Western Energy Services (WRG) gets it's chance to move up

    On November 9 a small oil drilling service reported it's results and they did not disappoint it's shareholders.On the other hand, the price did not barely budge.However a stock that was very little watched suddenly had more admirers (including this blog).It showed 40 to 50% increases in all performance measurements over the third quarter of 2016.This has been done with only a slight improvement in the price of oil.WRG's ace in the hole seems to be that it has a lot of new and modern technological equipment.Investors will be watching to see if it can repeat it's performance in the next quarter which should be a slower quarter traditionally with the cold weather.       

Financial Performance   

In the third quarter operating revenue increased by $20 million or by 67% to $51 million.Both drilling and production  services revenues were up.There was higher utilization of equipment in both segments.The increase in utilization was partly due to the quality of WRG equipment.In addition, two rigs were on long term contracts and a 4% increase in hourly rates.More importantly adjusted EBITDA increased from $.9  in 2016 to $6.9 million.This was combined with a slight increase in  administrative expenses of $.6 million to $5.4 million.And there was an increase in capital expenditures from $2.3 million in Q3 2016 to $6.3  million in 2017.

Finances 

Western Services got a new $215 million second lien from Aimco in return for 7 million common warrants at an exercise price of $1.25 per share.Also they made a private placement  of 9.1 million common shares to Aimco at a price of $1.25 for gross proceeds of $11.4 million.Lastly they completed a number of amendments to their Revolving Facility from $50 to $70 million.Still their property and equipment was valued at $720 million down from $663 million in 2016.

Year to Date

Performance for 9 months was even better than for Q3.Operating revenues increased 112% from $75 million to $160 million.Drilling revenue was up 142% and production services up 54%.Utilization of equipment was 36% compared to 14% in 2016.While adjusted EBITDA was $25.6 million up from $2.3 million in 2016.And administrative expenses was only up 12% over 2016.

What's Next? 

WRG is not expecting another big jump in oil prices in 2018.But this blog sees oil prices trending upwards in 2018.Both drilling and production services should be up over that seen in 2017. Adjusted EBITDA is likely to hit $35 million for the year.That will make e.p.s at about $.35 per share and the P/E ratio at only 3 to 4.This is a good buy with only a marginal increase in the price of oil.This blog suggests that some of these new earnings be  used to pay down the $215 million Aimco second lien.And if possible convert it to convertible debenture at a lower interest rate.Good results from the next quarter might send WRG to the $1.40 to $1.50 price level.But news on paying back part of the second lien will also help it get to $1.50

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