Ensign Energy reports 45 per cent drop in Q1 earnings

CALGARY — Ensign Energy Services Inc. is starting to see demand pick up for powerful, high-tech rigs geared toward working on deep, complex oil and gas wells.

CALGARY — Ensign Energy Services Inc. is starting to see demand pick up for powerful, high-tech rigs geared toward working on deep, complex oil and gas wells.

“I think the whole industry is recognizing the bifurcation between the old style rigs and new style rigs,” Bob Geddes, president of the Calgary-based oilfield services firm, said Monday.

“The other thing that’s really coming into play is you cannot seem to have enough horsepower or pumps on a rig anymore.”

Ensign (TSX:ESI) reported a 45 per cent drop in first-quarter earnings Monday to $40 million, or 26 cents per share, compared with $72.7 million, or 46 cents per share, during the same quarter a year ago.

Revenue slipped to $352.8 million, down from $400.4 million.

Although its rigs in Canada, the United States and overseas were busier during the first quarter of 2010 compared to the year-earlier period, the pricing environment has not been favourable, said chief financial officer Glen Dagenais.

“Operating days were up across all segments of the company compared with the first quarter of 2009,” he told analysts on a conference call.

“However, revenue was negatively impacted by weaker pricing in North America, where there remains an oversupply of oilfield services equipment.”

Currently only about 15 per cent of Ensign’s fleet in Canada is running, as the industry is in the midst of “spring breakup,” when the ground is too mushy and muddy to support heavy drilling equipment.

After breakup, however, Ensign is “fully booked” on its oil-focused rigs that can drill 3,000 metres or deeper, said Geddes.

Most of those are in oil pools like the Bakken in Saskatchewan and the Cardium in Alberta, which require more complex drilling techniques.

“In those cases, we’ve been able to push higher day rates coming out of breakup for these style of rigs,” Geddes said.

Ensign’s well services segment, which focuses on heavy oil areas in Alberta and Saskatchewan, has been able to achieve a five per cent price increase for that business line, he added.

It also sees “good prospects” in unconventional shale plays like the Horn River and Montney in northeastern British Columbia, and has two rigs in both the Haynesville and Marcellus formations in the United Sates.

While deep-drilling rigs should continue to enjoy strong pricing going forward, smaller ones that drill shallower wells — at 1,500 metres or less — are “getting battered,” Geddes said.

“There’s way too many of those units around … So the pricing is just disastrous on those.”

In a statement Monday, Ensign said it’s remaining cautious, despite some “encouraging signs” in the global economy.

“The demand for energy services is highly dependent on general economic conditions. To date, improvements in the energy sector have been primarily based on growing confidence in higher and stable crude oil prices over the past few quarters,” Ensign said.

“While average natural gas prices have trended upward slightly from one year ago, this increase has been insufficient to stimulate oilfield service activity, other than for plays with exceptional economics or based on other factors such as holding land positions.

UBS analyst Chad Friess said the first-quarter results were more or less in line with expectations, and echoed Ensign’s cautious outlook.

“In the absence of improved natural gas prices, we believe the U.S. rig count is likely to plateau or slightly decline over the next few quarters,” he wrote in a note to clients.

“Similarly in Canada, a better than expected Q1 will be a tough act to follow for the rest of the year, should natural gas prices stay weak.”

Ensign shares rose 20 cents to $13.51 on the Toronto Stock Exchange on Monday.

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