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Good morning, ladies and gentleman. Welcome to the Essential Energy Services Ltd. Third 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.
Thank you, John. Good morning, and thank you for joining our third 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, we will give you an overview of our third 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 November 7, 2018, third quarter news release for definitions of these terms. Today's call may include forward-looking statements. Such statements are given as of the date of this call and involve risks and uncertainties. A number of factors and assumptions are 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, please refer to our November 7, 2018 third quarter news release. In this call today, we will refer to Essential Coil Well Service as ECWS. I will now turn the call over to Garnet.
Thank you, Karen. Good morning. Yesterday, we were pleased to report third quarter revenue of $51 million and EBITDAS of $7 million. Activity was strong in July and August but slowed in mid-September due to wet weather. On a year-to-date basis, revenue was $149 million and EBITDAS was $18 million, both an improvement from the first 9 months of 2017. Essential finished the quarter with debt net of cash of $23 million. Debt remains at a very reasonable level with debt to EBITDAS of 1.2x. Our working capital at the end of Q3 was $64 million comprised primarily of accounts receivable and inventory. Customer payment timing on accounts receivable continues to be slower than we would like, which leads to some accumulation of debt. Yesterday, debt net of cash was $19 million. Our Tryton downhole tool operation has continued to put up good results with revenue exceeding the strong third quarter of 2017. The secret sauce of this business is a dedicated team of long-serving employees, a broad tool offering and deep customer relationships. Compared to third quarter 2017, we saw growth in conventional tools in both Canada and the U.S. For ECWS, management's focus continues to be on evolving our fleet in response to a constantly changing industry to ensure our equipment is relevant for customer needs, maintaining a sharp focus on costs during rapid and significant activity fluctuations, retaining and training key personnel and fair reassessing competitive price submissions in a market that sees competition willing to low bid themselves into nonexistence. We understand there's 3 private coil tubing companies that have recently ceased operations, and their equipment was moved out of Canada. This is an indication of weak service pricing and challenging economics and might create future tightness in the Canadian deep coil tubing supply. I'm excited to tell you about our first ECWS Generation IV coil tubing retrofit, which completed its first job for a large E&P company in the Duvernay in October. It is currently working for a different customer doing mill outs also in the Duvernay. We commenced planning for this change one year ago, by involving our entire team of coil tubing rig experts and working closely with NOV Hydra Rig here in Calgary. Our focus was on simplicity in weight to allow maximum amount of coil could be compared -- carried on the unit, while continuing to leverage the technical advantages of our Gen IV design. So here's the features that excite me. It's very light compared to our Gen IV, the way we added design before, pulling off the mast and a bunch of other items that we felt could be taken off. We reduced the weight by 22 tons, which allows ease of movement on customer locations and between work sites during the times of stringent Canadian transportation rules. It's got industry-leading reach with 2 3/8. We can do 7,200 meters transported on the rig or 9,400 meters if transported separately on a truck. As a point of interest, we think this should be able to deal with most of the deeper completions that are out there. Safety and efficiency, this rig is quick and efficient to rig and move up and has a quick change reel system to allow for on location reel swaps in 2 hours or less. And finally, an industry-leading injector capability with either a 130,000 pound injector or 160,000 pound injector. Higher injector capacity ensures no slippage or inefficiencies when working on very deep horizontal wells. ECWS has 4 additional potential Gen IV retrofits and a Gen IV reel trailer retrofit, which can work with a Gen II rig to supplement its depth. We have committed to retrofit, he reel trailer and a second Gen IV rig and expect to have both completed by the end of Q1 '19. The remaining 3 retrofits will be scheduled as we assess market conditions in the next few years. In our experience, it appears the cost of building new coil tubing rigs and pumper units is rising due to steel tariffs, Canadian currency weakness and strong demand for this type of equipment in the U.S. The Gen IV retrofit program provides Essential with the opportunity to enhance our deep coil fleet at a relatively low cost and in a short period of time as market demand dictates. The cost of a Gen IV retrofit is less than 1/3 of the cost of a newbuild. Allan will now speak to our third quarter results for each business.
Thank you, Garnet. Tryton reported revenue of $23 million, $3 million higher than the prior year quarter. On a quarter-over-quarter basis, the conventional tool business generated higher revenue, as customers increased their focus on well maintenance and abandonment work. Tryton's Multi-stage Fracturing revenue was consistent with Q3 '17. On a year-to-date basis, revenue was $68 million, $7 million higher than the prior year period. Gross margin of 23% was similar to the prior year period. ECWS experienced relatively strong coil tubing and pumper demand in the third quarter. Consistent with previous quarters, demand was the strongest for Gen III coil tubing rigs and quintuplex pumpers, working for customers in the Montney and Duvernay regions. Revenue for the quarter was $28 million, and gross margin was 19%. Revenue per hour was consistent with Q3 '17 and the first half of 2018. As we continue to experience competitive pressure, service price increases are not likely in the near term. This puts a squeeze on our margins as we face higher repairs and maintenance costs and increased fuel prices. Higher repairs and maintenance costs in the quarter were due to an increase in fluid and replacements on the fluid pumpers. Higher pressure wells have required greater volume of fluid over a longer duration, can be hard on the equipment, and can result in increased fluid end plate failures. On a year-to-date basis, revenue was $81 million, $9 million higher than the prior year period. Gross margin at 17% was consistent with the prior year. Higher revenue without an increase in gross margin was due to higher repairs and maintenance, fuel and labor costs without a corresponding price increase for customers. I'll just touch on capital. Our 2018 capital forecast is $16 million, $7 million for growth and $9 million for maintenance. $11 million was spent at the end of Q3 and $5 million we're spending as expected in the fourth quarter. This includes payments for a set of high-pressure blowout preventers to support ECWS's coil tubing fleet and long lead time components for Gen IV retrofits and maintenance capital. I'll just touch on the outlook. Management expects fourth quarter activity to slow as the quarter progresses and customers complete their 2018 capital programs. Tryton is expected to continue to benefit in the quarter from customers working on well maintenance and abandonment activities. ECWS is focused on balancing crew retention and cost management, as we look through the fourth quarter and into what we expect will be another busy first quarter next year. Looking to 2019, industry analysts are generally forecasting activity to be similar to 2018. Some are forecasting a slight increase and others a slight decrease. On November 1, the Petroleum Services Association of Canada announced its forecast for 6,600 wells drilled in 2019. A 5% decrease from their 2018 forecast. Visibility into 2019 for Essential will become clear toward the end of 2018 and early 2019, as customers announce their 2019 capital budgets. While I believe we reported on market Q3 results, it is unfortunate for all shareholders that Essential's share price recently reached a 52-week and historic low. Sadly, our share price continues to trade near the low. Essential is not unique, as a number of other Canadian oilfield service companies have also set new 52-week lows in the last few weeks. This is indicative of our challenged Canadian macro and political environment. The Canadian oil and gas sector finds itself with egress issues, regulatory uncertainty and a lack of political will to effectively support the Canadian oil and natural gas industry. At the current share price, Essential's measure of price-to-book value is extremely low at 0.37x. I would like to point out that there is very little book value in the Tryton business, as it does not require heavy equipment to operate. So technically, this often used measure gives very little value consideration in our strong Tryton business. Like many Canadian oilfield service companies, we appear to be poorly valued. From an operational perspective, our fleet tools and crew composition are designed and trained for today's challenging deep well completions and have capacity for growth as the market dictates. We are keenly focused on cost management in the fourth quarter. From a financial perspective, our debt is low and Essential is closely monitoring working capital and capital spending requirements. I'll now pass it back to Karen.
John, at this time, we would like to open it up for questions.
[Operator Instructions] And Ms. Perasalo, there are no questions registered. Please go ahead.
Okay, thank you, John, and thank you, everyone, for joining us today.
Thank you. The conference call has now ended. Please disconnect your line at this time. We thank you for your participation.