2006 Annual Report - Ensign Energy Services Inc.

Transcription

ENSIGN ENERGY SERVICES INC.
2006 Annual Report
Ensign Energy Servies Inc.
Corporate Profile
With headquarters in Calgary, Alberta, Ensign is an
industry leader in the delivery of oilfield services.
Since its inception in 1987, Ensign has accumulated
an extensive equipment fleet characterized by
flexibility and mobility for meeting the challenging
demands of the oil and natural gas industry. We also
2006 Annual Report
have contributed to advancements in drilling and well
servicing through the innovative use of technology,
and have an established reputation for the highest
safety standards and environmental stewardship.
Ensign’s shares are listed on the Toronto Stock
Exchange under the trading symbol “ESI”.
TSX:ESI
Head Office
1000, 400 - 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 262-8215
Email:
info@ensignenergy.com
Website:
www.ensignenergy.com
Global Reach. Local Focus.
1
2
6
10
20
34
36
37
37
Highlights
Letter to Shareholders
Health, Safety and Environment
Operations Review
Management’s Discussion and Analysis
Operating Divisions Summary
Corporate Governance
Management’s Report
Auditors’ Report
38
41
47
48
48
50
53
54
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Additional Information
10 Year Financial Information
Share Trading Summary
Operating Management
Corporate and Field Offices
Corporate Information
2006 Annual Report
Ensign Energy Services Inc.
Corporate Profile
demands of the oil and natural gas industry. We have
2006 Annual Report
also contributed to advancements in drilling and well
TSX:ESI
Head Office
1000, 400 - 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 262-8215
Email:
Website: www.ensignenergy.com
1
2
6
9
18
34
36
37
37
Highlights
Operations Review
Auditors’ Report
38
41
49
50
50
52
56
IBC
Notes to the Consolidated Financial Statements
3/30/07
1:19 PM
Page 2
700
2000
500
600
1500
400
500
350
3.0
2.5
300
2.5
2.0
250
400
300
200
200
150
2.0
1.5
1.5
1000
300
200
500
100
0
0
02
03
04
05
06
03
04
05
06
0
02
03
04
05
06
0.0
02
03
04
05
06
0.5
0.5
50
0
02
1.0
1.0
100
100
Financial Performance
ENSIGN Energy Services Inc.
cover_2006_v11_artwork.qxd
0.0
02
03
04
05
06
02
03
04
05
Revenue
Gross Margin
Funds from Operations
Net Income
Funds from Operations Per Share
Net Income Per Share
($ millions)
($ millions)
($ millions)
($ millions)
(Basic – $)
(Basic – $)
06
Directors
Canada
United States
International
11
38
1,700
4,000
64
9
227.0
114
186
505.7
2,100
Drilling Rigs (1)
Employees
Service Rigs/
Workover Rigs/
Coiled Tubing Units
1,074.5
2006 Revenue
($ millions)
Jack Donald 2
N. Murray Edwards
Robert H. Geddes
James B. Howe 1, 3
Donald Jewitt 1, 3
Len Kangas 2
Independent
Businessman
President,
Edco Financial Holdings Ltd.
President and COO,
President, Bragg Creek
Financial Consultants Ltd.
Independent
Businessman
Independent
Businessman
Board member since June 1990
Board member since October 1989
Board member since March 2007
Committee Members
Operating Divisions Canada
United States
Contract Drilling
Ensign United States Drilling Inc.
Ensign Energy Services International Limited
Ensign United States Drilling (California) Inc. Ensign de Venezuela C.A.
Ensign Drilling Partnership
Ensign Drilling
Tri-City Drilling
Champion Drilling
Big Sky Drilling
Encore Coring & Drilling
1 Audit
2 Corporate Governance
and Nominations
3 Compensation
International
Underbalanced Drilling, Enhanced Petroleum
Rental Equipment, and Services Partnership
Rocky Mountain Oilfield Rentals
Camps & Catering
Enhanced Drill Systems
Chandel Equipment Rentals
Ensign United States Drilling (California) Inc.
Cheechako Camps & Catering West Coast Oilfield Rentals
Well Servicing
Manufacturing and
Production Services
Rockwell Servicing Partnership Ensign Well Services Inc.
Opsco Energy Industries Ltd.
Ensign de Venezuela C.A.
Canada (1)
United States
International (2)
0-1,000
26
2
–
Rig Depth (metres)
1,001-2000
2,001-3000
44
53
10
15
6
12
Canada
United States
Slant Single
8
–
Skid Single
2
–
Board member since May 2003
Corporate Management
Head Office
Stock Exchange Listing
N. Murray Edwards
Toronto Stock Exchange
Symbol: ESI
President and Chief Operating Officer
1000, 400 - 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 262-8215
Email: info@ensignenergy.com
Ed Kautz
Bankers
Executive Vice President United States
and International Operations
Royal Bank of Canada
ATB Financial
Bank of Montreal
Wells Fargo Bank, N.A.
HSBC Bank Australia Limited
Notice of
Annual Meeting
Glenn Dagenais
Oman
3,001-4000
37
25
15
4,001-5,000
3
9
5
5,001+
–
2
8
Executive Vice President Finance and
Chief Financial Officer
Thailand
Venezuela
Bruce Moyes
Gabon
Indonesia
Mobile Single
67
–
Mobile Double
18
–
Medium &
Heavy Double
8
11
Vice President Finance
Auditors
Rob Wilman
PricewaterhouseCoopers LLP
Vice President Health, Safety and
Environment
Australia
Coiled
Tubing Units
11
–
President and CEO,
Enduring Resources LLC
Robert H. Geddes
Service Rig Classifications
Total
114
11
Barth Whitham
Independent
Businesswoman
Vice Chairman
Libya
ADR™
23
1
1
Gail Surkan
Independent
Businessman
Selby Porter
Canada
United States
Total
186
64
47
John Schroeder 1, 3
Chairman
Opsco Energy Industries (USA) Ltd.
Contract Drilling
Kenneth J. Skirka 2
Vice Chairman,
Vice President Finance,
Ensign Energy Services Inc. Parkland Income Fund
Selby Porter
Legal Counsel
Tr a n s f e r A g e n t
Computershare Trust Company
of Canada
Ensign Energy Services Inc.’s Annual
Meeting of Shareholders will be held
on May 23, 2007, at 3:00 pm MT
at the Calgary Petroleum Club,
319 – 5th Avenue S.W., Calgary, Alberta.
All shareholders are invited to attend,
but if unable, we request the form of
proxy be signed and returned.
Burnet, Duckworth & Palmer LLP
Leigh Kelln
Argentina
Corporate Controller
New Zealand
Suzanne Davies
In-house Legal Counsel and
Associate Corporate Secretary
(1) Includes oil sands coring/coal bed methane rigs
(2) Includes workover rigs
Writing: Fraser Communications Inc. Design and production: Melnyk Cary & Associates Ltd. Printed in Canada: Sundog Printing
3/30/07
1:19 PM
Page 2
700
2000
500
600
1500
400
500
350
3.0
2.5
300
2.5
2.0
250
400
300
200
200
150
2.0
1.5
1.5
1000
300
200
500
100
0
0
02
03
04
05
06
03
04
05
06
0
02
03
04
05
06
0.0
02
03
04
05
06
0.5
0.5
50
0
02
1.0
1.0
100
100
0.0
02
03
04
05
06
02
03
04
05
Revenue
Gross Margin
Net Income
($ millions)
($ millions)
($ millions)
($ millions)
(Basic – $)
(Basic – $)
06
Directors
Canada
United States
International
11
38
1,700
4,000
64
9
227.0
114
186
505.7
2,100
Drilling Rigs (1)
Employees
Service Rigs/
Workover Rigs/
Coiled Tubing Units
1,074.5
2006 Revenue
($ millions)
Jack Donald 2
N. Murray Edwards
Robert H. Geddes
James B. Howe 1, 3
Donald Jewitt 1, 3
Len Kangas 2
Independent
Businessman
President,
President and COO,
Independent
Businessman
Independent
Businessman
Committee Members
United States
Contract Drilling
Ensign Drilling
Tri-City Drilling
Champion Drilling
Big Sky Drilling
1 Audit
and Nominations
3 Compensation
International
Camps & Catering
Well Servicing
Manufacturing and
Production Services
Canada (1)
United States
International (2)
0-1,000
26
2
–
Rig Depth (metres)
1,001-2000
2,001-3000
44
53
10
15
6
12
Canada
United States
Slant Single
8
–
Skid Single
2
–
Head Office
N. Murray Edwards
Symbol: ESI
1000, 400 - 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 262-8215
Ed Kautz
Bankers
ATB Financial
Bank of Montreal
Notice of
Annual Meeting
Glenn Dagenais
Oman
3,001-4000
37
25
15
4,001-5,000
3
9
5
5,001+
–
2
8
Thailand
Venezuela
Bruce Moyes
Gabon
Indonesia
Mobile Single
67
–
Mobile Double
18
–
Medium &
Heavy Double
8
11
Auditors
Rob Wilman
Environment
Australia
Coiled
Tubing Units
11
–
President and CEO,
Robert H. Geddes
Total
114
11
Barth Whitham
Independent
Businesswoman
Vice Chairman
Libya
ADR™
23
1
1
Gail Surkan
Independent
Businessman
Selby Porter
Canada
United States
Total
186
64
47
John Schroeder 1, 3
Chairman
Contract Drilling
Kenneth J. Skirka 2
Vice Chairman,
Selby Porter
Legal Counsel
of Canada
on May 23, 2007, at 3:00 pm MT
Leigh Kelln
Argentina
New Zealand
Suzanne Davies
3/30/07
4:09 PM
Page 1
ESI_2006AR_v11_artwork
Highlights
For the years ended December 31 ($ thousands, except per share and operations information)
Revenue
EBITDA (1)
EBITDA per share (1)
Basic
Diluted
Adjusted net income (1)
Adjusted net income per share (1)
Basic
Diluted
Net income
Net income per share
Basic
Diluted
Funds from operations (1)
Funds from operations per share (1)
Basic
Diluted
Weighted average number of shares outstanding – basic (000s)
Weighted average number of shares outstanding – diluted (000s)
Drilling
Number of marketed rigs
Canada
Conventional
Oil sands coring/coal bed methane
United States
International (includes workover rigs)
Operating days
Canada
United States
International
Drilling rig utilization rate (%)
Canada
United States
International
Well Servicing
Number of marketed rigs/units
Canada
United States
Operating hours
Canada
United States
Well servicing utilization rate (%)
Canada
United States
2006
2005
% change
1,807,230
593,334
1,520,724
448,163
19
32
$ 3.91
$ 3.80
337,352
$ 2.97
$ 2.87
231,685
32
32
46
$ 2.22
$ 2.16
341,284
$ 1.53
$ 1.49
169,665
45
45
101
$ 2.25
$ 2.18
420,173
$ 1.12
$ 1.09
337,186
101
100
25
$ 2.77
$ 2.69
151,775
156,229
$ 2.23
$ 2.16
151,202
156,224
24
25
–
–
164
22
64
47
159
21
61
47
3
5
5
–
32,689
18,252
9,151
33,683
15,897
10,282
(3)
15
(11)
49.3
79.2
53.4
54.7
77.0
61.9
(10)
3
(14)
114
11
116
8
(2)
38
206,951
21,383
209,667
1,732
(1)
1,135
49.0
67.5
49.5
69.8
(1)
(3)
1
(1) EBITDA, EBITDA per share, adjusted net income, adjusted net income per share, funds from operations, and funds from operations per share are not measures that have any standardized
meaning prescribed by Canadian generally accepted accounting principles, and accordingly, may not be comparable to similar measures used by other companies. Non-GAAP measures are
defined on page 19.
2006 AR
3/30/07
4:09 PM
Page 2
To O u r S h a r e h o l d e r s
2
While many factors contributed to Ensign Energy Services Inc.’s record results in 2006 – a year in which revenues reached $1.8 billion,
a 19 percent increase from the previous year – three of the Company’s strategic strengths stand out above all.
One is our ‘global reach’. While Canada is still our largest market, our growing presence in the United States is having a significant
positive impact on the Company and our results. Moreover, we have solidified our position internationally. Our international presence
is allowing us to broaden our role in the oilfield services sector and represents an increasingly important part of the Company’s future.
A second strength is our ‘local focus’ – working closely with our customers to develop the services they need to exploit their opportunities.
We work with our exploration and production customers to develop fit-for-purpose rigs and other oilfield services to increase their
ability to exploit specific oil and natural gas resource plays. In just such a fashion, we developed and introduced in 2006 a new slant
Automated Drill Rig (“ADR™”) for heavy oil drilling; and we have developed and are in the process of deploying 13 new purposebuilt large ADR™-500 rigs in the United States that are designed to improve both drilling efficiency and reduce the environmental
footprint of the projects. Ensign’s local focus and responsiveness brings numerous benefits. It often means we can lock in long-term
contracts for our services, it expands the technical capability of our fleet, it demonstrates Ensign’s commitment to ongoing development,
and it strengthens our relationship with our customers.
The third strength is our rig fleet, which is one of the most modern and technologically-advanced in the world. During 2006, we
continued with our ongoing rig refurbishment and upgrade program. We also introduced our ADR™ into the United States in 2006
and will be adding 13 more in 2007. Equally important is that we have the in-house capability through our engineering group to
conceptualize, design and build the specialized equipment our customers need.
These and other success factors define and differentiate Ensign and are making a difference to the Company’s financial performance.
A M a r k e t i n Tr a n s i t i o n
The first nine months of 2006 set the foundation for Ensign’s record results, although a downturn in the fourth quarter in Canada
indicated that the market is coming off the highs of the past several years. Overall, exploration and development activity remained
strong through most of the year and as a result we achieved increased operating margins. However, by the fourth quarter of 2006
customers in Canada had scaled back activity due to declining natural gas commodity prices and this resulted in a margin squeeze
in the Canadian oilfield services sector in the latter part of the year. To this point our United States divisions have only shown modest
signs of slowdown and we have not seen similar pressure develop in the international segment.
Revenue in 2006 totaled $1,807.2 million, up 19 percent from $1,520.7 million in 2005. Net income rose 101 percent to $341.3 million,
compared to $169.7 million in 2005. EBITDA reached $593.3 million, compared to $448.2 million in 2005. Gross margin was 35.7 percent
in 2006, compared to 32.2 percent in 2005.
The Company performed strongly in all key performance indicators:
•
Net income per common share rose 101 percent to $2.25, compared to $1.12 in 2005, and adjusted net income, which excludes
the impact of stock-based compensation expense, rose 45 percent to $2.22 per common share.
2006 AR
•
Funds from operations increased 24 percent to $2.77 per common share.
•
Return on average shareholders’ equity continued to be very strong at 36.3 percent, compared to 23.9 percent in 2005.
3/30/07
4:09 PM
Page 3
Through our local focus and responsiveness, we are locking in long-term
contracts for our services, expanding the technical capability of our fleet,
demonstrating our commitment to ongoing development, and
strengthening our relationship with our customers.
3
In Canada, a prolonged winter allowed us to drill to the end of March almost unimpeded and activity continued strong through the
summer and early fall, at which point activity started to slow. All divisions performed very well and, in general, posted record results
due to strong levels of demand for all types of oilfield services.
Activity levels in the United States were uniformly strong throughout the year. The growth of the Company’s United States operations
in 2006 demonstrates the strength of the Rocky Mountain and California markets. All divisions are to be congratulated for their
performance.
Our international operations had an active year and we are seeing positive momentum in several markets. In 2006, we increased our
presence in Libya, Argentina and Australia; Venezuela performed well despite the geopolitical risk; and we entered the Thailand
onshore market for the first time. The international market is complex. Every country is unique and different in terms of its needs and
the way it manages its affairs and we believe we have the right team and management structure to fully exploit the many opportunities
we see going forward.
Ensign’s financial strength enabled the Company to successfully complete both a stock split and two increases to the quarterly dividend.
Both actions reflect the Company’s continuing long-term focus on enhancing shareholder value.
The Company’s Board of Directors believes that the two-for-one stock split, which took effect in May 2006, has further enhanced the
marketability of the Company’s common shares, making them accessible to a wider range of investors.
The total dividends declared for the 2006 fiscal year amounted to $0.28 per common share, a 65 percent increase over the total
dividends of $0.17 per common share declared for the 2005 fiscal year. Ensign has increased the cumulative amount of dividends
declared in each fiscal year since the Company began paying a dividend in September 1995. In part, the dividend increases in 2006
came in response to changes by the Government of Canada to the taxation of dividends to shareholders in Canada. These tax changes
result in dividends being more attractive to the Company’s Canadian shareholders.
Managing in a Changing Market
Our industry will always be subject to the cyclical forces associated with oil and natural gas commodity pricing. How well Ensign
performs in an ever changing operating and business environment comes down to having the right strategy and having the resources
at hand to implement it effectively.
As we entered 2007, there was some uncertainty about the direction of commodity prices and the level of activity our customers will
wish to sustain during 2007. Consequently, we are assuming weaker demand and tighter margins overall in the North American oilfield
services market than we have seen in the past several years.
In times of market uncertainty such as these, we believe our strategy – diverse operations; financial discipline; opportunistic growth;
commitment to safety; customer focus – will continue to serve us well. We also have all the resources – people, financial strength,
and market leading technology – to continue to develop our strategy and grow the Company.
Here are some of the ways we are addressing our strategy in 2007:
Diverse operations
Ensign’s wide geographical footprint is an asset. Going into 2007, the Company’s Canadian drilling rigs were booked for the winter
drilling season, albeit at margins slightly below those of 2006. This was partially offset by strong demand for the Company’s United
States drilling rigs, as well as slow but steady improvements in the international operating environment.
2006 AR
3/30/07
4:09 PM
Page 4
Ensign strives to be the contractor of choice in all
segments of our business. We continuously upgrade our
technical capabilities and work closely with our customers
to design and construct equipment to meet their needs.
4
In 2007, we plan to add two slant well servicing rigs to our Canadian fleet. In addition, we are adding 13 new ADRs, into the United
States market, all supported by long-term take-or-pay contracts with established customers. Additionally, we are optimistic about our
prospects in the international market. In South America, we have concentrated our activity in Argentina and Venezuela while continuing
to look for other new opportunities on the continent. We also expect that our bases in Australia, the Middle East and Libya will provide
future growth opportunities for the Company.
Financial discipline
Ensign has a very strong balance sheet and a proven track record in being able to manage its costs, essential during a market downturn.
We are constantly looking for ways to improve efficiencies. In 2007, we will continue the roll out of our new company-wide enterprise
resource planning (“ERP”) system that is strengthening the Company’s efficiencies and financial controls. We completed our ERP roll
out to Canadian Contract Drilling in 2006 and this year plan to complete Canadian Well Servicing, Manufacturing and Production
Services divisions.
Opportunistic growth
We know from experience that some of the best opportunities for acquisitions come during downturns. If 2007 turns out to be such
a year of market consolidation, Ensign is well positioned to take advantage of acquisition opportunities provided they come at the
right price and are the right fit for the Company’s focused business lines. Moreover, in Canada we expect the structural changes that
are taking place in the income trust sector will further level the acquisition playing field and consequently could create additional
opportunities for the Company.
Commitment to safety
We are building our safety culture on the strong foundations of our new HSE Management System and our long-standing Driving to
Zero – Injuries and Incidents program, which are establishing a consistent approach that will help achieve our goal of continuously
improving our health, safety and environment record across the Company and in every jurisdiction we operate.
By regularly investing in new HSE training programs, such as our efforts to raise awareness about driver fatigue, we have been seeing
a steady year-over-year improvement in our incident and injury numbers. When it comes to improving workplace safety, our job is
never done and we will continue to work vigorously to try to improve our results.
Customer focus
Ensign strives to be the contractor of choice in all segments of our business. With this goal in mind, we continuously upgrade our
technical capabilities and work closely with our customers to design and construct equipment to meet their needs. The Company has
recently adapted its ADR™ technology to the needs of its customers in the United States, and will deliver 13 newly constructed ADR™500 rigs to that market in 2007.
Our global presence allows us to relocate equipment from any our divisions, as needed, to enable our customers to pursue opportunities
around the world. In addition to the equipment transfers completed in 2006, the Company intends to transfer one drilling rig from
Canada to Australia in early 2007 to fulfill a customer requirement in that market.
2006 AR
3/30/07
4:09 PM
Page 5
Ensign is strong today because of our people.
The team we have assembled is energetic, smart,
experienced and completely engaged in executing
the growth strategy that has made us successful.
5
Our People Make the Difference
We would not have achieved what we did in 2006 without the continuing dedication and commitment of Ensign’s people. All Ensign
employees are committed to conducting business with integrity and in an ethical fashion. To underline that commitment, in 2006 we
introduced a new company-wide Code of Integrity, Business Ethics and Conduct, which replaced, broadened and strengthened
previously separate Canadian, United States and international codes. The Code is designed to ensure that all Ensign employees respect
the trust placed in them by fellow employees, our customers, shareholders and business partners.
We wish to acknowledge the outstanding work by our 7,800 employees throughout the year. They helped us extend our global reach
while focusing tirelessly on providing our customers in 11 countries in North and South America, Australasia, the Middle East and
Africa with continuously improving technology and service.
In late 2006, we announced a number of senior management changes effective January 1, 2007, following the decision by Selby Porter
to reduce his day-to-day role with the Company. Although he has stepped down after 10 years as President of Ensign, we are very
pleased that he will continue to contribute his considerable knowledge and experience as a member of the Board of Directors and in
the new part-time role of Vice Chairman.
Robert H. (Bob) Geddes has been appointed President and Chief Operating Officer of Ensign Energy Services Inc. and has joined the
Board. Bob has served with Ensign almost from its inception, most recently as President of Canadian Operations. The Board is confident
that Bob’s leadership will enable Ensign to continue its strong record of financial performance and growth.
Ensign is strong today because of our people. The team we have assembled is energetic, smart, experienced and completely engaged
in executing the growth strategy that has made us successful. They know what our customers want, and they can anticipate and
deliver the services our customers need – with a global reach, local focus.
On behalf of the Board,
N. Murray Edwards, Chairman
Selby Porter, Vice Chairman
Robert H. Geddes, President
and Chief Operating Officer
March 19, 2007
2006 AR
3/30/07
4:09 PM
Page 6
6
Striving for Continuous Improvement
Ensign continues to strengthen and expand its strategic
commitment to safety in pace with the Company’s growing
global reach.
Our goal is to build a ‘safety culture’ throughout the organization
by engaging our employees through the corporate-wide HSE
Management System and Driving to Zero safety vision as well
as through local initiatives that align with the Company’s
standards, local regulatory requirements and customer
expectations in all our geographical operating areas.
Rig 43 in Gabon, Africa
365 Days without a
Lost Time Incident.
2006 AR
3/30/07
4:09 PM
Page 7
1.5
10
1.2
8
Encore Rig 441
0.9
6
Awarded Rig
0.6
4
of the Month
by Nexen Inc.
0.3
2
0.0
0
01
04
05
06
03
04
05
06
Lost Time Incidents
Total Recordable Incidents
(frequency)
(frequency)
7
Continuous Improvement
We already have in place two core programs for all of our divisions
Ensign’s “mantra” for its Health, Safety and Environment (“HSE”)
worldwide:
efforts is “continuous improvement” – of our standards, systems,
•
programs, safety performance, management leadership, and
The Personal Injury Prevention (“PIP”) training program is
designed to increase awareness of injury risks both on and
employees’ awareness, knowledge, commitment and involvement.
off the job. PIP provides workers with basic tools and
Our Driving to Zero vision, which is aiming for zero safety
techniques, such as body mechanics and observation, to
incidents, zero injuries and zero days off work due to injury, has
prevent injuries.
had a tangible impact on our safety performance since we
launched it in 2003.
For example, in the four years since we introduced the Driving
to Zero vision, both the number and frequency of our lost-time
injuries and total-recordable incidents has declined, despite the
fact our “total man hours worked” have risen considerably,
reaching 17.5 million man hours in 2006, an increase of 47 percent
from 11.9 million man hours in 2003.
•
Leadership and Communication training programs address
these two key components of safety excellence.
In 2006, we published and distributed to all employees A Guide
for Managing Alertness and Fatigue, a handbook that supports
Driving to Zero and informs employees what steps they can take
to personally manage and control the effects of poor alertness
and fatigue. We also expanded the use of the Company’s Intranet
as a one-stop information resource for Canadian employees about
Every Ensign employee is involved in the Driving to Zero vision.
HSE procedures, programs and documentation. In time our
They are making a commitment to work as many hours as
international employees will also be able to access these items
possible without an injury and view any injury or incident, even
on the Company’s Intranet.
a small one, as unacceptable.
Ensign’s innovative HSE Management System, which was
introduced in 2005 and completed its first full year in 2006, is
already having an added impact on our safety culture.
New HSE initiatives can and do happen throughout the Company.
For example, Ensign Energy Services International Limited, which
oversees our operations in Australasia, the Middle East and Africa,
introduced a new “Safety Change Management” program in
The HSE Management System has established an international
2006 that is designed to train all our people to take on safety
standard for the way we manage, practice and monitor our HSE
leadership roles. Through this program, rather than building our
programs and brings our safety programs under one, company-
safety culture from the “top down”, we are driving change starting
wide umbrella. Through it, we are shifting to a process whereby
at the rig floor. The cultural and communication training that
we look at risks to our employees, the public, our property and
form part of the program are designed around the rig crew – rig
the environment in which we operate and determine what actions
managers, drillers, assistant drillers, floormen, leasehands and
we need to take to control those risks.
trades personnel.
As part of the HSE Management System, we conducted an audit
Through all our HSE activities, our ultimate goal is to protect
of our Canadian operations in 2006 and will audit our United
Ensign employees, the public, our property and the environment,
States and international operations in 2007. The audit includes
and to be both the preferred contractor for customers and the
both a self-assessment and an assessment by an external third
favoured employer in the oilfield services sector.
party. The external assessment examines our standards and
processes and either validates them or advises us on where we
need to make improvements, where we can standardize programs
across the Company or where we need to introduce country- or
site-specific programs. Our action and improvement plans going
forward will be based on the findings of these audits.
2006 AR
3/30/07
4:09 PM
Page 8
Ensign Rig 36,
One Year without a
Lost Time Incident,
for PDO in Oman.
8
Ensign Receives
Safety Certification in Australia
E n s i g n ’s H e a l t h , S a f e t y
and Environment Policy
In 2006, Ensign’s drilling operations in Australia again received
Our goal is to protect our people, the public, our property and
certification from the Safety Achiever Business System (“SABS”),
the environment in which we work and live. It is a commitment
which is a specialist program for large businesses looking to
that is in the best interests of our customers, our employees and
implement best-practice safety standards.
all other stakeholders.
Ensign Energy Services International Limited received a Level 3
It is possible to run all operations without injuries or damage to
Certificate, which confirms that:
equipment or the environment:
•
•
•
a continuous improvement system is in place;
performance is systematically measured, monitored and
evaluated;
•
•
•
We will continuously evaluate the HSE aspects of our
equipment and services.
the organization regularly reviews its systems and strives to
continuously improve;
We will comply with all applicable laws and relevant industry
standards of practice.
•
We believe that effective HSE management is good business
occupational health, safety and welfare and injury
and we are committed to the continuous improvement of
management systems are integrated with core functions of
HSE management practices.
the organization;
•
From top management through to entry level, everyone is
responsible and accountable for HSE.
•
performance is continuously improving;
•
best practice is sustained with legislative standards
We are committed to the integration of HSE objectives into our
consistently exceeded; and
management systems at all levels. This will enhance our business
success by reducing risk and adding value to our services.
•
the organization serves as an industry leader and mentor.
Certification is received after an on-site validation of performance
Environmental Statement
by studying documentation, inspecting workplaces and
Ensign actively works to reduce, reuse, recycle and reclaim
conducting interviews. SABS provides employers and workers
materials used in our operations. As part of our efforts to innovate
with a systematic approach to managing safe work, claims and
and develop new technologies, we strive to utilize environmentally
rehabilitation.
friendly procedures and materials in providing our services. Any
incidents are dealt with on a timely basis to ensure they are
properly contained. This is a responsibility we take seriously and
it is a responsibility to our children, grandchildren and to society
in general. We are pleased to report that there have not been any
serious environmental incidents in the Company’s history.
2006 AR
3/30/07
4:09 PM
Page 9
Operations Review
9
Ensign had a strong year overall in 2006, working closely with
our customers in each of our diverse geographical markets. In
Canada, we introduced our first slant Automated Drill Rig
(ADR™) for the heavy oil market. In the United States, we
introduced our first ADR™ and completed the first phase of a
major expansion of our rig fleet. In South America, the Middle
East and Africa, we responded quickly to changes in the market
by redeploying rigs under contract where new opportunities
presented themselves.
2006 AR
3/30/07
4:09 PM
Page 10
10
CANADA
Ensign is Canada’s second largest land-based drilling contractor and third largest well servicing contractor.
We provide energy companies engaged in crude oil, natural gas and oil sands exploration and production with a wide range of oilfield
services including land-based contract drilling, underbalanced drilling, oilfield rentals, camps and catering, well servicing, manufacturing,
wireline and production testing. Our geographical reach extends across the Western Canada Sedimentary Basin (“WCSB”) – from
southeastern Saskatchewan, throughout Alberta to northeastern British Columbia, the Northwest Territories and the Yukon.
Operating Divisions
Canada
Contract Drilling
Underbalanced Drilling,
Fleet Size
Ensign Drilling
62 Drilling rigs
Tri-City Drilling
30 Drilling rigs
Champion Drilling
42 Drilling rigs
Big Sky Drilling
23 Drilling rigs
29 Coring/drilling rigs
Enhanced Petroleum Services Partnership
Rental Equipment, and
18 Underbalanced drilling packages
Camps & Catering
Oilfield equipment rentals
Cheechako Camps & Catering
25 Camps
Well Servicing
Rockwell Servicing Partnership
114 Well servicing rigs/coiled tubing units
Production Services
49 Production testing units
and Manufacturing
41 Wireline units
2 Manufacturing facilities
2006 AR
3/30/07
4:09 PM
Page 11
60
35
6
7
50
30
5
6
25
40
5
4
20
4
30
3
15
20
3
2
10
10
5
1
0
0
0
02
03
04
05
06
02
03
04
05
06
2
1
0
02
03
04
05
06
02
03
04
05
Canadian Drilling – Utilization
Canadian Drilling – Operating Days
Wells Drilled – Canada
Metres Drilled – Canada
(percent)
(thousands)
(thousands)
(millions)
06
2006 Operational Highlights
Champion has drilled more wells than any other drilling services
•
provider in the region.
Strong demand for oilfield services through most of 2006,
but demand had slowed by the fourth quarter due to the
impact of the decline in natural gas prices.
•
•
program.
operation is largely oil based and the division enjoys a one-third
Successfully adapted our ADR™ design for slant hole drilling
and deployed two of these new slant rigs on take-or-pay
contracts.
•
•
specializing in oil and natural gas drilling in southeast
Saskatchewan and southwest Manitoba. Big Sky’s area of
oilfield services division.
•
Big Sky Drilling has the largest rig fleet in Saskatchewan,
Continued with our ongoing rig refurbishment and upgrade
Added net six drilling and oil sands coring rigs to the Canadian
11
market share in the area. Big Sky operates out of Oxbow,
Saskatchewan.
Encore Coring & Drilling provides coring and drilling services to
the oil and natural gas and mining industries. Encore’s fleet of
coring/drilling rigs supports oil sands, coal bed methane and
shallow natural gas development. Within the past three years,
Very strong year for both our Rockwell (well servicing) and
Encore has established itself as the premier contractor of choice
Opsco (wireline, production testing and manufacturing)
and captured a large share of the Canadian coring market. Encore
divisions.
is based in Calgary, Alberta.
Ordered 14 new-build camps that will go into service in early
Demand for the Company’s Canadian drilling services was very
2007, bringing the total number of camps to 39.
strong through most of 2006, although beginning late in the third
quarter we began to see reduced demand for services as natural
Contract Drilling
gas commodity prices softened due to weak supply and demand
We operate our Canadian drilling rig fleet, the second largest in
fundamentals.
Canada, through the Ensign Drilling Partnership, which comprises
five operating divisions
During 2006, the Company’s Canadian drilling divisions recorded
32,689 operating days (49.3 percent utilization), which represents
Ensign Drilling is an industry leader in the provision of specialized
a three percent decrease from the 33,683 operating days (54.7
drilling services to oil and natural gas exploration and production
percent utilization) in the prior year. During the first nine months
companies. Ensign Drilling’s capabilities include horizontal drilling,
of 2006, we experienced consistently high utilization rates
underbalanced drilling and horizontal re-entry services. They also
due to strong demand and favourable weather conditions.
specialize in slant drilling for steam assisted gravity drainage
Consequently, margins remained strong during this period.
(“SAGD”) applications in Alberta’s oil sands. Operating primarily
However, we started to see downward pricing pressure in some
in central Alberta and northeastern British Columbia, Ensign
sectors in the final three months of the year as customers re-
Drilling is based in Nisku, Alberta, and has offices in Grande
evaluated their drilling programs and, in some cases, postponed
Prairie, Alberta, and Fort Nelson, British Columbia.
their shallow natural gas drilling projects.
Tri-City Drilling specializes in shallow and intermediate-depth
A major factor contributing to Ensign Drilling Partnership’s success
well drilling, operating rigs primarily in northern and central
in 2006 was our expanded and fully modernized rig fleet.
Alberta. Tri-City operations are based in Nisku, Alberta.
During the year, we continued with our ongoing rig refurbishment
Champion Drilling is the largest drilling contractor in southern
and upgrade program, through which we have created a state-of-
Alberta. Based in Brooks, Alberta, Champion specializes in the
the-art rig fleet by building and deploying new rigs, and completely
drilling of shallow natural gas wells in the southern Alberta and
refurbishing several older rigs so that they meet our highest
southwest Saskatchewan regions of the WCSB. Over the years,
standards.
2006 AR
3/30/07
4:09 PM
Page 12
12
In 2006, we added a net six drilling and oil sands coring rigs to
We l l S e r v i c i n g
the Canadian oilfield services division:
Ensign is the third largest well servicing contractor in Canada,
•
We adapted our versatile ADR™-100’s design for slant well
drilling in the heavy oil market. Working closely with
customers, we constructed and deployed two of these
Rockwell had a very strong year overall, although well servicing
hours declined in the fourth quarter as customer activity slowed
anticipated. Building on this success, we constructed a second
in the WCSB. During 2006, Rockwell Servicing Partnership
slant rig and both rigs are now operating under take-or-pay
recorded 206,951 operating hours (49.0 percent utilization)
contracts. Our ADR™ design proved easily adaptable to the
compared to 209,667 operating hours (49.5 percent utilization)
slant mode. The ADR™ is one of the most automated,
in 2005.
Ensign Drilling also rolled out three state-of-the-art 1000horsepower AC triple drilling rigs on long-term contract.
The division currently has a total of 114 service rigs and coiled
tubing units and will add two slant well servicing rigs to its fleet
in 2007.
Rockwell offers services in all facets of well servicing, including
Tri-City Drilling refitted a rig into a pad vertical ADR™ rig for
completions, abandonments, production workovers and bottom-
drilling SAGD wells.
hole pump changes. Rockwell has six field offices located
The assets of Midnight Sun Drilling Co. Ltd., which the Company
purchased in 2005, have now been fully integrated into Encore
Coring & Drilling and are making a positive contribution. The
assets are deployed in the Northwest Territories, the Yukon, and
Western Canada. In 2006, one of the mineral rigs operating in
the Northwest Territories completed a 24-inch large-diameter
diamond hole, the first time this has been achieved in North
throughout Alberta and one in Saskatchewan.
Underbalanced Drilling, Rental
Equipment, and Camps & Catering
Our Enhanced Petroleum Services Partnership has three business
divisions – Enhanced Drill Systems; Chandel Equipment Rentals;
and Cheechako Camps & Catering.
America. The Midnight Sun acquisition is enabling us to further
Enhanced Drill Systems with 18 underbalanced drilling packages
participate in the growing oil sands and coal bed methane
is the largest supplier of underbalanced drilling services in the
markets, as well as extending our presence in mineral and geo-
WCSB. Enhanced, which is based in Red Deer, Alberta, provides
technical drilling. The acquisition also complements our long-
interactive underbalanced drilling packages comprised of a
term northern strategy and should better enable us to capture
completely self-contained system, including nitrogen generation,
opportunities as activity increases in the north in coming years.
compression equipment and surface control systems.
The Company’s transportation group performed very well and
Our most advanced underbalanced drilling equipment
proved to be a competitive advantage during a busy year. We
incorporates the same interactive process control technology
launched the transportation group in 2005 principally to manage
that refineries use, which allows us to run our equipment with
the transportation of the Company’s ADR™-100-CT rigs from site
fewer personnel than our competitors.
to site. The transportation group is a strong complement to our
services, increasing our competitiveness by allowing us to
redeploy our highly mobile ADR™ rigs quickly and efficiently.
2006 AR
Partnership division.
first heavy oil pad drilling project 25 percent faster than
rigs in the world.
•
throughout most of the WCSB through our Rockwell Servicing
purpose-built slant rigs in 2006. The first one completed its
technologically advanced, efficient, mobile and safe drilling
•
providing well servicing to oil and natural gas producers
3/30/07
4:09 PM
Page 13
13
Chandel Equipment Rentals had a strong year of growth in 2006.
S a f e t y, Tr a i n i n g a n d R e c r u i t m e n t
Chandel’s equipment offering, geographical reach and market
In 2006, we moved forward in implementing the new, company-
share all grew during the year. Chandel offers an extensive and
wide HSE Safety Management System, which is the foundation
expanding inventory of drill strings, loaders, tanks, pumps, rig
for all of our safety processes and establishes an international
matting and blow-out preventers. Chandel has three field offices
standard for the way we manage, practice and monitor our health,
in Alberta as well as a new area office in Oxbow, Saskatchewan.
safety and environmental programs.
Cheechako Camps & Catering had a strong year as a result of
Moreover, our ongoing safety initiative – Driving to Zero –
the high level of activity in the WCSB. At December 31, 2006 the
continued to provide us focus in our never ending drive for zero
division operated 25 camps and related catering services and
safety incidents, zero injuries and zero days off work due to injury,
had 14 new-build camps on order that will go into service in early
a goal we are aiming to achieve through our comprehensive
2007. Cheechako is based in Edmonton, Alberta.
safety training and communication programs for employees.
Production Services and Manufacturing
Ensign’s Opsco Energy Industries Ltd. subsidiary had a record year
in 2006, expanding activities and improving efficiencies in all three
of its business areas – wireline services, production testing and
manufacturing services. Opsco is headquartered in Calgary, Alberta.
Demand for skilled labour in the WCSB continued to be high in
2006. Our recruitment and training programs are geared towards
ensuring that we attract and retain the highest caliber employees
and that they are fully trained in safe work practices and are aware
of their HSE responsibilities and accountabilities.
Wireline Services
Opsco’s Wireline Services division added two wireline units in
2006 for a total of 41 units. Opsco Wireline Services provides
slickline and braided line services throughout most of the WCSB.
Production Testing
Opsco’s Production Testing division added 13 units in 2006 for a
total of 49 units. Opsco is a leader in production testing for highvolume, high-pressure, sweet or sour natural gas applications,
as well as recovery from fracturing operations. Opsco’s Canadian
operations provide production testing services throughout the
WCSB.
Manufacturing
Opsco’s Manufacturing division, which designs and manufactures
customized oil and natural gas production equipment, had a
successful year in 2006, which was also the first full year of
production out of its purpose-built, 43,500 square-foot
manufacturing facility located in Calgary, Alberta. We also have
a commercial welding services provider based in Brooks, Alberta.
2006 AR
3/30/07
4:09 PM
Page 14
14
U N I T E D S TAT E S
Ensign is the fifth largest land-based drilling contractor in the United States, with a dominant position in the Rocky Mountain and
California regions. Ensign also has a growing presence in well servicing and production testing in the Rocky Mountain region.
Operating Divisions
Contract Drilling
Rental Equipment
United States
Fleet Size
46 drilling rigs
18 drilling rigs
West Coast Oilfield Rentals
Well Servicing
Ensign Well Services Inc.
11 well servicing rigs
Production Services
12 production testing units
Contract Drilling
•
Strong demand for oilfield services throughout 2006.
Ensign has two contract drilling operations in the United States
•
Expanded rig fleet supported by long-term take-or-pay
Ensign United States Drilling Inc. (“Ensign Rockies”) is the second
contracts.
largest and most active land-based drilling contractor in the Rocky
•
Introduced our ADR™ technology into the United States with
one ADR™ now operating in California.
Mountain region, one of the most active areas in the United States
for oil and natural gas drilling. Based in Denver, Colorado, Ensign
Rockies’ operations span eight states – Montana, Wyoming,
•
•
•
Began construction of 13 new ADRs to go into service in 2007.
Colorado, Utah, North Dakota, South Dakota, Nebraska and Nevada.
Expanded the transportation group located in the Rocky
Ensign United States Drilling (California) Inc. (“Ensign California”)
Mountain region.
operates in the San Joaquin, Los Angeles and Sacramento basins,
Strengthened our foothold in the Rocky Mountains region’s
with operations based in Bakersfield, California.
well servicing and production testing markets.
Demand for Ensign’s oilfield services was strong throughout 2006
as our United States division benefited from heightened oilfield
activity levels in the Rocky Mountain and California regions
throughout the year.
Improved pricing, higher equipment utilization levels and an
expanded fleet of equipment all contributed to the division’s revenue
2006 AR
3/30/07
4:09 PM
Page 15
20
80
2500
4
70
2000
15
60
50
3
1500
10
40
2
1000
30
20
5
10
0
0
02
03
04
05
06
1
500
0
02
03
04
05
06
0
02
United States Drilling – Utilization
United States Drilling – Operating Days
(percent)
(thousands)
03
04
05
06
Wells Drilled – United States
02
03
04
05
06
Metres Drilled – United States
(millions)
growth during the year. Although operations in the United States
We l l S e r v i c i n g
are impacted by fluctuations in crude oil and natural gas commodity
We integrated Action Oil Field Services, Inc., which we acquired
prices, operating activity levels appear less likely to fluctuate with
in November 2005, into our United States operations, renaming
short-term declines in spot market prices as customers’ drilling
it Ensign Well Services Inc.
programs in this region generally have a longer-term focus. Ensign
has also mitigated the impact of short-term fluctuations in
commodity prices by ensuring that new equipment introduced in
its United States markets are supported by long-term take-or-pay
contracts.
15
During 2006, this division added three rigs to its fleet and now
owns and operates 11 well servicing rigs in Colorado. This division
recorded 21,383 well servicing hours in 2006 compared to 1,732
servicing hours for the one month of 2005 following the acquisition
of Action Oil Field Services, Inc.
Ensign Rockies’ operating days in 2006 totaled 13,103 (79.0 percent
utilization), which represents a 13 percent increase over the 11,609
Production Services
operating days (77.4 percent utilization) in 2005.
Ensign provides production testing services in the United States
Ensign California’s operating days totaled 5,149 (79.5 percent
utilization), which represents a 20 percent increase over the 4,288
We added a net three rigs to our contract drilling fleet in 2006.
Notably, one ADR™ was placed into service in California,
through its subsidiary Opsco Energy Industries (USA) Ltd., which
is based in Casper, Wyoming.
We increased our presence in 2006 with the introduction of six
additional high-pressure testing units in the Rocky Mountain
region.
signifying the first introduction of the Company’s ADR™
We now operate a total of 12 testing units in the United States
technology into the United States market. In addition, two
and continue to look for opportunities to expand our operations
conventional drilling rigs were placed into service in the Rocky
into new areas.
Mountain region. By the end of 2006, Ensign Rockies had 46 rigs,
compared with 44 at the end of 2005. Ensign California had 18
rigs, compared to 17 at the end of 2005.
To reinforce our safety culture in 2006, the United States divisions
Ensign Rockies expanded its transportation group in 2006 to
handle the movement of rigs in the Jonah natural gas field in
Wyoming. The Company now has a fleet of 48 trucks operating
within Ensign Rockies and Ensign California.
Going into 2007, the Company has 13 new ADRs under construction
that will be introduced over the course of the year. This new
equipment is supported by long-term take-or-pay contracts with
established customers.
Rental Equipment
Following the model developed in Canada, Rocky Mountain
Oilfield Rentals (“RMOR”) and West Coast Oilfield Rentals
(“WCOR”) have been established to provide ancillary equipment
focused on implementing the new, company-wide HSE Safety
Management System, improving our safety record and
substantially reducing our injury rate in accordance with our goal
of Driving to Zero.
Given the steady growth of our customer base, the competition
for skilled personnel and the upcoming introduction of 13 new
ADRs in 2007, our United States division is continuing its major
emphasis on recruitment as well as training of rig managers,
drillers and other personnel through formal, comprehensive
training programs. Our training programs cover a wide range of
subjects – practical skills, including ADR™-specific training; hiring
practices; workplace behaviour; communication skills; and coaching
and mentoring.
used in drilling operations. RMOR and WCOR have built up an
inventory of blow-out preventers, mud motors, hevi-weight drill
pipe and loaders.
2006 AR
3/30/07
4:09 PM
Page 16
16
I N T E R N AT I O N A L
We currently provide oilfield drilling services in Australia, New Zealand, Southeast Asia, the Middle East, Africa and South America.
Operating Divisions
International
Fleet Size
Contract Drilling /Workover Services
36 drilling/workover rigs
11 drilling/workover rigs
Drilling Rigs
Current
2005
Ensign Energy Services International Limited (“EESIL”),
Argentina
6
5
specializes in the drilling of all forms of hydrocarbon and
Australia
6
6
geothermal wells, and oversees our operations in Australasia,
Gabon
1
1
the Middle East and Africa. EESIL is based in Adelaide, Australia.
Indonesia
2
2
Ensign International Energy Services Inc., which is based in
Libya
7
5
Houston, Texas, oversees our South America operations.
New Zealand
1
3
Oman
4
5
Thailand
1
–
•
Venezuela
10
11
38
38
Successfully redeployed three rigs to Argentina, one drilling
rig from Venezuela and two workover rigs from Ecuador.
•
Positioned ourselves to exploit opportunities in coal bed
methane in Australia.
Workover Rigs
2006 AR
Current
2005
Argentina
4
2
Australia
3
3
Ecuador
–
2
New Zealand
1
1
Venezuela
1
1
9
9
•
Entered the Thailand onshore market with the deployment
of one deep-capacity drilling rig.
•
Targeted the Middle East and Africa for growth, including
adding two drilling rigs to our fleet in Libya.
3/30/07
4:09 PM
70
60
50
Page 17
12
700
1.2
10
600
1.0
500
8
40
0.8
400
6
0.6
30
300
4
20
10
2
100
0
0
0
02
03
04
05
06
0.4
200
02
03
04
05
06
0.2
0.0
02
International Drilling – Utilization
International Drilling – Operating Days
(percent)
(thousands)
03
04
05
06
Wells Drilled – International
02
03
04
05
06
Metres Drilled – International
(millions)
C o n t r a c t D r i l l i n g / Wo r k o v e r S e r v i c e s
We continue to seek growth opportunities in the Middle East and
Ensign solidified its position in the international market in 2006
North Africa with a particular focus on Libya where we now have
by building on existing markets and transferring equipment to
seven drilling rigs. We added two rigs to our Libyan fleet in 2006
new or more favourable locations in response to market and
– one from New Zealand and the other from Oman – both under
geopolitical changes.
long-term contract. We believe we are well positioned to benefit
Operating days in 2006 totaled 9,151 (53.4 percent utilization),
which represents an 11 percent decrease from the 10,282
from the increasing interest by foreign exploration and production
companies in the Libyan market following the lifting of sanctions
in 2004.
We successfully completed several equipment redeployments
during the year, increasing our footprint in Argentina and Libya
Ensign is constantly introducing new initiatives to motivate and
and entering the Thailand market for the first time.
train its international workforce of highly experienced
We view Argentina as a growth market and moved three rigs
there – one drilling rig, which we transferred from Venezuela;
professionals to ensure that projects are consistently executed
in a safe and efficient manner.
and two workover rigs, which we transferred from Ecuador.
The health and safety of all employees is paramount, not only
As a result, we now have six drilling rigs and four workover
to the Company but also to our energy industry customers who
rigs operating in Argentina and continue to look for future
place a high safety requirement on the Company.
opportunities in this market.
We achieve this by implementing, reinforcing and renewing the
We had 10 drilling rigs and one workover rig based in Venezuela
company-wide HSE Management System and Driving to Zero
by the end of 2006. We continue to closely monitor political and
vision.
economic developments in Venezuela. Our Venezuelan operations
have performed well and we are well-positioned to pursue any
new opportunities that arise there.
The Australia market was very active in 2006. We had six drilling
rigs and three workover rigs operating there throughout the year.
In 2007, we plan to add another refurbished drilling rig, which is
being transferred from our Canadian operations and is already
contracted to a customer. We are also pursuing opportunities in
the area of coal bed methane drilling, which we view as a potential
growth market in Australia.
17
In South America, where we already have a strong safety culture
in both our Venezuela and Argentina operations, we plan to
introduce new operational and safety programs in 2007 that have
already been very successful in our United States division.
In our Australasia, Middle East and Africa operations, we launched
a new Safety Change Management program, an initiative to
ensure safety management is a ‘bottom up’ rather than a ‘top
down’ process whereby all employees take a safety leadership
role.
The Company redeployed two deep capacity rigs from New
Zealand in 2006 and as a result, the Company now has one
marketed drilling rig and one marketed workover rig there.
Following the successful completion of one of the deepest wells
the Company has ever drilled internationally, one of the rigs was
contracted and transferred to Thailand, thus marking our entry
into that country’s onshore gas drilling market. The other
redeployed drilling rig, which had completed work on a
geothermal project in New Zealand, was moved to Libya.
2006 AR
3/30/07
4:09 PM
Page 18
M a n a g e m e n t ’s D i s c u s s i o n a n d A n a l y s i s
18
As of March 19, 2007
This Management’s Discussion and Analysis (“MD&A”) for Ensign Energy Services Inc. and all of its subsidiaries and partnerships (the
“Company”) is supplemental to the consolidated financial statements and the notes thereto contained in the Company’s 2006 Annual Report.
The Company prepared the consolidated financial statements for the year ended December 31, 2006 in accordance with Canadian generally
accepted accounting principles (“GAAP”). All financial measures presented in this MD&A are expressed in Canadian dollars unless otherwise
indicated. Additional information, including the Company’s Annual Information Form, is available on SEDAR at www.sedar.com.
This MD&A contains forward-looking statements based upon current expectations that involve a number of business risks and uncertainties.
The factors that could cause results to differ materially include, but are not limited to, political and economic conditions, foreign currency
fluctuations, oil and natural gas prices, weather conditions, the ability of oil and natural gas companies to raise capital, or other unforeseen
conditions that could have an impact on the demand for services supplied by the Company.
Non-GAAP Measures
This MD&A contains references to EBITDA, adjusted net income and funds from operations. These financial measures are not measures that
have any standardized meaning prescribed by GAAP and accordingly may not be comparable to similar measures used by other companies.
Non-GAAP measures are defined on page 19.
Overview and Selected Annual Information
2006
2005
Revenue
1,807,230
1,520,724
286,506
19
1,059,494
461,230
44
EBITDA1
593,334
448,163
145,171
32
248,729
199,434
80
($ thousands, except per share data)
Change % change
2004
Change % change
EBITDA per share
Basic4
$
3.91
$
2.97
$
0.94
32
$
1.65
$
1.32
80
Diluted4
$
3.80
$
2.87
$
0.93
32
$
1.62
$
1.25
77
105,667
46
97,817
73
Adjusted net
income2
337,352
231,685
133,868
Adjusted net income per share
Basic4
$
2.22
$
1.53
$
0.69
45
$
0.89
$
0.64
72
Diluted4
$
2.16
$
1.49
$
0.67
45
$
0.87
$
0.62
71
171,619
101
50,816
43
Net income
341,284
169,665
118,849
Basic4
$
2.25
$
1.12
$
1.13
101
$
0.79
$
0.33
42
Diluted4
$
2.18
$
1.09
$
1.09
100
$
0.77
$
0.32
42
82,987
25
148,463
79
Funds from
operations3
420,173
337,186
188,723
Funds from operations per share
Basic4
$
2.77
$
2.23
$
0.54
24
$
1.25
$
0.98
78
Diluted4
$
2.69
$
2.16
$
0.53
25
$
1.23
$
0.93
76
0.28
$
0.17
$
0.11
65
$
0.145
$
0.025
17
239,810
16
383,099
34
Cash dividends per share
Total assets
2006 AR
$
1,762,149
1,522,339
1,139,240
3/30/07
2000
1500
4:09 PM
Page 19
350
350
300
300
250
250
200
200
300
150
150
200
100
100
50
50
500
400
1000
500
0
0
02
03
04
05
06
100
0
02
03
04
05
06
0
02
03
04
05
06
02
03
04
05
Revenue
Net Income
Adjusted Net Income
($ millions)
($ millions)
($ millions)
($ millions)
06
19
1 EBITDA is defined as “income before interest expense, income taxes, depreciation, and stock-based compensation expense”. Management believes that in addition to net income, EBITDA
is a useful supplemental measure as it provides an indication of the results generated by the Company’s principal business activities prior to consideration of how these activities are
financed, how the results are taxed in various jurisdictions, or how the results are impacted by the accounting standards associated with the Company’s stock-based compensation plan.
($ thousands)
Income before income taxes
Interest
Depreciation
Stock-based compensation
EBITDA
2006
513,336
5,127
80,921
(6,050)
593,334
2005
271,008
6,823
74,917
95,415
448,163
2004
171,164
3,503
50,956
23,106
248,729
2 Adjusted net income is defined as “net income before stock-based compensation expense, tax-effected using an income tax rate of 35%”. Adjusted net income is a useful supplemental
measure as it provides an indication of the results generated by the Company’s principal business activities prior to consideration of how the results are impacted by the accounting standards
associated with the Company’s stock-based compensation plan, net of income taxes.
($ thousands)
Net income
Stock-based compensation, net of taxes
Adjusted net income
2006
2005
2004
341,284
(3,932)
337,352
169,665
62,020
231,685
118,849
15,019
133,868
3 Funds from operations is defined as “cash provided by operating activities before the change in non-cash working capital”. Funds from operations is a measure that provides shareholders
and potential investors additional information regarding the Company’s liquidity and its ability to generate funds to finance its operations. Management utilizes this measure to assess the
Company’s ability to finance operating activities and capital expenditures.
($ thousands)
Net income
Non-cash items:
Depreciation
Stock-based compensation, net of cash paid
Future income taxes
Funds from operations
2006
2005
2004
341,284
169,665
118,849
80,921
74,917
72,102
20,502
337,186
50,956
11,965
6,953
188,723
(42,648)
40,616
420,173
4 All share and per share data has been restated to reflect the two-for-one common share split in May 2006.
The year ended December 31, 2006 was a record financial year for the Company, and the fourth consecutive year in which the Company
has delivered year-over-year growth in all key financial measures. The 2006 fiscal year started strong, with customer demand and
operating activity levels building on the momentum gained in 2005. Oil and natural gas commodity prices remained strong during
the first half of 2006 and supported high levels of oil and natural gas exploration and development activity throughout North America
and internationally. Significant growth in Canada in the first half of 2006, steady performance by the Company’s United States oilfield
services division throughout the year, and gradual improvements in the international market all contributed to the record financial
performance of 2006.
The Company operates in a cyclical industry, the effects of which were felt in the latter half of 2006. Concerns over natural gas
commodity prices began to impact demand for the Company’s services in the Canadian market. As natural gas commodity prices
began to decline as a result of concerns over rising natural gas inventory levels and predictions of warm winter weather in North
America, the Company’s customers began to curtail their drilling programs, particularly in the shallow natural gas and coal bed
methane markets of the Western Canada Sedimentary Basin. These factors negatively impacted equipment utilization rates in Canada
late in the third quarter, and throughout the fourth quarter of 2006. As a result, the Canadian oilfield services division exited 2006 at
utilization levels lower than that experienced in the prior year. Operating activities in the Company’s United States oilfield services
divisions were not impacted as significantly by these short-term fluctuations in natural gas spot market prices as customers’ drilling
programs in these regions tend to have a longer-term focus. Additionally, the international market is primarily influenced by crude
oil supply and demand fundamentals which remained favourable throughout 2006.
2006 AR
3/30/07
4:09 PM
Page 20
20
Stock-based compensation expense impacts the comparability of the Company’s financial results on a year-over-year basis as it
fluctuates based on changes in the underlying price of the Company’s common shares. Stock-based compensation expense decreased
from an expense of $95.4 million in the year ended December 31, 2005 to a recovery of $6.1 million in the year ended December 31,
2006, representing a change of $101.5 million. The 2006 financial results were also impacted by a one-time reduction in future income
taxes due to substantively enacted federal and provincial income tax rate reductions in Canada.
While maintaining a strong balance sheet and continuing to operate with no long-term debt, the Company expanded its asset base
in 2006, increasing total assets by $239.8 million over the prior year. The increase is a reflection of the Company’s commitment to
maintaining a modern and safe equipment fleet, and the resultant investment made in new and refurbished equipment throughout
2006.
In response to changes by the Government of Canada to the taxation of dividends to shareholders in Canada, which result in dividends
being more attractive to the Company’s Canadian shareholders, the Company implemented a 50 percent increase in its quarterly
dividend rate in the second quarter of 2006. The Company again increased the dividend rate effective the fourth quarter of 2006, such
that aggregate dividends of $0.28 per common share were declared in 2006, a 65 percent increase from the prior year.
Comparing 2005 to 2004, fiscal 2005 was an active growth year for the Company. The strong industry fundamentals present in 2004
continued into 2005, and the Company capitalized on high levels of demand for its services. In comparison to 2004, equipment utilization
and revenue rates for the year ended December 31, 2005 were improved in all of the Company’s geographic segments. The Company
significantly expanded its asset base during 2005, completing the acquisition of drilling operations in Venezuela and well servicing
operations in the Rocky Mountain region of the United States. The Company’s financial results for the year ended December 31, 2005
were negatively impacted by the expense associated with the Company’s stock-based compensation plan, which increased 313 percent
over 2004 due to appreciation in the price of the Company’s common shares. Eliminating the impact of stock-based compensation
expense, the Company’s adjusted net income increased $97.8 million, or 73 percent, in 2005 compared with the prior year.
Revenue and Oilfield Services Expense
2006
($ thousands)
2005
Change
% change
Revenue
Canada
$
United States
Oilfield services expense
916,974
$
387,050
157,517
17
118,698
31
226,991
216,700
10,291
5
1,807,230
1,520,724
286,506
19
129,801
13
156,705
32
1,161,213
$
2006 AR
$
505,748
International
Gross margin
1,074,491
646,017
35.7%
1,031,412
$
489,312
32.2%
$
3/30/07
4:09 PM
Page 21
21
For the year ended December 31, 2006, revenue totaled $1,807.2 million, the highest recorded in the Company’s history and a 19
percent increase over the prior year. Increased operating activity and pricing strength in the Company’s United States oilfield services
division, as well as a strong operating and pricing environment in Canada in the first three quarters of 2006, were the largest contributors
to the increase.
Oilfield services expense totaled $1,161.2 million for the year ended December 31, 2006, a 13 percent increase from the prior year.
Robust levels of oilfield services activity around the globe in 2006 caused a marked increase in demand for the skilled labour and
materials that are critical to providing the Company’s services. This inflationary pressure on labour and material costs is the primary
cause of the increase in oilfield services expense on a year-over-year basis. Gross margin increased to 35.7 percent in 2006, compared
with 32.2 percent in the prior year. The improvement in gross margin is attributable to higher revenue rates, partially offset by higher
labour and material costs.
Canadian Oilfield Services
Conventional drilling rigs
Oil sands coring/coal bed methane rigs
Drilling operating days
Drilling rig utilization (%)
Well servicing rigs/units
Well servicing operating hours
Well servicing utilization (%)
2006
2005
Change
% change
164
159
5
3
22
21
1
5
32,689
33,683
(994)
(3)
49.3
54.7
(5.4)
(10)
114
116
(2)
(2)
206,951
209,667
(2,716)
(1)
49.0
49.5
(0.5)
(1)
The Company’s Canadian oilfield services division delivered solid financial performance in 2006, growing revenue by 17 percent over
the prior year. The majority of this growth was achieved in the first half of 2006, when strong oil and natural gas commodity prices
drove operating activity to record levels. High demand for the Company’s services over this period also supported strong pricing,
with 2005/2006 winter pricing holding through most of the summer and fall. However, towards the end of the third quarter of 2006
the Company’s Canadian operations noted a downward trend in operating activity. The concern over declining natural gas prices and
the resultant slow down in shallow natural gas drilling activity were the contributing factors to this decrease. Softening commodity
prices continued to be a concern in the fourth quarter of 2006, when the Company’s Canadian operations experienced a decline in
operating activity and pricing pressure from customers. These factors negatively impacted revenue and gross margins, both of which
declined in the fourth quarter of 2006 compared with the same period of the prior year.
During the year ended December 31, 2006, the Canadian oilfield services division added five newly constructed drilling rigs, and one
specialty drilling rig to its fleet of equipment. These new drilling rigs have bolstered the fleet in that the new equipment commands
higher revenue rates and supports the Company’s ongoing safety initiatives. Two of the five drilling rigs introduced in 2006 are
Automated Drill Rigs (“ADR™”). The Company continues to experience high demand for its proprietary ADR™ technology and has
expanded the technology to accommodate slant drilling capabilities and greater depth capacity. As of December 31, 2006, the Canadian
oilfield services division had two slant well servicing rigs under construction. It is expected that these well servicing rigs will be
completed and placed into service in the second quarter of 2007. The addition of these two slant well servicing rigs in 2007 will offset
the transfer of two well servicing rigs to the United States, which occurred in the fourth quarter of 2006.
2006 AR
3/30/07
4:09 PM
Page 22
22
United States Oilfield Services
2006
Conventional drilling rigs
Drilling operating days 1
Well servicing rigs/units
Well servicing operating hours 2
2005
Change
% change
64
61
3
5
18,252
15,897
2,355
15
79.2
77.0
2.2
3
11
8
3
38
21,383
1,732
19,651
1,135
67.5
69.8
(2.3)
(3)
1 All segments now report operating days based on “spud to rig release”. Accordingly, certain prior period comparatives may have been changed to conform to the current year’s presentation.
2 Since acquisition in November 2005.
The United States oilfield services division generated record financial results in 2006 on the strength of heightened drilling activity in
the Rocky Mountain and California regions of the United States. The factors negatively impacting Canadian operations in the latter
half of 2006 did not meaningfully impact United States operations, which continued to achieve revenue, gross margin and operating
activity increases on a year-over-year basis. Revenue for the year ended December 31, 2006 increased 31 percent over the prior year.
In addition to improved revenue rates and increased operating activity levels, this increase also includes a full year contribution from
the well servicing acquisition completed near the end of 2005.
As the Company continues to introduce new equipment into the United States market, it mitigates the impact of volatile commodity
prices on operating activity levels by ensuring that the new equipment is constructed and operated under long-term take-or-pay
contracts. Of the 16 new drilling rigs approved for construction in 2006, three were completed and placed into service by December
31, 2006. Construction of the remaining 13 ADR™ drilling rigs is continuing as planned and will be completed throughout 2007.
International Oilfield Services
2006
Conventional drilling/workover rigs
2005
Change
% change
47
47
–
–
Drilling operating days1
9,151
10,282
(1,131)
(11)
53.4
61.9
(8.5)
(14)
The Company’s international operations achieved moderate improvements in financial performance in 2006, increasing revenue by
five percent compared with 2005. This was accomplished despite an 11 percent decline in operating activity in 2006 compared with
2005. The decline in operating activity was partially due to contract renewal delays in Venezuela and the relocation of two workover
rigs from Ecuador to Argentina. These negative events were offset by increases in operating activity in other international locations,
as well as by gradual price increases in these areas.
The Company continuously evaluates the international markets in which it operates, and relocates equipment in response to changing
market conditions and to capitalize on opportunities in other regions. During 2006, the Company entered the Thailand market, transferring
one rig from New Zealand, and added two rigs to its fleet of equipment based in Libya. Of the two rigs transferred to Libya, one rig was
redeployed from the Company’s operations in Oman and the other from New Zealand. The Company is also planning to bolster its
equipment fleet based in the Middle East and Africa with the refurbishment of two drilling rigs and the reactivation of one previously
idle drilling rig. In addition, the Company plans to transfer one drilling rig from its Canadian fleet to Australia in early 2007.
2006 AR
3/30/07
4:09 PM
Page 23
23
Depreciation
2006
($ thousands)
Depreciation
$
80,921
2005
$
74,917
$
Change
% change
6,004
8
Depreciation expense totaled $80.9 million for the year ended December 31, 2006, an increase of eight percent over the prior year.
Although 2006 operating activity levels remained fairly flat compared with 2005, depreciation expense has increased due to a higher
capital asset base associated with the Company’s rig building program.
General and Administrative Expense
2006
($ thousands)
General and administrative
$
% of revenue
52,683
2005
$
2.9%
41,149
$
Change
% change
11,534
28
2.7%
General and administrative expense totaled $52.7 million for the year ended December 31, 2006, an increase of 28 percent over the
prior year. The increase is consistent with the expanded operations of the Company and the revenue growth achieved during 2006.
As a percentage of revenue, general and administrative expense was 2.9 percent for 2006 compared with 2.7 percent for the year
ended December 31, 2005.
Stock-based Compensation Expense
2006
($ thousands)
$
(6,050)
2005
$
95,415
$
Change
% change
(101,465)
(106)
Stock-based compensation expense arises from the intrinsic value accounting associated with the Company’s stock option plan,
whereby the liability associated with stock-based compensation is adjusted on a quarterly basis for the effect of vesting and exercising
of stock options, as well as changes in the underlying price of the Company’s common shares. For the year ended December 31, 2006,
stock-based compensation is a net recovery of $6.1 million. The net recovery is due to a decline in the price of the Company’s common
shares, net of the impact of additional granting and vesting of stock options. The closing price of the Company’s common shares was
$18.39 at December 31, 2006, compared with $23.46 at December 31, 2005.
Interest Expense
2006
($ thousands)
Interest
$
5,127
2005
$
6,823
$
Change
% change
(1,696)
(25)
Interest expense is incurred on the Company’s operating lines of credit. The decrease in interest expense on a year-over-year basis is
due to a decrease in the average utilized balance outstanding of the Company’s operating lines of credit, partially offset by a slight
increase in interest rates.
2006 AR
3/30/07
4:09 PM
Page 24
24
I n c o m e Ta x e s
2006
($ thousands)
Current income tax
$
Future income tax
131,436
2005
$
40,616
$
Effective income tax rate (%)
172,052
33.5%
80,841
Change
$
20,502
$
101,343
$
% change
50,595
63
20,114
98
70,709
70
37.4%
The effective income tax rate for the year ended December 31, 2006 was 33.5 percent compared with 37.4 percent in 2005. The decrease
in the Company’s effective income tax rate on a year-over-year basis is primarily due to substantively enacted federal and provincial
income tax rate reductions in Canada. The income tax rate reductions not only impact the current and future income tax provision in
2006, but also resulted in a favourable adjustment to the opening future income tax liability balance.
Financial Position
The following chart outlines significant changes in the Company’s consolidated balance sheet from December 31, 2005 to
December 31, 2006:
($ thousands)
Change Explanation
Cash and cash equivalents
(17,423) See consolidated statements of cash flows.
Accounts receivable
(22,031) Decrease due to a decline in operating activity in the fourth quarter of 2006
compared with the fourth quarter of 2005.
Inventory and other
Property and equipment
24,764 Increase due to additions to drill pipe inventory in late 2006.
264,024 Increase due to ongoing capital expenditures and equipment under
construction, offset by depreciation for the year.
Accounts payable and accrued liabilities
(4,708) Decrease due to a decline in operating activity in the fourth quarter of 2006
compared with the fourth quarter of 2005, offset by ongoing capital expenditure
activity.
Operating lines of credit
(95,790) Decrease due to net repayments during the year.
(53,958) Decrease due to a decline in the price of the Company’s common shares and the
exercise of employee stock options in the year.
Income taxes payable
22,478 Increase due to the current income tax provision for the year, offset by income
tax installments.
Dividends payable
4,589 Increase due to a 60 percent increase in the fourth quarter dividend rate
compared to the prior year.
Future income taxes
41,020 Increase due to the future income tax provision for the year, offset by a one-time
reduction associated with substantively enacted income tax rate reductions in
Canada.
Shareholders’ equity
335,703 Increase due to the aggregate impact of net income for the year, increase in
capital stock due to exercises of employee stock options, impact of foreign
exchange rate fluctuations on the net assets of foreign self-sustaining
subsidiaries, less dividends declared in the year.
2006 AR
3/30/07
4:09 PM
Page 25
25
F u n d s f r o m O p e r a t i o n s a n d Wo r k i n g C a p i t a l
2006
($ thousands)
2005
Change
% change
$
420,173
$
337,186
$
82,987
25
$
2.77
$
2.23
$
0.54
24
Working capital (deficiency)
$
63,162
$
(11,878)
$
75,040
632
During 2006, the Company generated sufficient funds from operations to finance its investing activities and dividend payments, as
well as support a net repayment of its operating lines of credits. Funds from operations totaled $420.2 million in the year ended
December 31, 2006, a 25 percent increase from the $337.2 million generated in the year ended December 31, 2005. The significant
factors that may impact the Company’s ability to generate funds from operations in future periods are outlined in Risks and Uncertainties.
The Company’s working capital position as at December 31, 2006 was $63.2 million, a $75.0 million improvement over the working
capital deficit of $11.9 million at December 31, 2005. As of December 31, 2006, the Company continued to operate with sufficient
liquidity to meet its obligations as they come due. The Company anticipates that its planned capital expenditures and quarterly dividend
distributions will continue to be financed with internally generated funds and available credit facilities.
The Company does not have any long-term debt. Excluding the Company’s operating lines of credit, its future contractual obligations
are comprised of office leases totaling $8.5 million. A summary of the Company’s total contractual obligations as of December 31,
2006, is as follows:
Total
($ thousands)
$
69,989
$
78,457
Office leases
Total
Less than 1 year
$
69,989
$
72,226
8,468
1-3 years
$
–
$
3,271
$
(247,696)
2,237
4-5 years
$
–
$
1,429
3,271
After 5 years
$
–
$
1,531
1,429
1,531
Investing Activities
2006
($ thousands)
Net purchase of property and equipment
$
Acquisitions
Net change in non-cash working capital
Cash used in investing activities
$
(325,483)
2005
$
Change
% change
(77,786)
31
–
(79,021)
79,021
(100)
40,053
14,956
25,097
168
26,331
8
(285,430)
$
(311,761)
$
The Company strives to provide its customers with safe and modern equipment. In support of this goal, the Company expended
$325.5 million in 2006 in connection with the modernization of its existing rig fleet, as well as its new-build program. Capital projects
approved in 2006 included 16 newly constructed or refurbished drilling rigs for the United States (including 14 ADRs); and six drilling
rigs (including two ADRs) and two slant well servicing rigs for Canada. Of the United States additions, two conventional drilling rigs
and one ADR™ were completed and placed into service in 2006, with the remaining ADRs expected to be delivered throughout 2007.
All six of the new drilling rigs constructed for the Canadian market were completed and placed into service in 2006. The two new slant
well servicing rigs are expected to be completed and in service by the second quarter of 2007. The Company is also planning to bolster
its international equipment fleet with the refurbishment of two drilling rigs and the reactivation of one previously idle drilling rig. The
remaining 2006 capital projects scheduled for completion in 2007 will be financed with internally generated funds and available credit
facilities.
2006 AR
3/30/07
4:09 PM
Page 26
26
The Company did not complete any corporate acquisitions during the year ended December 31, 2006. In the year ended December
31, 2005, the Company completed two corporate acquisitions totaling $79.0 million. In January 2005, the Company acquired all of the
issued and outstanding shares of Servicios Petroleros Flint, C.A. and Flintco del Ecuador C.A. (subsequently renamed Ensign de
Venezuela C.A. and Ensign del Ecuador, C.A., respectively). Ensign de Venezuela provides contract drilling and workover services in
Venezuela. The Company ceased operations in Ecuador in 2006 and repositioned the two workover rigs previously operating in that
country to Argentina. In November 2005, the Company entered the well servicing market in the United States through the acquisition
of Action Energy Services and Action Oil Field Services, Inc. (subsequently renamed Ensign Well Services Inc.). Ensign Well Services
Inc. operates 11 well servicing units in the Rocky Mountain region of the United States.
Financing Activities
2006
($ thousands)
Net (decrease) increase in operating lines of credit
$
Issue of capital stock
Dividends
Cash (used in) provided by financing activities
(95,790)
2005
$
$
Change
% change
(164,632)
(239)
6,556
3,132
3,424
109
(42,505)
(25,706)
(16,799)
65
4,589
$
68,842
(127,150)
1,530
$
47,798
$
3,059
200
(174,948)
(366)
The Company’s utilized operating lines of credit totaled $70.0 million at December 31, 2006, compared with $165.8 million at December
31, 2005. During the year ended December 31, 2006, the Company generated cash flows in excess of its operating and capital
requirements, thereby allowing the Company to reduce the utilized balance of its operating lines of credit. Subsequent to December
31, 2006, the Company increased the amount available under its United States operating line of credit to USD $50.0 million to finance
its new build projects and support its expanded operations in the United States. As of March 19, 2007, the Company had not yet drawn
on this United States based credit facility.
During the year ended December 31, 2006, the Company declared dividends of $0.28 per common share, an increase of 65 percent
over $0.17 per common share declared in 2005. During 2006, the Company announced two increases to its quarterly dividend rate: a
50 percent increase in the second quarter; and a further seven percent increase in the fourth quarter of 2006. The Company has
increased its dividend every year since it began paying a dividend in 1995. Subsequent to December 31, 2006, the Company declared
a dividend for the first quarter of 2007. A quarterly dividend of approximately $12.2 million, being $0.08 per common share, was
declared for payment on April 2, 2007, to all shareholders of record as of March 20, 2007. All dividends paid by the Company subsequent
to January 1, 2006 qualify as an eligible dividend, as defined by subsection 89(1) of the Income Tax Act.
Other financing activities during the year ended December 31, 2006 include the receipt of $6.6 million on the exercise of employee
stock options.
2006 AR
3/30/07
4:09 PM
Page 27
27
Summary Quarterly Results
2006
Q4
Q3
Q2
Q1
Revenue
421,908
459,778
357,545
567,999
EBITDA
122,194
159,464
81,757
229,919
EBITDA per share
Basic
$
0.80
$
1.05
$
0.54
$
1.52
Diluted
$
0.78
$
1.02
$
0.52
$
1.46
Adjusted net income
66,155
88,279
53,470
129,448
Basic
$
0.44
$
0.58
$
0.35
$
0.86
Diluted
$
0.42
$
0.56
$
0.34
$
0.82
Net income
63,938
102,850
46,646
127,850
Basic
$
0.42
$
0.68
$
0.31
$
0.85
Diluted
$
0.41
$
0.66
$
0.30
$
0.81
109,579
99,653
55,836
155,105
Basic
$
0.72
$
0.66
$
0.37
$
1.03
Diluted
$
0.70
$
0.64
$
0.35
$
0.99
2005
Q4
Q3
Q2
Q1
Revenue
476,192
372,866
271,353
400,313
EBITDA
152,414
112,012
50,331
133,406
EBITDA per share
Basic
$
1.01
$
0.74
$
0.34
$
0.89
Diluted
$
0.97
$
0.72
$
0.33
$
0.86
Adjusted net income
81,796
56,703
19,831
73,356
Basic
$
0.54
$
0.38
$
0.13
$
0.49
Diluted
$
0.52
$
0.36
$
0.13
$
0.47
Net income
59,969
30,178
12,206
67,312
Basic
$
0.40
$
0.20
$
0.08
$
0.45
Diluted
$
0.38
$
0.19
$
0.08
$
0.43
112,154
92,785
38,668
93,579
Basic
$
0.74
$
0.62
$
0.26
$
0.62
Diluted
$
0.71
$
0.59
$
0.25
$
0.60
2006 AR
3/30/07
4:09 PM
Page 28
28
The heightened demand for oilfield services experienced in 2005 continued to support the Company’s growth throughout the first
three quarters of 2006. Oil and natural gas commodity prices held strong over the first half of 2006 and supported high levels of drilling
activity in North American and international markets. These factors, along with the expansion of the Company’s equipment fleet,
contributed to quarter-over-quarter improvements in all financial measures in the first, second and third quarters of 2006. The second
quarter of 2006 also benefited from the effect of federal and provincial income tax rate reductions in Canada. During the second quarter
of 2006, a one-time reduction in the Company’s opening future income tax liability was recognized.
Concerns over natural gas inventory levels and anticipation of warm winter weather in North America began to negatively impact
natural gas prices near the end of the third quarter of 2006. As customers began to adjust their drilling programs in reaction to declining
natural gas prices, the Company experienced a decline in operating activity in the fourth quarter of 2006, most notably in the Canadian
shallow natural gas market. This event negatively impacted financial results in the fourth quarter of 2006, which declined from the
fourth quarter of the prior year.
The comparability of the Company’s financial results on a quarter-over-quarter basis is impacted by the accounting for the Company’s
stock option plan, which can fluctuate significantly from quarter-to-quarter based on the price of the Company’s common shares.
Management utilizes adjusted net income to assess results from the Company’s principal business activities prior to the impact of
stock-based compensation.
The seasonal operating environment in North America continues to impact the Company’s quarterly results. Financial and operating
results for the Company’s Canadian oilfield services segment are 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 breakup hinders mobility of the Company’s equipment. As the Company expands its operations in the United States and internationally,
the seasonal effects of operating in Canada will be mitigated.
Fourth Quarter Analysis
Revenue
EBITDA
EBITDA per share
Basic
Diluted
Adjusted net income
Basic
Diluted
Net income
Basic
Diluted
Basic
Diluted
Weighted average shares – basic (000s)
Weighted average shares – diluted (000s)
2006 AR
Three months ended December 31
2006
2005
421,908
476,192
122,194
152,414
Change
(54,284)
(30,220)
% change
(11)
(20)
$
$
0.80
0.78
66,155
$
$
1.01
0.97
81,796
$
$
(0.21)
(0.19)
(15,641)
(21)
(20)
(19)
$
$
0.44
0.42
63,938
$
$
0.54
0.52
59,969
$
$
(0.10)
(0.10)
3,969
(19)
(19)
7
$
$
0.42
0.41
109,579
$
$
0.40
0.38
112,154
$
$
0.02
0.03
(2,575)
5
8
(2)
$
$
0.72
0.70
151,975
155,779
$
$
0.74
0.71
151,338
157,590
$
$
(0.02)
(0.01)
637
(1,811)
(3)
(1)
–
(1)
3/30/07
4:09 PM
Page 29
29
Three months ended December 31
2006
2005
Drilling
Number of marketed rigs
Canada
Conventional
Oil sands coring/coal bed methane
United States
International
Operating days 1
Canada
United States
International
Canada
United States
International
Well Servicing
Number of marketed rigs/units
Canada
United States
Operating hours
Canada
United States
Canada
United States
Change
% change
164
22
64
47
159
21
61
47
5
1
3
–
3
5
5
–
6,793
4,538
2,453
10,098
4,103
2,794
(3,305)
435
(341)
(33)
11
(12)
40.1
77.1
56.7
62.2
74.7
64.6
(22.1)
2.4
(7.9)
(36)
3
(12)
114
11
116
8
(2)
3
(2)
38
48,009
5,169
59,579
1,732
(11,570)
3,437
(19)
198
45.2
52.6
55.8
69.8
(10.6)
(17.2)
(19)
(25)
The Company’s Canadian oilfield services divisions realized a fourth quarter year-over-year reduction in operating days and well
servicing hours as the Company’s customers reevaluated, and in some cases delayed, their programs in response to softening natural
gas fundamentals. Canadian oilfield services operating days declined 33 percent in the fourth quarter of 2006 compared with the
fourth quarter of 2005. Well servicing operating hours declined 19 percent in the fourth quarter of 2006 compared with the fourth
quarter of 2005. Oilfield services expenses in Canada also increased in the fourth quarter of 2006 compared with the fourth quarter
of 2005 as annual labour rate increases became effective in October 2006.
Although oil and natural gas commodity prices also determine demand for the Company’s services provided in the United States,
demand for oilfield services in the United States market was not impacted by the volatility of natural gas commodity prices as significantly
as the Canadian market in the fourth quarter of 2006. Operating days in the United States totaled 4,538 in the fourth quarter of 2006,
compared with 4,103 in the fourth quarter of 2005, an increase of 11 percent. The Company has increased its investment in the United
States over the past several years, and has done so primarily by introducing new equipment under long-term take-or-pay contracts.
This strategy has helped mitigate the impact of short-term volatility in commodity prices on its operating activity levels. Fourth quarter
financial results for the United States oilfield services division also benefited from the successful entry into the well servicing market
in the Rocky Mountain region. The well servicing equipment acquired in November 2005 contributed for a full three months in the
2006 AR
3/30/07
4:09 PM
Page 30
30
fourth quarter of 2006 compared with only one month in the fourth quarter of 2005, as reflected in the 198-percent increase in well
servicing operating hours. Due to the early success of the United States well servicing acquisition and potential for growth in this market,
the Company transferred two well servicing units from its Canadian fleet to the United States in the fourth quarter of 2006.
Operating days in the Company’s international oilfield services division declined 12 percent in the fourth quarter of 2006 compared
with the fourth quarter of 2005. A portion of the decline in operating activity is due to the relocation of two workover rigs from Ecuador
to Argentina that occurred during the third quarter of 2006. As of December 31, 2006, the transfer of these two workover rigs to
Argentina was complete, and the relocated equipment will contribute to activity levels and financial results in 2007. The remaining
decline in operating activity is due to the timing of annual inspections and contract renewals.
Outstanding Share Data
The following common shares and stock options were outstanding as of March 19, 2007:
Number
Common shares
Amount ($ thousands)
152,355,728
$
Outstanding
Exercisable
9,765,050
2,904,419
Stock options
156,467
Outlook
The record financial results achieved by the Company during the 2006 fiscal year were generated despite a softening in demand for
oilfield services in Canada in late 2006. The demand for oilfield services in the Company’s core Canadian market was negatively
impacted by the effect of reduced natural gas commodity prices on the cash flows and operating plans of the Company’s customers.
While natural gas and crude oil commodity prices have recovered somewhat from recent lows, the Company does not anticipate a
recovery in demand for oilfield services in Canada until such time as the market strengthens with respect to natural gas supply and
demand fundamentals. At this point, we have seen reduced winter level activity in Canada compared to the prior year and the outlook
for the second and third quarters calls for lower utilization accompanied by reduced margins.
In 2006, the Company’s United States operations enjoyed its most successful year ever, and to date in 2007 this important market has
only shown modest signs of slow down. In 2007 the Company will complete its previously announced ADR™ build program in the
United States, that will result in a larger, very modern, technically-efficient ADR™ rig fleet that will better position the Company in
the Rocky Mountain region and California markets. Activity levels in the Rocky Mountain region will primarily be determined by natural
gas fundamentals and in this regard it is possible that demand for oilfield services in the United States will follow Canada’s lead and
decrease later in the year. Should activity levels begin to decrease, the Company’s United States drilling divisions have some protection
given the term contracts associated with the newly built or refurbished drilling equipment.
The Company’s international operations continue to show steady improvement in operational and financial results. A tighter global
drilling rig market has resulted in less downtime between contracts and improved margins as contracts are renewed or negotiated.
While there has not been a “step change” in the magnitude of the improvements in the international onshore drilling market, the
direction of the changes have been positive and the outlook is optimistic given favorable indicators around global supply and demand
fundamentals for crude oil. There remain a number of geopolitical issues in key international onshore markets; however, the risks are
being monitored and managed to the extent that the Company is able.
2006 AR
3/30/07
4:09 PM
Page 31
31
The overall uncertainty around the current outlook for oilfield services creates not only volatility with respect to the Company’s financial
results, but also opportunities within the sector. The Company’s strong balance sheet and growth strategy will enable it to search for
and take advantage of opportunities to continue to grow through any real or perceived downturn in activity in all of its market segments.
Critical Accounting Estimates
This MD&A is based on the Company’s consolidated financial statements that have been prepared in accordance with GAAP. The
Company’s significant accounting policies are described in Note 2 to the consolidated financial statements. The preparation of the
consolidated financial statements requires that certain estimates and judgments be made in regard to the reported amount of revenues
and expenses and the carrying values of assets and liabilities. These estimates are based on historical experience and management’s
judgment. Anticipating future events involves uncertainty and, consequently, the estimates used by management in the preparation
of the consolidated financial statements may change as future events unfold, additional experience is acquired, or the environment
in which the Company operates changes.
The accounting estimates considered to have the greatest impact on the Company’s consolidated financial results are as follows:
Depreciation
Depreciation of the Company’s property and equipment incorporates estimates of useful lives and residual values. These estimates
may change as more experience is obtained or as general market conditions change, both of which could impact the operation of the
Company’s property and equipment.
Long-lived Assets
The carrying value of the Company’s property and equipment is periodically reviewed for impairment or whenever events or changes
in circumstances indicate that their carrying value may not be recoverable. This requires the Company to forecast future cash flows
to be derived from the utilization of these assets based on assumptions about future operating conditions. These assumptions may
change as more experience is obtained or as general market conditions change.
Taxation
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. The Company establishes valuation allowances to offset future income tax assets when
utilization of such tax assets is uncertain. Assessing the realization of future income tax assets includes consideration of tax planning
arrangements and estimates of future taxable income. Changes in circumstances and assumptions underlying these considerations
may require changes to the valuation allowances recorded to date.
Disclosure Controls
The Company’s management, including the President and Chief Operating Officer and Executive Vice President Finance and Chief
Financial Officer, has reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in
Multilateral Instrument 52-109 issued by the Canadian securities regulators) as of December 31, 2006. Management has concluded
that, as of December 31, 2006, the disclosure controls and procedures were effective to provide reasonable assurance that material
information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities
to allow timely decisions regarding required disclosure.
2006 AR
3/30/07
4:09 PM
Page 32
32
Management has designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. There have been no
changes in the Company’s internal controls over financial reporting during the year that have materially affected, or are reasonably
likely to materially affect, the Company’s internal controls over financial reporting.
Risks and Uncertainties
Oil and Natural Gas Prices
The most significant factors affecting the business of the Company are oil and natural gas commodity prices. Commodity price levels affect
the capital programs of energy exploration and production (“E&P”) companies. In turn, these programs affect the demand for the Company’s
services. Typically, the E&P sector establishes capital spending budgets for the upcoming year late in the current year. The high level of
E&P activity throughout North America in 2006 was largely a reflection of the strength of oil and natural gas commodity prices in that year.
However, oil and natural gas commodity prices are subject to a variety of political and economic factors, which can result in volatile pricing.
Consequently, current levels of capital spending by the Company’s customers may not be indicative of future spending.
Foreign Operations
The Company provides oilfield services throughout much of North America and internationally in a number of onshore drilling areas.
The Canadian and United States regulatory regimes are stable and, in general, supportive of energy industry activity. Internationally,
the Company’s operations are subject to regulations in various jurisdictions and support of the oil and natural gas industry can vary
in these jurisdictions. In general, the Company negotiates long-term service contracts for drilling services in international areas and
these contracts usually include early termination clauses and other clauses for the Company’s protection.
Foreign Exchange Exposure
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 and Australian-dollar denominated activity to Canadian dollars. The Canada/United States
dollar exchange rate at December 31, 2006, was 1.1654, compared with 1.1630 at December 31, 2005. The Canada/Australian dollar
exchange rate at December 31, 2006, was 0.9187, compared with 0.8554 at December 31, 2005. The Company’s United States and
international operations are considered self-sustaining for foreign currency translation purposes.
Seasonality
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 rig 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 working with customers in planning the
timing of their drilling programs.
2006 AR
3/30/07
4:09 PM
Page 33
33
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 skilled 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 and maintaining a work environment that is safe for its employees.
Operating Risks and Insurance
The Company’s operations are subject to risks inherent in the oilfield services industry. 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.
2006 AR
34
3/30/07
4:09 PM
Page 34
Fleet Size
Division
Geographic Coverage
2006
2005
Ensign Drilling
Central and northern Alberta/northeast British Columbia
62
59
Champion Drilling
Southern Alberta and southwest Saskatchewan
42
42
Tri-City Drilling
Central and northern Alberta/northeast British Columbia
30
30
Big Sky Drilling
Southeast Saskatchewan
23
21
Western Canada and the Yukon Territory
29
28
114
116
Western Canada – well servicing rigs/coiled tubing units
Enhanced Petroleum Services Partnership
Western Canada – underbalanced drilling units
18
18
Western Canada – camps
25
24
Wireline units
41
39
Production testing units
49
36
Western Canada
United States Rocky Mountain region
46
44
California and Nevada
18
17
United States Rocky Mountain region
12
6
11
8
Argentina, the Middle East
36
33
Venezuela – drilling and workover rigs
11
12
–
2
Production testing units
United States Rocky Mountain region – well servicing rigs
Australia, New Zealand, Southeast Asia, Africa,
Ensign del Ecuador C.A.
(1)
(1)
During the second quarter of 2006 the two workover rigs owned by Ensign del Ecuador were transferred to Ensign Energy Services International Limited.
In addition to the divisions noted above, the Company has three equipment rental divisions (Chandel Equipment Rentals, RMOR
and WCOR) and two manufacturing facilities (Opsco Energy Industries Ltd. and Hi-Calibre Industries Ltd.).
2006 AR
3/30/07
4:09 PM
Page 35
WellsWells
Drilled
Drilled
2006 2006
2005 2005
Metres
Metres
Drilled
Drilled
2006 2006
2005 2005
Operating
Operating
Days/Hours
Days/Hours
2006 2006
2005 2005
Utilization
Utilization
(%) (%)
2006 2006
2005 2005
922
1,052
1,679,938
1,936,169
12,033
12,901
55.6
57.6
2,175
2,395
1,857,365
2,039,250
7,608
7,630
49.6
57.1
756
1,124
861,342
1,160,571
4,964
6,093
45.3
55.6
565
553
982,767
859,478
5,354
4,965
65.9
67.1
377
371
259,570
225,136
2,730
2,094
26.6
27.8
n.a.
n.a.
n.a.
n.a.
206,951
209,667
49.0
49.5
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
1,292
1,170
3,027,777
2,660,547
13,103
11,609
79.0
77.4
895
772
768,968
637,940
5,149
4,288
79.5
75.8
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
21,383
1,732
67.5
69.8
258
291
428,033
472,393
6,348
6,373
49.3
52.5
136
324
373,680
630,283
2,647
3,231
68.0
85.4
–
43
–
959
156
678
43.1
98.5
35
2006 AR
3/30/07
4:09 PM
Page 36
36
The Company’s Board of Directors exercises overall responsibility for the management and supervision of the affairs of the Company.
This includes the appointment of the Company’s President, approval of compensation for senior executives and monitoring of the
President’s and management’s performance.
The Board of Directors has established procedures that prescribe the requirements governing the approval of transactions carried
out in the course of the Company’s operations, the delegation of authority and the execution of documents on behalf of the Company.
The Board of Directors reviews and approves the Company’s annual operating budget, ensuring market conditions, as well as strategic
thinking, is properly reflected in the short-term goals of each of the Company’s operating divisions.
The Board of Directors is currently composed of 11 directors. Mr. N. Murray Edwards, Mr. Selby Porter and Mr. Robert H. Geddes,
Ensign’s Chairman, Vice Chairman, and President and Chief Operating Officer respectively, are the only Board members who are also
members of the Company’s management. The Board of Directors annually appoints members to Board committees in the following
three areas: Audit, Corporate Governance and Nominations, and Compensation. All of these committees are comprised entirely of
independent directors.
Audit Committee
The Audit Committee reviews, reports and provides recommendations to the Board of Directors on the annual and interim consolidated
financial statements and on the integrity of the financial reporting of the Company. In addition, the adequacy of the Company’s
processes for identifying and managing financial risk, the adequacy of the Company’s internal control system, the appointment, terms
of engagement, provision of non-audit services and proposed fees of the Company’s independent external auditor are also areas in
which this committee reviews, reports and provides recommendations to the Board of Directors.
Corporate Governance and Nominations Committee
The Corporate Governance and Nominations Committee is responsible for reviewing, reporting and providing recommendations for
improvement to the Board of Directors with respect to all aspects of corporate governance. The Corporate Governance and Nominations
Committee, on a periodic basis, assesses the effectiveness of the Board of Directors as a whole, the committees of the Board and the
contributions of individual members. This committee also identifies and recommends to the Board individuals qualified to become
Directors of the Company.
Compensation Committee
The Compensation Committee reviews and approves compensation of the Company’s senior management. In addition, this committee
is responsible for reviewing succession plans and the compensation policy for all other employees. This committee also has the
authority to grant stock options to employees (other than grants to senior officers and “insiders”, which are approved by the Board
of Directors) pursuant the Company’s Stock Option Plan.
Additional details regarding the Company’s corporate governance may be found in the “Statement of Corporate Governance Practices”
included in the Information Circular for the Company’s upcoming Annual Meeting of Shareholders to be held on May 23, 2007.
2006 AR
3/30/07
4:09 PM
Page 37
M a n a g e m e n t ’s R e p o r t
37
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 Canadian generally accepted accounting
principles consistently applied, using management’s best estimates and judgements, 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 controls over financial reporting 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 Canadian generally accepted accounting principles.
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.
Robert H. Geddes
Glenn Dagenais
Executive Vice President Finance and Chief Financial Officer
March 15, 2007
Auditors’ Report
To the Shareholders of Ensign Energy Services Inc.
We have audited the consolidated balance sheets of Ensign Energy Services Inc. as at December 31, 2006 and 2005 and the consolidated
statements of income and retained earnings and cash flows for the years then ended. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.
Chartered Accountants
March 15, 2007
2006 AR
38
3/30/07
4:09 PM
Page 38
Consolidated Balance Sheets
2006
As at December 31 (in thousands of dollars)
2005
Assets
Current assets
$
Accounts receivable
14,570
$
365,075
31,993
387,106
Inventory and other
77,228
52,464
Future income taxes (note 5)
11,010
20,534
Property and equipment (note 3)
467,883
492,097
1,294,266
1,030,242
$
1,762,149
$
1,522,339
$
241,976
$
246,684
Liabilities
Current liabilities
Operating lines of credit (note 4)
69,989
165,779
Current portion of stock-based compensation
33,818
59,641
46,783
24,305
Dividends payable
12,155
7,566
404,721
503,975
17,999
46,134
Future income taxes (note 5)
231,824
200,328
654,544
750,437
154,838
136,972
Shareholders’ Equity
Capital stock (note 6)
Cumulative translation adjustment
(20,163)
(39,221)
Retained earnings
972,930
674,151
1,107,605
771,902
Contingencies and commitments (note 11)
$
See accompanying notes to the consolidated financial statements.
Approved by the Board of Directors
N. Murray Edwards, Director
2006 AR
Selby Porter, Director
1,762,149
$
1,522,339
3/30/07
4:09 PM
Page 39
Consolidated Statements of Income and Retained Earnings
2006
For the years ended December 31 (in thousands of dollars, except per share data)
2005
39
Revenue
Oilfield services
$
1,807,230
$
1,520,724
Expenses
Oilfield services
1,161,213
1,031,412
Depreciation
80,921
74,917
General and administrative
52,683
41,149
(6,050)
95,415
Interest
5,127
6,823
1,293,894
1,249,716
513,336
271,008
131,436
80,841
Income taxes (note 5)
Current
Future
40,616
20,502
172,052
101,343
Net income for the year
341,284
169,665
Retained earnings – beginning of year
674,151
530,192
(42,505)
(25,706)
Dividends (note 6)
Retained earnings – end of year
$
972,930
$
674,151
Basic
$
2.25
$
1.12
Diluted
$
2.18
$
1.09
Net income per share (note 6)
2006 AR
40
3/30/07
4:09 PM
Page 40
Consolidated Statements of Cash Flows
2006
For the years ended December 31 (in thousands of dollars)
2005
Cash provided by (used in)
Operating activities
Net income for the year
$
341,284
$
169,665
Items not affecting cash
Depreciation
80,921
74,917
Stock-based compensation, net of cash paid
(42,648)
72,102
Future income taxes
40,616
20,502
Cash provided by operating activities before the change in non-cash working capital
420,173
337,186
Net change in non-cash working capital (note 9)
(25,016)
(56,941)
395,157
280,245
–
(79,021)
(325,483)
(247,696)
40,053
14,956
(285,430)
(311,761)
(95,790)
68,842
6,556
3,132
(42,505)
(25,706)
4,589
1,530
(127,150)
47,798
(Decrease) increase in cash and cash equivalents during the year
(17,423)
16,282
Cash and cash equivalents – beginning of year
31,993
15,711
Investing activities
Acquisitions (note 7)
Net purchase of property and equipment
Financing activities
Net (decrease) increase in operating lines of credit
Issue of capital stock
Dividends (note 6)
Cash and cash equivalents – end of year
$
14,570
$
31,993
Interest paid
$
5,358
$
7,350
Income taxes paid
$
108,958
$
76,189
Supplemental information
2006 AR
3/30/07
4:09 PM
Page 41
For the years ended December 31, 2006 and 2005 (in thousands of dollars, except per share data)
1
41
Basis of consolidation and nature of business
The accompanying consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting
principles, and include the accounts of Ensign Energy Services Inc. and its subsidiaries and partnerships (the “Company”), substantially
all of which are wholly-owned. The Company carries on the business of providing oilfield services to the oil and natural gas industry
in Canada, the United States and internationally.
2
Significant accounting policies
Cash and cash equivalents consists of cash and short-term investments with maturities of three months or less.
Inventory
Inventory, comprised of spare rig parts and equipment, is recorded at the lower of cost and replacement cost.
Property and equipment is recorded at cost. Depreciation is based on the estimated useful lives of the assets as follows:
Rigs and equipment
Drilling rigs and related equipment
3,650 operating days
Unit-of-production (20% residual)
Well servicing rigs/coiled tubing units
24,000 operating hours
Unit-of-production (20% residual)
Heavy oilfield service equipment
15 years
Straight-line (20% residual)
Buildings
20 years
Straight-line
Automotive equipment
3 years
Straight-line (15% residual)
Office furniture and shop equipment
5 years
Straight-line
Revenue recognition
Oilfield services revenue is recognized as services are rendered and when collectibility is reasonably assured. Losses are provided
for in full when first determined.
Foreign currency translation
Financial statements of the Company’s self-sustaining United States and international subsidiaries are translated to Canadian dollars
using the exchange rate in effect at the balance sheet date for all assets and liabilities, and at average rates of exchange during the
year for revenues and expenses. Gains or losses resulting from these translation adjustments are included in the cumulative translation
adjustment account in shareholders’ equity.
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 substantively enacted income tax rates. The effect of a change in income tax rates
on future income tax liabilities and assets is recognized in income in the period in which the change occurs.
2006 AR
42
3/30/07
4:09 PM
Page 42
Stock-based compensation plan
The Company has an employee stock 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 stock-based compensation plan is accounted for using the intrinsic value
method. Under this method, the Company accrues a liability for stock options based on the excess of the market price of the Company’s
common shares over the exercise price. The accrued liability is adjusted on a quarterly basis for the effect of granting and vesting of stock
options, exercises of stock options, as well as the effect of changes in the underlying price of the Company’s common shares through charges
or credits to stock-based compensation expense. Any consideration received on the exercise of stock options is credited to capital stock.
Measurement uncertainty
Preparation of the Company’s consolidated financial statements in accordance with Canadian generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and expenses during the reporting years presented. Actual
results could differ from these estimates.
3
Cost
Accumulated
Net Book
Depreciation
Value
2006
Rigs and related equipment
$
1,605,368
$
362,673
$
1,242,695
Automotive and other equipment
50,754
23,622
27,132
Land and buildings
28,709
4,270
24,439
$
1,684,831
$
390,565
$
1,294,266
$
985,586
2005
Rigs and related equipment
$
1,293,799
Automotive and other equipment
$
46,841
Land and buildings
21,560
22,677
$
1,363,317
308,213
$
25,281
3,302
19,375
333,075
$ 1,030,242
Property and equipment includes equipment under construction of $152,927 (2005 – $44,680) that has not yet been subject to depreciation.
4
The utilized balances of the Company’s operating lines of credit as at December 31, 2006 and 2005 are as follows:
2006
Canada
Operating line of credit at the bank prime interest rate or bankers’
acceptance rate/LIBOR plus 0.85% stamping fee.
Australia
2005
$
Operating line of credit at the bank bill swap rate or LIBOR plus 0.575%.
59,386
$
10,603
145,420
20,359
United States Operating line of credit at the bank prime interest rate or LIBOR plus
0.825% stamping fee.
–
$
2006 AR
69,989
–
$
165,779
3/30/07
4:09 PM
Page 43
43
The amount available under the Canadian dollar operating line is $185,000 (2005 - $185,000). Collateral for the Canadian dollar operating
line of credit consists of a demand debenture.
At December 31, 2006, the Company had an available Australian dollar operating line of credit of $27,837 (AUD $30,300). At December
31, 2005, the amount available under the Australian dollar operating line of credit was $25,919 (AUD $30,300). The Australian dollar
operating line of credit is unsecured.
At December 31, 2006, the amount available under the United States dollar operating line of credit is $19,812 (USD $17,000). At
December 31, 2005, the amount available under the United States dollar operating line of credit was $19,771 (USD $17,000). The
amount available under the United States dollar operating line of credit is reduced by the balance of outstanding letters of credit,
which shall not exceed $8,158 (USD $7,000). The Company had issued letters of credit in the amount of $6,594 (USD $5,658) and $4,894
(USD $4,208) at December 31, 2006 and December 31, 2005, respectively. Collateral for the United States dollar operating line of credit
consists of a charge over certain United States accounts receivable balances.
Subsequent to December 31, 2006, the Company revised the terms of the United States dollar operating line of credit. Effective March
2007, the amount available under the United States dollar operating line of credit has been increased to USD $50,000, of which USD
$10,000 will be established for letter of credit issuance. Borrowings are available at the bank prime interest rate or LIBOR plus 0.85%.
The revised credit facility is secured by a perfected first-priority lien on, and security interest in, all of the assets of certain of the
Company’s United States subsidiaries.
5
Income taxes
The temporary differences comprising the net future income tax liability as at December 31, 2006 and 2005 are as follows:
2006
$
171,368
2005
$
159,592
Partnership timing differences
80,363
70,281
(16,869)
(36,059)
(6,868)
(5,690)
Non-capital losses
Capital losses
Other
Net future income tax liability before valuation allowance
Valuation allowance related to non-capital losses
(941)
(1,165)
(7,803)
(8,950)
219,250
178,009
1,564
1,785
Net future income tax liability
$
220,814
$
179,794
Future income tax liability
$
231,824
$
200,328
$
220,814
$
179,794
Future income tax asset
Net future income tax liability
(11,010)
(20,534)
A significant portion of the Company’s taxable income in Canada is generated by partnerships. Current income taxes are incurred on
the partnerships’ taxable income in the year following their inclusion in the Company’s consolidated net income.
At December 31, 2006, the Company had non-capital losses of $22,876 (2005 - $16,462), of which $22,860 has no expiry and has been
included in the valuation allowance. The remaining $16 of non-capital losses expire at various times between 2008 and 2012.
2006 AR
44
3/30/07
4:09 PM
Page 44
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:
2006
$
Income tax rate
513,336
2005
$
271,008
33.6%
35.0%
172,481
94,853
Higher effective tax rate on non-Canadian operations
7,637
2,608
Stock-based compensation expense
3,800
1,899
Foreign tax credits not recognized
707
1,610
Capital taxes
400
322
Expected income tax expense
Increase (decrease) resulting from:
Non-deductible expenses
Other
Rate reduction on future income taxes
284
(233)
(15,631)
$
Effective income tax rate
6
582
2,076
172,052
–
$
33.5%
101,343
37.4%
Capital stock
Authorized
Unlimited common shares
Unlimited preferred shares, issuable in series
Common share split
The Company’s shareholders approved a split of its issued and outstanding common shares on a two-for-one basis at the Company’s
Annual and Special Meeting of Shareholders held on May 17, 2006. All common share, stock option and per common share amounts
have been restated to retroactively reflect the two-for-one common share split.
Outstanding
2006
Balance – beginning of year
Issued under employee stock option plan
Balance – end of year
2005
Number of
Number of
Common Shares
Amount Common Shares
151,412,328
$
855,600
152,267,928
$
136,972
150,901,928
17,866
510,400
154,838
151,412,328
Amount
$
128,414
8,558
$
136,972
Options
The Company may grant options to its employees for up to 13,956,274 (2005 – 14,811,874) common shares. The options’ exercise
price equals the market price of the Company’s common shares on the date of grant. Stock options granted vest evenly over a period
of five years. A summary of the Company’s stock option plan as at December 31, 2006 and 2005, and the changes for the years then
ended, is presented below:
2006 AR
3/30/07
4:09 PM
Page 45
Outstanding – beginning of year
Average
Number of
Average
Exercise Price
Options
Exercise Price
9.36
11,940,200
2,769,500
22.92
2,353,000
(855,600)
(7.66)
(510,400)
(6.14)
(2,355,900)
(7.95)
(1,996,700)
(6.81)
Exercised for common shares
Forfeited
$
(116,600)
$
7.97
13.57
(10.18)
(115,400)
11,112,100
$
13.16
11,670,700
$
9.36
3,731,000
$
8.32
4,152,700
$
7.50
Exercisable at December 31
Options
2005
Weighted
Options
11,670,700
Outstanding – end of year
2006
Weighted
Number of
Granted
Exercised for cash
45
(8.52)
Average Vesting
Weighted
Remaining
Average
Options
Weighted
Average
Exercise Price
Outstanding
(in years)
Exercise Price
Exercisable
Exercise Price
$6.25 to $8.75
3,072,600
0.22
$ 6.73
2,381,400
$ 6.64
$9.45 to $13.50
5,228,000
1.66
11.73
1,341,200
11.25
$16.55 to $23.33
2,811,500
2.99
22.83
8,400
16.55
11,112,100
1.60
$ 13.16
3,731,000
$ 8.32
Common share dividends
During the year ended December 31, 2006, the Company declared dividends of $42,505 (2005 - $25,706), being $0.28 per common
share (2005 - $0.17 per common share).
Net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during
the year. Diluted net income per share is calculated using the treasury stock method, which assumes that all outstanding stock options
are exercised, if dilutive, and the assumed proceeds are used to purchase the Company’s common shares at the average market price
during the year.
The weighted average number of common shares outstanding for the years ended December 31, 2006 and 2005 are as follows:
2006
2005
Weighted average number of common shares outstanding – basic
151,774,629
151,202,388
Weighted average number of common shares outstanding - diluted
156,228,713
156,223,830
Stock options of 2,769,500 (2005 – 42,000) were excluded from the calculation of diluted weighted average number of common shares
outstanding as the options’ exercise price was greater than the average market price of the common shares for the year.
2006 AR
46
3/30/07
4:09 PM
Page 46
7
Acquisitions
The Company did not complete any significant business acquisitions during the year ended December 31, 2006 compared with two
business acquisitions completed during the year ended December 31, 2005. On January 20, 2005, the Company acquired all of the
issued and outstanding shares of Servicios Petroleros Flint, C.A. and Flintco del Ecuador C.A. (collectively, the “Flint entities”). The
Flint entities provide contract drilling and workover services in Venezuela and Ecuador. On November 30, 2005, the Company acquired
all of the issued and outstanding shares of Action Oil Field Services, Inc. and Action Energy Services (collectively, “Action Services”).
Action Services provides well servicing in the Rocky Mountain region of the United States.
The purchase method has been used to account for the acquisitions and the results of operations of the Flint entities and Action
Services have been included in the consolidated financial statements from January 20, 2005 and November 30, 2005, respectively,
the date of the acquisitions.
The allocation of the purchase price of the above-mentioned acquisitions was determined as follows:
Net assets acquired at assigned values
Flint
Working capital, net of cash acquired of $3,072
$
Action
$
1,076
Total
$
10,406
61,567
16,354
77,921
Future income taxes
(9,306)
–
(9,306)
Total cash consideration
8
9,330
$
61,591
$
17,430
$
79,021
Segmented information
The Company operates in three geographic areas within one industry segment. Oilfield services are provided in Canada, the United
States and internationally. The amounts related to each geographic area are as follows:
Canada
United States
International
Total
2006
Revenue
$
1,074,491
$
505,748
$
226,991
Property and equipment, net
$
777,781
$
Capital expenditures, net
$
187,401
$
Depreciation
$
46,589
$
14,314
Revenue
$
916,974
$
387,050
$
1,807,230
255,431
$
126,285
$
261,054
$
1,294,266
11,797
$
325,483
$
20,018
$
80,921
$
216,700
$
1,520,724
2005
Property and equipment, net
$
636,969
$
143,154
$
250,119
$
1,030,242
Capital expenditures, net
$
161,795
$
54,593
$
31,308
$
247,696
Depreciation
$
43,905
$
10,550
$
20,462
$
74,917
During the year ended December 31, 2006, the Company earned revenue of $239,695 (2005 - $211,249) from a single customer. Revenues
from this customer are reported within the Canadian and United States oilfield services geographic areas.
2006 AR
3/30/07
4:09 PM
Page 47
9
47
Supplemental disclosure of cash flow information
2006
2005
Accounts receivable
$
Inventory and other
22,031
$
(109,902)
(24,764)
(600)
(4,708)
65,028
22,478
3,489
4,589
1,530
Dividends payable
$
19,626
$
(40,455)
$
(25,016)
$
(56,941)
Relating to
Operating activities
Investing activities
40,053
14,956
Financing activities
4,589
1,530
$
19,626
$
(40,455)
10 Financial instruments
Fair value
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, income taxes payable
and dividends payable approximate fair value due to the short-term nature of these instruments. The carrying value of the Company’s
operating lines of credit approximate fair value as they bear interest at floating market rates. The carrying amount of the liability for
stock-based compensation approximates fair value as the liability is adjusted on a quarterly basis for the effect of changes in the
underlying price of the Company’s common shares.
Credit risk
The Company is exposed to credit risk in relation to its accounts receivable at December 31, 2006 and 2005, which includes balances
owing from a large number of customers operating primarily in the oil and natural gas industry. The Company assesses the credit
worthiness of its customers on an ongoing basis and considers the credit risks on these amounts as normal for the industry.
Interest rate risk
The Company’s exposure to interest rate fluctuations is with respect to its operating lines of credit which bear interest at floating
market rates.
2006 AR
48
3/30/07
4:09 PM
Page 48
11 Contingencies and commitments
The Company has indemnity guarantee facilities available in the amount of $11,024 (2005 - $10,265). At December 31, 2006, the
Company has $5,879 (2005 - $7,523) outstanding in respect of these guarantee facilities.
The Company has provided bank guarantees to a government customs agency in Argentina in respect of the temporary importation
of equipment into that country. At December 31, 2006, the guarantees amounted to $15,620 (2005 - $7,078).
The Company’s Oman operating entity has received income tax assessments for the 1994, 1995 and 1996 financial years of $3,700
(1,093 Omani Rials). Management considers these tax assessments to be excessive and without merit under Omani law and international
guidelines, and are therefore being contested. The Company’s external counsel engaged to appeal the tax assessments is of the
opinion that the Omani courts will overturn these tax assessments in due course. No amount has been accrued in the consolidated
financial statements regarding this issue.
The Company has commitments for office leases, with future minimum payments over the next five years as follows:
2007
2,237
2008
1,771
2009
1,500
2010
1,045
2011 and thereafter
1,915
12 Prior year amounts
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
2006 AR
$
3/30/07
4:09 PM
Page 49
49
The Company
Ensign Energy Services Inc. was incorporated on March 31, 1987 pursuant to the provisions of the Business Corporations Act (Alberta).
Pursuant to a prospectus, on December 15, 1987, the Company became a reporting issuer in the Province of Alberta.
Subsidiaries
The following table sets forth the principal operating subsidiaries of the Company, the percentage of shares owned, directly or indirectly,
by the Company and the jurisdiction of incorporation or continuance of the subsidiaries as of December 31, 2006.
Name of Subsidiary
Jurisdiction of Incorporation
or Continuance
Arctic Ensign Drilling Ltd.
Percentage of shares beneficially
owned or controlled by the Company
Northwest Territories
49%
Big Sky Drilling Inc.
Alberta
100%
Champion Drilling Inc.
Alberta
100%
Encore Coring & Drilling Inc.
Alberta
100%
Venezuela
100%
Alberta
100%
Ensign Drilling Inc.
Ensign International Energy Services Inc.
Australia
100%
Nevada
100%
Colorado
100%
California
100%
Colorado
100%
Gwich’in Ensign Oilfield Services Inc.
Hi-Calibre Industries Ltd.
Northwest Territories
49%
Alberta
100%
Alberta
100%
Montana
100%
Rockwell Servicing Inc.
Alberta
100%
Tri-City Drilling Inc.
Alberta
100%
Recent Acquisitions
January 2003
Acquired in Canada: the oilfield rental assets of Canadian Select Energy West, located in Whitecourt, Alberta.
November 2003 Acquired in Canada: Big Sky Drilling Ltd. (and its affiliated companies), which owned and operated eight drilling rigs
based in Oxbow, Saskatchewan.
November 2003 Acquired in Canada: Hi-Calibre Industries Ltd., a commercial welding services provider based in Brooks, Alberta.
December 2003 Acquired in Canada: 11 well servicing rigs from Crown Well Servicing Ltd.
January 2004
Acquired in Canada and the United States: 23 specialty coring/drilling rigs from Layne Christensen Canada Limited.
October 2004
Acquired in Canada: 11 camps and associated catering assets from Slave Lake Rentals & Contracting Ltd.
January 2005
Acquired Internationally: Servicios Petroleros Flint, C.A. and Flintco del Ecuador C.A., which operated 11 drilling rigs
and one workover rig in Venezuela and two workover rigs in Ecuador, from Flint South America, Inc.
April 2005
Acquired Internationally: three drilling rigs in Libya.
October 2005
Acquired in Canada: three coring/mineral rigs from Midnight Sun Drilling Co. Ltd.
November 2005 Acquired in the United States: Action Oil Field Services, Inc. which operated eight well servicing rigs in Colorado, from
Petro-Canada Resources (USA) Inc.
2006 AR
50
3/30/07
4:09 PM
Page 50
1 0 Ye a r F i n a n c i a l I n f o r m a t i o n
2006
2005
2004
1,807,230
1,520,724
1,059,494
646,017
489,312
282,806
Gross margin % of revenue
35.7%
32.2%
26.7%
Depreciation
80,921
74,917
50,956
Net income
341,284
169,665
118,849
Basic
$2.25
$1.12
$0.79
Diluted
$2.18
$1.09
$0.77
420,173
337,186
188,723
Basic
$2.77
$2.23
$1.25
Diluted
$2.69
$2.16
$1.23
325,483
247,696
138,091
63,162
(11,878)
14,209
–
–
–
1,107,605
771,902
649,740
36.3%
23.9%
19.6%
n.a.
n.a
n.a.
151,774,629
151,202,388
150,793,628
$18.39
$23.46
$12.55
($ thousands, except per share data and ratios)
Revenue
Gross margin
Net capital expenditures – excluding acquisitions
Working capital (deficit)
Long-term debt, net of current portion
Shareholders’ equity
Return on average shareholders’ equity
Long-term debt to equity
Weighted average common shares outstanding
Closing share price, December 31
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.
S h a r e Tr a d i n g S u m m a r y
High ($)
Low ($)
Close ($)
Volume
Value ($)
March 31
24.31
19.05
22.45
35,247,184
750,387,760
June 30
26.45
20.90
22.94
39,363,107
934,675,532
September 30
25.17
17.68
18.55
35,603,038
752,061,205
December 31
20.14
16.85
18.39
30,510,543
556,005,882
140,723,872
2,993,130,379
For the Three Months Ended
2006
Total
All per share data has been restated to reflect the 2-for-1 stock split effective May 2006.
2006 AR
3/30/07
4:09 PM
Page 51
2003 2003
2002 2002
2001 2001
2000 2000
1999 1999
1998 1998
1997 1997
928,960
651,768
767,669
672,041
372,322
418,919
517,500
245,082
153,443
221,319
186,017
98,240
127,999
158,240
26.4%
23.6%
28.8%
27.7%
26.4%
30.6%
30.6%
44,209
39,170
29,184
26,525
22,733
20,516
12,493
99,030
51,743
100,828
86,999
29,837
48,790
68,035
$0.66
$0.35
$0.69
$0.60
$0.21
$0.36
$0.55
$0.65
$0.35
$0.67
$0.59
$0.21
$0.36
$0.54
173,390
100,064
132,087
105,903
62,526
73,053
96,716
$1.16
$0.68
$0.90
$0.73
$0.44
$0.54
$0.78
$1.13
$0.67
$0.88
$0.71
$0.43
$0.53
$0.76
101,504
63,060
71,033
45,826
45,380
(2,175)
50,437
(13,309)
(33,598)
76,560
51,817
37,755
43,637
29,186
–
7,689
–
14,938
29,805
44,823
26,518
563,659
475,476
432,059
338,654
257,168
261,901
148,592
19.1%
11.4%
26.1%
29.2%
11.5%
23.8%
58.3%
n.a.
0.02:1
n.a.
0.04:1
0.12:1
0.17:1
0.18:1
150,009,718
148,394,304
147,346,804
145,639,716
142,502,574
135,489,762
123,694,044
$10.30
$8.33
$6.68
$9.25
$5.59
$2.25
$5.77
High ($)
Low ($)
Close ($)
Volume
Value ($)
March 31
14.79
11.92
13.48
24,014,000
329,546,052
June 30
15.40
12.03
14.79
22,921,862
317,136,570
September 30
20.13
14.50
19.81
22,010,646
379,211,987
December 31
24.25
16.57
23.46
25,781,598
519,432,840
94,728,106
1,545,327,449
For the Three Months Ended
51
2005
Total
2006 AR
3/30/07
4:09 PM
Page 52
52
CANADIAN
OILFIELD SERVICES
Rick Simonton
Jason Hager
Bob Apps
Senior Vice President Canadian Drilling
Technical Sales Representative
Bryan Toth
Joe Bonaventura
Senior Vice President Canadian Well
Services
John Batiuk
Director of Supply Chain Management
Larry Gates
Randy Mutch
Director of Information Technology
Alex Halat
Pam Ramotowski
Director of Human Resources
Gary Hoffman
Grant Clearwater
Manager, Taxation
Tino Pollock
Dave Fyhn
Manager, Administration
Cindy Hames
Shelley Hutchinson
Director of Personnel
Manager, Credit
Walter Hopf
Kimberley Reid
Drillers Training Manager
Compliance Manager
Hank vanDrunen
Trevor Russell
Maintenance Manager
Divisional Controller
Arnet Pachal
Canadian Drilling
Vice President Marketing
Paul Fleetwood
Manager, Procurement Strategies
Champion Drilling
Darryl Maser
General Manager
Matt Schmitz
Operaions Manager
Paul Fitton
Drilling Superintendent
Todd Fritz
Dave Green
Gerald Huber
Preston Eklund
Transportation Superintendent
Dean Ulmer
Safety and Personnel
Rhian Schroeder
Chief Accountant
Ensign Drilling
Bob Zanusso
Vice President and General Manager
Dave Surridge
Operations Manager
Wayne Kipp
Big Sky Drilling
Senior Vice President Operations
Brian Chicoine
Paul Meade-Clift
General Manager
Vice President
Engineering, Procurement and Construction
Rick Mann
Bruce Freebairn
Mike Smith
General Manager, Capital Projects
Rick Dedels
Senior Engineer
Guy Poirier
Operations Manager
Derek Smith
Safety Coordinator
Roch Currier
Operations Manager
Wayde Barker
Manfred Behnke
John Bonell
Don Juska
Ron Pettapiece
Dale Leitner
Operations Engineer
Ed Mattie
2006 AR
3/30/07
4:09 PM
Page 53
53
Mike Noade
Jane Collins
Edmonton Station
Chief Accountant
Philip Kent
Michael L’Hirondelle
Rockwell Servicing
Equipment Manager
John Hogan
Safety Coordinator
Dennis Steinhubl
Safety Coordinator
Donna Conley
Chief Accountant
Lyle Aubin
Station Manager
Doug Somers
Field Superintendent
Art Brunet
Estevan Station
Northwest Area Manager
Patrick Renauld
Doug Callbeck
Station Manager
Southeast Area Manager
David Blakeney
Gary Bennett
Tri-City Drilling
Sales and Marketing Director
Rick VanEe
Clint Russell
General Manager
Harvey Danyluk
Daryl Sutherland
Ian Mossop
Scott Whitten
Lloydminster Station
Darin Ramsell
William Kidd
Roger Snider
Senior Field Safety Coordinator
Station Manager
Peter Ens
Diane Massey
Miles Kosteriva
Equipment Coordinator
Chief Accountant
Grande Prairie Station
Jan Badin
Safety and Training Coordinator
Ardmore Station
Kevin Rudell
Cameron Ball
Station Manager
Brett Taylor
Field Sales Representative
Jason Pollom
Darwin Dean
Station Manager
Tom Connors
Tony Janz
Red Deer Station
Doug Lane
Randy Middaugh
R.J.Toth
Operations Manager
Station Manager
Glenn Thiessen
Richard Norbert
Abe Shihinski
Project Manager, Oil Sands
Frank Beaton
Ron Wooldridge
Opsco Energy Industries
Scott Haggart
Brooks Station
Maurice Fournier
Dale Doering
Station Manager
Vice President Administration and Finance
Vern Dornian
Buzz Bradley
Vice President Marketing and Business
Development
Trent Jamieson
Senior Sales Representative
Bob Dear
Norm Utz
Transportation Superintendent
Wayne Lawson
2006 AR
3/30/07
4:09 PM
Page 54
54
Craig Delaney
Wireline Manager
Michael Heber
Manufacturing Manager
Randy Reschke
UNITED STATES
OILFIELD SERVICES
Tom Schledwitz
Senior Vice President United States
Operations
Drilling Manager
Tom Stoddard
Drilling Manager
K.L.Tipps
Production Testing Manager
Steve Hunt
Drilling Manager
Richard Klymok
Controller
Mel Curtis
Tuss Erickson
Equipment Manager
Dale Fuller
Director Health, Safety and Environment
Perry Jundt
Sales Representative
Evelyn Pottenger
Steve Halladay
Manager, Human Resources
Sales Representative
Jim Bucek
Safety Coordinator
Don Johnson
Area Manager
Enhanced Petroleum Services
Jim McCathron
Jack Houston
Area Manager
Vice President
Larry Swisher
Randy Fasick
Area Manager
General Manager, Enhanced Drill Systems
Hugh Giberson
Ralph Cock
Senior Drilling Manager
Operations Manager,
Don Erickson
Jason Darrow
General Manager,
Fred Slobodian
Station Manager,
Chandel Equipment Rentals – Whitecourt
Chris Klovan
Sales and Marketing Representative
Kevin Lauritsen
Drilling Manager
Moe Felman
Drilling Manager
Steve Grimes
Drilling Manager
Tony Hale
Drilling Manager
Bob Heil
Drilling Manager
Rentals Co-ordinator,
Chandel Equipment Rentals – Oxbow
Tom Henrich
Jeff Miton
Bruce Ladd
Safety Coordinator
Drilling Manager
Hi-Calibre Industries
Jim Clow
General Manager
2006 AR
Harry Olds
Drilling Manager
Ensign United States Drilling
(California) Inc.
Matt Rohret
Area Manager
Larry Lorenz
Operations Manager
Ken Keiser
Drilling Manager
Kerry Fladeland
Bryan Watts
Jimmy Chon
Chief Accountant
Bill Roper
Manager, Well Services
Guy Hass
3/30/07
4:09 PM
Page 55
55
INTERNATIONAL
OILFIELD SERVICES
Ken Picard
Vice President and Chief Executive Officer
– Australasia/Middle East/Africa
Neil Dean
Co-Area Manager – Libya
Dean Hills
Area Manager – Oman and Qatar
Ed Milne
Gene Gaz
Area Manager – Thailand
Vice President of International Oilfield
Services – Australasia/Middle East/Africa
Quentin Robson
Mike Nuss
Adrian Dragomirescu
Vice President of International Oilfield
Services – Latin America
Manager, Oil and Gas Division, Australia
Tony Belgrove
Manager, Coal Seam Methane and Well
Servicing Division, Australia
International Manager, Procurement and
Supply
Australasia/Middle East/Africa
Gerry West
Operations Manager – Southeast Asia,
Australia and New Zealand
Geoff Pickford
Operations Manager – Middle East and
Africa
John Bushell
Manager, Contracts and Commercial
Richard Paech
Manager, Maintenance
Matt Hutchins
Manager, Supply
PROJECT FLAGSHIP –
ERP IMPLEMENTATION
Kirk Schroter
Project Manager
Yvonne Covey
Financial Subject Matter Expert
Co-Area Manager – Libya
James Van Rooyen
Charlie Brown
Drilling Superintendent – Gabon
Andrew Dolman
Financial Controller
Latin America
Ricardo Lopez Olaciregui
Area Manager – Argentina
Paul Thompson
Area Manager – Venezuela
Mauricio Correa
Business Development Manager
– Latin America North
Luis Bonsembiante
Controller
David Grant
Manager, Health, Safety and Environment
David Kerr
Manager, Human Resources
2006 AR
3/30/07
4:09 PM
Page 56
56
Big Sky Drilling Ltd.
#1 Highway 18
Oxbow, SK SOC 2B0
Telephone: (306) 483-5132
Facsimile: (306) 483-2937
Suite 777, 1700 Broadway
Denver, CO 80290 USA
Telephone: (303) 292-1206
Facsimile: (303) 292-5843
Champion Drilling Inc.
Ensign United States Drilling
(California) Inc.
1 Tree Road, P.O. Box 1090
Brooks, AB T1R 1B9
Telephone: (403) 362-4400
Facsimile: (403) 362-6165
Encore Coring & Drilling Inc.
1345 Highfield Crescent S.E.
Calgary, AB T2G 5N2
Telephone: (403) 287-0123
Facsimile: (403) 243-6158
Whitehorse Office
#13 MacDonald Road
Whitehorse, YT Y1A 4L1
Telephone: (867) 633-3070
Facsimile: (867) 633-5758
Ensign Drilling Inc.
1000, 400 – 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 266-3596
Nisku Operations Centre
2000 Fifth Street
Nisku, AB T9E 7X3
Telephone: (780) 955-8808
Facsimile: (780) 955-7208
Grande Prairie Office
14011 – 97th Street
Grande Prairie, AB T8V 7B6
Telephone: (780) 532-5810
Facsimile: (780) 532-2802
Fort Nelson Office
4701 46 Avenue
Box 2408
Fort Nelson, BC V0C 1R0
Telephone: (250) 774-4545
Facsimile: (250) 774-4515
Tri-City Drilling Inc.
1000, 400 – 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 266-3596
Nisku Operations Centre
2000 Fifth Street
Nisku, AB T9E 7X3
Telephone: (780) 955-3311
Facsimile: (780) 955-3301
2006 AR
7001 Charity Avenue
Bakersfield, CA 93308 USA
Telephone: (661) 589-0111
Facsimile: (661) 589-0283
Edmonton Office
Telephone: (780) 462-4730
Facsimile: (780) 461-9676
Estevan Office
Telephone: (306) 634-5522
Facsimile: (306) 634-3238
Grande Prairie Office
Telephone: (780) 539-6736
Facsimile: (780) 539-1993
Lloydminster Office
Telephone: (780) 875-5278
Facsimile: (780) 875-6402
Suite 777, 1700 Broadway
Denver, CO 80290 USA
Telephone: (303) 292-1206
Facsimile: (303) 292-5843
Red Deer Office
Telephone: (403) 346-6175
Facsimile: (403) 343-6061
Ensign Energy Services
International Limited
Level 1,5 Elizabeth Street
Sydney, NSW 2000 Australia
Telephone: 61 2 9223 3755
Facsimile: 61 2 9223 6821
Adelaide Office
15 -17 Westport Road
Elizabeth West
Adelaide, South Australia 5113
Australia
Telephone: 61 8 8255 3011
Facsimile: 61 8 8252 0272
Ensign International
Energy Services Inc.
Suite 210, 15333 JFK Boulevard
Houston, TX 77032 USA
Telephone: (281) 227-7618
Apartado Postal 214
El Tigre, Edo. Anzoategui, Venezuela
Telephone: 58 (283) 235-3752
Facsimile: 58 (283) 235-3752
1000, 400 – Fifth Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 265-6361
Facsimile: (403) 262-0026
Ardmore Office
Telephone: (780) 826-6464
Facsimile: (780) 826-4305
Brooks Office
Telephone: (403) 362-3346
Facsimile: (403) 362-6069
285175 Kleysen Way, RR#5
Calgary, AB T2P 2G6
Telephone: (403) 272-2206
Facsimile: (403) 272-6414
Enhanced Petroleum Services
Partnership
1000, 400 – 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 260-5416
Facsimile: (403) 264-9376
Edmonton Office
8108 McIntyre Road
Edmonton, AB T6E 5C4
Telephone: (780) 469-9236
Facsimile: (780) 461-9008
Oxbow Office
#1 Highway 18
Oxbow, SK SOC 2B0
Telephone: (306) 483-5132
Facsimile: (306) 483-2937
Red Deer Office
5398 – 39139 Hwy.2A
Red Deer, AB T4S 2B3
Telephone: (403) 314-1564
Facsimile: (403) 346-3099
Whitecourt Office
5907 – 45th Avenue
Whitecourt, AB T7S 1P2
Telephone: (780) 778-6101
Facsimile: (780) 778-6184
Hi-Calibre Industries Ltd.
Box 1264
Brooks, AB T1R 1C1
Telephone: (403) 501-0102
Facsimile: (403) 501-0191
3/30/07
1:19 PM
Page 2
700
2000
500
600
1500
400
500
350
3.0
2.5
300
2.5
2.0
250
400
300
200
200
150
2.0
1.5
1.5
1000
300
200
500
100
0
0
02
03
04
05
06
03
04
05
06
0
02
03
04
05
06
0.0
02
03
04
05
06
0.5
0.5
50
0
02
1.0
1.0
100
100
0.0
02
03
04
05
06
02
03
04
05
Revenue
Gross Margin
Net Income
($ millions)
($ millions)
($ millions)
($ millions)
(Basic – $)
(Basic – $)
06
Directors
Canada
United States
International
11
38
1,700
4,000
64
9
227.0
114
186
505.7
2,100
Drilling Rigs (1)
Employees
Service Rigs/
Workover Rigs/
Coiled Tubing Units
1,074.5
2006 Revenue
($ millions)
Jack Donald 2
N. Murray Edwards
Robert H. Geddes
James B. Howe 1, 3
Donald Jewitt 1, 3
Len Kangas 2
Independent
Businessman
President,
President and COO,
Independent
Businessman
Independent
Businessman
Committee Members
United States
Contract Drilling
Ensign Drilling
Tri-City Drilling
Champion Drilling
Big Sky Drilling
1 Audit
and Nominations
3 Compensation
International
Camps & Catering
Well Servicing
Manufacturing and
Production Services
Canada (1)
United States
International (2)
0-1,000
26
2
–
Rig Depth (metres)
1,001-2000
2,001-3000
44
53
10
15
6
12
Canada
United States
Slant Single
8
–
Skid Single
2
–
Head Office
N. Murray Edwards
Symbol: ESI
1000, 400 - 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 262-8215
Ed Kautz
Bankers
ATB Financial
Bank of Montreal
Notice of
Annual Meeting
Glenn Dagenais
Oman
3,001-4000
37
25
15
4,001-5,000
3
9
5
5,001+
–
2
8
Thailand
Venezuela
Bruce Moyes
Gabon
Indonesia
Mobile Single
67
–
Mobile Double
18
–
Medium &
Heavy Double
8
11
Auditors
Rob Wilman
Environment
Australia
Coiled
Tubing Units
11
–
President and CEO,
Robert H. Geddes
Total
114
11
Barth Whitham
Independent
Businesswoman
Vice Chairman
Libya
ADR™
23
1
1
Gail Surkan
Independent
Businessman
Selby Porter
Canada
United States
Total
186
64
47
John Schroeder 1, 3
Chairman
Contract Drilling
Kenneth J. Skirka 2
Vice Chairman,
Selby Porter
Legal Counsel
of Canada
on May 23, 2007, at 3:00 pm MT
Leigh Kelln
Argentina
New Zealand
Suzanne Davies
2006 Annual Report
Ensign Energy Servies Inc.
Corporate Profile
demands of the oil and natural gas industry. We also
2006 Annual Report
have contributed to advancements in drilling and well
TSX:ESI
Head Office
1000, 400 - 5th Avenue S.W.
Calgary, AB T2P 0L6
Telephone: (403) 262-1361
Facsimile: (403) 262-8215
Email:
Website:
www.ensignenergy.com
1
2
6
10
20
34
36
37
37
Highlights
Operations Review
Auditors’ Report
38
41
47
48
48
50
53
54
Notes to Consolidated Financial Statements

2006 Annual Report - Ensign Energy Services Inc.

Transcription

Similar documents

Case Study - Precision Drilling

Certificate of Registration Xact Spec Industries LLC

Certificate of Registration Xact Spec Industries LLC

Capstar Drilling has five-year newbuild rig plan

Rathole Services - Express Energy Services

· ··Certi!icati~"Botty.

Drilling Rigs Rhino Speed-Star 450 Series Drilling Rigs Rhino

- Atlas Copco

canadian association of oilwell drilling contractors

CAODC Fall Conference Drilling Division, Nisku September 12, 2013