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Good morning, ladies and gentlemen. Welcome to the Essential Energy Services Limited First Quarter Results Conference Call and Webcast.I would now like to turn the meeting over to Ms. Karen Perasalo, VP, Investor Relations. Please go ahead, Ms. Perasalo.
Thank you, Valerie. Good morning, and thank you for joining our first quarter conference call.With me on the call today are Garnet Amundson, President and CEO; Jeff Newman, Senior VP, Business Development; and Allan Mowbray, CFO. This morning, will give you an overview of our first quarter results, speak to the outlook and open the line for questions. In this conference call, we will be discussing financial measures, including certain non-IFRS financial measures such as EBITDA. Please see our May 8, 2018, first quarter news release for definitions of these terms.Today's call may include forward-looking information. Such information is given as of the date of this call and involve risks and uncertainties. A number of factors and assumptions were used to formulate such statements. Actual results could differ materially, and there can be no assurance of future performance or market impacts. For additional information with respect to forward-looking statements, factors and assumptions, refer to our May 8, 2018, first quarter news release. In this call, we will refer to Essential Coil Well Service as ECWS.I will now turn the call over to Garnet.
Thank you, Karen. Good morning, everyone. Yesterday, we were pleased to report our first quarter results with revenue of $60 million and EBITDAS of $9.1 million. Revenue and activity both showed improvement from the Q1 period last year. Our results were also a welcome improvement from the last quarter of 2017.Strong activity resulted in higher revenue in ECWS and similar revenue in Tryton compared to Q1 '17. Revenue gains were offset by operating costs resulting in margin compression in ECWS. Tryton's gross margin percent was similar to the prior quarter.I continue to reiterate that pricing increases are required in our industry to offset increased labor, fuel and other operating costs. Essential's debt at March 31, 2018, was $32 million, which is an expected increase from $18 million at the end of 2017. The increase was primarily due to funding working capital. Accounts receivable grew at an active first quarter, which continued right up until the end of March and our inventory increased.Our working capital at the end of the quarter was $70 million, more than twice the amount of our debt.Yesterday, we reported $29 million of debt. We expect our debt will decline from today's reporting date through to the end of the second quarter as customers pay their bills.Many of them take 70 to 90 days to pay. Allan will now speak in more detail about Q1 '18 operating and financial results.
Thank you, Garnet. ECWS reported revenue of $32.6 million, a 13% increase from Q1 '17. Coil tubing hours were consistent with Q1 '17 but we saw a shift with Generation III hours increasing and Generation II hours decreasing. Pumper hours increased 10% from the prior year quarter with higher demand for our larger quintuplex fluid pumpers and nitrogen pumpers. Revenue per hour was higher in Q1 '18 than the prior year quarter. There have been no price increases for coil tubing rigs or pumpers since those implemented during Q1 '17. Revenue per hour can vary from period to period based on the equipment used and type of work. ECWS Q1 '18 gross margin was $6.2 million or 19% of revenue. While a significant improvement from Q4 '17 gross margin of 4%, it was much lower than 26% in Q1 '17. Compared to Q1 '17, inability to increase service prices to offset higher labor, fuel and maintenance costs resulted in gross margin compression.We implemented wage increases in the fall of 2017 to retain employees and have more employees on staff to meet demand. Fuel prices have increased over 20% from Q1 '17, and we consumed a greater quantity of fuel primarily in our larger high rate fluid pumpers. Maintenance costs also increased due to the nature of the work on more demanding customer wells. Tryton reported $27.6 million of revenue, consistent with Q1 '17. Conventional tools revenue in Canada and the U.S. was strong in Q1 '18 as customers increased spending on producing wells and abandonment activities. We are excited about Tryton's new MSFS product offerings, which I will refer to as multistage. Some notable accomplishments in Q1 '18 include: using its hybrid multistage system, Tryton completed 2 90-stage jobs in the Montney. One of these jobs was the deepest well ever drilled in Western Canada. With a depth of 7,848 meters, including a 5,000 meter horizontal section, the hybrid multistage system consists of the ball & seat system, which is installed at the toe of the horizontal leg and composite bridge plugs, which are installed toward the heel. Customers are able to fracture an unlimited number of stages using Tryton's hybrid system.Using its V-Sleeve system, Tryton completed a 53-stage job in a single tool run in the Cardium. Our Tryton U.S. operations, while relatively small, continue to show higher quarter-over-quarter activity, particularly in Texas. Tryton's Q1 '18 gross margin was $6.8 million or 25%.The decrease from Q1 '17 was due to lower activity from the higher margin rentals business.I will now make a few comments about capital. For 2017, capital spending forecast has been increased to $15 million with $5 million for growth and $10 million for maintenance capital.The $2 million increase from our budget announced in January consists of additional maintenance capital to keep our fleet and facilities relevant to our evolving customer needs.In Q1 '18, one quintuplex fluid pumper was delivered and a second one we delivered in Q2 '18. The retrofitted generation for our coil tubing rig is progressing well and is expected to be delivered to us by the fabricator early in Q3 '18. I'll now turn it back to Karen to speak about the outlook.
Thank you, Allan. Q2 to date has been positive for Essential as cold weather into April allowed us to keep some equipment working into the spring. May is typically a month of minimal activity, and we will remain focused on cost control through this period. Customers express demand for our services in June if weather and road conditions cooperate. For the second half of 2018, industry activity is expected to be similar to 2017. Given the current price of WTI, which is around USD 70 per barrel, we should be doing better at the Canadian industry. Canadian natural gas pricing with AECO currently well under CAD 1 MCF is also inferior to U.S. pricing and strangling our Canadian industry's ability to compete and grow. Activity should be higher and the Canadian industry is missing out because of market access issues. We require stronger political and regulatory support from our government to allow Canadian projects to proceed. It has been reported that lack of pipeline infrastructure to allow us access to other markets is costing Canadians over $15 billion per year. Oilfield service pricing pressure remains a problem. Despite years of focus on cost control, we are simply unable to generate a proper rate of return on our invested capital. Neither ECWS nor Tryton expect meaningful price increases for services in the near term. We need stronger industry activity and responsible competition to support higher pricing for oilfield services. Higher prices are needed to cover increased costs. In the meantime, Essential will remain focused on cost control and operational efficiency. ECWS expects activity to remain strong in the second half of the year, especially for its Generation III coil tubing rigs and quintuplex fluid pumpers used in the Montney and Duvernay regions. We are excited to introduce our retrofitted Generation IV conventional rig to customers with plans for it to work in the second half of 2018. Tryton continues to perform well and has done a great job of adapting sales and products to the changing demands of our customers. We are pleased with the new hybrid MSFS and the success of the V-Sleeve system. Activity is expected to remain strong for the second half of 2018 as customer spending on well completion, maintenance and abandonment activity is expected to continue. In closing, from Essential's perspective, with the largest coil tubing fleet in Canada, associated pumping services and established downhole tools and rentals operation and a strong balance sheet, Essential continues to be well positioned to meet our customers' needs. Valerie, at this time, we would like to open it up for questions.
[Operator Instructions] There are no questions registered at this time. I would like to turn the meeting back over to you, Ms. Perasalo.
Thank you, Valerie, and thank you for joining us today.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.