Q1 Report Three Months Ended March 31, 2023

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following Management's Discussion and Analysis ("MD&A") of Essential Energy Services Ltd. ("Essential" or the "Company") is for the three months ended March 31, 2023.

This MD&A should be read in conjunction with Essential's March 31, 2023 unaudited condensed consolidated interim financial statements and the audited annual consolidated financial statements and MD&A included in Essential's 2022 Financial Report for the year ended December 31, 2022. No update is provided where an item is not material or where there has been no material change from the discussion in the aforementioned annual MD&A. Readers should carefully read the sections regarding "Forward‐Looking Statements and Information" and "Non‐IFRS and Other Financial Measures" in this report. All references to dollar amounts are to Canadian dollars, except where otherwise indicated. This MD&A was prepared effective May 4, 2023 and was approved and authorized for issuance by the Board of Directors of the Company on May 4, 2023.

Essential was incorporated under the Business Corporations Act (Alberta). The common shares ("Shares") of the Company trade on the Toronto Stock Exchange ("TSX") under the symbol ESN. Additional information regarding Essential, including its Annual Information Form ("AIF") for the year ended December 31, 2022, can be found under Essential's profile on SEDAR at www.sedar.comor the Company's website at www.essentialenergy.ca.

SELECTED INFORMATION

(in thousands of dollars except per share and percentages)

Revenue

Gross margin

Gross margin %

EBITDAS (1)

EBITDAS % (1)

For the three months ended

March 31,

20232022

$

45,862

$

37,741

8,858

6,021

19%

16%

5,823

3,615

13%

10%

Net income (loss)

$

2,035

$

(3,921)

Per share ‐ basic and diluted

$

0.02

$

(0.03)

Operating hours

Coiled tubing rigs

9,654

10,016

Pumpers

12,392

13,014

As at March 31,

2023

2022

Working capital (1)

$

49,011

$

45,235

Cash

1,778

3,675

Long‐term debt

3,100

2,600

1 Non‐IFRS and Other Financial Measures. Refer to "Non‐IFRS and Other Financial Measures" section for further information.

ESSENTIAL ENERGY SERVICES LTD. 1

INDUSTRY OVERVIEW

Commodity prices were significantly lower in the first quarter of 2023 compared to the same prior year quarter. The price of oil (Western Texas Intermediate "WTI") averaged US$76 per barrel in the first quarter of 2023, compared to an average of US$95 per barrel in the first quarter of 2022. Canadian natural gas prices ("AECO") averaged $3.09 per gigajoule during the first quarter of 2023, compared to an average of $4.54 per gigajoule during the comparative prior year quarter.

First quarter 2023 industry well completions in the Western Canadian Sedimentary Basin ("WCSB") were 2%(a) ahead of the same prior year quarter. High inflation rates(b) continued to have a negative impact on cost structures in the oilfield services sector. The sector continued to be challenged by labour shortages during the first quarter of 2023.

HIGHLIGHTS

Essential's revenue for the three months ended March 31, 2023 was $45.9 million, 22% higher than the same prior year quarter. First quarter EBITDAS(1) was $5.8 million, $2.2 million higher than the same prior year quarter.

Key operating highlights included:

  • Essential Coil Well Service ("ECWS") first quarter 2023 revenue was $26.4 million, 34% higher than the same prior year quarter due to improved customer pricing, offset partially by slightly lower activity. ECWS recorded gross margin of $5.5 million, $2.7 million higher than the same prior year quarter.
  • Tryton first quarter 2023 revenue was $19.5 million, 8% higher than the same prior year quarter due to higher U.S. and Canadian conventional tool activity. Tryton recorded gross margin of $3.7 million, $0.3 million higher than the same prior year quarter.

During the first quarter of 2023, Essential acquired and cancelled 1,106,500 Shares under its Normal Course Issuer Bid ("NCIB") at a weighted average price of $0.38 per share for a total cost of $0.4 million.

Cash and Working Capital

At March 31, 2023, Essential continued to be in a strong financial position with long‐term debt, net of cash(1) of $1.3 million and working capital(1) of $49.0 million. On May 4, 2023, Essential had $3.8 million of long‐term debt, net of cash(1).

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  1. Source: Daily Oil Bulletin May 3, 2023.
  2. Source: Bank of Canada - Consumer Price Index.

ESSENTIAL ENERGY SERVICES LTD. 2

OVERVIEW OF ESSENTIAL

Essential safely provides completion, production and wellsite restoration services to E&P companies primarily in western Canada. Services are offered through coiled tubing, fluid and nitrogen pumping, and the sale and rental of downhole tools and equipment.

Essential Coil Well Service

Coiled Tubing Rigs - Essential operates one of the largest active coiled tubing well service fleets in Canada. Coiled tubing rigs provide completion, stimulation and work‐over services on long‐reach horizontal wells. Essential's coiled tubing rigs are typically equipped to work with coiled tubing that is 2 ⅜ inches in diameter and have a depth capacity of up to 8,000+ meters when the coil is transported on the rig and up to 9,400 meters if the coil is transported separately. Essential's coiled tubing fleet is primarily focused on 5,500+ meter deep horizontal completion well service programs. Essential operates masted and conventional coiled tubing rigs.

Coiled tubing rigs are typically hired by an E&P company for the completion of horizontal wells in the following scenarios:

  • Pre‐Fracturing - Coiled tubing is used to complete pre‐fracturing confirmation runs and/or place the tools used to isolate a portion of the wellbore during third‐party oilfield service fracture stimulation.
  • Fracturing - Dependent on the design of the customer's fracturing program, coiled tubing can be used in conjunction with a third‐party fracturing company and possibly other service providers to frac‐thru‐coil, complete annular fracturing, convey and actuate sliding‐sleeve tool assemblies or perform tubing conveyed plug‐and‐perf operations in the well.
  • Post‐Fracturing - Once the fracturing has been completed, coiled tubing is used to complete post‐fracturing confirmation runs, clean‐outs and mill‐outs/drill‐outs of downhole completion systems. Coiled tubing can also be used for work‐overs and to convey third party instrumentation and evaluation tools to confirm the results of the fracture treatment.

Pumpers - Coiled tubing rigs are packaged with and supported by a fleet of fluid and nitrogen pumpers. Fluid pumpers are used to maintain downhole circulation, provide ancillary acid/solvent treatments and inject friction reducers and other chemicals into the wellbore. Fluid pumpers also perform stand‐alone pump‐down work independent of the coiled tubing fleet. Nitrogen pumpers are used to pump inert nitrogen gas into the wellbore for stimulation or work‐over operations and to purge the coiled tubing of fluids once the coiled tubing work has been completed.

Tryton

Essential's Tryton segment provides a wide range of downhole tools and rental services across the WCSB and in the U.S. for completion, production and wellsite restoration of oil and natural gas wells, including:

  • Conventional Tools - Conventional downhole tools are used in production, abandonment and wellsite restoration activities. Tryton offers a wide range of products, including downhole packers, tubing anchors, bridge plugs, sub‐surface safety valves, cement retainers and related accessories.
  • Tryton Multi Stage Fracturing System ("MSFS®") - Tryton MSFS® tools are used for horizontal well completions, allowing producers to isolate and fracture intervals of the horizontal section of a well separately and continuously. Tryton offers MSFS® tools that provide customers with a choice of completion technologies to use on their horizontal well completion program. The completion technology selected varies based on wellbore characteristics and client preference. Revenue and cost parameters of each completion technology vary depending on the nature of the tools used and the services provided:
    • Ball & Seat - Tryton's Ball & Seat system uses open hole packers and sleeves, which are opened in sequential order by dropping progressively larger balls through a liner, to isolate and fracture each zone along the non‐cased horizontal leg of a well. The number of zones, or "stages", that can be fractured using a Ball & Seat system is limited by the size specifications of the balls and seats used.

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  • MSFS is a registered trademark of Essential Energy Services Ltd.

ESSENTIAL ENERGY SERVICES LTD. 3

    • Composite/Dissolvable Bridge Plugs - Bridge Plugs, typically used in "plug‐and‐perf" completion programs, provide customers the ability to fracture an unlimited number of stages in the horizontal leg.
  • Rentals - Tryton Rentals offers oilfield service equipment, including specialty drill pipe and other tools and handling equipment.

RESULTS OF OPERATIONS

For the three months ended

(in thousands of dollars, except

March 31,

2023

2022

per share amounts)

Revenue

$

45,862

$

37,741

Operating expenses

37,004

31,720

Gross margin

8,858

6,021

General and administrative expenses

3,035

2,406

EBITDAS (1)

5,823

3,615

Depreciation and amortization

4,063

4,186

Share‐based compensation (recovery) expense

(237)

3,039

Other (income) expense

(265)

93

Finance costs

227

218

Net income (loss)

$

2,035

$

(3,921)

Net income (loss) per share

Basic and diluted

$

0.02

$

(0.03)

ESSENTIAL ENERGY SERVICES LTD. 4

SEGMENT RESULTS - ESSENTIAL COIL WELL SERVICE

For the three months ended

March 31,

(in thousands of dollars, except percentages, hours and fleet data)

2023

2022

Revenue

$

26,389

$

19,679

Operating expenses

20,873

16,903

Gross margin

$

5,516

$

2,776

Gross margin %

21%

14%

Operating hours

Coiled tubing rigs

9,654

10,016

Pumpers

12,392

13,014

Active equipment fleet(i)

Coiled tubing rigs(ii)

11

12

Fluid pumpers

11

11

Nitrogen pumpers

4

4

Total equipment fleet(i) (iii)

Coiled tubing rigs

15

25

Fluid pumpers

11

13

Nitrogen pumpers

5

6

  1. Fleet data represents the number of units at the end of the period.
  2. Active equipment fleet was reduced in the first quarter of 2023 for one Generation I coiled tubing rig that was removed from service.
  3. Total equipment fleet was reduced for equipment which was no longer expected to be reactivated or was sold.

First quarter 2023 ECWS revenue was $26.4 million, the highest since the third quarter of 2018 and 34% higher than the same prior year quarter. Customer price increases, combined with the nature of work performed, resulted in significantly higher revenue per operating hour when compared to the same prior year quarter. ECWS activity was slightly lower than the same prior year quarter due to a slow start in January. Industry well completions were only 2%(a) higher than the same prior year quarter.

Gross margin for the first quarter of 2023 was $5.5 million, $2.7 million higher than the same prior year quarter due to improved customer pricing, partially offset by higher operating costs. Cost inflation related to wages, repairs & maintenance and inventory resulted in higher operating costs. Gross margin percentage was 21%, a significant improvement compared to 14% in the same prior year quarter.

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  1. Source: Daily Oil Bulletin May 3, 2023.

ESSENTIAL ENERGY SERVICES LTD. 5

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Essential Energy Services Ltd. published this content on 04 May 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 May 2023 22:38:04 UTC.