CALGARY, Alberta (Reuters) - Ensign Energy Services Inc’s (ESI.TO) fourth-quarter profit jumped 13 percent as tax and stock-based compensation gains made up for a downturn in Canadian drilling, the company said on Monday.
Ensign, Canada’s biggest oil field services firm by stock-market value, also said its rigs were busier than expected in the early part of 2008, but cautioned that may not last through the year.
Canada’s energy sector enjoyed record drilling in 2006 as the industry added rigs to the overall fleet. But activity dropped off last year as natural gas prices weakened and Alberta proposed an increase in royalties, leading producers to cut back on spending.
“We believe Canada still has some pain to get through in all areas of the oil field services spectrum as the oversupply gets rationalized through (mergers) and other activity,” Ensign President Bob Geddes told analysts.
Gas prices have surged so far this year, however, and oil prices are near record highs above $100 a barrel, benefiting operations in Ensign’s U.S. and international divisions. Revenue from those units combined surpassed Canadian sales for this first time in 2007.
“Obviously our diversity strategy, which started 10 years ago, has now proven to be very timely as the Canadian market continues to have its challenges,” Geddes said.
Ensign said it expects reduced activity for the next several quarters before the business recovers in Canada. Meanwhile, finding skilled crews to man the rigs is proving difficult, executives said.
Ensign, one of several energy, industrial and sports concerns that count Calgary financier Murray Edwards as a major shareholder, earned C$72.6 million ($72.6 million), or 47 Canadian cents a share, up from a year-earlier C$63.9 million, or 41 Canadian cents a share.
Profit was boosted by a C$15.1 million stock-based compensation recovery, and a gain of C$14.2 million to account for lower future Canadian income tax rates.
Revenue fell 8 percent to C$388 million, due mostly to slower activity at its domestic operations, it said.
Ensign stock was one of few gainers on Monday, when global financial liquidity fears forced markets sharply lower. But by end of the session, Ensign got pulled 43 Canadian cents, or 2 percent, lower to close C$17.52 on the Toronto Stock Exchange.
Ensign operated 160 drilling rigs in Canada in the fourth quarter, down 2 percent from a year earlier. Its Canadian business is currently running at 70 percent capacity, Geddes said.
“Crews were the constraint this winter,” he said. “Rates were reasonable, but down 20 percent year-over-year for the quarter.”
Rig rates are expected to be pressured this summer as an oversupplied oil services sector competes for less work in Canada, he said.
The company operated 76 rigs in the U.S. Rocky Mountains and California regions at the end of 2007. Revenue from U.S. operations rose 8 percent in the fourth quarter as use of the company’s rigs averaged about 90 percent, it said.
Additional reporting by Jonathan Spicer; Editing by Peter Galloway