial
assets and liabilities in Level 2 are based on inputs other than Level 1 quoted prices that are observable for the
asset or liability either directly (as prices) or indirectly (derived from prices). The fair values in Level 3 financial
assets and liabilities are not based on observable market data.
The estimated fair value of Senior Notes was based on the closing market price on the date of valuation. The Senior
Notes are a level 1 in the fair value hierarchy.
The estimated fair value of the investment in joint ventures is a Level 3 in the value of hierarchy. Inputs to the
change in the fail value of the investment in joint venture are disclosed in Note 9.
The fair value of non-controlling interest is based on Level 3 inputs and is not based on observable market.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
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The following table summarizes the carrying value of the certain Company's financial assets and liabilities as
compared to their respective fair values:
As at
December 31 2019
December 31 2018
(in thousands of Canadian dollars)
Fair value Carrying value
Fair Value
Carrying value
Financial assets at fair value for profit or loss:
Investment in TDI joint venture
125,355
125,355
177,010
177,010
Financial liabilities at fair value through profit
or loss:
Senior Notes, due 2024
785,344
832,108
—
—
Ensign notes - senior unsecured notes due 2019
and 2022
Trinidad notes - senior notes due 2025
Convertible Debentures
Lease obligations
Non-controlling interests liability
Credit risk
—
—
34,538
19,514
5,138
—
—
34,538
19,514
5,138
278,614
482,682
34,538
9,689
6,007
278,614
482,682
34,538
9,689
6,007
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. Credit risk arises principally from the Company’s accounts receivable balances
owing from customers operating primarily in the oil and natural gas industry in Canada, the United States and
internationally. The carrying amount of accounts receivable represents the maximum credit exposure as at
December 31, 2019.
The Company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime
expected loss allowances for all trade receivables and contract assets.
To measure the expected credit losses, trade receivables have been grouped based on shared credit risk
characteristics and the days past due. The expected loss rates are based on the payment profiles of sales over a
period of 36 months before December 31, 2019 or January 1, 2019 respectively and the corresponding historical
credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-
looking information on macroeconomic factors affecting the ability of the customer to settle the receivables.
On that basis, the loss allowance as at December 31, 2019 and December 31, 2018 was determined as follows
for trade receivables:
As at December 31, 2019
Expected loss rate
Gross carrying amount 1
Loss allowances
As at December 31, 2018
Expected loss rate
Gross carrying amount 1
Loss allowances
Current
0.5%
128,168
641
Current
0.5%
More than 30
days past due
More than 60
days past due
More than 90
days past due
2.0%
8.2%
34.6%
56,150
1,123
18,069
1,482
32,893
11,379
More than 30
days past due
More than 60
days past due
More than 90
days past due
2.0%
8.2%
43.2%
167,105
104,662
836
2,093
26,207
2,149
25,682
11,105
Total
235,280
14,625
Total
323,656
16,183
1 Gross carrying amount excludes unbilled revenue and other receivables of $51,599 for year ended December 31, 2019 (2018 - $44,123)
As part of the Company’s international operations, it provides oilfield services in Venezuela pursuant to contractual
arrangements. As at December 31, 2019, the Company had accounts receivable of approximately $24,302 for
work performed in Venezuela, of which over 90 days receivable were discounted at 14.5 percent over a five year
period (2018 - $nil). Though the Company has a history of collecting accounts receivable in Venezuela, due to the
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
58
continuing political unrest in the country as well as imposed sanctions, there can be no assurance that the Company
will be successful in collecting all of such accounts receivable outstanding.
The loss allowance for trade receivables as at December 31, 2019 reconcile to the opening loss allowances as
follows:
Opening balance - January 1
Increase in loss allowance recognized in profit or loss
Unused amount reversed
Effect of movement in exchange rates
Closing balance - December 31
2019
$
16,183
$
100
(1,540)
(118)
2018
4,165
12,781
(633)
(130)
$
14,625
$
16,183
Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no
reasonable expectation of recovery include, amongst others, the failure of debtor to engage in a repayment plan
with the Company, and failure to make contractual payments for a period of greater than 120 days past due.
Impairment losses on trade receivables are presented as net losses within operating profit. Subsequent recoveries
of amounts previously written off are credited against the same line item.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The
Company manages liquidity by forecasting cash flows on an annual basis and secures sufficient credit facilities to
meet financing requirements that exceed anticipated internally generated funds. As at December 31, 2019, the
remaining contractual maturities of accounts payable and accruals and cash dividends payable are less than one
year.
Maturity information regarding the principal and interest on the Company’s long-term debt are as follows:
As at December 31
Less than 1 Year
1-3 Years
4-5 Years
Total
Senior Notes
Credit Facility1
Convertible Debentures
Total
$
$
78,252
$
234,115
$
853,696
$
1,166,063
34,064
2,597
780,704
40,456
— $
— $
814,768
43,053
114,913
$
1,055,275
$
853,696
$
2,023,884
1 Interest on the bank credit facilities is calculated based on the amount drawn at December 31, 2019 and the applicable bankers’ acceptance/
LIBOR interest rates outstanding as at December 31, 2019. USD denominated balances are converted using the foreign exchange rate as of
December 31, 2019.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect
the Company’s net income or the value of its financial instruments.
Interest rate risk
The Company is exposed to interest rate risk with respect to its bank credit facilities which bear interest at floating
market rates. For the year ended December 31, 2019, if interest rates applicable to its bank credit facilities had
been 0.25 percent higher or lower, with all other variables held constant, income before income taxes would have
been $1,875 lower or higher.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
59
Foreign currency exchange rate risk
Foreign currency risk can only arise on financial instruments that are denominated in a currency other than the
functional currency in which they are measured. The Company has hedged it's exposure to foreign exchange risk
through the issuance of a USD denominated Senior Note. Translation related risks are therefore not included in
the assessment of the entity’s exposure to currency risks.
Translation exposures arise from financial and non-financial items held by an entity (for example, a subsidiary)
with a functional currency different from the Company’s presentation currency. However, foreign currency
denominated inter-company receivables and payables which do not form part of a net investment in a foreign
operation would be included in the sensitivity analysis for foreign currency risks, because even though the balances
eliminate in the consolidated balance sheet, the effect on profit or loss of their revaluation under IAS 21 is not fully
eliminated.
At December 31, 2019, had the the Company dollar weakened or strengthened by $0.01 against the United States
dollar, with all other variables held constant, the Company's income loss before income taxes would have been
$6,420 higher or lower.
23. PRIOR YEAR AMOUNTS
Prior year amounts in the consolidated statements of financial position related to deferred income tax asset and
deferred income tax liability have been reclassified to conform to current year's presentation. The revised financial
statement line items for 2018 period as follows:
Consolidated statements of financial position (extract)
Deferred income tax asset
Deferred income tax liability
Net deferred income tax
2018
(Revised)
99,054
(171,781)
(72,727)
2018
—
(72,727)
(72,727)
Prior year amounts in the consolidated statements of comprehensive (loss) income related to restructuring cost
have been reclassified to conform to current year's presentation. The revised financial statement line items for 2018
period as follows:
Consolidated statement of (loss) income (extract)
General and administrative
Restructuring
24. SUBSEQUENT EVENTS
2018
(Revised)
44,945
1,492
46,437
2018
46,347
—
46,347
Subsequent to December 31, 2019, the Company declared a dividend for the first quarter of 2020 of $0.06 per
common share or approximately $9,787, payable on or about April 3, 2020 to the shareholders of record at the close
of business on March 20, 2020. The dividend has not been provided for and is pursuant to the quarterly dividend
policy adopted by the Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act (“ITA”), the dividend
being paid is designated as an eligible dividend, as defined in subsection 89(1) of the ITA.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
60
Share Trading Summary
For the three months ended (Unaudited)
High ($)
Low ($)
Close ($)
Volume
Value ($)
2019
March 31
June 30
September 30
December 31
Total
5.99
6.35
4.56
2.97
4.43
4.29
2.73
2.26
5.35
4.29
3.06
2.85
16,542,700
87,104,816
13,516,900
71,779,047
39,755,200
138,084,860
28,495,000
75,243,994
98,309,800
372,212,717
For the three months ended (Unaudited)
High ($)
Low ($)
Close ($)
Volume
Value ($)
2018
March 31
June 30
September 30
December 31
Total
7.83
6.55
7.20
6.51
5.61
5.56
5.29
4.14
6.04
5.87
6.23
4.79
23,422,300
157,503,889
15,172,200
91,109,848
8,356,300
51,778,506
14,162,900
72,049,229
61,113,700
372,441,472
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
61
10 Year Financial information
(Unaudited - $ thousands, except per share data)
2019
2018
2017
2016
2015
Revenue
Gross margin
1,592,247
1,156,357
1,000,650
859,702
1,390,978
451,308
300,533
240,950
237,676
395,953
Gross margin % of revenue
28.3 %
26.0%
24.1 %
27.6 %
28.5 %
Adjusted EBITDA
Depreciation
406,766
363,144
255,677
415,036
201,784
325,811
185,173
349,947
329,010
335,513
Net (loss) income attributable to shareholders
(162,905)
58,302
(37,644)
(150,522)
(104,049)
Net (loss) income per share
Basic
Diluted
$(1.02)
$(1.02)
$0.37
$0.37
$(0.24)
$(0.24)
$(0.99)
$(0.98)
$(0.68)
$(0.68)
Funds from operations
236,989
225,939
141,438
170,651
296,273
Funds from operations per share
Basic
Diluted
Net capital expenditures, excluding
acquisitions
Acquisitions1
$1.48
$1.48
96,009
—
$1.44
$1.44
73,296
320,341
$0.90
$0.90
$1.12
$1.11
$1.94
$1.94
117,712
29,120
159,033
—
—
(11,153)
583,269
—
144,239
794,109
Working capital (deficit)
126,987
(156,223)
(342,199)
Long-term debt, net of current portion
1,581,529
1,340,352
252,676
Shareholders' equity
1,463,022
1,790,683
1,689,376
1,832,489
2,086,596
Return on average shareholders' equity
Long-term debt to equity
Weighted avg. common shares outstanding -
basic
(11.1)%
1.08:1
3.3%
0.75:1
(2.2)%
0.15:1
(8.2)%
0.32:1
(5.0)%
0.38:1
159,598,788
156,862,920
156,545,624
152,759,973
152,476,615
Closing share price - December 31
$2.85
$4.79
$6.47
$9.38
$7.38
1 Consideration paid net of cash was $294,264 in 2018 and $24,302 in 2017. Fair value adjustment of $1,775 was recorded in 2018.
* Restated under IFRS
All per share data and the weighted average common shares outstanding have been restated to reflect the 3-for-1 stock split effective May 2001 and
the 2-for-1 stock split effective May 2006.
Certain prior year amounts have been restated to reflect current year presentation.
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
62
10 Year Financial information
(Unaudited - $ thousands, except per share data)
2014
2013
2012
2011
2010*
Revenue
Gross margin
2,321,765
2,098,011
2,197,321
1,890,372
1,355,683
635,370
573,838
641,812
567,446
370,860
Gross margin % of revenue
27.4%
27.4%
29.2%
30.0%
27.4%
Adjusted EBITDA
Depreciation
Net income (loss)
Net income (loss) per share
Basic
Diluted
542,262
298,854
71,120
$0.47
$0.46
485,712
248,026
128,865
$0.84
$0.84
560,975
220,227
217,522
$1.42
$1.42
497,188
177,927
212,393
$1.39
$1.39
310,011
132,980
119,308
$0.78
$0.78
Funds from operations
491,886
435,611
506,355
473,099
288,513
Funds from operations per share
Basic
Diluted
Net capital expenditures, excluding
acquisitions
Acquisitions
Working capital (deficit)
Long-term debt, net of current portion
$3.22
$3.21
582,999
—
189,698
786,327
$2.85
$2.84
342,225
76,408
(71,146)
317,407
$3.32
$3.31
$3.09
$3.09
$1.89
$1.88
306,689
386,833
255,463
—
497,352
13,861
296,589
(10,233)
405,953
—
84,516
—
Shareholders' equity
2,045,237
1,962,569
1,857,958
1,723,422
1,548,155
Return on average shareholders' equity
Long-term debt to equity
Weighted avg. common shares outstanding -
basic
3.5%
0.38:1
6.7%
0.16:1
12.1%
0.16:1
13.0%
0.24:1
7.7%
NA
152,710,636
152,693,280
152,664,447
152,865,133
152,834,798
Closing share price - December 31
$10.20
$16.73
$15.37
$16.25
$15.03
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
63
CORPORATE INFORMATION
BOARD OF DIRECTORS
CORPORATE MANAGEMENT
HEAD OFFICE
N. MURRAY EDWARDS
N. MURRAY EDWARDS
400 - 5th Avenue S.W., Suite 1000
Corporate Director and Investor
Chairman
ROBERT H. GEDDES
President and COO,
ROBERT H. GEDDES
President and Chief Operating
Ensign Energy Services Inc.
Officer
GARY CASSWELL (2,4)
Independent Businessman
JAMES B. HOWE (1,3)
President, Bragg Creek Financial
Consultants Ltd.
LEN KANGAS (2,4)
Independent Businessman
CARY A. MOOMJIAN, JR (2,3)
President,
CAM OilServ Advisors LLC
JOHN SCHROEDER (1,3)
Independent Businessman
GAIL SURKAN (2,3)
Independent Businesswoman
BARTH WHITHAM (1,4)
President and CEO,
Enduring Resources LLC
Calgary, Alberta T2P 0L6
Telephone: (403)-262-1361
Facsimile: (403)-262-8215
Email: info@ensignenergy.com
Website: www.ensignenergy.com
BANKERS
HSBC Bank Canada
Bank of Montreal
MICHAEL GRAY
Chief Financial Officer
TOM CONNORS
Executive Vice President, Canada
STOCK EXCHANGE LISTING
MICHAEL NUSS
Toronto Stock Exchange
Executive Vice President, US
Symbol: ESI
BRENT CONWAY
AUDITORS
Executive Vice President,
PricewaterhouseCoopers LLP
International
TRANSFER AGENT
TREVOR RUSSELL
Computershare Trust Company
Vice President, Finance
of Canada
AHMED IQBAL
Vice President, Corporate Controller
JONATHAN BASKEYFIELD
Vice President, Tax
ROBERT RAIMONDO
Vice President, Health, Safety
and Environment
CATHY ROBINSON
Vice President, Global Human
Resources
SUZANNE DAVIES
Vice President Legal and Corporate
Secretary
COMMITTEE MEMBERS
1 Audit
2 Corporate Governance, Nominations and Risk
3 Compensation
4 Health, Safety and Environment
ENSIGN ENERGY SERVICES INC. | 2019 ANNUAL REPORT
64
www.ensignenergy.com