MANAGEMENT'S REPORT
The consolidated financial statements and other information contained in the annual report are the responsibility of the management of the Company. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards consistently applied, using management’s best estimates and judgments, where appropriate.
Preparation of financial statements is an integral part of management’s broader responsibilities for the ongoing operations of the Company. Management maintains a system of internal accounting controls to ensure that properly approved transactions are accurately recorded on a timely basis and result in reliable financial statements. The Company’s external auditors are appointed by the shareholders. They independently perform the necessary tests of the Company’s accounting records and procedures to enable them to express an opinion as to the fairness of the consolidated financial statements, in conformity with International Financial Reporting Standards.
The Audit Committee, which is comprised of independent directors, meets with management and the Company’s external auditors to review the consolidated financial statements and reports on them to the Board of Directors. The consolidated financial statements have been approved by the Board of Directors.
"Signed" Robert H. Geddes President and Chief Operating Officer
"Signed" Michael Gray Chief Financial Officer
March 2, 2017
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 1 March 2, 2017
Independent Auditor’s Report
To the Shareholders of Ensign Energy Services Inc.
We have audited the accompanying consolidated financial statements of Ensign Energy Services Inc. and its subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2016 and December 31, 2015 and the consolidated statements of loss, comprehensive (loss) income, changes in equity and cash flows for the years ended December 31, 2016 and December 31, 2015, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
PricewaterhouseCoopers LLP 111 5 Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: +1 403 509 7500, F: +1 403 781 1825
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 2 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Ensign Energy Services Inc. and its subsidiaries as at December 31, 2016 and December 31, 2015 and their financial performance and their cash flows for the years ended December 31, 2016 and December 31, 2015 accordance with International Financial Reporting Standards.
Chartered Professional Accountants
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 3 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31 December 31 As at 2016 2015 (in thousands of Canadian dollars)
Assets Current Assets Cash and cash equivalents (Note 16) $ 29,837 $ 40,386 Accounts receivable 205,347 215,421 Inventories and other 48,850 71,806 Income taxes receivable 17,208 4,947 Total current assets 301,242 332,560
Property and equipment (Note 5) 2,913,153 3,265,580 Total assets $ 3,214,395 $ 3,598,140
Liabilities Current Liabilities Accounts payable and accruals (Note 6) $ 153,385 $ 167,881 Dividends payable 18,877 18,367 Share-based compensation (Note 11) 5,943 2,073 Current portion of long-term debt (Note 7) 134,190 — Total current liabilities 312,395 188,321
Long-term debt (Note 7) 583,269 794,109 Share-based compensation (Note 11) 2,539 935 Deferred income taxes (Note 8) 483,703 528,179 Total liabilities 1,381,906 1,511,544
Shareholders' Equity
Share capital (Note 9) 180,666 169,171 Contributed surplus 1,524 2,538 Foreign currency translation reserve 292,547 332,230 Retained earnings 1,357,752 1,582,657 Total shareholders' equity 1,832,489 2,086,596
Total liabilities and shareholders' equity $ 3,214,395 $ 3,598,140
Contingencies and commitments (Note 19) See accompanying notes to the consolidated financial statements.
Approved by the Board of Directors:
"Signed" "Signed"
John Schroeder James B. Howe Chairman of the Audit Committee and Director Director
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 4 CONSOLIDATED STATEMENTS OF LOSS
For the years ended December 31 2016 2015 (in thousands of Canadian dollars, except per share data)
Revenue $ 859,702 $ 1,390,978 Expenses Oilfield services 622,026 995,025 Depreciation (Note 5) 349,947 335,513 General and administrative 1 52,503 66,943 Asset decommissioning and write-downs (Note 5) — 28,281 Share-based compensation 1 (Note 11) 10,287 7,952 Foreign exchange and other (987) 62,105 Total expenses 1,033,776 1,495,819
Loss before interest and income taxes (174,074) (104,841) Interest income (367) (420) Interest expense 30,838 25,333 Loss before income taxes (204,545) (129,754)
Income taxes (Note 8) Current tax (21,510) 153 Deferred tax (32,513) (25,858) Total income taxes (54,023) (25,705) Net loss $ (150,522) $ (104,049)
Net loss per share (Note 10) Basic $ (0.99) $ (0.68) Diluted $ (0.98) $ (0.68) 1 Share-based compensation included within the general and administrative expense in prior periods were reclassified in the amount of $7,915 to the share-based compensation expense to conform to this presentation.
See accompanying notes to the consolidated financial statements.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 5 CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
For the years ended December 31 2016 2015 (in thousands of Canadian dollars)
Net loss $ (150,522) $ (104,049)
Other comprehensive (loss) income
Item that may be subsequently reclassified to profit or loss Foreign currency translation adjustment (39,683) 218,350 Comprehensive (loss) income $ (190,205) $ 114,301
See accompanying notes to the consolidated financial statements.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 6 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Foreign Currency Share Contributed Translation Retained Capital Surplus Reserve Earnings Total Equity (in thousands of Canadian dollars)
Balance, January 1, 2016 $ 169,171 $ 2,538 $ 332,230 $ 1,582,657 $ 2,086,596 Net loss — — — (150,522) (150,522) Other comprehensive loss — — (39,683) — (39,683) Total comprehensive loss — — (39,683) (150,522) (190,205)
Dividends 7,943 — — (74,383) (66,440) Share-based compensation — 4,573 — — 4,573 Shares vested previously held in trust 5,587 (5,587) — — — Purchase of shares held in trust (2,035) — — — (2,035) Balance December 31, 2016 $ 180,666 $ 1,524 $ 292,547 $ 1,357,752 $ 1,832,489
Balance, January 1, 2015 $ 169,215 $ 1,967 $ 113,880 $ 1,760,175 $ 2,045,237 Net loss — — — (104,049) (104,049) Other comprehensive income — — 218,350 — 218,350 Total comprehensive income — — 218,350 (104,049) 114,301
Dividends — — — (73,469) (73,469) Share-based compensation — 7,308 — — 7,308 Shares vested previously held in trust 6,737 (6,737) — — — Purchase of shares held in trust (6,781) — — — (6,781) Balance December 31, 2015 $ 169,171 $ 2,538 $ 332,230 $ 1,582,657 $ 2,086,596
See accompanying notes to the consolidated financial statements.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 7 CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31 2016 2015 (in thousands of Canadian dollars)
Cash provided by (used in) Operating activities Net loss $ (150,522) $ (104,049) Items not affecting cash Depreciation 349,947 335,513 Asset decommissioning and write-downs — 28,281 Share-based compensation, net of cash paid 10,287 7,237 Unrealized foreign exchange and other (6,864) 54,742 Accretion on long-term debt 316 407 Deferred income tax (32,513) (25,858) Funds flow from operations 170,651 296,273 Net change in non-cash working capital (Note 16) (5,315) 115,971 Cash provided by operating activities 165,336 412,244
Investing activities Purchase of property and equipment (43,394) (168,281) Proceeds from disposals of property and equipment 14,274 9,248 Net change in non-cash working capital (Note 16) (23,627) (61,037) Cash used in investing activities (52,747) (220,070)
Financing activities Net decrease in bank credit facilities (48,995) (121,458) Purchase of shares held in trust (Note 9) (2,035) (6,781) Dividends (Note 9) (66,440) (73,469) Net change in non-cash working capital (Note 16) (1,887) 257 Cash used in financing activities (119,357) (201,451)
Net decrease in cash and cash equivalents (6,768) (9,277)
Effects of foreign exchange on cash and cash equivalents (3,781) (4,334)
Cash and cash equivalents Beginning of year 40,386 53,997 End of year $ 29,837 $ 40,386
Supplemental information Interest paid $ 30,851 $ 25,036 Income taxes recovered $ (9,249) $ (10,741)
See accompanying notes to the consolidated financial statements.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2016 and 2015 (in thousands of Canadian dollars, except share and per share data)
1. NATURE OF BUSINESS
Ensign Energy Services Inc. is incorporated under the laws of the Province of Alberta, Canada. The address of its registered office is 1000, 400 – 5th Avenue S.W., Calgary, Alberta, Canada, T2P 0L6. Ensign Energy Services Inc. and its subsidiaries and partnerships (the “Company”) provide oilfield services to the oil and natural gas industry in Canada, the United States and internationally.
2. BASIS OF PRESENTATION
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements were approved by the Company’s Board of Directors on March 2, 2017, after review by the Company’s Audit Committee.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Measurement basis These consolidated financial statements have been prepared on an historical cost basis, except as discussed in the significant accounting policies below.
(b) Basis of consolidation These consolidated financial statements include the accounts of Ensign Energy Services Inc. and its subsidiaries and partnerships, substantially all of which are wholly owned, which it controls. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Intercompany balances and transactions, including unrealized gains or losses between subsidiaries and partnerships are eliminated on consolidation.
(c) Cash and cash equivalents Cash and cash equivalents consists of cash and cash equivalents with maturities of three months or less or convertible to cash on demand without penalty.
(d) Inventories Inventories, comprised of spare equipment parts and consumables, are recorded at the lower of cost and net realizable value. Cost is determined on a specific item basis.
(e) Property and equipment Property and equipment is initially recorded at cost. Costs associated with equipment upgrades that result in increased capabilities or performance enhancements of property and equipment are capitalized. Costs incurred to repair or maintain property and equipment are expensed as incurred. Property and equipment is subsequently carried at cost less accumulated depreciation and write-downs and is derecognized on disposal or when there is no future economic benefit expected from its use or disposal. Gains or losses on derecognition of property and equipment are recognized in net income.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 9 Depreciation is based on the estimated useful lives of the assets as follows:
Asset Class Expected Life Method Residual Oilfield services equipment Drilling rigs and related 2,500 - 5,000 operating days Unit-of-production 10% Well servicing rigs 24,000 operating hours Unit-of-production 10% Oil sands coring rigs 680 - 1,370 operating days Unit-of-production 10% Heavy oilfield service equipment 3 - 15 years Straight-line 10% Drill pipe 1,500 operating days Unit-of-production — Drilling rig spare equipment 1 - 10 years Straight-line — Buildings 20 years Straight-line — Automotive equipment 3 years Straight-line 15% Office furniture and shop equipment 5 - 15 years Straight-line —
The calculation of depreciation includes assumptions related to useful lives and residual values. The assumptions are based on experience with similar assets and are subject to change as new information becomes available. During the year the Company recorded additional depreciation for assets that have been inactive for a period of time.
Property and equipment is reviewed for impairment when events or changes in circumstances indicate that its carrying value may not be recoverable. The Company’s operations and business environment are routinely monitored, and judgment and assessments are made to determine if an event has occurred that indicates possible impairment.
If indicators of impairment exist, the recoverable amount of the asset or cash-generating unit (“CGU”) is estimated. If the carrying value of the asset or CGU exceeds the recoverable amount, the asset or CGU is written down to its recoverable amount. The recoverable amount of an asset or CGU is the greater of its fair value less costs to dispose and value-in-use. Value-in-use is determined as the amount of estimated risk- adjusted discounted future cash flows.
(f) Business combinations The acquisition method of accounting is used to account for the acquisition of subsidiaries and businesses by the Company at the date control of the business is obtained. The cost of the business combination is measured as the aggregate of the fair value at the date of exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the Company in exchange for control of the acquiree. Acquisition-related costs are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition are recognized at their fair values at the acquisition date.
(g) Revenue recognition Revenue from oilfield services is generally earned based upon service orders or contracts with a customer that include fixed or determinable prices based upon daily, hourly or job rates. Revenue is recognized when services are performed and only when collectability is reasonably assured. Customer contract terms do not include provisions for significant post-service delivery obligations.
The Company also provides services under turnkey contracts whereby oilfield services are performed for a fixed price, regardless of the time required or the problems encountered performing the service. Revenue from such contracts is recognized using the percentage-of-completion method based upon costs incurred to date and estimated total contract costs. Anticipated losses, if any, on uncompleted contracts are recorded at the time the estimated costs exceed the contract revenue.
For contracts that are terminated prior to the specified term, early termination payments received by the Company are recognized as revenue when all contractual requirements are met.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 10 (h) Foreign currency translation The consolidated financial statements are presented in Canadian dollars which is the Company’s functional currency. Financial statements of the Company’s United States and international subsidiaries have a functional currency different from Canadian dollars and are translated to Canadian dollars using the exchange rate in effect at the year-end date for all assets and liabilities, and at average rates of exchange during the year for revenues and expenses. All changes resulting from these translation adjustments are recognized in other comprehensive (loss) income.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in currencies other than an operation’s functional currency are recognized in the consolidated statement of (loss) income.
(i) Borrowing costs Interest and borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of those assets. Qualifying assets are those which take a substantial period of time to prepare for their intended use. Capitalization ceases when substantially all activities necessary to prepare the qualifying asset for its intended use are complete. All other interest is recognized in the consolidated statement of (loss) income in the period in which it is incurred.
(j) Income taxes The Company follows the liability method of accounting for income taxes. Under this method, income tax liabilities and assets are recognized for the estimated tax consequences attributable to differences between the amounts reported in the consolidated financial statements and their respective tax bases, using enacted or substantively enacted income tax rates. The effect of a change in income tax rates on deferred income tax liabilities and assets is recognized in income in the period in which the change is substantively enacted.
Deferred tax assets are recognized to the extent that future taxable income will be available against which temporary differences can be utilized.
(k) Share-based compensation The Company has an employee share option plan or equivalent that provides all option holders the right to elect to receive either common shares or a direct cash payment in exchange for the options exercised. These options are accounted for as a compound financial instrument, which requires the fair value of the liability component to be determined first and the residual value, if any, allocated to the equity component. The fair value of the settlement option under cash and shares is the same; therefore these options are accounted for as cash-settled awards.
The Company has other cash-settled share-based compensation plans. Cash-settled share-based compensation plans are recognized as compensation expense over the vesting period using fair values with a corresponding increase or decrease in liabilities. The liability is remeasured at each reporting date and at the settlement date. Any changes in the fair value of the liability are recognized as share-based compensation expense in the statement of income. The fair value is determined using the Black-Scholes option pricing model.
The Company has share savings and share bonus plans for employees, as well as a program whereby a portion of the retainer paid to Directors is in the form of common shares of the Company. In all cases, any common shares acquired for such plans are purchased in the open market and administered through trusts until the shares are vested. The share purchase price is considered the fair value.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 11 (l) Financial instruments Financial assets and liabilities are recognized on the date the Company becomes party to the contractual provisions of the instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or the Company transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. Financial liabilities are derecognized when the Company’s contractual obligations are discharged, cancelled or expire.
Financial assets and liabilities are measured at fair value on initial recognition of the instrument. Measurement in subsequent periods depends on whether the financial assets or liabilities are classified as amortized cost or as Fair Value Through Profit or Loss (“FVTPL”).
Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, other than financial assets and financial liabilities at FVTPL, are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in net income.
Financial assets A financial asset is classified and measured at amortized cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest.
Financial assets other than those qualifying for amortized cost measurement are classified as FVTPL and measured at fair value with all changes in fair value recognized in net income.
Financial assets that are measured at amortized cost are assessed for impairment on an individual account basis at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the asset have been affected. An allowance account is used when there is uncertainty surrounding the estimated future cash flows. When there is objective evidence the impairment will not be reversed the amount originally charged to the allowance is written off against the carrying amount of the impaired financial asset.
Financial liabilities Financial liabilities are classified as FVTPL when the financial liability is either held for trading or it is designated as FVTPL. Financial liabilities classified as FVTPL are measured at fair value with all changes in fair value recognized in net loss with the exception of changes in fair value attributable to credit risk which are recorded in other comprehensive (loss) income.
Financial liabilities that are not held for trading and are not designated as FVTPL are subsequently measured at amortized cost using the effective interest method. Interest expense that is not capitalized is included in net loss.
(m) Critical judgments and accounting estimates Preparation of the Company’s consolidated financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results could differ from those estimates. Estimates, judgments and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The following are the most critical estimates and assumptions used in determining the value of assets and liabilities:
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 12 Allowance for doubtful accounts The Company establishes an allowance for estimated losses for uncollectible accounts. The allowance is determined based on customer credit-worthiness, current economic trends and past experience. Information regarding the allowance for doubtful accounts is included in Note 18.
Property and equipment The calculation of depreciation includes assumptions related to useful lives and residual values. Assumptions are based on experience with similar assets and is subject to change as new information becomes available. In addition, assessing for impairment requires estimates and assumptions.
Assets are grouped into CGUs based on separately identifiable and largely independent cash inflows and are used for impairment testing. Estimates of future cash flows used in the evaluation of impairment of assets are made using management’s forecasts of market prices, market supply and demand, margins, and discount rates. Information regarding property and equipment is included in Note 5.
Share-based compensation Measurement inputs include share price on measurement date, exercise price, expected volatility, weighted average expected life, expected dividends, and risk-free interest rate. Significant estimates and assumptions are used in determining the expected volatility based on weighted average historic volatility adjusted for changes expected due to publicly available information, weighted average expected life and expected forfeitures, based on historical experience and general option-holder behavior. Changes to input assumptions will impact share- based compensation liability and expense. Information regarding share-based compensation is included in Note 11.
Income taxes The Company is subject to income taxes in a number of tax jurisdictions. The amount expected to be settled and the actual outcome and tax rates can change over time, depending on the facts and circumstances. Changes to these assumptions will impact income tax and the deferred tax provision. Information regarding income taxes is included in Note 8.
Critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are as follows:
Functional currency The Company determines functional currency based on the primary economic environment in which the entity operates. This includes a number of factors that must be considered by the Company in using its judgment to determine the appropriate functional currency for each entity. These factors include currency of revenue contracts and currency that mainly influences operating, financing and investing activities. Information regarding the specific functional currencies by Subsidiaries and Partnerships is included in Note 15.
Impairments Assessing for indicators of possible impairment requires judgment in the assessment of facts and circumstances and is a subjective process that often involves a number of estimates and is subject to interpretation. Information regarding impairment is included in Note 5.
Deferred income tax assets The recognition of deferred tax assets is based on judgments about future taxable profits.
(n) Recent accounting pronouncements On January 13, 2016 the IASB issued IFRS 16 - Leases ("IFRS 16") which has not yet been adopted by the Company. IFRS 16 replaces the accounting requirements under IAS 17 - Leases and is effective for annual periods beginning on or after January 1, 2019 with early adoption permitted. IFRS 16 requires all leases to be reported on the Company's balance sheet as assets and liabilities. The Company is in the process of assessing the impact that the amendments will have on its financial statements or whether to early adopt.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 13 On July 24, 2014 the IASB issued amendments to IFRS 9 - Financial Instruments (“IFRS 9”) which have not yet been adopted by the Company. IFRS 9 amendments are effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. Amendments to IFRS 9 introduce an expected credit loss model for the measurement of the impairment of financial assets and a new hedge accounting model. The Company is in the process of assessing the impact that the amendments will have on its financial statements or whether to early adopt.
On May 28, 2014 the IASB issued IFRS 15 - Revenue from Contracts with Customers (“IFRS 15”) which has not yet been adopted by the Company. IFRS 15 replaces all current guidance on revenue recognition and is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. IFRS 15 provides a single comprehensive revenue recognition model for all contracts with customers and is based on the principal that revenue is recognized on the transfer of goods or services to customers at an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. IFRS 15 also includes new disclosure requirements. The Company is in the process of assessing the impact that the new standard will have on its financial statements or whether to early adopt.
4. FOREIGN OPERATIONS
The Company provides oilfield services throughout much of North America and internationally in a number of onshore drilling areas. The Company’s foreign operations, with the general exception of operations in the United States and Australia, are subject to a number of risks and uncertainties such as unstable government regimes, civil and/or labor unrest, strikes, terrorist threats, regulatory uncertainty and complex commercial arrangements.
The Company’s operations in Venezuela and Argentina are subject to certain restrictions with respect to the transfer of funds into or out of such countries; however, such restrictions are not considered significant to the Company at this time due to the relatively small size of the operations and certain contractual provisions that have been put in place designed to protect the Company.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 14 5. PROPERTY AND EQUIPMENT
Rig and related Automotive and Land and equipment other equipment buildings Total Cost: Balance at December 31, 2014 $ 4,525,852 $ 132,991 $ 65,981 $ 4,724,824 Additions 158,075 9,808 2,745 170,628 Disposals (40,760) (10,007) (6) (50,773) Asset decommissioning and write-downs (36,583) — — (36,583) Effects of foreign exchange 541,604 13,901 5,111 560,616 Balance at December 31, 2015 5,148,188 146,693 73,831 5,368,712 Additions 39,096 3,199 1,099 43,394 Disposals (81,424) (23,147) (1,860) (106,431) Asset decommissioning (61,191) — — (61,191) Effects of foreign exchange (72,856) (4,042) (1,025) (77,923) Balance at December 31, 2016 $ 4,971,813 $ 122,703 $ 72,045 $ 5,166,561
Accumulated depreciation and write-downs Balance at December 31, 2014 $ (1,502,346) $ (81,619) $ (15,932) $ (1,599,897) Depreciation (315,239) (20,153) (3,150) (338,542) Disposals 29,422 7,143 6 36,571 Asset decommissioning and write-downs 36,583 — — 36,583 Asset write-downs (28,281) — — (28,281) Effects of foreign exchange (199,816) (8,778) (972) (209,566) Balance at December 31, 2015 (1,979,677) (103,407) (20,048) (2,103,132) Depreciation (332,740) (13,093) (3,036) (348,869) Disposals 80,865 20,497 695 102,057 Asset decommissioning 61,191 — — 61,191 Effects of foreign exchange 33,192 1,925 228 35,345 Balance at December 31, 2016 $ (2,137,169) $ (94,078) $ (22,161) $ (2,253,408)
Net book value: At December 31, 2015 $ 3,168,511 $ 43,286 $ 53,783 $ 3,265,580 At December 31, 2016 $ 2,834,644 $ 28,625 $ 49,884 $ 2,913,153
Property and equipment includes equipment under construction of $106,881 (2015 - $127,567) that has not yet been subject to depreciation. During the year, the Company decommissioned 20 drilling rigs and six servicing rigs that had been fully depreciated.
The adverse economic effects arising from the sustained low oil and natural gas prices are considered indicators of possible impairment of the Company's assets, and accordingly an asset impairment test was performed by Management. The Company completed impairment tests in each of its CGU's using five year cash flow projections with a terminal value and concluded that no impairment charges were required for any CGU's as at December 31, 2016. The impairment tests were based on the following key assumptions:
• a weighted average pre-tax discount rate of 10% to 14% based on the cost of the Company's capital and debt, asset and country risk, together with past experience; • cash flow projections based on the assumption that activity levels will return to 85% of 2014 EBITDA in the year 2020; and • a terminal growth rate of 2%.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 15 The Company performed a sensitivity analysis and noted no material impact in any CGU under any of the following situations:
• discount rates 1.6% higher or lower; • cash flows 8% higher or lower; and • a terminal growth rate 2% higher or lower.
6. ACCOUNTS PAYABLE AND ACCRUALS
December 31 December 31 2016 2015 Trade payables $ 58,705 $ 63,738 Accrued liabilities 30,329 36,813 Accrued payroll 37,321 41,292 Interest payable 1,362 1,377 Deferred revenue 23,808 21,699 Other liabilities 1,860 2,962 $ 153,385 $ 167,881
7. BANK CREDIT FACILITIES AND LONG-TERM DEBT
December 31 December 31 2016 2015 Drawings on the Global Facility $ 316,701 $ 380,205
Senior unsecured notes Tranche A, due February 22, 2017, 3.43% 134,270 138,694 Tranche B, due February 22, 2019, 3.97% 134,270 138,694 Tranche C, due February 22, 2022, 4.54% 134,270 138,694 Unamortized deferred financing costs (2,052) (2,178) Total $ 717,459 $ 794,109 Less: current portion (134,190) — Total long-term debt $ 583,269 $ 794,109
Bank credit facilities:
As at December 31, 2016, the Company’s available bank credit facilities consist of a $500,000 (2015 - $600,000) global revolving credit facility (the “Global Facility”), which was renewed during the year. The Global Facility is available to the Company and certain of its wholly-owned subsidiaries, and may be drawn in Canadian, United States or Australian dollars, up to the equivalent value of $500,000 Canadian dollars.
Interest is incurred on the utilized balance of the Global Facility based on election of one of the following options when funds are drawn: a. The bank's Canadian prime lending rate plus 0.20% to 2.50% b. The US base rate plus 0.20% to 2.50% c. The BBSY rate plus 1.20% to 3.50% d. The BA rate plus 1.20% to 3.50% e. The LIBOR rate plus 1.20% to 3.50%
The Global Facility matures October 3, 2018, unless extended and is unsecured. No principal payments are due until then. At December 31, 2016 the Company had $9,250 outstanding in letters of credit and bank guarantees (2015 - $9,743). Included in the drawings on the Global Facility balance is a United States denominated portion of USD $90,000 and an Australian denominated portion of AUD $140,800 (2015 - USD $216,230, AUD $0).
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 16 The Global Facility has the following covenant requirements:
• The Consolidated Senior Debt (being the Company's bank debt and outstanding senior unsecured notes) to Consolidated EBITDA Ratio shall not exceed: (i) 4.00:1.00 as at the end of the Fiscal Quarters ending on December 31, 2016, March 31, 2017 and June 30, 2017, (ii) 3.75:1.00 as at the end of the Fiscal Quarters ending on September 30, 2017 and December 31, 2017, and (iii) 3.50:1.00 at any time thereafter;
• The Consolidated Debt to Consolidated EBITDA Ratio shall not exceed: (i) 4.75:1.00 as at the end of the Fiscal Quarters ending on December 31, 2016, March 31, 2017 and June 30, 2017, (ii) 4.50:1.00 as at the end of the Fiscal Quarters ending on September 30, 2017 and December 31, 2017, and (iii) 4.25:1.00 at any time thereafter;
• The Consolidated Debt to Consolidated Capitalization Ratio as at the end of any Fiscal Quarter shall not exceed 45%; and
• The Consolidated EBITDA to Consolidated Interest Expense as at the end of any Fiscal Quarter shall not be less than 3.00:1.00.
Consolidated EBITDA is defined under the Agreement as net income from continuing operations for the 12 month period then ended determined in accordance with IFRS before interest expense, depreciation, amortization and accretion expenses, all provisions for taxes, all non-cash expenses and non-cash income, the amount of any stock- based compensation; and extraordinary gains and losses.
During the first quarter of 2014, the Company secured a $20,000 uncommitted facility, solely for issuing letters of credit, primarily used for bidding on contracts in the normal course of business. As at December 31, 2016, the Company had $3,406 (2015 - $7,234) outstanding in letters of credit under the facility.
Senior unsecured notes:
On February 22, 2012, the Company completed the private placement of USD $300.0 million of senior unsecured notes (the “Notes”) with the terms noted above. Interest on the Notes is payable semi-annually on May 31st and November 30th each year with final interest payments due on expiry of the Notes. These Notes are unsecured, rank equally with the Company’s Global Facility and have been guaranteed by the Parent company and certain of the Company’s subsidiaries located in Canada, the United States and Australia.
Interest accrued on the Notes at December 31, 2016 was $1,362 (2015 - $1,377) and has been included in accounts payable and accruals on the consolidated statement of financial position. The Company incurred financing costs associated with the Notes that are being deferred and amortized using the effective interest method.
The Company expects the Global Facility to support the repayment of the current portion of the senior unsecured note.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 17 8. INCOME TAXES Analysis of deferred tax liability:
December 31 December 31 2016 2015 Property and equipment $ 614,965 $ 583,805 Partnership timing differences — 9,165 Share-based compensation (1,497) (601) Non-capital losses (120,644) (48,917) Other (9,121) (15,273) Net deferred tax liability $ 483,703 $ 528,179
Deferred Tax: Deferred tax asset recovered within 12 months $ (9,720) $ (64,791) Deferred tax asset recovered after 12 months (133,019) — Deferred tax liability recovered within 12 months 4,375 9,165 Deferred tax liability recovered after 12 months 622,067 583,805 Net deferred tax liability $ 483,703 $ 528,179
Earnings retained by subsidiaries and equity-accounted investments amounted to $1,114,896 at December 31, 2016 (2015 - $1,102,367). A provision has been made for withholding and other taxes that would become payable on the distribution of these earnings only to the extent that either the Company does not control the relevant entity or it is expected that these earnings will be remitted in the foreseeable future.
The provision for income taxes is different from the expected provision for income taxes using combined Canadian federal and provincial income tax rates for the following reasons:
December 31 December 31 For the years ended 2016 2015 Income (loss) before income taxes $ (204,545) $ (129,754) Income tax rate 26.9% 26.3% Expected income tax expense (55,023) (34,125) Increase (decrease) from: Higher effective tax rate on foreign operations (10,462) (5,914) Non-deductible expenses 3,116 1,837 Adjustments from prior years 4,050 378 Functional currency translation adjustment and other (704) 5,841 Rate change impact on deferred taxes 5,000 6,278 Income tax expense $ (54,023) $ (25,705)
The statutory rate for 2016 increased slightly over that of 2015 due to the increase in the Alberta tax rate, effective July 1, 2015.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 18 9. SHARE CAPITAL
(a) Authorized Unlimited common shares, no par value Unlimited preferred shares, no par value, issuable in series
(b) Issued, fully paid and outstanding
2016 2015 Number of Number of Common Common Shares Amount Shares Amount Opening balance – January 1 152,302,273 $ 169,171 152,432,134 $ 169,215 Shares issue as part of the dividend reinvestment plan 1,080,777 7,942 — — Changes in unvested shares held in trust 211,807 3,552 (129,861) (44) Closing balance - December 31 153,594,857 $ 180,665 152,302,273 $ 169,171
The total number of unvested shares held in trust for share-based compensation plans as at December 31, 2016 was 545,916 (December 31, 2015 – 757,723).
(c) Dividends
During the year ended December 31, 2016, the Board of Directors of the Company approved and adopted a Dividend Reinvestment Plan (the “DRIP”). The DRIP provides eligible holders of common shares with an option to elect to reinvest their dividends in common shares of the Company at a discount of up to five percent of the average market price on each dividend payment date. In the settlement of the fourth quarter dividend, subsequent to December 31, 2016, 39 percent of shareholders elected to reinvest their dividends in common shares of the Company.
During the year ended December 31, 2016, the Company declared dividends of $74,383 (2015 - $73,469), being $0.48 per common share (2015 - $0.48 per common share). Subsequent to December 31 2016, the Company declared a dividend for the first quarter of 2017 of $0.12 per common share or approximately $18,877. The dividend has not been provided for and is pursuant to the quarterly dividend policy adopted by the Company. Pursuant to subsection 89(1) of the Canadian Income Tax Act (“ITA”), the dividend being paid is designated as an eligible dividend, as defined in subsection 89(1) of the ITA.
10. NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period.
Diluted net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period adjusted for conversion of all potentially dilutive common shares. Diluted net loss is calculated using the treasury share method, which assumes that all outstanding share options are exercised, if dilutive, and the assumed proceeds are used to purchase the Company’s common shares at the average market price during the period.
December 31 December 31 2016 2015 Net loss attributable to common shareholders: Basic and diluted $ (150,522) $ (104,049) Weighted average number of common shares outstanding: Basic 152,759,973 152,476,615 Potentially dilutive share-based compensation plans 424,359 — Diluted 153,184,332 152,476,615
Share options of 5,037,700 (2015 – 7,404,000) were excluded from the calculation of diluted weighted average number of common shares outstanding as they were anti-dilutive.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 19 11. SHARE-BASED COMPENSATION
Share option plan
The Company has an employee share option plan that provides all option holders the right to elect to receive either common shares or a direct cash payment in exchange for the options exercised. The Company may grant options to its employees for up to 14,885,900 (2015 - 14,885,900) common shares. The options’ exercise price equals the market price of the Company’s common shares on the date of grant. Share options granted vest evenly over a period of five years.
The total intrinsic value of the liability for vested benefits at December 31, 2016 was $2,817 (2015 - $1,681).
A summary of the Company’s share option plan as of December 31, 2016 and 2015 and the changes during the years then ended, is presented below:
2016 2015 Weighted Weighted Number of Average Number of Average Share Options Exercise Price Share Options Exercise Price Outstanding – January 1 7,404,000 $ 12.04 7,943,600 $ 14.14 Granted — — 2,259,500 7.30 Exercised for cash (32,200) 7.30 — — Forfeited (991,100) 12.08 (1,550,700) 14.32 Expired (1,343,000) 17.00 (1,248,400) 14.00 Outstanding - December 31 5,037,700 $ 10.74 7,404,000 $ 12.04 Exercisable - December 31 1,938,600 $ 12.24 2,259,100 $ 15.56
The weighted average share price at the date of exercise of options in 2016 was $9.10 per common share.
The following table lists the options outstanding at December 31, 2016:
Average Vesting Weighted Weighted Outstanding Remaining (in Average Options Average Exercise Price Options years) Exercise Price Exercisable Exercise Price $7.30 to $8.83 1,943,200 4.00 $ 7.30 388,400 $ 7.30 $8.84 to $12.94 1,729,300 3.00 10.37 709,600 10.37 $12.95 to $15.82 32,600 1.00 15.51 26,000 15.51 $15.83 to $16.13 1,332,600 2.00 16.13 814,600 16.13 5,037,700 3.10 $ 10.74 1,938,600 $ 12.24
The assumptions used to estimate the fair value of employee share options as at December 31, were:
December 31 December 31 2016 2015 Remaining expected life (years) 3.0 2.5 Volatility (percent) 40.0 31.4 Forfeiture rate (percent) 6.6 6.0 Risk-free interest rate (percent) 0.9 0.6 Expected dividend (percent) 5.1 6.5
The expected volatility is determined based on weighted average historic prices for the Company’s common shares. The forfeiture rate is estimated based on historical experience and general option holder behavior.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 20 Share Appreciation Rights (SARs)
The Company has granted share appreciation rights (“SARs”) to certain employees that entitle the employees to a cash payment. The amount of the cash payment is determined based on the increase in the share price of the Company between grant date and exercise date. Grants under the plan vest evenly over a period of five years.
A summary of the Company’s SARs plan as of December 31, 2016 and 2015 and the changes during the years ended, is presented below:
2016 2015 Weighted Weighted Number of Average Number of Average SARs Exercise Price SARs Exercise Price Outstanding – January 1, 2016 895,100 $ 12.70 972,600 $ 14.32 Granted — — 210,500 7.30 Exercised (2,300) 7.30 — — Forfeited (307,200) 13.83 (158,400) 14.40 Expired (108,500) 17.20 (129,600) 14.00 Outstanding - December 31, 2016 477,100 $ 10.97 895,100 $ 12.70 Exercisable - December 31, 2016 189,900 $ 12.52 302,400 $ 15.71
The weighted average share price at the date of exercise of SARs in 2016 was $8.51 per common share.
The following table lists the SARs outstanding at December 31, 2016:
Average Vesting Weighted Weighted SARs Remaining (in Average SARs Average Exercise Price Outstanding years) Exercise Price Exercisable Exercise Price $7.30 to $8.83 184,100 4.00 $ 7.30 37,700 $ 7.30 $8.84 to $12.84 144,800 3.00 10.37 60,800 10.37 $12.85 to $15.82 4,000 1.00 15.51 3,200 15.51 $15.83 to $16.13 144,200 2.00 16.13 88,200 16.13 477,100 3.07 $ 10.97 189,900 $ 12.52
12. SEGMENTED INFORMATION
The Company determines its operating segments based on internal information regularly reviewed by management to allocate resources and assess performance. Oilfield services are provided in Canada, the United States and internationally. The amounts related to each geographic area are as follows:
As at and for the year ended December 31, 2016 Canada United States International Total Revenue 222,804 337,950 298,948 859,702 Depreciation and amortization 121,141 164,306 64,500 349,947 (Loss) income before interest and income taxes (76,303) (80,151) (17,620) (174,074) Total assets 1,036,806 1,456,516 721,073 3,214,395 Total liabilities 725,434 444,713 211,759 1,381,906 Purchase of property & equipment, net 5,864 (1,442) 24,698 29,120
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 21 As at and for the year ended December 31, 2015 Canada United States International Total Revenue 306,997 609,301 474,680 1,390,978 Depreciation and amortization 109,256 156,209 70,048 335,513 Asset decommissioning and write-downs — — 28,281 28,281 (Loss) income before interest and income taxes (50,089) 4,266 (59,018) (104,841) Total assets 904,104 1,759,062 934,974 3,598,140 Total liabilities 236,679 817,208 457,657 1,511,544 Purchase of property & equipment, net 55,282 84,332 19,419 159,033
There are no material differences in the basis of accounting or the measurement of (loss) income, assets and liabilities between the Corporation and reported segment information, except that certain inter-company liabilities and equity are offset with the assets of the appropriate related segment. Revenues and expenses are attributed to geographical areas based on the location in which the services are rendered. The segment presentation of assets and liabilities is based on the geographical location of the assets.
During the year ended December 31, 2016 the Company had no customers that represented more than 10 percent of the Company's revenue. During the year ended December 31, 2015, the Company had two customers representing 10.5 percent and 10.0 percent of the Company's revenue.
13. EXPENSES BY NATURE
December 31 December 31 2016 2015 Salaries, wages and benefits $ 371,986 $ 734,137 Share-based compensation 10,287 7,952 Total employee costs 382,273 742,089 Depreciation 349,947 335,513 Asset decommissioning and write-downs — 28,281 Purchased materials, supplies and services 302,543 327,831 Foreign exchange and other (987) 62,105 Total expenses before interest and income taxes $ 1,033,776 $ 1,495,819
14. KEY MANAGEMENT COMPENSATION
Key management personnel comprises the Company’s directors and named executive officers. Compensation for key management personnel consists of the following:
December 31 December 31 2016 2015 Short-term compensation $ 2,923 $ 2,991 Share-based compensation 539 3,436 Total management compensation $ 3,462 $ 6,427
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 22 15. SIGNIFICANT SUBSIDIARIES AND PARTNERSHIPS
The following table lists the Company’s principal operating partnerships and subsidiaries, the functional currency, the jurisdiction of formation, incorporation or continuance of such partnerships and subsidiaries and the percentage of shares owned, directly or indirectly, by the Company as of December 31, 2016:
Jurisdiction of Formation Percentage Ownership of Shares Functional Incorporation or Beneficially Owned or Controlled Name of Subsidiary Currency Continuance Directly or Indirectly by the Company 2016 2015 Ensign Drilling Inc. CAD Alberta 100 100 Ensign Well Servicing Inc. CAD Alberta 100 100 Ensign Argentina S.A. USD Argentina 100 100 Ensign de Venezuela C.A. USD Venezuela 100 100 Ensign Energy Services International Limited USD Australia 100 100 Ensign Australia Pty Limited AUD Australia 100 100 Ensign Testing Services Inc. CAD Alberta 100 100 Ensign Testing Services (U.S.A) Inc. USD Montana 100 100 Ensign United States Drilling Inc. USD Colorado 100 100 Ensign United States Drilling (California) Inc. USD California 100 100 Ensign US Financial (Delaware) LP USD Delaware 100 100 Ensign US Southern Drilling LLC USD Delaware 100 100 OFS Canada Inc. CAD Alberta 100 100 OFS Global Inc. USD Nevada 100 100 Ensign Drilling Partnership CAD Alberta — 100 Ensign Well Servicing Partnership CAD Alberta — 100 Enhanced Petroleum Services Partnership CAD Alberta — 100
16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(a) Non-cash working capital
December 31 December 31 2016 2015 Net change in non-cash working capital Accounts receivable $ (40,403) $ 293,848 Inventories and other 30,015 4,069 Accounts payable and accruals (10,154) (254,359) Income taxes receivable (10,723) 11,633 Dividends payable 436 — $ (30,829) $ 55,191 Relating to: Operating activities $ (5,315) $ 115,971 Investing activities (23,627) (61,037) Financing activities (1,887) 257 $ (30,829) $ 55,191
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 23 (b) Cash and cash equivalents
December 31 December 31 2016 2015 Cash $ 24,500 $ 33,902 Cash equivalents and held in trust 5,337 6,484 Total cash and cash equivalents $ 29,837 $ 40,386
17. CAPITAL MANAGEMENT STRATEGY
The Company’s objectives when managing capital are to exercise financial discipline, and to deliver positive returns and stable dividend streams to its shareholders. The Company continues to be cognizant of the challenges associated with operating in a cyclical, commodity-based industry and may make future adjustments to its capital management strategy in light of changing economic conditions.
The Company considers its capital structure to include shareholders’ equity, bank credit facilities and senior unsecured notes. In order to maintain or adjust its capital structure, the Company may from time to time adjust its capital spending or dividend policy to manage the level of its borrowings, or may revise the terms of its bank credit facilities to support future growth initiatives. The Company may consider additional long-term borrowings or equity financing if deemed necessary. As at December 31, 2016, the bank credit facilities' drawings totaled $316,701 (2015 - $380,205), senior unsecured notes totaled $400,758 (2015 - $413,904) and shareholders’ equity totaled $1,832,489 (2015 - $2,086,596).
The Company is subject to externally imposed capital requirements associated with its bank credit facilities and senior unsecured notes, including financial covenants that incorporate shareholders’ equity, earnings, consolidated interest expense and level of indebtedness. The Company monitors its compliance with these requirements on an ongoing basis and projects future operating cash flows, capital expenditure levels and dividend payments to assess how these activities may impact compliance in future periods. As at December 31, 2016, the Company is in compliance with all debt covenants.
18. FINANCIAL INSTRUMENTS
Categories of financial instruments
The classification and measurement of financial instruments is presented below: Cash and cash equivalents and accounts receivable are classified as financial assets at amortized cost. Accounts payable and accruals, dividends payable and long-term debt are classified as financial liabilities at amortized cost.
Fair values
The fair value of cash and cash equivalents, accounts receivable, accounts payable and accruals and dividends payable approximates their carrying value due to the short-term maturity of these financial instruments. The fair value of the drawings on the bank credit facilities approximates its carrying value.
The estimated fair value of the senior unsecured notes has been determined based on available market information and appropriate valuation methods, including the use of discounted future cash flows using current rates for similar instruments with similar risks and maturities. The estimated fair value of the senior unsecured notes approximate its carrying value.
Financial assets and liabilities recorded or disclosed at fair value in the consolidated statement of financial position are categorized using a three-level hierarchy that reflects the level of judgment associated with the inputs used to measure their fair value. The fair values of financial assets and liabilities included in Level 1 are determined by reference to unadjusted quoted prices in active markets for identical assets and liabilities. Fair values of financial assets and liabilities in Level 2 are based on inputs other than Level 1 quoted prices that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices). The fair values in Level 3 financial assets and liabilities are not based on observable market data.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 24 The estimated fair value of senior unsecured notes was based on Level 2 inputs and was estimated using the risk free interest rates on government debt instruments of similar maturities, adjusted for estimated credit risk and market risk premiums.
Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises principally from the Company’s accounts receivable balances owing from customers operating primarily in the oil and natural gas industry in Canada, the United States and internationally. The carrying amount of accounts receivable represents the maximum credit exposure as at December 31, 2016.
The Company assesses the credit worthiness of its customers on an ongoing basis and establishes credit limits for each customer based on external credit reports and other publicly available information, internal analysis and historical experience with the customer. Credit limits are approved by senior management and are reviewed on a regular basis or when changing economic circumstances dictate. The Company manages credit risk through dedicated credit resources, ongoing monitoring and follow up of balances owing, well liens, and tightening or restriction of credit terms as required. The Company also monitors the amount and age of accounts receivable balances on an ongoing basis. As at December 31, 2016, the Company had trade receivables of $30,011 (2015 - $20,338) with multiple customers that were greater than 90 days old for which an allowance for doubtful accounts of $5,802 (2015 - $5,297) has been recorded to provide for balances which, in management’s best estimate, are deemed uncollectible as at December 31, 2016. The allowance for doubtful accounts is an estimate requiring significant judgment and may differ materially from actual results.
As part of the Company’s international operations, it provides oilfield services in Venezuela pursuant to contractual arrangements. As at December 31, 2016, the Company had accounts receivable of approximately $24.8 million for work performed in Venezuela, discounted at eight percent and assuming a three year even collection period (2015 - $16.2 million). However, due to the recent decline in the price of oil and continuing political unrest within Venezuela there can be no assurance that the Company will be successful in collecting all of such outstanding balance.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they are due. The Company manages liquidity by forecasting cash flows on an annual basis and secures sufficient credit facilities to meet financing requirements that exceed anticipated internally generated funds. As at December 31, 2016, the remaining contractual maturities of accounts payable and accruals and dividends payable are less than one year. Maturity information regarding the principal and interest on the Company’s long-term debt are as follows:
As at December 31 Less than 1 Year 1-3 Years 4-5 Years Total Senior unsecured notes $ 144,489 $ 156,628 $ 139,436 $ 440,553 Bank credit facilities1 1,269 318,006 — 319,275 Total $ 145,758 $ 474,634 $ 139,436 $ 759,828 1 Interest on the bank credit facilities is calculated based on the amount drawn at December 31, 2016 and the applicable bankers’ acceptance/ LIBOR interest rates outstanding as at December 31, 2016. USD denominated balances are converted using the foreign exchange rate as of December 31, 2016.
Market risk
Market risk is the risk that changes in market prices, such as interest rates and foreign exchange rates, will affect the Company’s net income or the value of its financial instruments.
Interest rate risk
The Company is exposed to interest rate risk with respect to its bank credit facilities which bear interest at floating market rates. For the year ended December 31, 2016, if interest rates applicable to its bank credit facilities had been 0.25 percent higher or lower, with all other variables held constant, income before income taxes would have been $791 lower or higher.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 25 Foreign currency exchange rate risk
The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the United States dollar. The principal foreign exchange risk relates to the translation of the Company’s foreign subsidiaries from their functional currencies to Canadian dollars. At December 31, 2016, had the Canadian dollar weakened or strengthened by $0.01 against the United States dollar, with all other variables held constant, the Company’s income before income taxes would have been $1,036 higher or lower.
In addition the Company has foreign exchange risk in relation to the conversion of Australian dollar denominated debt to Canadian dollars. At December 31, 2016, had the Australian dollar strengthened or weakened by $0.01 against the Canadian dollar, with all other variables held constant, the Company’s income before income taxes would have been $1,408 higher or lower.
The above sensitivities are limited to the impact of changes in the specified variable applied to the items noted above and do not represent the impact of a change in the variable on the operating results of the Company taken as a whole.
19. CONTINGENCIES AND COMMITMENTS
The Company has provided insurance bonds to certain government agencies in respect of the temporary importation of equipment into that country. It is not anticipated that any material liabilities will arise from these insurance bonds. The Company has commitments for facility leases, with future minimum payments as follows:
Not later than 1 year $ 4,492 Later than 1 year and not later than 5 years 9,555 Later than 5 years 454
The Company leases a number of facilities under operating leases. The leases typically run for a period of two to ten years, with an option to renew the lease after that date. Lease payments are increased throughout the lease term to reflect market rates.
For the year ended December 31, 2016, lease payments of $7,459 (2015 - $8,393) were recognized as an expense. The Company is a party to various disputes and lawsuits in the normal course of its business and believes the ultimate liability arising from these matters will have no material impact on its consolidated financial statements.
20. SUBSEQUENT EVENTS
Subsequent to December 31, 2016, the Company settled the declared fourth quarter dividend of $0.12 per common share, by paying $11,273 and issuing 798,785 common shares, to eligible holders of common shares participating in the Company's DRIP, representing a 39 percent acceptance.
Subsequent to December 31, 2016, the Company paid the USD $100.0 million of senior unsecured notes bearing interest at 3.43 percent, due February 22, 2017 using the Global Facility.
ENSIGN ENERGY SERVICES INC. | 2016 ANNUAL REPORT 26
ENSIGN ManagementInformationCircular
2017
EnsignManagementInformationCircular–2017 NOTICEOFTHEANNUALMEETINGOFSHAREHOLDERS
Date, Theannualmeeting(the“Meeting”)oftheshareholders(“Shareholders”)ofEnsignEnergy Placeand ServicesInc.(the“Corporation”)willbeheldonFriday,the5thdayofMay,2017,at3:00 Time p.m.(Calgarytime)attheCalgaryPetroleumClub,319–5thAvenueS.W.,Calgary,Alberta. TheMeetingwillhavethefollowingpurposes: Itemsof 1. ToreceivetheconsolidatedfinancialstatementsoftheCorporationforthefiscalyear Business endingDecember31,2016,togetherwiththeauditor’sreportthereon; 2. TosetthenumberofDirectorsoftheCorporationatnine(9)andtoelectDirectorsto holdofficeuntilthecloseofthenextannualmeeting; 3. ToappointauditorsoftheCorporationfortheensuingfiscalyeartoholdofficeuntilthe closeofthenextannualmeeting; 4. Toapprove,onanonͲbindingadvisorybasis,theCorporation’sapproachtoexecutive compensation,asdescribedintheInformationCircular;and 5. TotransactsuchotherbusinessasmaybeproperlybroughtbeforetheMeetingorany adjournmentthereof. ThespecificdetailsofthemattersproposedtobeputbeforetheMeetingaresetforthin theaccompanyingInformationCircular. ShareholderswhocannotbepresentinpersonattheMeetingareurgedtocomplete,sign anddatetheenclosedInstrumentofProxy.TheInstrumentofProxymustbedepositedwith theSecretaryoftheCorporation,careofComputershareTrustCompanyofCanadaat100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1, not later than 3:00 p.m. on Wednesday,May3,2017. WhoCan OnlyShareholdersofrecordasofthecloseofbusinessonMarch17,2017(the“Record Vote Date”)areentitledtoreceivenoticeoftheMeeting.Shareholdersofrecordwillbeentitled tovotethoseCommonSharesincludedinthelistofShareholdersentitledtovoteatthe MeetingpreparedasattheRecordDate,unlessanysuchShareholdertransfershisCommon SharesaftertheRecordDateandthetransfereeofthoseCommonSharesestablishesthat heownstheCommonSharesanddemands,notlaterthanthecloseofbusiness10days before the Meeting, that the transferee’s name be included in the list of Shareholders entitledtovoteattheMeeting,inwhichcasesuchtransfereeshallbeentitledtovotesuch CommonSharesattheMeeting. DATEDattheCityofCalgary,intheProvinceofAlberta,this17thdayofMarch,2017. BYORDEROFTHEBOARDOFDIRECTORS
RobertH.Geddes President&ChiefOperatingOfficer
Page2 EnsignManagementInformationCircular–2017
ImportantNoticeregardingProxyMaterialsandNoticeandAccessProcedures TheCorporationhaselectedtousethenoticeͲandͲaccessprovisionsunderNationalInstrument54Ͳ101and NationalInstrument51Ͳ102(“NoticeͲandͲAccess”)fordistributionofthemeetingmaterialstoShareholders. NoticeͲandͲAccessallowstheCorporationtopostelectronicversionsofitsproxyͲrelatedmaterialsonthe SystemforElectronicDocumentAnalysisandRetrieval(“SEDAR”)andonitswebsite,ratherthanmailing papercopiestoShareholders.ShareholderswillstillreceivethisNoticeofMeetingandaformofproxy(or votinginstructionformifapplicable)andmaychoosetoreceiveapapercopyofthemeetingmaterialsin accordancewiththeinstructionssetforthbelow. ThemeetingmaterialswillbeavailableontheCorporation’swebsiteatwww.ensignenergy.comasofMarch 30, 2017. The meeting materials will also be available under the Corporation’s profile on SEDAR at www.sedar.comasofMarch30,2017.Theuseofthisalternativemeansofdeliveryismoreenvironmentally friendlyasitwillhelpreducepaperuseanditwillalsoreducetheCorporation'sprintingandmailingcosts. Shareholdersareremindedtoreviewthemeetingmaterialspriortovoting. AnyShareholderwhowishestoreceiveapapercopyofthemeetingmaterials,atnocosttothem,mayrequest copiesfromtheCorporationat400–5thAve.S.W.,Suite1000,Calgary,Alberta,T2P0L6,Fax:(403)262Ͳ1361, TollFree:1(877)262Ͳ1361orbyemailat[email protected].AShareholdermayalsouse thistollͲfreenumbertoobtainadditionalinformationabouthowNoticeͲandͲAccessworks. Requestsforpapercopiesshouldbemadeassoonaspossible,butmustbereceivednolaterthanApril4, 2017inordertoallowsufficienttimeforShareholderstoreceiveandreviewthemeetingmaterialsandreturn theproxyformorvotinginstructionformpriortotheproxydeadline.Shareholderswhoareunabletoattend the meeting in person are requested to complete, date and sign the enclosed form of proxy (or voting instructionform,asapplicable)andreturnit,intheenvelopeprovided,toComputershareTrustCompanyof Canada,100UniversityAvenue,9thFloor,Toronto,OntarioM5J2Y1,sothatitisreceivednolaterthan3:00 p.m.(Calgarytime)onWednesdayMay3,2017.
Page3 EnsignManagementInformationCircular–2017 TableofContents SECTION1–PROXYINFORMATION...... 6 RecordDate...... 6 DesignationofPersonsOtherThanThoseSetForthintheInstrumentofProxy...... 6 BeneficialHoldersofShares...... 6 VotingofCommonSharesRepresentedbyProxies...... 7 RevocationofProxies...... 8 SECTION2–PARTICULARSOFMATTERSTOBEACTEDUPON...... 9 NumberofDirectors...... 9 ElectionofDirectors...... 9 MajorityDirectorVoting...... 15 Committees...... 16 MeetingsoftheBoardofDirectorsanditsCommitteesDuring2016...... 16 DirectorTenure...... 17 NoCommonOutsideBoards...... 17 DirectorEquityOwnershipRequirement...... 17 AdditionalDisclosuresRegardingDirectors...... 19 AppointmentofAuditors...... 19 AdvisoryVoteonExecutiveCompensation(“SayonPay”)...... 20 SECTION3–COMPENSATIONDISCUSSIONANDANALYSIS...... 21 LettertoShareholders...... 21 CompensationDiscussion&Analysis...... 24 Summaryof2016Changes...... 24 LookingAheadto2017...... 25 BoardofDirectorsOversightandtheCompensationCommittee...... 25 CompensationCommitteeMandate...... 27 CompensationPhilosophy,PrinciplesandObjectives...... 27 RiskConsiderationsofExecutiveCompensation...... 28 CompensationBenchmarkingPeerGroup...... 31 NEOCompensationComponents–Summary...... 33 PerformanceGraph...... 40 2016CompensationandPayMix...... 41 CompensationObjectiveSupported...... 43 CompensationoftheNamedExecutiveOfficers...... 43 2016PerformanceoftheNEOs...... 43 2016AnnualBonusCalculation–CashAward...... 44 2016PSAAwards...... 45 2016StockOptionGrants...... 45 LookingAheadto2017...... 46 SummaryCompensationTable...... 47 OutstandingShareͲBasedAwardsandOptionͲBasedAwards...... 51 IncentivePlanAwards–ValueVestedorEarnedDuringtheYear...... 52 PensionPlanBenefits...... 52
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TerminationandChangeofControlBenefits...... 53 ExecutiveShareOwnershipGuideline...... 55 SECTION4–DIRECTORCOMPENSATION...... 58 DirectorsCompensationPhilosophyandObjectives...... 58 EquityͲBasedCompensation–DirectorsDSUPlanandCommonSharePaymentPlan...... 60 2016DirectorsSummaryCompensationTable...... 61 DirectorsFees–Breakdown...... 62 Directors’OutstandingShareͲBasedAwards...... 63 Directors’IncentivePlanAwards–ValueVestedorEarnedDuringtheYear...... 64 SECTION5–STATEMENTOFCORPORATEGOVERNANCEPRACTICES...... 65 DirectorIndependence...... 65 LeadDirector...... 66 OtherIssuerDirectorships...... 66 “InCamera”SessionsoftheIndependentDirectors...... 67 2016BoardandCommitteeMeetingAttendance...... 67 BoardMandate...... 68 CommitteesandCommitteeComposition...... 69 DirectorSkillsandExperience...... 69 DirectorOrientation...... 71 DirectorEducation...... 71 DirectorTermLimitsandOtherMechanismsofBoardRenewal...... 73 Diversity...... 73 EthicalBusinessConduct...... 73 IndependentJudgmentofDirectors...... 74 NominationofDirectors...... 75 DirectorCompensation...... 75 Board,BoardMemberandCommitteeAssessments...... 75 MandatoryShareOwnership...... 76 CommunicationsPolicy...... 77 BoardApprovalsandStructure...... 77 SECTION6–STOCKOPTIONPLAN...... 78 EquityCompensationPlanInformationAsAtDecember31,2016...... 80 SECTION7–OTHERINFORMATION...... 81 VotingSecuritiesandPrincipalHoldersThereof...... 81 InterestofInformedPersonsinMaterialTransactions...... 81 OtherMatters...... 81 AdditionalInformation...... 82 SCHEDULE1–MANDATEOFTHEBOARDOFDIRECTORS...... Appendix1
Page5 EnsignManagementInformationCircular–2017 FORTHEANNUALMEETINGOF SHAREHOLDERSTOBEHELDONFRIDAY,MAY5,2017 The information contained in this Management Information Circular (the "Information Circular") is furnishedinconnectionwiththesolicitationofproxiesbythemanagementofEnsignEnergyServicesInc. ("Ensign" or the "Corporation") for use at the 2017 Annual Meeting (the "Meeting") of the holders ("Shareholders")ofcommonsharesoftheCorporation(the"CommonShares")tobeheldattheCalgary PetroleumClub,319Ͳ5thAvenueS.W.,Calgary,Alberta,onFriday,the5thdayofMay,2017,at3:00p.m. (Calgarytime),andatanyadjournmentsthereof,forthepurposessetoutintheaccompanyingNoticeof theAnnualMeeting(the"Notice").Althoughitisexpectedthatthesolicitationofproxieswillbeprimarily bymail,proxiesmayalsobesolicitedpersonallyorbytelephone,orothermeansofcommunicationby regularemployeesoftheCorporation.ThecostofanysuchsolicitationwillbebornebytheCorporation. ThisInformationCircularisdatedMarch17,2017. SECTION1–PROXYINFORMATION
RecordDate ThepersonsentitledtoattendandvoteattheMeetingortoberepresentedthereatbyproxyarethose ShareholdersofrecordatthecloseofbusinessonMarch17,2017(the“RecordDate”).Shareholdersof recordwillbeentitledtovotethoseCommonSharesincludedinthelistofShareholdersentitledtovote attheMeetingpreparedasattheRecordDate,unlessanysuchShareholdertransfershisorherCommon SharesaftertheRecordDateandthetransfereeofthoseCommonSharesestablishesthatheorsheowns theCommonSharesanddemands,notlaterthan10daysbeforetheMeeting,thatthetransferee'sname beincludedinthelistofShareholdersentitledtovoteattheMeeting,inwhichcasesuchtransfereeshall beentitledtovotesuchCommonSharesattheMeeting. DesignationofPersonsOtherThanThoseSetForthintheInstrumentofProxy The persons named in the enclosed Instrument of Proxy to represent a Shareholder are directors or officersoftheCorporation.AShareholderwhochoosestovotebysubmittinganInstrumentofProxy hastherighttoappointaperson,whoneednotbeaShareholderoftheCorporation,torepresentsuch ShareholderattheMeetingotherthanthepersonsdesignatedintheInstrumentofProxyfurnished withthisInformationCircular.Suchrightmaybeexercisedbyinsertingintheblankspaceprovidedinthe InstrumentofProxythenameofthepersontobedesignatedorbycompletinganotherInstrumentof Proxyand,ineithercase,deliveringtheresultingInstrumentofProxytotheSecretaryoftheCorporation, careofComputershareTrustCompanyofCanada,100UniversityAvenue,9thFloor,Toronto,Ontario, M5J2Y1,notlaterthan3:00p.m.(Calgarytime)onWednesday,May3,2017. BeneficialHoldersofShares TheinformationsetforthinthissectionisofsignificantimportancetomanyShareholdersasasubstantial numberoftheShareholdersdonotholdCommonSharesintheirownname.Shareholderswhodonot holdtheirCommonSharesintheirownname(referredtohereinas“BeneficialShareholders”)should notethatonlyproxiesdepositedbyShareholderswhosenamesappearontherecordsoftheCorporation astheregisteredholdersofCommonSharescanberecognizedandacteduponattheMeeting.
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IfsharesarelistedinanaccountstatementprovidedtoaShareholderbyabroker,theninalmostallcases thoseCommonShareswillnotberegisteredintheShareholder'snameontherecordsoftheCorporation. SuchCommonShareswillmorelikelyberegisteredunderthenameoftheShareholder'sbrokeroran agentofthatbroker.InCanada,thevastmajorityofsuchsharesareregisteredunderthenameofCDS& Co.(theregistrationnameforTheCanadianDepositoryforSecuritiesLimited,whichactsasnomineesfor manyCanadianbrokeragefirms).CommonSharesheldbybrokersortheirnomineescanonlybevoted (for or against resolutions) upon the instructions of the Beneficial Shareholder. Without specific instructions, the broker/nominees are prohibited from voting Common Shares for their clients. The CorporationdoesnotknowforwhosebenefittheCommonSharesregisteredinthenameofCDS&Co. areheld. Applicableregulatorypolicyrequiresintermediaries/brokerstoseekvotinginstructionsfromBeneficial Shareholders in advance of shareholders meetings. Every intermediary/broker has its own mailing proceduresandprovidesitsownreturninstructions,whichshouldbecarefullyfollowedbyBeneficial ShareholdersinordertoensurethattheirCommonSharesarevotedattheMeeting.Often,theformof proxysuppliedtoaBeneficialShareholderbyitsbrokerisidenticaltotheformofproxyprovidedto registeredShareholders.However,itspurposeislimitedtoinstructingtheregisteredShareholderhowto voteonbehalfoftheBeneficialShareholder. ThemajorityofbrokersnowdelegateresponsibilityforobtaininginstructionsfromclientstoBroadridge FinancialSolutions,Inc.(“Broadridge”).BroadridgetypicallymailsascannableVotingInstructionFormin lieuoftheFormofProxy.TheBeneficialShareholderisrequestedtocompleteandreturntheVoting InstructionFormtothembymail,emailorfacsimile.AlternativelytheBeneficialShareholdercancalla tollͲfreetelephonenumbertovotetheCommonSharesheldbytheBeneficialShareholder.Broadridge thentabulatestheresultsofallinstructionsreceivedandprovidesappropriateinstructionsrespectingthe votingofCommonSharestoberepresentedattheMeeting.ABeneficialShareholderreceivingaVoting InstructionFormcannotusethatVotingInstructionFormtovoteCommonSharesdirectlyattheMeeting because the Voting Instruction Form must be returned as directed by Broadridge in advance of the MeetinginordertohavetheCommonSharesvoted. VotingofCommonSharesRepresentedbyProxies The Common Shares represented by proxy will be voted for, against, or withheld from voting, in accordance with the instructions of the Shareholder on any ballot that may be called for, and if the Shareholderspecifiesachoicewithrespecttoanymattertobeactedupon,theCommonShareswillbe votedaccordingly.Ifnochoiceisspecified,theCommonSharesrepresentedbyaproxyfortheMeeting willbevotedfortheresolutiononanyparticularresolution. TheenclosedInstrumentofProxyconfersdiscretionaryauthorityuponthepersonsnamedthereinwith respecttoamendmentsorvariationsofanyresolutionvoteduponattheMeetingandwithrespectto othermatterswhichmayproperlybebroughtbeforetheMeetingoranyadjournmentthereof.Atthe timeofprintingthisInformationCircular,managementoftheCorporationknowsofnosuchamendment, variationorothermatter.
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RevocationofProxies AShareholderwhohasgivenaproxymayrevoketheproxy,atanytimepriortotheexercisethereof.Ifa personwhohasgivenaproxyattendspersonallyattheMeeting,suchpersonmayrevoketheproxyand voteinperson.Inadditiontorevocationinanyothermannerpermittedbylaw,aproxymayberevoked byinstrumentinwritingexecutedbytheShareholderorbyhisorherattorneyauthorizedinwriting,orif the Shareholder is a corporation, under its corporate seal by an officer or attorney thereof duly authorized.TherevocationofproxymustbedepositedwiththeSecretaryoftheCorporation,careof ComputershareTrustCompanyofCanada,100UniversityAvenue,9thFloor,Toronto,Ontario,M5J2Y1, oratthecorporateofficeoftheCorporationat400Ͳ5thAvenueS.W.,Suite1000,Calgary,Alberta,T2P 0L6, at any time up to and including the last business day preceding the day of the Meeting, or any adjournmentthereof,atwhichtheproxyistobeused,orwiththeChairmanofsuchMeetingonthedate oftheMeetingoranyadjournmentthereof,anduponanyofsuchdeposits,theproxyisrevoked.
Page8 EnsignManagementInformationCircular–2017 SECTION2–PARTICULARSOFMATTERSTOBEACTEDUPON
TotheknowledgeofmanagementoftheCorporation,theonlymatterstobeplacedbeforetheMeeting arethosematterssetforthintheNotice,namelytosetthenumberofDirectorsoftheCorporationat nine(9),toelecttheDirectorsoftheCorporationfortheensuingyear,toappointtheAuditorsofthe Corporation for the ensuing fiscal year, and a nonͲbinding advisory vote with respect to executive compensation. TheresolutionsrelatingtotheNumberofDirectors,theElectionofDirectorsandtheAppointmentof Auditorsareordinaryresolutionsandmustbeapprovedbyinexcessof50%ofthevotescastbythe Shareholders,presentinpersonorrepresentedbyproxy,attheMeeting. NumberofDirectors TheaffairsoftheCorporationaremanagedbyaBoardofDirectorswhoareelectedannuallyforaone(1) yeartermateachannualmeetingofShareholdersandwhoholdofficeuntilthenextannualmeeting,or until their successors are duly elected or appointed or until a Director vacates his or her office or is replacedinaccordancewiththebyͲlawsoftheCorporation.TheArticlesoftheCorporationprovidethat theBoardofDirectorsshallconsistofnotlessthanthree(3)normorethanfifteen(15)persons. Directorswhohavecelebratedtheir75thbirthdaymaynot,unlesstheremainingBoardmembersagree toaspecificexception,standforelectionasaDirectoroftheCorporation(the“DirectorRetirement Policy”). TheBoardpresentlyconsistsofnine(9)Directorsanditisproposedthatnine(9)currentDirectorsbe reͲelectedtoserveontheBoardfortheforthcomingyear. ElectionofDirectors The following are the names of the nine (9) proposed nominees for election as Directors of the Corporation: x N.MurrayEdwards x RobertH.Geddes x JamesB.Howe x LenO.Kangas x CaryA.Moomjian,Jr. x JohnG.Schroeder x KennethJ.Skirka x GailD.Surkan x BarthE.Whitham Thepersonsnamedhereinhavebeennominatedforelectionandhaveconsentedtosuchnomination. ThecurrentBoardofDirectorsrecommendsthateachofthenomineesbeelectedtoserveasDirectors oftheCorporation,toholdofficeuntilthenextannualmeetingofShareholdersoruntilsuchperson’s successoriselectedorappointed.Asyouwillnotefromtheenclosedformofproxyorvotinginstruction form,shareholdersmayvoteforeachDirectorindividually.Inaddition,theCorporationhasadopteda majority director voting policy, described below. If no choice is specified, the Common Shares representedbyaproxyfortheMeetingwillbevotedFORtheelectionofeachofthesenominees. ThecurrentBoardofDirectorshasconfirmedthatMr.N.MurrayEdwardswill,subjecttohisreͲelection asaDirector,bereͲappointedbytheBoardofDirectorsasChairmanoftheBoardofDirectors.Eachsuch Director’sconfirmationissubjecttohisorherreͲelectionasaDirectorbytheShareholdersattheMeeting.
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ThefollowingtablessetforthselectedinformationforeachoftheproposedDirectors,togetherwithhis orherage,principalplaceofresidence,principaloccupation,principaldirectorshipswithotherboards, date first elected or appointed as a Director of the Corporation, whether the nominee qualifies as independent, the Committee(s) of the Board on which the nominee serves, the number of Common Sharesbeneficiallyowned,orcontrolledordirectedbyeachproposednomineeasatMarch17,2017and theattendancerecordsforbothBoardandCommitteemeetingsheldin2016.Allnomineesarecurrently Directors of the Corporation. Certain of this information, not being within the knowledge of the Corporation,hasbeenfurnishedbytherespectivenominees. N.MurrayEdwards Mr.Edwardsisaninvestorandcorporatedirector.PriortoDecember2015,he Age:57 wasthePresidentofEdcoFinancialHoldingsLtd,aprivatemanagementand London,UnitedKingdom consultingcompany.HeiscurrentlyadirectorandChairmanofCanadianNatural Directorsince:October Resources Limited, a publicly traded company and one of the largest 1989 independentcrudeoilandnaturalgasproducersintheworld,andadirectorand NonͲindependent– ChairmanofMagellanAerospaceCorporation,alsoapubliclytradedcompany. management(Chairman HehasaB.Comm.fromtheUniversityofSaskatchewan(GreatDistinction)and ofEnsign) anLL.B.(Honours)fromtheUniversityofToronto.Heisamemberandadirector oftheCanadianCouncilofChiefExecutives,anorganizationofleadingCanadian business people engaged in public policy initiatives, and is on the board of directorsoftheC.D.HoweInstitute,anindependentnotͲforͲprofitpublicpolicy research institute. In 2007, the business school at the University of Saskatchewan was reͲnamed the “N. Murray Edwards School of Business” in recognitionofhissupportoftheschool.Hehasbeenawardedseveralhonorary DoctorofLawsdegreesfromprominentCanadianuniversities,includingfrom theUniversityofCalgary(2004),theUniversityofSaskatchewan(2011),andthe UniversityofToronto(2013),ineachcaseinrecognitionofhisachievementsin businessandsupportofeducational,culturalandcommunityorganizationsand institutions. Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard. 7/7(100%) CanadianNatural 1988topresent AsChairmanofEnsignandthereforenotan ResourcesLimited independentdirector,Mr.Edwardsmayattendall MagellanAerospace 1995topresent meetingsofBoardCommitteesbutasanonͲvoting Corporation participantonly. VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 125,091,788 97.43 VotesWithheld 3,295,847 2.57 TotalCompensation Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) Earnedin2016:(2) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(4) $496,142 26,312,932/N/A 26,312,932 Yes OptionsHeldasatMarch17,2017: Number AverageWeightedExercisePrice ExercisableinͲtheͲMoneyOption UnͲExercisableinͲtheͲMoneyOption Value Value 650,000 $10.96 $34,000 $136,000
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RobertH.Geddes Mr. Geddes has been with theEnsign group of companies since 1991 and is Age:60 currentlythePresident&ChiefOperatingOfficeroftheCorporation,aposition Calgary,Alberta,Canada hehasheldsinceJanuary1,2007.HeactedasVicePresidentCanadianDrilling Directorsince:March2007 from1999to2004andPresidentCanadianOperations,from2004toDecember NonͲindependent– 31,2006.HeisapastchairmanoftheCanadianAssociationofOilwellDrilling management(President& Contractors (CAODC), and is a member of the Association of Professional ChiefOperatingOfficerof Engineers,GeologistsandGeophysicistsofAlberta(APEGGA).HeholdsaB.Sc.in Ensign) MechanicalEngineeringfromtheUniversityofAlberta.
Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard. 7/7(100%) None AsPresident&ChiefOperatingOfficerofEnsign andthereforenotanindependentdirector,Mr. GeddesmayattendallmeetingsofBoard CommitteesbutasanonͲvotingparticipantonly. VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 127,841,963 99.57 VotesWithheld 545,672 0.43 TotalCompensation Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) Earnedin2016:(2) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(4) Yes $738,439 655,801/N/A 655,801 OptionsHeldasatMarch17,2017: Number AverageWeightedExercisePrice ExercisableinͲtheͲMoneyOption UnͲExercisableinͲtheͲMoneyOption Value Value 650,000 $10.96 $34,000 $136,000
JamesB.Howe Mr. Howe is President of Bragg Creek Financial Consultants Ltd., a private financial Age:67 consulting company. He brings extensive corporate board experience to Ensign, Calgary,Alberta, including in the oil and natural gas and related service industries, together with Canada significantaccounting,financeandexecutivecompensationexpertise.Overhis40year Directorsince: career,Mr.HowehasservedasChiefFinancialOfficerofseveralpubliccompaniesand June1987 currentlyservesontheboardofdirectorsandauditcommitteeofBengalEnergyLtd., Independent andontheboardofdirectors,auditcommitteeandcompensationcommitteeofPason SystemsInc.Mr.HoweearnedaB.A.fromtheIveySchoolofBusinessattheUniversity ofWesternOntarioandisaCharteredAccountant.HeisamemberoftheChartered ProfessionalAccountantsofAlberta. Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard 7/7(100%) BengalEnergyLtd. 2005topresent MemberoftheAuditCommittee 4/4(100%) PasonSystemsInc. 1997topresent ChairoftheCompensationCommittee 5/5(100%) VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 127,515,917 99.32 VotesWithheld 871,718 0.68 TotalCompensation Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) Earnedin2016:(5) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(6) $141,200 456,044/0 456,044 Yes
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LenO.Kangas Mr.Kangasisaretiredbusinessmanandoilfieldmarketingconsultantwithover40 Age:68 yearsofexperienceinoilfieldservicing,transportationandrelatedbusinesses.Hewas RedDeer,Alberta, the President of MarͲLen Enterprises Trucking & Rental Company, from 1992 until Canada 2006.HehasalsoservedonanumberofcommunityandnonͲprofitboards. Directorsince: June1990 Independent
Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard 7/7(100%) None ChairoftheCorporateGovernance,Nominations&Risk 4/4(100%) Committee MemberoftheHealth,Safety&EnvironmentCommittee 4/4(100%) LeadDirector VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 124,990,019 97.35 VotesWithheld 3,397,616 2.65 TotalCompensation Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) Earnedin2016:(5) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(6) $146,400 68,866/36,648 105,514 Yes
CaryA.MoomjianJr. Mr.Moomjianisaformeroilandgasdrillingindustryexecutivewith35yearsof Age:69 international and domestic experience in legal, contractual, risk management, Frisco,Texas,USA commercialandcorporategovernanceactivitiesthatincludednegotiationofland Directorsince: andoffshoredrillingcontracts,oilfieldserviceandsupplyagreements,jointventure November2014 relationships, rig construction projects, financings, mergers and acquisitions. He Independent actedasVicePresident,GeneralCounselandSecretarytoENSCOInternationalInc. andEnscoplcfrom2002until2011,andpriortothatwasVicePresident,General CounselandSecretaryofSantaFeInternationalCorporation.HehasaB.A.(cum laude)fromOccidentalCollegeinLosAngeles,CAandaJ.D.(withdistinction)from theDukeUniversitySchoolofLaw.HehasbeenamemberoftheCaliforniaandTexas Statebarassociationssince1972and1994respectively.Hehasbeenaprominent memberofandcontributortotheInternationalAssociationofDrillingContractors (IADC), which named him “Contractor of the Year” in 1996, and is a recognized expertondrillingcontracts. Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard 7/7(100%) None MemberoftheCompensationCommittee 5/5(100%) MemberoftheCorporateGovernance,Nominations& RiskCommittee 4/4(100%) VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 125,709,133 97.91 VotesWithheld 2,678,502 2.09 TotalCompensation Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) Earnedin2016:(5) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(6)(7) $151,000 10,000/22,526 32,526 N/A
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JohnG. Mr.Schroederhasover30yearsofexperienceintheoilandnaturalgasindustry,with Schroeder significantaccounting,finance,complianceandhumanresourcesexpertise.Heretiredon Age:70 July31,2009fromhispositionasVicePresident,FinanceandChiefFinancialOfficerof Calgary,Alberta, Parkland Income Fund (now called Parkland Fuel Corporation), a public petroleum Canada marketingincometrust,followingasuccessful22Ͳyearcareerwiththatcompanyduring Directorsince: whichheplayedakeyroleinitsgrowth.PriortojoiningParkland,Mr.SchroederwasVice June1990 President Finance for Geocrude Energy Inc. and Vice President Finance and Independent Administration for Pancana Minerals Inc. Mr. Schroeder earned a B. Comm., with Honours,fromtheUniversityofManitobaandisaCharteredAccountant.Heisamember oftheCharteredProfessionalAccountantsofAlberta. Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard 7/7(100%) None ChairoftheAuditCommittee 4/4(100%) MemberoftheCompensationCommittee 5/5(100%) VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 127,683,438 99.45 VotesWithheld 704,197 0.55 TotalCompensation Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) Earnedin2016:(5) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(6) $145,600 16,073/47,059 63,132 Yes KennethJ.Skirka Mr.SkirkaretiredasManagingDirectorofAustralianOilandGasCorporation("AOG")in Age:72 April 2003 following AOG’s acquisition by Ensign. AOG was an Australian publicly listed Sydney,Australia oilfieldservicescompanyactiveinAustralia,NewZealand,SoutheastAsia,theMiddleEast, Directorsince: NorthAfricaandSouthAmerica.Mr.Skirkahasover40yearsofexperienceinallaspectsof May2003 theoilfieldservicesandproductionindustries,inAustraliaandinternationally.Hehasserved Independent onanumberofindustrybodiesincludingtheadvisoryboardoftheSchoolofPetroleum EngineeringattheUniversityofNewSouthWales(Sydney)andisaformermemberofthe ExecutiveCommitteeoftheInternationalAssociationofDrillingContractors(IADC).Heis a member of the Australian Society of Petroleum Engineers and is a Fellow of the AustralianInstituteofCompanyDirectors.HeisaformerdirectorofRomaPetroleumN.L., anAustralianexplorationcompanyformerlylistedontheAustralianStockExchange. Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard 7/7(100%) None MemberoftheCorporateGovernance,Nominations&Risk 4/4(100%) Committee ChairoftheHealth,Safety&EnvironmentCommittee 4/4(100%) VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 125,392,852 97.67 VotesWithheld 2,994,783 2.33 TotalCompensationEarnedin Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) 2016:(5) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(6) $182,912 57,751/0 57,751 Yes
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GailD.Surkan Ms. Surkan is a retired businesswoman with 30 years of experience in economic and Age:69 humanresourcedevelopment,strategicleadershipandgovernance.ShewasafourͲterm RedDeer, mayorofRedDeer,Alberta,from1992to2004.Ms.SurkanwasafoundingdirectorofATB Alberta,Canada Financial,wheresheservedfornineyears.ShealsoservedasthechairoftheAlberta Directorsince: HeritageFoundationforMedicalResearchforfouryears,retiringin2009attheendofher March2006 termaftereightyearsofservice.UntilDecember2014,Ms.Surkansatontheboardofthe Independent AgricultureFinancialServicesCorporation,andcurrentlysitsontheboardsofanumberof notͲforͲprofitorganizations.ShealsocurrentlychairstheGovernanceCommitteeforthe 2019CanadaWinterGames.Inadditiontoherextensiveboardexperience,Ms.Surkan hassignificantexpertiseinbusinessandorganizationalstrategy,executiverecruitment and human resources. She has a Bachelor of Economics from the University of Saskatchewan.Ms.Surkancontinuestobeveryactiveatthecommunitylevelandservesas anHonoraryColonelforthe20thFieldRegimentoftheCanadianForces. Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard 7/7(100%) None MemberoftheCompensationCommittee 5/5(100%) MemberoftheCorporateGovernance,Nominations&Risk 4/4(100%) Committee VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 128,188,119 99.84 VotesWithheld 199,516 0.16 TotalCompensationEarnedin Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) 2016:(5) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(6) $136,000 50,419/4,966 55,385 Yes BarthE. Since 2004, Mr. Whitham has been the President & Chief Executive Officer of Enduring Whitham Resources, LLC, a private DenverͲbased company with exploration and production Age:60 operationsonshoreUnitedStates.Healsoservesasadirectorforthatcompany.In1991he Denver, coͲfounded Westport Oil and Gas, which went public as Westport Resources Corp., an Colorado,USA upstreamenergycompanylistedontheNYSE,andservedasitsPresident&ChiefOperating Directorsince: Officer from 1991 until 2004, when it merged with what is now Anadarko Petroleum March2007 Corporation.HealsoservedontheBoardofDirectorsforWestportResourcesCorp.Prior Independent toWestport,Mr.WhithamworkedextensivelyintheupstreamUnitedStates,international andoffshoreenergyindustryinprojectplanning,developmentandoperations.Hehasa B.Sc.inPetroleumEngineering,anM.Sc.inEconomicsfromtheColoradoSchoolofMines, andisaRegisteredProfessionalEngineer. Board/CommitteeMembership:(1) Attendance: PublicBoardMemberships: MemberoftheBoard 7/7(100%) IntrepidPotashInc. 2008–present MemberoftheAuditCommittee 4/4(100%) MemberoftheHealth,Safety&EnvironmentCommittee 4/4(100%) VotingResultsof2016AGM: NumberofVotes: %ofVotes: VotesFor 128,346,889 99.97 VotesWithheld 40,746 0.03 TotalCompensation Securities/DSUsHeld(directlyandindirectly)asatMarch17,2017:(3) Earnedin2016:(5) Value CommonShares/ TotalHoldings(Sharesand MeetsMinimumShareholding DSUs DSUs) Requirement(6) $151,400 55,441/0 55,441 Yes (1) AsatDecember31,2016. (2) For further details on the compensation earned by the Chairman and the President & Chief Operating Officer of the Corporation,pleaseseethesectionofthisInformationCircularentitled“CompensationDiscussionandAnalysis”. (3) CommonShareownershipreportedinthisInformationCircularexcludesanyCommonSharesthatmayhavebeenacquired bytheDirectoronthedividendpaymentdateofJanuary6,2017pursuanttotheCorporation’sDividendReinvestmentPlan.
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AnysuchacquisitionsofCommonSharesbyareportinginsiderwillbereportedinthenormalcourseontheSystemfor ElectronicDisclosurebyInsiders(SEDI)inthefirstquarterof2018. (4) ForfurtherdetailsontheminimumshareholdingrequirementfortheChairmanandthePresident&ChiefOperatingOfficer oftheCorporation,pleaseseethesectionofthisInformationCircularentitled“CompensationDiscussionandAnalysis– MandatoryExecutiveShareOwnershipGuidelines”. (5) ForfurtherdetailsonthecompensationearnedbyDirectors,pleaseseethesectionofthisInformationCircularentitled “DirectorCompensation”. (6) ForfurtherdetailsontheminimumshareholdingrequirementapplicabletoDirectorswhoarenotmembersofManagement, pleaseseethesectionofthisInformationCircularentitled“DirectorEquityOwnershipRequirements”. (7) Mr.MoomjianhasuntilNovember2019tomeetourshareownershiprequirement. “Independent”inthetablesabovereferstothestandardsofindependenceestablishedunderSection1.2 of the Canadian Securities Administrators’ National Instrument 58Ͳ101 (Disclosure of Corporate GovernancePractices). MajorityDirectorVoting On March 14, 2008, the Board adopted a policy whereby the election of director nominees by shareholdersinanuncontestedelectionshallbebymajorityvote.Adirectornomineewhoreceivesless than50%ofthevotescastinfavouroftheelectionofthedirectornomineeshallforthwithsubmittothe Board his or her resignation, to take effect upon acceptance by the Board. The Board shall exercise discretioninconsideringanysuchresignationofthedirectornominee.Ifitisdeemedtobeinthebest interestsoftheCorporationandtheShareholders,andabsentanyextenuatingcircumstancesdeemedby the Board to exist, the Board shall accept such resignation within 90days of having received the resignationofthedirectornominee. In2016,thispolicywasupdatedtoincludethefollowingadditionalrequirements:
x Adirectorwhotendersaresignationpursuanttothepolicywillnotparticipateinanymeetingof theboardoranysubͲcommitteeoftheboardatwhichtheresignationisconsidered; x Anewsreleasewillbepromptlyissuedwiththeboard'sdecisionregardingtheresignationofthe director; x Acopyofthenewsreleasewiththeboard’sdecisionwillbeprovidedtoTSX;and x Iftheboarddeterminesnottoacceptaresignation,thenewsreleasemustfullystatethereasons forthatdecision.
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Committees TheBoardofDirectorscurrentlyhasfour(4)Committees: 1. AuditCommittee; 2. CompensationCommittee; 3. CorporateGovernance,Nominations&RiskCommittee;and 4. Health,Safety&EnvironmentCommittee.
AsatMarch17,2017,theBoardofDirectorshasnine(9)members,allofwhomarestandingforreͲ electionattheMeeting,andmembershipoftheBoardCommittees(comprisedexclusivelyofindependent Directors)isasfollows:
Committees
Audit Compensation Governance, Health,Safety& Nominations& Environment IndependentDirectors YearAppointed Risk
Howe,JamesB. 1987 X Chair
Kangas,LenO. 1990 Chair X
MoomjianJr.,CaryA. 2014 X X
Schroeder,JohnG. 1990 Chair X
Skirka,KennethJ. 2003 X Chair
Surkan,GailD. 2006 X X
Whitham,BarthE. 2007 X X MeetingsoftheBoardofDirectorsanditsCommitteesDuring2016 TheindividualattendancerecordformeetingsoftheBoardofDirectorsanditscommitteesissetforthin the tables above and in the section of this Information Circular entitled “Statement of Corporate GovernancePractices”.
TheoverallaverageattendanceforallmeetingsoftheBoardofDirectorsanditscommitteesheldin 2016was100%.
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DirectorTenure OtherthaninconnectionwiththeDirectorRetirementPolicy,Ensigndoesnotcurrentlyhaveapolicyfor Directortermlimits.TheBoardofDirectorsbelievesitiscriticalthatallDirectorshaveacomprehensive understandingoftheCorporation’sbusiness,andthatsuchanunderstandingisachievedthroughand enhancedbylengthoftenure.WhilenewDirectorsmaybringfreshperspectivesandnewexperience, Directors who have served for several years accumulate valuable knowledge regarding our business, includingindustrytrendsandcycles,marketconditionsandgeoͲpoliticalinfluences. ThenomineesforelectiontotheBoardofDirectorsincludeindividualshavingservedbetweentwo(2) andupto29yearsasaDirectoroftheCorporation,ascategorizedbelow: Tenure #ofDirectors Director
0–5years 1 CaryA.Moomjian,Jr.
Geddes,RobertH. 6–10years 2 Whitham,BarthE.
Skirka,KennethJ. 11–15years 2 Surkan,GailD.
16–20years 0 N/A
Edwards,N.Murray Howe,JamesB. 21+years 4 Kangas,LenO. Schroeder,JohnG. TheaverageageoftheCorporation’sDirectorsin2016was64.5years. NoCommonOutsideBoards AsofthedateofthisInformationCircular,notwoormoreoftheCorporation’sdirectorswereserving togetheronanyotherboardofdirectors. DirectorEquityOwnershipRequirement Withaview toaligningthe nonͲmanagementDirectorsinterestswiththose oftheShareholders,the Corporation has implemented a requirement that such Directors acquire and hold Common Shares (including DSUs, which are included in the calculation of equity ownership in connection with this requirement)withaminimumaggregatevalueequaltothree(3)timesthebaseannualcashandequity retainer,withinfive(5)yearsaftertheirinitialappointmentasaDirector. Inearly2015,inlightofuncertainmarketconditions,theBoardofDirectorsunanimouslyvolunteeredto takea20%reductionincompensation(describedinfurtherdetailinthesectionbelowentitled“Director Compensation”).CompensationlevelsforDirectorsin2016weremaintainedatthe2015levels.Assuch, theminimumequityownershiprequirementfor2016,basedonamultipleofthree(3)timesthereduced
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baseannualcashandequityretainer,wasCommonShares(orDSUs)havingavalueof$336,000,thesame asforthe2015year. Toavoidtheneedtocontinuouslymonitorandadjustthevalueofholdingsbasedonfluctuationsin themarketpriceoftheCommonShares,forpurposesoftheminimumequityownershiprequirement applicabletotheCorporation’snonͲmanagementDirectors,thevalueofholdingsiscalculatedbased onthegreaterof: i. ThecurrentmarketvalueoftheCommonShares; ii. ThemarketvalueoftheCommonSharesasatDecember31oftheimmediatelyprecedingyear; or; iii. TheacquisitioncostofeachDirector’sholdings. Oncetheapplicablethresholdismet,furtherpurchasesarenotrequiredifthevalueoftheCommon ShareshelddecreasessolelyasaresultofadeclineinthemarketvalueoftheCommonShares.However, ifthevaluedecreasesforanyotherreason(i.e.saleofCommonShares),suchDirectorwouldberequired toincreasethevalueofhisorherholdingstoachievetherequiredthreshold. Throughout2016andasatMarch17,2017,eachDirectorbeingnominatedforelectionattheAnnual MeetingoftheShareholdersandsubjecttotheminimumequityownershiprequirementhasmetthe minimumequityownershiprequirement,basedononeormoreofthepermittedcalculationmethods,as demonstratedbelow:
AsatMarch17,2017 2016Requirement:Valueof$336,000 Total Equity Market Market Ownership (Common Valueasat Valueasat (Common Ownership Shares+ December March17, Acquisition Meets Name Shares(#) (DSUs)(#) DSUs) 31,2016(1) 2017(2) Cost(3) Guidelines(4) Howe,JamesB. 456,044 0 456,044 $4,277,693 $3,639,231 Yes Yes Kangas,LenO. 68,866 36,648 105,514 $989,721 $842,002 Yes Yes MoomjianJr.,CaryA. 10,000 22,526 32,526 $305,094 $259,557 N/A N/A Schroeder,JohnG. 16,073 47,059 63,132 $592,178 $503,793 Yes Yes Skirka,KennethJ. 57,751 0 57,751 $541,704 $460,853 Yes Yes Surkan,GailD.. 50,419 4,966 55,385 $519,511 $441,972 Yes Yes Whitham,BarthE. 54,441 0 54,441 $510,657 $434,439 Yes Yes TOTAL: 713,594 111,199 824,793 (1) BasedontheclosingpricefortheCorporations’CommonSharesonDecember31,2016of$9.38. (2) BasedontheclosingpricefortheCorporations’CommonSharesonMarch17,2017of$7.98. (3) Basedontheacquisitioncostofholdingsthatexceedbothcurrentmarketvalueandtheequityownershiprequirement. (4) AllDirectorsexceptforMr.Moomjian,whowasappointedtotheBoardofDirectorsonNovember5,2014,havebeenontheBoard ofDirectorsforfive(5)ormoreyearsandarethereforesubjecttotherequirement.
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AsatMarch17,2017,thenonͲmanagementDirectorsholdanaggregateof713,594CommonSharesand 111,199DSUs.TheCommonSharesofthenonͲmanagementDirectorsrepresent0.46%oftheissuedand outstandingCommonSharesasatthatdateandatotalaccumulatedvalueof$6,581,848(basedonthe closingpricefortheCommonSharesonMarch17,2017of$7.98).ManagementDirectorshaveseparate shareownershiprequirements. Cumulatively,nonͲmanagementandmanagementDirectorsholdatotalof27,682,327CommonShares representing17.87%oftheissuedandoutstandingCommonSharesandatotalaccumulatedvalueof $220,904,969(basedontheclosingpricefortheCommonSharesonMarch17,2017of$7.98). TheDirector equityownershiprequirementsarereviewed periodicallybytheCorporate Governance, Nominations&RiskCommitteetoensurethatthelevelisappropriatetodemonstratecommitmentto Ensign’ssuccess,inviewofCommonSharevalueandthecurrentlevelofcompensationbeingprovided tononͲmanagementDirectors. AdditionalDisclosuresRegardingDirectors TotheknowledgeoftheCorporation,inthelasttenyears,noneoftheaboveͲnamednomineesisorhas been(i)adirector,chiefexecutiveofficerorchieffinancialofficerofanyotherissuerthat,whilethat personwasactinginthatcapacityorwhichresultedfromaneventwhichoccurredwhilethatpersonwas actinginsuchcapacity,wasthesubjectofaceasetradeorderorsimilarorder,oranorderthatdenied theotherissueraccesstoanyexemptionsunderCanadiansecuritieslegislation,foraperiodofmorethan 30consecutivedays,or(ii)adirectororexecutiveofficerofanycompanythat,whilesuchpersonwas actinginsuchcapacity,orwithinoneyearofthatpersonceasingtoactinthatcapacity,becamebankrupt, madeaproposalunderanylegislationrelatingtobankruptcyorinsolvency,orwassubjecttoorinstituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trusteeappointedtoholditsassets. Furthermore,totheknowledgeoftheCorporation,inthelasttenyears,nodirectororofficerofthe Corporation, or a Shareholder holding a sufficient number of securities of the Corporation to affect materiallythecontroloftheCorporation,hasbecomebankrupt,madeaproposalunderanylegislation relatingtobankruptcyorinsolvency,orbecamesubjecttoorinstitutedanyproceedings,arrangementor compromisewithcreditors,orhadareceiver,receivermanagerortrusteeappointedtoholdhisorher assets. AppointmentofAuditors The Shareholders will be asked to consider an ordinary resolution to appoint the firm of PricewaterhouseCoopersLLPasauditorsoftheCorporation,toholdofficeuntilthenextannualmeeting oftheShareholdersandtoauthorizetheBoardofDirectorstofixtheirremuneration. TotalfeesforauditandauditͲrelatedservicesfortheCorporation’sfiscalyearendedDecember31,2016 were$740,464(2015–$743,700).Formoreinformationrelatingtoauditors’fees,referenceismadeto theAnnualInformationFormdatedMarch16,2017,undertheheading"AuditCommitteeDisclosures", which is hereby incorporated by reference and which can be found on SEDAR at www.sedar.com or obtainedfreeofchargebyanyshareholderfromtheCorporateSecretaryoftheCorporationat400–5th AvenueS.W.,Suite1000,Calgary,Alberta,T2P0L6.
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AdvisoryVoteonExecutiveCompensation(“SayonPay”) TheBoardhasresolvedtoholdanadvisory(“SayonPay”)voteontheCorporation’sapproachtoexecutive compensationatthe2017annualmeetingofShareholders. The Board believes that this advisory vote will assist in dialogue with our Shareholders about governanceandothermattersrelatingtoexecutivecompensation. AttheMeeting,ShareholderswillbeaskedtocastanadvisoryvoteontheCorporation’sapproachto executivecompensation.Ensign’sapproachtocompensationpaidtoitsNEOsisdescribedindetailunder theheading“CompensationDiscussionandAnalysis”. The results of the “Say on Pay” vote will be nonͲbinding on the Board. However, the vote is an importantpartofourengagementwithShareholderswithrespecttoexecutivecompensation. ShareholdersareencouragedtoreviewthediscussionaboutEnsign’sexecutivecompensationunderthe heading“CompensationDiscussionandAnalysis”tocastaninformedvote. AttheMeeting,ShareholderswillbeaskedtovotefororagainstthefollowingnonͲbinding,advisory resolutionconcerningEnsign’sapproachtoexecutivecompensation: “BEITRESOLVED,onanadvisorybasisandnottodiminishtheroleandresponsibilitiesofthe Board of Directors of Ensign Energy Services Inc. (“Ensign”) or its committees, that the ShareholdersofEnsignaccepttheapproachtoexecutivecompensationdisclosedinEnsign’s InformationCirculardatedMarch17,2017anddeliveredinadvanceofthe2017annualmeeting ofShareholders.” Asthisisanadvisoryvote,theresultswillnotbebindingupontheBoard.However,theBoardwilltake thevotingresultsandotherShareholderfeedbackintoconsiderationwhenevaluatingtheCorporation’s approachtoexecutivecompensation,includingdiscretionaryawards.TheBoardandtheCompensation Committee of the Board actively monitor trends relating to compensation and governance of compensationtoensureexecutivemanagementisalignedwithShareholderinterestsandincentivizedto actinthebestinterestsofEnsign.
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SECTION3–COMPENSATIONDISCUSSIONANDANALYSIS
LettertoShareholdersfromtheCompensationCommittee Ensign strives to continually refine and improve our compensation programs and associated disclosure. FellowShareholders, WearepleasedtopresentEnsign’sCompensationDiscussion&Analysis(“CD&A”)withrespecttothe compensation paid to our seniorͲmost executives in 2016. This section will help you understand our compensationphilosophy,practicesandapproachtoexecutivecompensation,bothin2016andforthe currentyear. In 2016, the Board of Directors offered Shareholders an advisory vote on executive compensation. Approximately 74% of the shares voted in favour of our approach to executive compensation. The Committee carefully considered the result of the sayͲonͲpay vote cast by you in 2016. We took the outcomeasanindicationthatimprovementscouldbemadetocertainelementsofourcompensation programdesignanddisclosure. Intheprocessofmakingtheimprovementsoutlinedbelow,wereviewedcommentsreceivedin2016 fromaproxyadvisoryfirmandcertainShareholderswithwhomweengageregardingseveralaspectsof ourcompensationprogram,andtheChairoftheCommitteeparticipatedinanengagementcallwitha proxyadvisoryfirm.Itbecameclearthatwhileourcompensationprogramshavehistoricallyachieved satisfactoryoutcomesintermsofrealizedandrealizablecompensationovereachoftheshort,medium and long term, our compensation plan design was not maximizing the true link between pay and performance.Accordingly,wehaveundertakenacomprehensivereview,andanumberofchangeshave beenmadetoourcompensationprogramsingeneral,effectivein2017,andinparticulartothedesignof ourlongͲtermincentiveprograms. Morespecifically,thechangesandimprovementswehavemadearethefollowing:
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Improvement Description
EnhancedFocus Thekeychangewehavemade,effectivefor2017,istoreplaceour“PerformanceShare onLongͲTerm Award”programwithamoretraditional“PerformanceShareUnit”plan(the“PSUPlan”). Performance: ThePSUPlanwillprovideperformanceͲbasedincentiveawards,andwillresultinadditional alignmentbetweenNEOpayoutcomesandcorporateperformanceoutcomesoverathreeͲ yearperiod.Performancemetricshavebeenselected(“relativetotalshareholderreturn” and“returnoncapitalemployed”)thatwebelievewillresultinhighlycompetitiverealized pay,alignedwithcorporateperformanceandtheachievementofestablishedgoals.Wealso believethatthePSUPlanwillassistusinachievingtheimportantobjectivesofretentionand attraction of key members of our management team. Further, this element of pay will continuetoresultinalargeproportionofpaybeingcomprisedofatͲrisk,longͲtermaward payouts.Lastly,thePSUPlanisnonͲdilutive.Uponvesting,awardswillbesettledinCommon Shares purchased on the open market or settled in cash, at the election of the award recipient.Awardrecipientswhohavenotmettheirminmumshareholdingrequirementwill berequiredtotaketheawardinCommonSharesuntilsuchrequirementismet. Increased WehavealsoreͲalignedtheweightingasbetweentheelementsofmediumandlongͲterm Emphasison compensation,withmoreemphasisbeingplacedonPSUsthanonstockoptions,beginning Performance in2017,toincreasethefocusonperformanceͲbasedvestingandreinforcethelinkbetween Metrics: payandperformance. Changeof WehaverecentlyamendedtheStockOptionPlantoincludea“doubletrigger”applicableto ControlOutcome: NEOs,andthesameconceptisincludedinthenewPSUPlan.Thevestingofawardsina changeofcontrolscenarioundereachprogramwillneitherbeautomaticnordiscretionary with respect to NEOs, but will depend on whether the NEO is actually or constructively terminatedfollowingachangeofcontrolevent. ReͲAlignmentof WereviewedandreͲalignedtheweightingsassignedtometricsusedtocalculateourshortͲ ShortͲTerm term incentives for NEOs in 2017. These changes were made to ensure that a broader Incentive complement of our senior leadership group is specifically incentivized towards the Weighting: achievementofstrategicobjectivesintheinterestsoftheCorporationasawhole,andto better align the range of potential outcomes for executives responsible for a variety of individualbusinessunitswiththepotentialoutcomesforexecutivesresponsibleforasingle businessunit. Minimum Wereviewedourpolicywithrespecttominimumshareholdingsrequiredofourexecutives Shareholding and other senior officers and made certain adjustments to enhance the objective of Requirement alignmentbetweenourexecutiveofficersandourShareholders. Applicableto NEOs: Performance Inadditiontotheabovespecificenhancementsmadetoourcompensationprograms,inthis GoalDisclosure: CD&AwehaveenhancedthedisclosureofthetargetgoalsundertheshortͲtermincentive program(annualbonusplan).
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Inadditiontotheforgoing,onanannualbasiswereviewourcompensationpeergroup,thecompensation anddisclosurepracticesofourpeers,aswellastheoutcomeofrealizedpayinayear,andwemake adjustments as appropriate to ensure that our compensation program continues to be competitive, alignedwiththeinterestsofShareholdersandmeetsourobjectiveofattractionandretentionofourtop talent. For the 2016 year, we made two important adjustments to ensure alignment between executive compensationandtheinterestsofShareholders: • First, we suspended the Performance Share Award component of the Annual Bonus Plan for all participantsforthe2016year;and • Second,weplacedacaponthepaymentcalculatedpursuanttotheAnnualBonusPlan,at3%of EBITDA(asadjusted)achievedforthe2016year. The Compensation Committee believed these adjustments were necessary in the year, in light of persistentchallengesbeingexperiencedinourindustrywhichsignificantlyimpactedtheCorporation’s financialperformanceinboth2015and2016.TheCompensationCommitteeuseditsexperienceand collectivejudgmentinmakingtheseadjustments.
As a Committee, we will continue to monitor trends in executive compensation and review our compensationprogramstoensuretheyremaincompetitiveandalignedwiththebestinterestsofthe Shareholders. SubmittedbymembersoftheCompensationCommittee,allofwhomareindependent. JamesB.Howe(Chair) CaryA.Moomjian,Jr. JohnG.Schroeder GailD.Surkan
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CompensationDiscussion&Analysis ThisCompensationDiscussionandAnalysis(“CD&A”)describesthecompensationprogramsandpractices applicabletothefollowingexecutiveofficersoftheCorporationwhoareclassifiedas"NamedExecutive Officers"pursuanttoNationalInstrument51Ͳ102(eacha"NEO"andcollectively,the"NEOs")forallora partofthe2016year:
Geddes,RobertH. President&ChiefOperatingOfficer
Kautz,EdwardD. PresidentUnitedStates&LatinAmericanOperations
MichaelR.Nuss ExecutiveVicePresidentUnitedStates&LatinAmericanOperations
Lemke,TimothyA.(1) FormerVicePresidentFinance&ChiefFinancialOfficer
MichaelGray(2) ChiefFinancialOfficer
SelbyPorter(3) FormerViceChairman
Edwards,N.Murray Chairman (1) Mr.LemkewasVicePresidentFinance&ChiefFinancialOfficeruntilheretiredonOctober21,2016. (2) Mr.GraywasCorporateControlleruntilOctober21,2016andChiefFinancialOfficerfromOctober22,2016. (3) Mr.PorterwasViceChairmanuntilheretiredonMay5,2016. References in this CD&A to our “Executive Management Committee” means, collectively, the NEOs togetherwithtwootherseniorexecutivesoftheCorporationattheExecutiveVicePresidentlevel,who donotmeetthedefinitionofaNEOandwhosecompensationisthereforenotreportedinthisInformation Circular.AsdescribedfurtherinthesectionofthisInformationCircularentitled“StatementofCorporate GovernancePractices”,theCorporationdoesnothaveanamedCEO. Summaryof2016Changes Ensign’scompensationprogramsremainedsubstantiallythesameforthe2016yearasforthe2015year. However,inMay2016,inlightofpersistenteconomicandmarketchallengesfacingtheCorporation andourindustryaroundtheglobe,theCompensationCommitteesuspendedthePerformanceShare AwardcomponentoftheAnnualBonusPlanforthe2016yearandsetafixedcapforthepayoutunder theAnnualBonusPlanat3%ofEBITDA(asadjusted). Asaresult,NEOsreceivedcompensationwithrespecttothe2016yearintheformofbasesalaryand annualcashbonusonly.ExistingPSAawards,grantedinprioryears,continuedtovestnormallyin2016. FollowingthefinalizationoftheCorporation’syearͲendresultsfor2016,inMarch2017,andtakinginto considerationthesuspensionofthePerformanceShareAwardin2016,theCompensationCommittee offeredseniorexecutivesoftheCorporation(beingallNEO’sandotherexecutivesattheVicePresident levelorabove)anelectiontoreceivetheir2016cashbonusinCommonShares,ata50%premiumover thevalueofthecashbonus,subjecttotheconditionsthatthetotalpayoutundertheAnnualBonusPlan (includingthecostofanyCommonShareselectedtobereceivedinlieuofcash)remaincappedat3%of EBITDA(asadjusted),andthatsuchseniorexecutivesretaintheseCommonSharesforaperiodofthree years.AsatthedateofthisInformationCircular,thedeadlineformakingsuchelectionhasnotyetpassed.
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Totheextentthattheseniorexecutivesmakethiselection,the2016cashbonuscomponentwillbepaid (at a value of 150% the calculated cash amount) to such executives in the form of Common Shares purchasedontheopenmarket,thusavoidingdilution.
TheCompensationCommitteedecidedtomakethiselectionavailabletoitsseniorexecutiveteamto provideanadditionalelementofalignmentwithShareholdersinterests(inlightofthesuspensionin 2016,andnowdiscontinuancein2017,ofthePerformanceShareAwardprogram). LookingAheadto2017 AsnotedelsewhereinthisCD&A,inpartinresponsetotheoutcomeoftheCorporation’sinaugural“sayͲ onͲpay”votethatoccurredonMay4,2016whereintheCorporation’sexecutivecompensationprogams achieved the support of 74% of Shareholders, the Compensation Committee has reͲdesigned certain elements of our compensation programs in order to better achieve alignment between pay and performance, ensure the appropriate and competitive compensation of our senior executives, and provideadditionaltransparencyregardingthemetricsusedinmeasuringoutcomes. ThemostsignificantoutcomeofthisefforthasbeenthatthePSAhasnowbeendiscontinuedentirely, andaPSUPlanhasbeenimplementedeffectivefor2017,forNEOsandotherexecutivesattheVice Presidentlevelandabove. BoardofDirectorsOversightandtheCompensationCommittee The Board of Directors recognizes the importance of appointing knowledgeable and experienced individualstotheCompensationCommitteeingeneraland,inparticular,toappointthosewhohavethe necessary background in executive compensation and risk management to fulfill the Compensation Committee’sobligationstotheBoardofDirectorsandShareholders. TheCompensationCommitteeiscurrentlycomprisedofJamesB.Howe(Chairman),CaryA.MoomjianJr., JohnG.SchroederandGailD.Surkan,allofwhomservedontheCommitteeduringtheentireyearended December31,2016.Mr.HoweservedasChairmanoftheCompensationCommitteethroughout2016and continuesinthisroleasofthedatehereof. AllmembersoftheCompensationCommitteeareindependentdirectorswhohavetheexperienceand knowledge required with respect to compensation, specifically in connection with executive compensationprogramsandlevels,andotherhumanresourcesmattersincludingsuccessionplanning, talentdevelopment,recruitment,employeeretentionandemployeeengagement. TwomembersoftheCompensationCommitteealsositonourAuditCommittee.Twomembersofthe CompensationCommitteealsositonourCorporateGovernance,Nominations&RiskCommittee.This assistsinbringingimportantriskmanagementandriskassessmentperspectivestoourcompensation programs,philosophyandpractices.
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Committee Member RelevantSkillsandExperience
Howe,James Mr.HowehasbeenamemberofEnsign’sCompensationCommitteesince1998,andhasactedasChairman B. since 2004. Mr. Howe also currently serves on the compensation committee of Pason Systems Inc., a Canadian public company.As a CharteredAccountant and experienced publiccompany director, he has (Committee significantfinancialexpertisein,andinͲdepthexposureto,thedesign,implementationandevaluationof Chairman) alternative strategies and best industry practices to performanceͲbased compensation programs, in the energyindustryingeneralandintheoilfieldservicessectorspecifically.
Moomjian Mr.MoomjianwasappointedtotheCompensationCommitteeonDecember4,2014andbrings35yearsof Jr.,CaryA. industryexperience,including18yearsofexperienceinexecutivecompensation,tothisCommittee.From 1994to2011,inhisformerrolesasVicePresident,GeneralCounselandSecretaryofEnscoplc,ENSCO InternationalInc.,andSantaFeInternationalCorporation,heparticipatedinallmeetingsoftheboardsof directors and committees of those issuers, including compensation committees. While serving as Vice President,GeneralCounselandSecretaryofthosecompanies,Mr.Moomjiandevelopedadepthandbreadth ofunderstandingofcompensationprograms,design,evaluation,issuesandtrends,andrelatedgovernance andbestpracticesconsiderations,inthecontextofanoilfieldservicesprovider.Further,havingservedasa department head of an oilfield services company between 1983 and 2011, he has had comprehensive experiencewithhumanresourcesmanagement.Suchexperienceincludessuccessionplanning,employee retention, performance review, cash and incentive compensation administration as well as personnel traininganddevelopment.
Schroeder, Mr. Schroeder has been a member of Ensign’s Compensation Committee since 1998. As a Chartered JohnG. AccountantandafinanceexecutiveontheseniormanagementteamofParklandIncomeFund(nowcalled ParklandFuelCorporation),apublicpetroleummarketingincometrust,Mr.Schroederwasresponsiblefor thehumanresourcesfunctionfor20years.Thisincluded,togetherwiththePresidentandCEO,responsibility overthedesignandevaluationofcompensationplansforexecutivesandsenioremployees.Further,asa longͲserving member of Ensign’s Compensation Committee,Mr.Schroeder is experienced in thedesign, evaluation, modification and best practices generally as they relate to compensation practices for a corporationofthesizeandscopeofEnsign.
Surkan,Gail Ms.SurkanhasbeenamemberofEnsign’sCompensationCommitteesince2007andbringsapproximately D. 15 years of experience in human resources planning, in particular in executive recruitment, executive compensation,successionplanningandemployeeengagement,toEnsign’sCompensationCommittee.Inher formercapacityastheMayorofRedDeerandChairoftheAlbertaHeritageFoundationforMedicalResearch, andinthenumerousboardpositionsshehasheldwithcrowncorporations,nonͲprofitorganizationsand privatecompanies,shehashadextensiveexperiencewithoversightofhumanresourcesfunctions,including compensationplanningandevaluation,andtheretentionaspectsassociatedwithemployeeandexecutive compensation.Morespecifically,Ms.SurkanchairedtheHumanResourcesCommitteeforATBFinancialfor anumberofyearsandledtheCEOrecruitmentteamsforboththeCityofRedDeerandtheAlbertaHeritage FoundationforMedicalResearchduringhertenurewiththoseorganizations.
TheBoardofDirectorsbelievesthatthemembersoftheCompensationCommitteehavetheknowledge andexperiencetoeffectivelyperformtheirresponsibilities.
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CompensationCommitteeMandate ThemandateoftheCompensationCommitteeoftheBoardofDirectorsincludesthefollowing: i. EstablishingandreviewingtheCorporation'sexecutivecompensationphilosophy; ii. Administering compensation policies and programs, including salaries, bonuses and equity compensationplans,whichreflecttheexecutivecompensationphilosophy; iii. ReportingtotheBoardofDirectorsandsubmittingcompensationrecommendationstotheBoard ofDirectorsforapproval; iv. PerformingareviewoftheCorporation'sseniormanagementandthestepsbeingtakentoassure thesuccessionofqualifiedseniormanagementattheCorporation; v. PeriodicallyreviewingandapprovinggrantsorawardspursuanttotheCorporation'sStockOption Plan,andotherequityͲbasedawardprogramsasmaybeestablishedfromtimetotime,under whichCommonSharesmaybeacquiredorawardedtoeligibleparticipants; vi. ReviewingtheadministrationofanyequityplanstheBoardmayestablish;and vii. Reviewing and monitoring risks associated with the Corporation’s compensation and human resourcesprogramsandpractices,includingsuccessionplanningandretention. Inapprovinganyelementofcompensation,theCompensationCommitteeconsidersrecommendations frommanagement. CompensationPhilosophy,PrinciplesandObjectives Compensation levels and programs for NEOs are designed and implemented to align with the Corporation’sannualandlongͲtermgrowthobjectives,andtheenhancementofshareholdervaluedriven bythefollowingprinciplesandobjectives: i. ProvidemarketͲcompetitivecompensationtoattractandretainqualifiedindividuals; ii. Maintain a payͲforͲperformance philosophy by delivering a meaningful proportion of total compensation using variable pay tied to corporate, business unit, safety and personal performance; iii. Provide incentives linked to operating and financial performance and enhanced shareholder value, as well as nonͲfinancial metrics measured by the health, safety and environmental performanceoftheCorporation; iv. ProvideincentiveswhichsupportappropriateriskͲtakinginsupportoftheshortͲtermandlongͲ termgoalsoftheCorporation,reflectiveofourrisktolerance; v. ConsistencywithEnsign’svisionofgrowththroughcollaborativelearning,achievingthepotential ofourpeopleandtechnologyandcreatingexcellence;and vi. ConsistencywithEnsign’svaluesofintegrity,teamworkandlearning. The compensation programs at Ensign are intended to reward strong performance. Employees, including NEOs, maximize their compensation when annual operating and financial goals are achieved,whenannualsafetyperformancegoalsareachieved,whenprogressismadeinexecuting Ensign’sgrowthstrategy,andwhenstrongtotalshareholderreturnisachieved.
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RiskConsiderationsofExecutiveCompensation The committees of the Board assist the Board in monitoring the most significant risks facing the Corporation,includingstrategic,operationalandreputationalrisks,whichbuilduponmanagement’srisk assessmentandmitigationprocesses.Specifically,theCompensationCommittee: i. Assists the Board in monitoring the risks associated with the Corporation’s compensation programsandpractices,includingtheretentionofkeyseniormanagementpersonnel; ii. ReviewsfromtimetotimetheriskimplicationsoftheCorporation’scompensationprograms, includingspecificallycompensationrisksastheyrelatetotheCorporation’sstrategicplans,other desiredperformancemeasures,overallcorporateperformanceandriskmanagementprinciples; and; iii. PeriodicallyundertakeaformalreviewoftheriskimplicationsofthedesignoftheCorporation’s compensationpoliciesforseniorexecutivesandsuccessionplansforsuchseniorpersonnel. InreviewingandpriortoapprovingtheCorporation’scompensationprogramsorcompensationbeing providedpursuanttosuchprograms,risksareconsidered.TheCompensationCommitteebelievesthat the Corporation’s compensation policies do not create an environment where an executive or any individualisencouragedtotakeexcessiverisk. The compensation offered by Ensign is designed to reward prudent business judgment and appropriaterisktakingoverboththeshortͲtermandthelongͲterm,withoutcreatingriskthatcould reasonablybelikelytohaveamaterialadverseimpactontheCorporation. The Compensation Committee reviews incentive programs on an annual basis. The Compensation Committee also models and adjusts programs, targets and measures as needed to ensure optimal alignmentwiththeCorporation’sstrategicplans.TheCompensationCommitteealsoconsiderstheresults of the advisory vote on executive compensation. Important adjustments have been made to our compensationprogramsfor2017asaresultofthesereviews. Key oversight procedures and risk mitigation features to support managing compensation risk are as follows:
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OversightProceduresandRiskMitigationFeatures “AtRisk”Compensation: x AsignificantportionofEnsign'sNEOcompensationis“atrisk”,consistingoftheannualcashbonus,annual awardsofCommonSharespursuanttothePerformanceShareAward,andawardsofstockoptions.The performanceshareawardsissuedinprioryearswere“atͲrisk”and“mediumͲterm”astheawardlevelis determinedbytheCorporation’sfinancialperformance(usingthesamecriteriaasaresetfortheannual cashbonus).TheawardsarepaidintheformofCommonSharesthatvestoveraperiodofthree(3)years followingtheyearforwhichsuchawardwasearned.Stockoptionsare“atrisk”and“longͲterm”,asoptions donotfullyvestuntiltheendofthefifth(5th)yearfollowingthedateofthegrant.
Beginningin2017,thePerformanceShareAwardshavebeendiscontinuedandaPerformanceShareUnit Plan(“PSUPlan”)hasbeenimplementedfortheCorporation’sseniorͲmostexecutives.ThePSUswillbe“atͲ risk”and“mediumͲterm”,withcliffͲvestingattheendofthethreeͲyearperiodandawardlevelssetbasedon apercentageofbasesalary,andaperformancepayoutmultiplier. x SincethefinalvalueofthePerformanceShareAward(andbeginningin2017,thePSUPlan)isdependent, inwholeorinpart,uponthepriceoftheCommonSharesovertheapplicablevestingperiods,andthusis linkedtotheachievementofmediumandlongͲtermvaluecreation,themotivationforexecutivestotake inappropriate action or excessive risk that may be beneficial to them from the standpoint of their compensation,attheexpenseofEnsignanditsShareholders,islimited. x Furthermore, the Compensation Committee may apply discretion to adjust the size of the cash bonus and/or the Performance Share Award. This discretion would only be used sparingly following a comprehensive assessment of corporate performance and the accomplishments of each executive. Although this discretionary power may be exercised judiciously by the Compensation Committee, it nonethelessdiscouragesunduerisktaking.Suchdiscretionhasnotbeenusedinmorethanfive(5)years.
InMay2016,inlightofpersistenteconomicandmarketchallengesfacingtheCorporationandourindustry aroundtheglobe,theCompensationCommitteeuseditsauthoritytosuspendthePerformanceShareAward componentoftheAnnualBonusPlanforthe2016year,andsetafixedcapforthepayoutoftheAnnualBonus Planat3%ofEBITDA(asadjusted).
ExecutiveShareOwnershipGuidelines: x Ensign’sexecutiveshareownershipguideline(describedindetailbelow)furtherdiscouragesexcessiveriskͲ taking.ThisguidelinepromotesanalignmentoflongͲterminterestsbetweentheCorporation’sexecutives andthoseofitsShareholders.
AntiͲHedging: x TheCorporation’spoliciesprohibitdirectorsandofficersoftheCorporationfrompurchasinganyfinancial instrumentthatisdesignedtohedgeoroffsetanydecreaseinthemarketvalueoftheCommonShares. CompensationRecoupment(“Clawback”)Policy: x A Compensation Recoupment Policy was implemented in 2014, which provides the Compensation CommitteetheauthoritytodirecttheCorporationtoseekreimbursementfromaNEOofsomeorallofthe incentive compensation paid to such NEO in the event of an accounting restatement resulting from misconductbyaNEO.
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SuccessionPlanning: x The Compensation Committee reviews the Corporation’s succession planning and implementation progress,ataminimumonasemiͲannualbasis.SuccessionplanningisalsofrequentlyconsideredintheinͲ cameradiscussionsoftheBoardofDirectors. x TheCorporationhasdevelopedastrongcultureofdevelopingitsemployeesandpromotingfromwithin. EachoftheNEOsattainedtheircurrentpositionsthroughpriorpositionswithintheCorporation,assuming increasingresponsibilityastheyprogressedanddemonstratedexcellentleadershipskills. x Membersofseniormanagementreview,onanannualbasis,eachkeymanagementposition,evaluating thequalification,experienceandleadershipcompetenciesneededtosucceedintheposition.Theresults ofthatevaluationdrivemanagement’sdecisionsregardingidentificationofcandidatesforsuccessionand thedesireddevelopmentalstepstobeundertakenforsuchcandidates. x The Compensation Committee receives reports, at a minimum annually, on the progression and developmentoftheexecutivesandmembersofseniormanagementbeingconsideredforfutureexecutive rolesandonsuccessionplanningmoregenerallythroughoutthemanagementlevelsoftheCorporation. The Executive Management Committee makes succession recommendations for senior management positionstotheCompensationCommitteefortheirreview,considerationandapproval. CorporateOperatingStructure: x Asdescribedinfurtherdetailinthe“StatementofCorporateGovernancePractices”,theCorporationdoes not have a named CEO. The duties and responsibilities normally associated with the role of CEO are delegatedbytheBoardofDirectorstotheExecutiveManagementCommittee,composedprimarilyofthe NEOs.Thisstructure,whichhasbeeninplacethroughouttheCorporation’shistory,limitstheabilityofany oneindividualtoundulyinfluencethedirectionoftheCorporationandenablesthecontinuationofstrong leadershipintheeventofthedepartureofamemberoftheExecutiveManagementCommittee.
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CompensationBenchmarkingPeerGroup Ensigncomparesitsexecutivecompensationtothecompensationprovidedtoexecutivesincomparable positionsbyacomparatorgroupofCanadianoilfieldservicecompanies.Thecomparatorgroupisfurther refinedonthebasisofsize,complexity,operatingregionsandstyleofoperation.Thecompaniesinthis comparator group compete with Ensign for executive personnel and therefore provide a useful and relevantbenchmarkfortheCompensationCommitteeinitsevaluationoftheCorporation’sexecutive compensationprograms. For2016,Ensignlookedtothefollowingcompaniesinbenchmarkingitsexecutivecompensation: MarketCap PayPeerName: (approx.,$CAD): Sector WesternEnergyServicesCorp. $166.0million OilandGasDrilling SavannaEnergyServicesCorp. $236.5 million OilandGasDrilling CalFracWellServicesLtd. $426.5 million OilandGasEquipment&Services TrinidadDrillingLtd. $595.5million OilandGasEquipment&Services TricanWellServiceLtd. $755.0million OilandGasDrilling EnsignEnergyServicesInc. $1,173million OilandGasDrilling PasonSystemsInc. $1,482million OilandGasEquipment&Services SecureEnergyServicesInc. $1,502million OilandGasEquipment&Services PrecisionDrillingCorporation $1,745 million OilandGasDrilling ShawCorLtd. $2,641 million OilandGasEquipment&Services Because Ensign is a complex, global enterprise with multiple geographical operating units, the CompensationCommitteealsolooksatselectedenergyservicescompaniesoutsideCanada,primarilyin theUnitedStates,toensurethatexecutivecompensationreflectstheinternationalscopeofEnsign’s operations.Fromtimetotime,Ensignreviewsandevaluatescompensationandcompensationprograms disclosed by the following oilfield service companies that are either USͲbased or have a significant presenceintheUnitedStates: MarketCap PayPeerName: (approx.,$USD) Sector AtwoodOceanics,Inc. $718.6 million OilandGasDrilling UnitCorporation $1,120million OilandGasDrilling RowanCompaniesplc $1,800 million OilandGasDrilling NaborsIndustriesLtd. $3,740million OilandGasDrilling PattersonͲUTIDrillingCompany,LLC $4,140million OilandGasDrilling Helmerich&Payne,Inc. $7,270 million OilandGasDrilling
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Ensign is positioned close to the median of its Canadian peer group when measured by market capitalization,andclosetothe25thpercentilewhencomparedwithitsUSpeergroup. Inadditiontobenchmarkingagainstpeergroupsasdescribedabove,in2016theCorporationparticipated in selected compensation surveys, and purchased certain published results in order to assist in benchmarkingagainstitspeersinthevariousgeographiclocationsinwhichitoperates. TheCorporationdoesnotanticipatemakingsignificantchangestoitspeergroupfor2017,however,a normalcoursereviewofboththecompensationpeergroupandperformancepeergroupisanticipated intheyear.
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NEOCompensationComponents–Summary TheCorporationrecognizestheimportanceofattracting,developingandretainingtopqualitytalentand iscommittedtopayingforindividualandteamperformanceinthecontextofstrongoperatingresultsand achievement of financial and nonͲfinancial metrics. In recent years, the Corporation's compensation programforNEOsconsistedoffour(4)maincomponents,asfollows: Performance Component Description Form Period PerformanceOrientation FIXED: Basesalaryor Cash 1year Fixedpayforperformingdaytodayresponsibilities. ShortͲterm annual Evaluatedbasedonpastandexpectedfuturecontribution, incentive consultingfee levelofresponsibilityandvaluetotheorganization. Reflectsthemarketvalueoftheposition,aswellas experience,expertise,education,timeintherole,and internalequityconsiderations. Reviewedonanannualbasis,adjustedbasedonoutcome ofreview. Increasesreflectjobperformanceandpromotions. ATRISK: AnnualBonus Cash 1year Tiedtotheachievementofannualcorporateanddivisional (1) ShortͲterm Plan–Cash objectives,includingfinancial,health,safetyand incentive environmentalobjectivesandstrategicobjectives. Levelandobjectivesreviewedonanannualbasis,adjusted basedonoutcomeofreview. ATRISK: AnnualBonus Common 3years(1/3rd Levelofawardtiedtothesameperformancemetricsasthe MediumͲterm Plan– Shares vestseach AnnualBonusPlan. incentive Performance year) Designedtofocuseffortsonincreasingshareholdervalue ShareAward andreturnsoveraperiodofyears. (2)(3) ATRISK: StockOption Stock 1/5thofaward Designedtofocusexecutiveofficereffortsonsustainably LongͲterm Plan Options vesteachyear increasingshareholdervalueandreturnsoveraperiodof Incentive over5years, years. fulltermofup Deliversvalueonlyifsharepriceappreciates. to6years Grantlevelsaredeterminedwithreferencetorole, responsibilities,individualperformance,performanceof theCorporationoverall,theapplicabledivisioninwhichan employeeisemployedandpeergroupgrantlevels. Previousgrantsarenottakenintoaccountwhen consideringnewgrants. (1) The Compensation Committee determined, in 2016, that given current challenging market conditions, to cap the maximumpayout(includingpayoutstoNEOs)withrespecttothe2016AnnualBonusPlanmetricscomponentat3%of theCorporation’sEBITDAfortheyear. (2) In 2016, the Compensation Committee suspended the Performance Share Award component for the year, given prevailingchallengingmarketconditions. (3) AsnotedelsewhereinthisCD&A,thePerformanceShareAwardhasrecentlybeendiscontinuedentirely.In2017a PerformanceShareUnitPlanisbeingimplemented.ThePSUsgrantedwill“cliffͲvest”attheendoftheir3Ͳyearterm,and theperformancecriteriawillbebasedonrelativetotalshareholderreturnandreturnoncapitalemployed.
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NEOCompensationComponents–DetailedDescription AdetaileddescriptionofthevariouselementsofNEOcompensationforthe2016fiscalyearisasfollows: 1. Base Compensation (Salary or Annual Consulting Fee): The Compensation Committee typically reviewsandapprovesbasecompensationfortheupcomingyearinDecemberoftheprioryearand makesadjustmentsasnecessarytoreflectchangesineconomiccircumstances,marketconditionsand competitivepractices. InDecember2014,theCompensationCommitteeapproved2015NEObasesalariesat2.8%overthe 2014basesalarylevels.However,inJanuary2015,atthesuggestionoftheBoardofDirectorsandin response to swiftly changing market conditions, the NEOs accepted a 10% salary reduction (implemented along with a reduction in Director compensation, discussed below), retroactive to January 1, 2015. Such action was taken by the NEOs and the Board of Directors to demonstrate leadership and emphasize the importance of controlling costs during an unstable period for the industry.Basecompensationfor2016remainedatthe2015levels,inlightofprevailingindustryand economicconditions,exceptwithrespecttopromotionsandrelocations. Basedonthecurrentindustryoutlook,itisexpectedthat2017compensationwillincreaseslightly overcompensationachievedin2016. 2. Annual Bonus Plan (“ABP”) – Cash Award: The cash component of Ensign’s ABP is a shortͲterm incentiveplandesignedsothatNEOshaveallorahighportionoftheirpotentialannualcashbonus compensationlinkedtooverallcorporatefinancialresultsandtheachievementofsafetyandstrategic goals, rather than to individual business unit or geographical segment results. The potential ABP payout grid varies from “entry level” up to the NEO level, increasing in accordance with role responsibilitiesandinfluenceoncorporategoalachievement. The ABP cash award is designed to recognize achievements measured over a oneͲyear period. It providesanopportunityforemployees,includingNEOs,toearnatargetannualcashbonusbasedon meetingcorporateperformanceobjectivesinkeyareas:
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AnnualBonusPlan–MetricsApplicabletoCashandPerformanceShareAwards 1. Corporate x Thisfinancialcomponentoftheannualcashbonususesthekeyfinancialmetricof financial EBITDA(asadjusted)asapercentageoftheannualapprovedbudget.TheBoardof performance: Directors approves annual budgets, which define operating, financial, safety and EBITDA(as other corporate goals for the Corporation (which includes all of its operating adjusted)vs. divisions). approved2016 x OverallcorporatefinancialperformanceisbasedontheCorporation’sconsolidated budget financial results, while each operating division has specific financial performance 40%ofNEOannual targetsbasedonitsownapprovedannualbudgettoensure“lineofsight”forthe bonus employeesinthatdivision. x Aminimumthresholdforcorporateearnings(80%oftarget)mustbemetinorderto receiveanannualcashbonus.Themaximumbonusisachievedat120%oftarget. 2. Corporate x The Asset Efficiency Ratio is a financial metric developed by Ensign to reflect the financial returnoncapitalinvestedwithrespecttoitsassets.TheratioapplicabletoNEOs performance: measures theadjustedafterͲtax cash flow generatedby Ensign on aconsolidated AssetEfficiency basis,dividedbytheaveragevalueoftheassetsandequipmentutilizedbyEnsignin Ratio(AER) theyear. 40%ofNEOannual x AminimumAERof15%achievestheminimumthresholdforachievementofabonus bonus basedonthismetric;anAERrateof25%achievesthemaximumbonusachievement basedonthismetric. 3. Safety: x ThiscomponentoftheAnnualBonusPlanisdesignedtoincentivizeongoingpositive behaviortoreduceoreliminateincidentsandinjuries. 10%ofNEOannual x bonus TheHealth,Safety&EnvironmentCommitteeapprovesannualobjectivescomprised ofacombinationof: o Leadingindicators(2016weighting=75%)–composedofaminimumofthree (3)keybehaviorͲbasedperformanceindicators;and o Lagging indicators (2016 weighting = 25%) – total recordable injury rates, to promoteyearͲoverͲyearimprovement; onbothadivisionalandacorporatebasis. x Threshold,targetandstretchtargetsaresetandalignedwithapointssystem.Atthe threshold,safetybonusis0%;attarget,safetybonusis6%;andatstretch,safety bonusis10%. 4. StrategicGoals: x TheBoardofDirectorsannuallyapprovesaminimumoffour(4)ormorestrategic goalsandobjectivesfortheCorporation,insomeorallofthefollowingareas: 10%ofNEOannual bonus x Safety x Systems x Training x AssetEfficiency x BusinessDevelopment x Innovation/Technology x Threshold,targetandstretchtargetsaresetandalignedwithapointssystem.Atthe threshold, this component is 0%; at target, it is 6%; and at stretch, this bonus componentis10%. Theannualcashbonusvariesbasedonthedegreetowhichfinancial,nonͲfinancialandstrategic objectivesmeetorexceedtheestablishedtargets.Whenallobjectivesaremetorexceeded,NEOs wereeligibleforanannualcashbonusin2016atasetlevelofupto100%oftheirbasecompensation, asfollows:
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1.FinancialPerformance 2.AssetEfficiencyRatio 3.Safety(vs.2016Safety 4.StrategicBonus [40%] (AER)[40%] Targets)[10%] [10%]
EBITDA(as adjusted)asa Bonus%of Bonus%of Bonus%of Bonus%of %of2016 2016Base 2016Base 2016Base 2016Base Budget Comp. AER% Comp. HSEPoints Comp. Strategic% Comp.
Below80% 0.00% Below15% 0.00% Below80PTS 0.00% Below80PTS 0.00%
At80% 4.00% At15% 4.00% At80PTS 1.00% At80PTS 1.00%
At85% 9.00% At16.25% 9.00% At85PTS 2.25% At85PTS 2.25%
At90% 14.00% At17.50% 14.00% At90PTS 3.50% At90PTS 3.50%
At95% 19.00% At18.75% 19.00% At95PTS 4.75% At95PTS 4.75%
At100% 24.00% At20.00% 24.00% At100PTS 6.00% At100PTS 6.00%
At105% 28.00% At21.25% 28.00% At105PTS 7.00% At105PTS 7.00%
At110% 32.00% At22.50% 32.00% At110PTS 8.00% At110PTS 8.00%
At115% 36.00% At23.75% 36.00% At115PTS 9.00% At115PTS 9.00%
At120% 40.00% At25+% 40.00% At120PTS 10.00% At120PTS 10.00% In2016,onaconsolidatedbasis,theCorporation’sEBITDA(asadjusted)achievedapproximately89% oftheapprovedannualbudgetfor2016,resultinginanannualcashbonuspayouttotheNEOsbased on this metric. In May 2016, in light of persistent economic and market challenges facing the Corporationandourindustryaroundtheglobe,theCompensationCommitteeuseditsauthorityto set a fixed cap on the Annual Bonus Plan at an aggregate of 3% of adjusted EBITDA (including payments to NEOs). The total payout pursuant to the ABP to all of Ensign’s eligible employees, includingNEOs,wasapproximately2.8%ofEBITDA. TheCompensationCommitteereviewsandapprovesthefinalproposedannualcashbonuspayments to NEOs, and may, where appropriate, adjust such bonus payments following a comprehensive assessmentofcorporateperformanceandtheaccomplishmentsofeachNEO.Nosuchadjustments impactingNEObonuseshavebeenmadeinmorethanfive(5)years. TheABPissubjecttoannualreviewbytheCompensationCommittee,andinparticulartheannual safetyandstrategicmetricsareconsideredandapproved. For2017,certainNEOs(beingMr.Geddes,Mr.EdwardsandMr.Kautz)willbeeligibleforan annualcashbonusatasetlevelofupto150%oftheirbasecompensation,andtheweightingas betweenthefinancialperformancemetricandtheAERmetrichasbeenchangedto50%and30% respectively(from40%and40%asshownabove).
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3. AnnualBonusPlan–PerformanceShareAward(“PSA”):ThePSA(suspendedforthe2016year, discontinued in 2017) provides an award of Common Shares based on the most recent year’s corporateperformance.CommonSharesareacquiredinthemarketandvestoveraperiodofthree (3)years. Asaresult,PSA’sprovidealinkfromshortͲtermcorporateperformancetolongͲtermshareholder interests, employee and officer retention, and facilitates share ownership in the Corporation withoutthedilutiveaspectsofissuingsharesfromtreasuryorgrantingstockoptions. ThetablebelowsummarizesthecharacteristicsofthePSA,whichwereinthepastgrantedbasedon thesamecorporateperformancemeasuresasusedintheABP: PerformanceShareAward(*Suspendedin2016,discontinuedfor2017) FormofAward CommonShares,purchasedontheopenmarketthroughtheTSX. WhoParticipates CertainofficersandemployeesoftheCorporation. TargetAward Acashamountisdeterminedbasedontheannualcashbonusearnedforfinancialand Amount safetyperformance,andachievementofstrategicgoals,whichisusedbyatrusteeto acquireCommonSharesthroughtheTorontoStockExchange,andhelduntilvesting.The PSAisbasedonasetmultiplebasedonroleandtenure,whichforNEOs,isupto2.5 times the annual cash bonus. This level is set, in part, to encourage Common Share ownershipbyNEOs. Dividends Dividendsareaccruedonoutstanding,unvestedCommonShares,andaccumulateinthe formofadditionalCommonShares. Vesting Awards of Common Shares vest equally over a three (3) year period, beginning on September1oftheyearfollowingtheyearinwhichtheawardwasearned.Extending the realization of the award over this three (3) year period encourages corporate performanceandstockpriceappreciation.Ifanemployeeleavestheiremploymentwith theCorporationforanyreasonotherthaninthecaseofchangeofcontrol,retirementin thenormalcourse,ordeath,theunvestedCommonSharesareforfeited. Payout CommonSharesoftheCorporation,paidoutinkinduponvesting. Performance ThesizeofthePSAdependsonthecorporateperformanceofthemostrecentyear,and Measures thecorrespondingquantumoftheannualcashbonus.ThePSAwillbeniliftheannual cashbonusisnil.Futurerealizedvaluesatthetimeofvestingwillreflectstockprice performanceandreinvesteddividendsoverthevestingperiod. AswiththeABP,theCompensationCommitteehastheauthoritytoadjustthesizeof,suspendor eliminatethePSA.Thisauthorityisusuallyusedfollowingacomprehensiveassessmentofcorporate performanceandtheaccomplishmentsofeachexecutive.ThisauthoritywasexercisedinMay2016, whentheCompensationCommitteesuspendedthePSAcomponentoftheAnnualBonusPlanforthe year.Assuch,noPSA’sweregrantedtoeligibleemployees,includingNEOs,withrespecttothe2016 year.ThePSAhasbeenfullydiscontinuedandnofurtherawardswillbegrantedpursuanttothis elementofcompensation.Existingawardsfromprioryearswillcontinuetovestnormally,thelast suchvestingtooccuronSetpember1,2018.
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4. OptionͲBased Awards – Stock Options: The Compensation Committee periodically awards stock optionstoNEOsandotherqualifyingemployeesforthepurposeofprovidinganincentivethatwill enabletheCorporationtoachieveitslongͲtermobjectivesandallowtheCorporationtoattractand retainqualitypersonnel. TheCompensationCommitteeconsidersproposalsfromtheExecutiveManagementCommitteefor awardsofstockoptionstoNEOsandotherqualifyingemployeesonanindividualbasis. StockOptionPlan FormofAward OptionsonCommonShares,whichareissuedfromtreasury. WhoParticipates OfficersandemployeesoftheCorporation.Directorsarenoteligibletoreceivestock optionsunlesstheyarealsoanofficeroremployeeoftheCorporation. ExercisePrice The closing price for the Corporation’s Common Shares on the last trading day precedingthedatetheoptionsweregranted. Vesting 20%peryearoveraperiodoffive(5)years. Term Expireattheendofthesixth(6th)yearfollowingthegrantdate. Payout Uponexerciseofastockoption,theholderreceivesoneCommonShareforeachstock optionexercised.Theholderofstockoptionsmayelecttoreceiveacashpayment,in lieuofCommonShares,equaltothedifferencebetweenthestockoptionexercise priceandthemarketpriceoftheCorporation’sCommonSharesontheTSXonthe dateofexercise. Termination Unvested stock options are forfeited on the date of cessation of employment, whether due to termination without cause, termination with cause, resignation, retirement or death. Vested options outstanding as at the date of cessation of employment may be exercised in the 90 days following the effective date of the cessationofemployment. ChangeofControl Thevestingofstockoptionsinachangeofcontrolscenariowilldependonwhether theNEOisactuallyorconstructivelyterminatedfollowingachangeofcontrolevent. Restrictions Nooneperson,northeNEOsasagroup,mayholdstockoptionsexceeding5%ofthe Corporation’soutstandingCommonShares. ReͲPricing TheCorporationdoesnotreͲpriceoutͲofͲtheͲmoney,orother,stockoptions. SARsareprovidedtocertainemployeesresidingoutsideofCanada,inlieuofstockoptions,andare subjecttothesamegeneralconditionsandrestrictionsasstockoptions. NostockoptionsorSARsweregrantedinthe2016year,howeveragrantofstockoptionsandSARs tookplaceonMarch10,2017.AllofourNEOsreceivedanawardofstockoptionsinthisgrant(as describedinfurtherdetailbelowinthesectionentitled“2016StockOptionGrants”).
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5. OtherCompensation:
OtherCompensationElements
Employee ForCanadaͲbasedemployees,theCorporationalsoprovidesan"EmployeeSavingsPlan", SavingsPlan: wherebyemployeescanelecttocontribute,basedonyearsofservice,upto5%oftheir regularearningstoasavingsplan. Ensign contributes, on a matching basis, by way of the purchase of Common Shares acquiredquarterlythroughtheTSX.TheCommonSharesvestinfavourofparticipating employeesasto50%intheyearfollowingtheyearinwhichthecontributionwasmade, and50%inthenextyear. CertainalternativeplansareprovidedbytheCorporationtoemployeesinjurisdictions outsideofCanada. Benefitsand Ensignprovidesstandardbenefitsaspartofacompetitivecompensationpackage.We Perquisites: limit the use of perquisites for our executives, as we do not think they should be a significant element of compensation beyond what is appropriate to keep Ensign competitive.TheCorporationdoesnothave: x EmploymentcontractswithanyofitsNEOsorotherexecutives; x Separatechangeincontrolagreements;or x Executivepensionorretirementplans. Total compensation for NEOs at Ensign is reviewed for competitiveness and compared to the Corporations’peergroupfortheachievementofestablishedlevelsofperformance. TheCompensationCommitteeretainstheabilitytoexercisediscretiontoensurethatcompensationand incentiveplandesignsachievetheintendedresultsandavoidunintendedconsequences.Indetermining whetherdiscretioniswarranted,theCompensationCommitteecomprehensivelyassesseseachelement ofthecompensationpackageprovidedtoexecutives,theoverallcompensationpackageprovidedtoeach executive,theperformanceoftheCorporation(financialandnonͲfinancial)andindividualperformance. ThisdiscretionarypowerisexercisedsparinglyandjudiciouslybytheCompensationCommittee.Other thanwithrespecttothesuspensionin2016ofthePerformanceShareAwardprogram,whichimpacted alleligilbleemployeesincludingNEOs,noadjustmentsfromthesetformulasweremadewithrespectto anyNEOsin2016orinanyofthepastfive(5)years. Please see the "Summary Compensation Table" for details regarding overall executive compensation awardedtoNEOsin2016,andthetableentitled"OutstandingShareͲBasedandOptionͲBasedAwards" fordetailsongrantsofoptionstotheNEOsin2016.
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PerformanceGraph The following performance graph illustrates Ensign’s five year cumulative shareholder return, as measuredbytheclosingpriceoftheCommonSharesattheendofeachfinancialyear,assuminganinitial investmentof$100onDecember31,2011,comparedtotheS&P/TSXCompositeIndexandtheTSXOil& GasEquipment&ServicesIndex,assumingthereinvestmentofdividends,whereapplicable.
160 140 120 100 80 60 40 20 0 2011 2012 2013 2014 2015 2016
EnsignEnergyServicesInc. S&P/TSXCompositeIndex
TSXOil&GasEquipment&ServicesIndex
Index 2011 2012 2013 2014 2015 2016 EnsignEnergyServicesInc. 100 96 108 68 51 70 S&P/TSXCompositeIndex 100 107 121 134 123 149 TSX Oil & Gas Equipment 100 104 136 114 70 97 &ServicesIndex The 2011 starting point in the performance graph reflected ongoing improvement in revenue and operating earnings following the downturn associated with the 2008/2009 global financial crisis. The recoveryinfinancialperformancewassustainedintothestartof2012beforeNorthAmericanactivity levelsbegantosofteninthelatterhalfofthatyear.Throughoutmuchof2013,thisweaknessinNorth Americanoilfieldservicesmarketscontinued. Ensigngeneratedstrongoperatingandfinancialresultsforthemajorityof2014,eventhoughfallingoil pricesinthesecondhalfoftheyearbegantoadverselyimpactexpectedlevelsoffuturedemandfor oilfield services, particularly in Canada and the United States. The Corporation’s share price dropped significantlyinthelasthalfof2014astheoutlookworsenedduetofallingoilandgascommodityprices. Steepdeclinesinenergycommoditypricescontinuedthroughout2015,asenergysupplyanddemand fundamentalsremainedimbalanced.ThecontinueddecreaseintheCorporation’ssharepricein2015 reflected a decline in operating revenue of 40% as compared with 2014, reflective of the challenged commoditypricesandcorrespondingweakdemandforoilfieldservices. Continuedlowcommoditypricesprolongedtheperiodofchallengedoperatingandfinancialresultsacross the energy sector in 2016. However, oil and natural gas prices began to stabilize and slowly recover
Page40 EnsignManagementInformationCircular–2017 throughouttheyear,suchthatdespiteafurtherdeclineinoperatingrevenueof38%in2016ascompared with2015,theCorporation’ssharepricebeganamodestrecoveryovertheyear. 2016CompensationandPayMix The following pie charts show the respective actual pay mixes as between fixed and variable compensationachievedforeachoftheNEO’sfor2016and2015.Asindicated,historicallymostofour NEOs’compensationhasbeendeliveredthroughvariablecompensation,howevertheindustrydownturn hassubstantiallyreducedthequantumofanyvariablecompensationearnedandpaidoverthesetwo years.Forabreakdownofallelementsofactualcompensationpaidin2016,pleaserefertothe“Summary CompensationTable”. 2016 2015 RobertH.Geddes RobertH.Geddes Variable 22% Variable Fixed 52% 48%
Fixed 78%
EdwardD.Kautz EdwardD.Kautz Variable 24% Variable Fixed 48% 52%
Fixed 76%
MichaelR.Nuss Variable 18% N/A
Fixed 82%
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2016 2015 TimothyA.Lemke(1) TimothyA.Lemke(1) Variable 22% Variable 41% Fixed 59% Fixed 78%
MichaelGray(2) Variable 21% N/A
Fixed 79%
SelbyW.Porter SelbyW.Porter Variable 24% Variable 38% Fixed 62% Fixed 76%
N.MurrayEdwards N.MurrayEdwards Variable 19% Fixed Variable 44% 56% Fixed 81%
(1) ThepiechartsreflectMr.Lemke’searningsin2016asaNEOuptohisretirementdateofOctober21,2016,andhisfullyear earningsin2015,althoughhisserviceasaNEOcommencedonJuly1,2015. (2) ThepiechartsreflectMr.Gray’sfullyearearningsin2016,althoughhisserviceasaNEOcommencedonOctober22,2016. TheannualandlongͲtermincentivesarevariableoratͲriskcompensation,whichareawardedbased oncorporateandbusinessunitperformance.Therelativeweightingoftheseelementsvariesbylevel within the Corporation, where the most senior individuals, including the NEOs, have the highest proportion of compensation atͲrisk. This is intended to ensure alignment between an individual’s abilitytoinfluencebusinessunitandcorporateresults,andthedegreetowhichtheircompensation isaffectedbythoseresults.
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CompensationObjectiveSupported Base salaries reflect Ensign’s goal of retaining and attracting qualified individuals. Base salary determinationfortheNEOsisbasedprimarilyonpastandexpectedfuturecontribution,valuetothe organization,marketcompetitivenessandindividualperformance.Industrychallengesandoutlookas wellasgeneraleconomicconditionsintheregionsinwhichEnsignoperates,factorswhichalsoaffect CommonShareperformance,areconsideredindeterminingbasesalarylevels. NEOsweregivenmoderate,normalcoursesalaryincreasesfrom2011through2014,aperiodofrelatively stablefinancialperformance.Inearly2015,inresponsetothechallengingindustryoutlookwhichbegan inmidͲ2014andwasongoingatthattime,theNEOsaccepteda10%reductioninbasesalaryorannual consultingfee,coincidingwithaperiodoflowerperformancefortheCommonShares.Thisreduction remainedinplacethroughout2016. Thetotaleconomicvalueof2016and2015compensationfortheNEOswassignificantlylessthanthe totalcompensationlevelsachievedfor2014. Thepiechartsfor2016reflectfixedbasecompensationasbeingasignificantlyhigherproportionofoverall compensationascomparedwith2015,asaconsequenceofonlyoneelementofvariablecompensation beingrealizedfor2016,beingtheannualcashbonus,ascomparedwith2015inwhichboththeannual cashbonusandthePerformanceShareAwardspaidoutintheyear.Althoughthequantumofthecash bonusesforNEOspursuanttotheAnnualBonusPlanwereslightlyhigherfor2016ascomparedwith2015, thePerformanceShareAwardprogramwassuspendedfor2016andthereforenocompensationwas earnedin2016inlongerͲtermvariablepay.In2016,asin2015,novariablecompensationbenefitwas derivedbytheNEOsfromtheexerciseofstockoptions,exceptinthecaseofMr.Lemkewhoexercised certainvestedstockoptionsfollowinghisretirementdateandrealizedavalueof$37,800. Theseoutcomesforboth2015and2016reflecttheCorporation’scompensationphilosophyofdelivering ameaningfulproportionoftotalcompensationtoNEOsusingvariablepay,suchthatinyearssuchas these where the Corporation experiences very challenging market conditions and prolonged poor economicfundamentals,variablepaydeclinessignificantly. Ensign’sABP(andPSA,priortoitsdiscontinuance)payoutwhencertainminimumthresholdsaremetfor corporateearnings,safetyresultsandtheachievementofstrategicobjectives.Valueisrealizedfromstock optionswhenEnsign’ssharepriceappreciatesoverthelongͲterm. CompensationoftheNamedExecutiveOfficers ThefollowingsummarizesEnsign’s2016performancemeasuresand the2016performanceandtotal directcompensationoftheNEOs. 2016PerformanceoftheNEO’s In2016,EnsignachievedsuccessinanumberofareasandcontinuestobewellͲpositionedto capitalizeonbusinessopportunities,eveninthecurrentchallengingmarketenvironment. TheBoardofDirectorsbelievesthatEnsigncontinuestocomparefavourablytoitspeergrouponthe key metrics of balance sheet, capital structure, return on invested capital and cash flow. Specific measureshavebeenputintoplacetomonitorachievementofcorporatestrategy,includingreturn oninvestedcapital,totalshareholderreturn,annualgrowthtargets,reliabilityandcosttargets.
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SolidprogresscontinuestobemadetowardstheCorporation’shealth,safetyandenvironmental performancegoalsonemployeedevelopment,recordableinjuries,energyefficiency,environmental stewardshipandreliability.OurNEOscontinuedtoprovideoutstandingleadershipinfocusingon operationalexcellence,capitaldisciplineandstrategicdirection.In2016theCorporationspecifically achievedthefollowing:
2016Achievements Safety Wesethistoricallylow lostͲtimeinjuryfrequencyrates (LTIR)acrosstheCorporationin 2016.Overthepast10years,ourLTIRhasreducedby93%. Safety OurAustralianandMiddleEasternoperationsachievedthelowesttotalrecordableinjury rateinthecompanyof0.52,anexemplaryachievementgiventhataTRIRof0.50orbetter isconsideredbytheindustrytobeworldclass. Innovation/ Weachievedcontinueddevelopmentofdrillingrigautomation,specificallythroughthe Technology integration of the “Ensign EdgeTM” control room systems that manage downhole tools, increasingpenetrationweightandloweringtheriskofgettingstuckinhole. Training Werolledout26onlineHSElearningmodulesin2016,tofurtherdevelopandsupport standardized training (including regulatory, behaviorͲbased and other training) in our worldwideoperations. Financial Weamendedandextendedourrevolvingtermcreditagreement,reducingthecreditlimit available and amending certain financial convenants. We also repaid debt in the net amountof$49millionintheyear,reducingourlongͲtermdebtbalance. Financial We continued to effectively implement actions to reduce costs while appropriately Performance maintainingourequipmentandsustainingouroperationalcapabilities.
Financial Throughongoingprudentcostmanagement,wesustainedourdividendrateforthe2016 Performance yearanddeclaredtotaldividendsof$0.48perCommonShare.Wealsoimplementeda dividendreinvestmentprogramin2016. 2016AnnualBonusCalculation–CashAward As described in the section above entitled “Executive Compensation Components – Detailed Description”, in 2016 Ensign rewarded the NEOs and other ABP participants based on the performanceachievedversusannualapprovedtargets,asfollows: Metrics 2016Achievement Financial In 2016, on a consolidated basis, the Corporation’s EBITDA (as adjusted) achieved Performance approximately89%oftheapprovedannualbudgetfor2016,resultinginanannualcash bonuspayouttotheNEOsbasedonthismetric. Asset Efficiency In2016,onaconsolidatedbasis,theAERratiowaslessthan15%,resultinginnoannual Ratio cashbonuspaidtoNEOsbasedonthismetric. Safety Safetyperformancemetricsonaconsolidatedbasisin2016 achievedapproximately92% Performance oftargets,representingacashbonusof4%. StrategicGoals Two(2)ofthefour(4)preͲapproved2016strategicgoalsfortheNEOgroupwereachieved, one(1)wasexceededandone(1)wasnotmet.Thisresultedinacashbonusonthis componentof6%.
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Together,theachievementin2016offinancial,safetyandstrategicmetricsresultedinatotal annualcashbonuspursuanttotheABPofapproximately23.1%ofearnedbasesalary. Governanceofthefinancialperformancecriteriaandmetricsiscomprehensive.Reviewsofmeasures, weightings, targets and performance results are conducted at various times of the year by the appropriatedivisional,corporateandCompensationCommitteelevelsbeforebeingapprovedbythe Board of Directors. Annual safety goals for each division are reviewed by the Health, Safety & EnvironmentCommittee(“HSECommittee”)oftheBoardofDirectors,toensurealignmentwiththe objectivesofthatCommittee. InMarch2017,theCompensationCommitteeofferedcurrentseniorexecutivesoftheCorporation theelectiontoreceivetheir2016cashbonusinCommonShares,ata50%premiumoverthevalueof thecashbonus,subjecttotheconditionthatsuchseniorexecutivesretaintheseCommonSharesfor aperiodofthreeyears.AsatthedateofthisInformationCircular,thedeadlineformakingsuch electionhasnotyetpassed.Totheextenttheseniorexecutivesmakethiselection,the2016cash bonuswillbepaidtosuchexecutivesintheformofCommonSharespurchasedontheopenmarket. 2016PSAAwards AsntoedelsewhereinthisCD&A,PSAawardsweresuspendedforthe2016year,inlightofmarket conditions.Assuch,noPSAawardswithrespecttothe2016weregranted. For2017,thePSAprogramhasbeendiscontinuedentirelyandaPSUPlanhasbeenimplemented. Inthepast,thecalculationofthePSAusedthesamemetricsastheABP,describedabove.Inthepast, theABPcashamountwasmultipliedbyasetfactorofupto2.5forNEOs,whichdollaramountwas usedtopurchaseCommonSharesthatvestoverathreeyearperiod.
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2016StockOptionGrants NEOsandothereligibleemployeesareeligibletoreceivegrantsofstockoptions.Grantsofstock options are recommended by the Executive Management Committee to the Compensation Committeeforreviewandapproval.OptionsarenotguaranteedtobegrantedannuallyoronapreͲ determined schedule, but are granted at the discretion of the Compensation Committee, having regardtomarketcycles,recruitment,retention,competitivecompensation,roles,responsibilitiesand individual performance, as balanced by the number of options available and the requirement to restrictthevolumeofoutstandingoptionsbelowacceptabledilutionthresholds. Stock options were granted in each of 2014 and 2015. None were granted in 2016 pending the outcomeofthecomprehansivereviewofcompensationprogramsgenerally.Agrantofstockoptions andstockappreciationrightswas,however,approvedbytheCompensationCommitteeonMarch10, 2017.TheNEOsreceivedthefollowinggrants:
March10,2017Grant Name StockOptions Geddes,RobertH. 150,000 Kautz,EdwardD. 62,500 Nuss,MichaelR. 50,000 Gray,Michael 50,000 Edwards,N.Murray 150,000
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LookingAheadto2017 EffectiveJanuary1,2015,theNEOsaccepteda10%reductiontotheirannualsalaryorconsultingfee, atthesuggestionoftheBoardofDirectors,todemonstrateleadershipandemphasizetheimportance ofcontrollingcostsduringthisunstableperiodoftimefortheindustry.Basecompensationforthe NEOswasmaintainedat2015levelsthroughout2016,withtheexceptionofMr.Kautzwhoreceievd anadjustmenttohisbasesalarywhenherelocatedfromourheadofficeinCalgary,AlbertatoDenver, Coloradoduringtheyear.Thetotaleconomicvalueof2016and2015compensationfortheNEOswas significantlylessthanthetotalcompensationlevelsachievedfor2014. For 2017, Ensign has made significant changes to the longͲterm incentive component of our compensationprograms.ThePSAcomponentoftheAnnualBonusPlanhasbeendiscontinued(with existing2014and2015grantscontinuingtovestnormally)andaPerformanceShareUnitPlancomes intoforcethisyear.
PerformanceShareUnits(“PSUs”)–NEWin2017 FormofAward CashpaymentorCommonShares purchasedontheopenmarketthroughtheTSX. WhoParticipates SeniorexecutivesoftheCorporation (VicePresidentlevelandabove). TargetAward Adollaramountisdeterminedbasedonapercentageofbaseannualsalary,whichis Amount usedtodetermineanumberofPSUsbasedonthepriceofEnsign’sCommonShareson thegrantdate.ThetargetamountoftheawardisaPSUvalueof100%ofthePSUgrant. Dividends Dividendsareaccruedonoutstanding,unvestedPSUs,andaccumulateintheformof additionalPSUs. Vesting AwardsofPSUsvestattheendofathree(3)yearperiod,measuredfromthegrantdate. ExtendingtherealizationofthePSUsoverathree(3)yearperiodencouragescorporate performanceandstockpriceappreciation.Ifanemployeeleavesemploymentwiththe Corporationforanyreason(otherthaninthelimitedcircumstancesofretirementinthe normalcourse,death,orterminationofemploymentconcurrentlywithorfollowinga changeofcontrol),theunvestedPSUsareforfeited. Payout Cash settlement, or settlement in Common Shares of the Corporation for those participantswhohavenotyetmettheirminimumshareholdingrequirement.Ifsettled inCommonShares,theCommonShareswillbepurchasedontheopenmarketandpaid outinkinduponvesting. Performance The value at vesting of the PSUs will depend on Ensign’s stock price and corporate Measures performance (as measured by metrics including the Corporation’s relative total shareholderreturnrelativetoitspeergroup)overthethreeͲyearvestingperiod.Future realizedvaluesatthetimeofvestingwillreflectstockpriceperformance,reinvested dividendaccruals,andachievementofperformancecriteria,allasmeasuredoverthe vestingperiod. SummaryCompensationTable The following table sets forth for the year ended December31, 2016 information concerning the compensationpaidorpayabletotheexecutiveofficersoftheCorporationwhosetotalcompensation exceeded $150,000 and who met the requirements to be classified as "Named Executive Officers" pursuanttoNationalInstrument51Ͳ102.AsdescribedfurtherintheStatementofCorporateGovernance
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Practices, the Corporation does not have a named Chief Executive Officer. Specific aspects of this compensationarecoveredingreaterdetailinsubsequenttables. ThetotalcompensationforallNEOsin2016totalled$3,110,169(includingfullyearcompensationforMr. Gray,whowasaNEOforapartialyearonly,andcompensationforMr.LemkeandMr.Porter,eachof whomwasaNEOforapartialyearonly)(2015–$4,164,981),andrepresents1.82%ofthefundsfrom operationsfortheCorporationin2016(2015–1.40%). NonͲEquityIncentive PlanCompensation ShareͲ OptionͲ Annual LongͲTerm Based Based Incentive Incentive Allother Total NameandPrincipal Salary Awards Awards(7) Plans(8)(9) Plans(10)(11) Comp.(12) Comp. Position Year ($)(5) ($) ($) ($) ($) ($) ($)
Geddes,RobertH. 2016 573,740 ͲͲ 0 132,534 0 32,165 738,439 President&Chief 2015 588,865 ͲͲ 287,500 95,867 239,668 17,433 1,229,333 OperatingOfficer 2014 620,125 ͲͲ 364,000 467,914 1,095,761 16,329 2,564,129
Kautz,EdwardD.(1) 2016 460,058 ͲͲ 0 106,357 0 35,325 601,740 President 2015 438,000 ͲͲ 143,750 71,306 178,266 12,967 844,289 UnitedStates&Latin AmericanOperations 2014 461,250 ͲͲ 227,500 362,912 815,029 12,166 1,878,857
Nuss,MichaelR.(1) 2016 530,325 ͲͲ 0 105,209 0 9,648 645,182 ExecutiveVicePresident UnitedStates&Latin AmericanOperations
Lemke,TimothyA.(2) 2016 226,997 ͲͲ 0 48,610 0 16,071 291,678 FormerVicePresident 2015 242,405 ͲͲ 115,000 24,961 22,457 6,005 410,828 Finance&ChiefFinancial Officer
Gray,Michael(3) 2016 176,204 ͲͲ 0 47,012 0 0 223,216 ChiefFinancialOfficer
Porter,SelbyW.(4) 2016 86,052 ͲͲ 0 17,772 0 9,949 113,773 FormerViceChairman 2015 243,335 ͲͲ 0 39,615 99,037 7,204 389,181 2014 256,250 ͲͲ 0 201,618 452,794 6,570 917,232
Edwards,N.Murray(6) 2016 0 ͲͲ 0 93,102 0 403,040 496,142 Chairman 2015 0 ͲͲ 287,500 65,615 164,037 403,040 920,192 2014 0 ͲͲ 364,000 342,750 769,749 435,625 1,982,166 (1) Mr.KautzrelocatedfromCalgary,AlbertatoDenver,ColoradoeffectiveSeptember1,2016.Inconnectionwithhisrelocation,hisannualbase salarywaschangedfromCAD$427,000,toUSD$400,000,effectiveSeptember1,2016.Forreportingpurposes,theUSdollarportionofall compensationelementsforMr.Kautz(whoreceivedcompensationinUSdollarsbeginningonSeptember1,2016)andMr.Nuss(whoreceives allofhiscompensationinUSdollars)for2016havebeentranslatedattheexchangerateonDecember30,2016,beingUSD$1.00=CAD $1.34. (2) Mr.Nuss’baseannualsalaryincludesaUSD$30,000countryallowancewithrespecttohisresponsibilitiesovertheCorporation’soperations inLatinAmerica.
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(3) Mr. Lemke retired from the Corporation effective October 21, 2016. His 2016 compensation reflect his earnings up to the date of his retirement.Hisannualbasesalaryin2015reflectspartialyearintheroleofVicePresidentFinance,andhisJuly1,2015promotiontothe positionofVicePresidentFinance&ChiefFinancialOfficer. (4) Mr.GraywasappointedChiefFinancialOfficeronOctober22,2016followingMr.Lemke’sretirement.Mr.Gray’searningsfor2016reflect themajorityoftheyearintheroleofCorporateController,andhisOctober22,2016promotiontothepositionofChiefFinancialOfficer. (5) Mr.PorterretiredfromtheCorporationeffectiveMay4,2016.His2016compensationreflectearningsuptothatdate. (6) Annualbasesalaries/consultingfeesfortheNEOsin2015(exceptforMr.Lemke)reflecta10%salaryreductiontothelevelsinitiallysetfor 2015,acceptedbytheNEOsinlateJanuary2015.Basesalariesweremaintainedat2015levelsthroughout2016,exceptinthecaseofMr. GraywithrespecttohispromotiontotheroleofChiefFinancialOfficer,andMr.KautzinconnectionwithhisrelocationfromCalgary,Alberta toDenver,Coloradoduringtheyear. (7) Mr. Edwards is not a full time employee of the Corporation and therefore does not receive a salary. However, he provides ongoing managementservicestoEnsignandmeetsthedefinitionofanNEO.Mr.Edwardsorhiscontrolledcorporationreceivesanannualconsulting feeforhisservices,includedinthecolumn“Allothercompensation”. (8) OptionͲbasedawards:Nostockoptionswereawardedin2016.ThegrantdatefairvalueofoptionͲbasedawardsgrantedtoNEOspursuant totheStockOptionPlaniscalculatedforcompensationdisclosurepurposesusingtheBlackͲScholesoptionpricingmodelwiththefollowing assumptions: BlackͲScholesOptionPricingModel–Assumptions
GrantDateFair AverageRiskFree AverageExpectedLife ExpectedVolatility Value InterestRate
December2015 $1.15 0.73% 5years 35.4% December2014 $1.82 1.0% 5years 38.5% The fair value for compensation disclosure purposes differs from accounting fair value, as the optionͲbased awards are, under IFRS 2, consideredtobecompoundfinancialinstrumentsandaccountedforascashͲsettledawards.ThereforetheseawardsarereͲvaluedatevery quarterend. (9) Annualincentiveplans:AnnualincentiveplansincludethecashbonusamountsearnedundertheAnnualBonusPlan.Cashbonusawardsare paidtotheNEOsincashinAprilorMayfollowingtheyearinwhichtheywereearnedandaccrued.Becauseofthetimingofthepaymentsof thesebonusesrelativetothedateofthisInformationCircular,prioryearnumbersareadjustedasappropriatetoreflectactualfinalpayment amounts. (10) InMarch2017,theCompensationCommitteeofferedcurrentseniorexecutivesoftheCorporationtheelectiontoreceivetheir2016cash bonusinCommonShares,ata50%premiumoverthevalueofthecashbonus,subjecttotheconditionthatsuchseniorexecutivesretain theseCommonSharesforaperiodofthreeyears.AsatthedateofthisInformationCircular,thedeadlineformakingsuchelectionhasnot yetpassed.Totheextenttheseniorexecutivesmakethiselection,the2016cashbonuswillbepaidtosuchexecutivesintheformofCommon Sharespurchasedontheopenmarket,havingthefollowingpreͲtaxvalues: Name 2016CashBonus Multiplier, if received in PreͲtaxvalueof2016cashbonus,ifelected (CAD$) CommonShares toreceiveinCommonShares(CAD$) Geddes,RobertH. 132,534 150% 198,801 Kautz,EdwardD. 106,357 150% 159,536 Nuss,MichaelR. 106,803 150% 160,205 Gray,Michael 47,012 150% 70,518 Edwards,N.Murray 93,102 150% 139,653 (11) LongͲtermincentiveplans:LongͲtermincentiveplansincludethePerformanceShareAward,pursuanttowhichvestedandunvestedCommon SharesareawardedtoNEOsintheyearsindicated.AwardspursuanttothePSAareintheformofacashpaymentofasetlevelupto250% oftheNEOscashbonusearnedforfinancialperformanceundertheAnnualBonusPlan,whichisdepositedwithatrusteeforthepurposeof purchasingCommonSharesontheTSXonbehalfoftheNEO.TheseacquiredCommonSharesvesttothebenefitofeachNEOequallyover threeyearseachSeptember1beginningintheyearfollowingtheyearinwhichsuchawardwasearned.AnydividendspaidbytheCorporation onunvestedCommonSharesheldpursuanttothePSAareusedtopurchaseadditionalCommonSharesonbehalfoftheNEO.IftheNEO leavestheemploymentoftheCorporationforanyreason,otherthannormalretirementoveracertainage,orintheeventofatermination followingachangeincontrol,theunvestedCommonSharespurchasedpursuanttothePSAareforfeitedbytheNEO. (12) DuetopersistenteconomicchallengesfacingtheCorporationandourindustryaroundtheglobe,theCompensationCommitteesuspended thePSAcomponentoftheAnnualBonusPlanforthe2016year.AsnotedelsewhereinthisCD&A,thePSAawardshavenowbeendiscontinued entirely,andhavebeenreplacedwithPSUsbeginningin2017.
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(13) Allothercompensation: (i) CanadianEmployeeSavingsPlan:ThisincludesCommonSharesthathavevestedduringtheyeartothebenefitofNEOswhoelectto participateintheCorporation’s“EmployeeSavingsPlan”forCanadianͲbasedemployees.Upto5%ofaparticipatingemployee’sbase salaryismatchedincashcontributionsmadebytheCorporation,usedtopurchaseCommonSharesontheTSXonbehalfoftheNEO, whichvesttothebenefitofeachNEOequallyovertwoyearseachFebruary1.Thevalueofthevestedsharesisderivedbymultiplying theCommonSharepriceonthevestingdatebythenumberofCommonSharesvestingtothebenefitoftheNEOonthatdate. (ii) PerquisitesandBenefits:Thevalueinaggregateofperquisitesandbenefits,whichcomprisescountryallowances,vehicleallowances, parking,groupinsuranceandclubmemberships,foreachNEOislessthan$50,000andislessthan10%ofthetotalofeachNEOs salaryfor2014,2015and2016. (14) InaccordancewiththetermsoftheCanadianEmployeeSavingsPlan,upontheretirementinthenormalcourseofMr.LemkeandMr.Porter, andthetransfertotheUnitedStatesofMr.Kautz,allunvestedCommonSharesheldinthisplanvestedasofthedateofretirementor transfer.
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OutstandingShareͲBasedAwardsandOptionͲBasedAwards ThefollowingtablesetsforthforeachNEOalloptionͲbasedawardsoutstandingasatDecember31,2016. TherewerenoshareͲbasedawardsoutstandingasatDecember31,2016. OptionͲBasedAwards #ofSecurities ValueofUnͲ GrantDate Underlying Option ExercisedinͲtheͲ (dd/mm/y Unexercised Option ExpirationDate MoneyOptions(3) Name yyy) Options(1)(2)(#) ExercisePrice($) (dd/mm/yyyy) ($) Geddes,RobertH. 05/12/2013 200,000 16.13 31/12/2018 0 03/12/2014 200,000 10.37 31/12/2019 0 02/12/2015 250,000 7.30 31/12/2020 520,000 Total: 650,000 520,000 Kautz,EdwardD. 05/12/2013 125,000 16.13 31/12/2018 0 03/12/2014 125,000 10.37 31/12/2019 0 02/12/2015 125,000 7.30 31/12/2020 260,000 Total: 375,000 260,000 Nuss,MichaelR. 05/12/2013 50,000 16.13 31/12/2018 0 03/12/2014 100,000 10.37 31/12/2019 0 02/12/2015 100,000 7.30 31/12/2020 208,000 Total: 250,000 208,000 Lemke,TimothyA. 05/12/2013 20,000 16.13 31/12/2018 0 03/12/2014 20,000 10.37 31/12/2019 0 02/12/2015 80,000 7.30 31/12/2020 166,400 Total: 120,000 166,400 Gray,Michael 02/12/2015 20,000 7.30 31/12/2020 41,600 Total: 20,000 41,600 Porter,SelbyW. Total: N/A 0 N/A N/A 0 0 0 Edwards,N.Murray 05/12/2013 200,000 16.13 31/12/2018 0 03/12/2014 200,000 10.37 31/12/2019 0 02/12/2015 250,000 7.30 31/12/2020 520,000 Total: 650,000 520,000 (1) ComposedofthenumberofunexercisedoptionsasatDecember31,2016. (2) ThesecuritiesunderlyingtheoptionsgrantedareCommonShares.Theoptionsgrantedvestattherateof20%peryear,onacumulative basis.Formoreinformation,seethesectionentitled“StockOptionPlan”. (3) AlloptionvalueshavebeendeterminedbasedontheclosingpriceforCommonSharesof$9.38onDecember31,2016.“InͲtheͲmoney” meansthattheexercisepricefortheoptionislessthan$9.38,beingtheclosingmarketpricefortheCommonSharesonDecember31, 2016. (4) AlloftheunexercisedstockoptionspreviouslygrantedtoMr.LemkeexpiredonJanuary19,2017(being90daysfollowinghisOctober21, 2016retirementdate),inaccordancewiththetermsoftheStockOptionPlan.Mr.Lemkerealizedabenefitof$37,800in2016fromthe exerciseof20,000stockoptionsonNovember30,2016. (5) Mr.PorterhadnooptionsoutstandingasofhisretirementdateonMay4,2016.
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IncentivePlanAwards–ValueVestedorEarnedDuringtheYear Thefollowingtablesetsforth,foreachNEO,thevalueofoptionͲbasedawardswhichvestedduringthe yearendedDecember31,2016,andthevalueofnonͲequityincentiveplancompensationearnedduring theyearendedDecember31,2016.TheCorporationhasnoshareͲbasedawardsapplicabletoNEOs. OptionͲBasedAwards– ShareͲBasedAwards– NonͲEquityIncentivePlan ValueVestedDuring ValueVestedDuring Compensation–ValueEarned Name theYear($)(1)(2)(3) theYear($) DuringtheYear($)(4)
Geddes,RobertH. 0 N/A 0 Kautz,EdwardD. 0 N/A 0 Nuss,MichaelR. 0 N/A 0 Lemke,TimothyA. 0 N/A 0 Gray,Michael 0 N/A 0 Edwards,N.Murray 0 N/A 0 (1) IncludesoptionswhichvestedpursuanttotheStockOptionPlanduring2016. (2) Optionsvestattherateof20%perannum,commencingintheyearsubsequenttotheyearthattheoptionwasgranted. EachoptionͲbasedawardhasasetvestingdateofJuly1ineachyear.Assuch,onefifthoftheoptionsgrantedtoeachNEO in2013,2014and2015vestedandbecameexercisablein2016. (3) ThevalueofoptionͲbasedawardsiscalculatedbasedonthedifferencebetweenthemarketvalueoftheCommonShares underlyingtheoptionsonthevestingdateandtheexercisepriceoftheoptionsandreflectstheaggregatevaluerealized hadthevestedoptionsbeenexercisedonthevestingdate. (4) NonͲequityincentiveplancompensationincludesvestedandunvestedCommonSharesawardedtotheNEOunderthe PerformanceShareAwardin2016.DuetopersistenteconomicchallengesfacingtheCorporationandourindustryglobally, theCompensationCommitteesuspendedthePSAcomponentoftheAnnualBonusPlanforthe2016year.Assuch,nononͲ equityincentiveplancompensationwasearnedforthe2016yearbyanyNEO.AsnotedelsewhereinthisCD&A,thePSA awardshaverecentlybeendiscontinuedentirely,andhavebeenreplacedwithPSUsbeginningin2017. Mr.LemkerealizedabenefitfromtheexerciseofstockoptionsintheyearendedDecember31,2016. FollowinghisretirementfromtheCorporation,onNovember30,2016Mr.Lemkeexercised20,000stock options,havingagrantpriceof$7.30,andrealizedabenefitof$37,800.Allofhisremainingvestedand unvestedstockoptionswereforfeitedasofJanuary19,2017,being90daysfollowinghisretirementdate. NoneoftheotherCorporation’sNEOsrealizedanybenefitfromtheexerciseofstockoptionsintheyear endedDecember31,2016. PensionPlanBenefits TheCorporationdoesnothaveapensionplanorprovideotherretirementplanbenefits.
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TerminationandChangeofControlBenefits EnsigndoesnothavewrittenemploymentagreementsinplacewithanyofitsNEOswhichprovidefor incremental payments, payables or benefits upon termination (whether voluntary, involuntary or constructive),resignation, retirement,achangeincontroloftheCorporationora changeinaNEO’s responsibilities. Upon termination of employment for any reason, such executives (as with other employees)wouldbeentitledtobenefitsforaseveranceperiodtobedetermined,pursuanttoapplicable law,atthetimeoftermination,dependinguponlengthofservice,age,salarylevelandanumberofother factors. ThespecificprovisionsoftheCorporation’sStockOptionPlan,andthenewPSUPlaneffectivein2017, governthetreatmentofunvestedandvestedOptionsandPSUs,andthePSAandtheEmployeeSavings Plan govern the treatment of unvested shares held in these plans on the cessation of employment, includingonachangeofcontrol(pleaseseethesectionentitled“StockOptionPlan”below,andthe sectionentitled“ExecutiveCompensationComponents”above,forfurtherdetails).Dependingonthe conditionsoftermination,wetreatNEOsandotheremployeesasfollows:
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Performance Performance ShareAward Employee ShareUnits Termination Annual (discontinued Stock SavingsPlan (NEWin Type Payment BonusPlan in2017) Options (1) 2017) Resignation Allsalaryand Cashbonusis Unvested Vestedstock Unvestedshares UnvestedPSUs benefit forfeited. awards, optionsmustbe heldintrustare areforfeited. programscease. includingthe exercisedwithin forfeited. dividend 90days; reinvestment unvestedstock component,are optionsare forfeited. forfeited. Retirement Allsalaryand Cashbonusis Unvested Vestedstock Unvestedshares PSUs,including benefit paidonaproͲ awards, optionsmustbe heldintrustvest thedividend programscease. ratabasis. includingthe exercisedwithin inanaccelerated reinvestment dividend 90days; manner,asat component, reinvestment unvestedstock theretirement continuetovest component,vest optionsare date,ifthe inthenormal inthenormal forfeited. employee’sage courseifthe course(over3 plusyearsof employee’sage years)ifthe serviceareequal plusyearsof employee’sage toorgreater serviceareequal plusyearsof than65. toorgreater serviceatthe Otherwise, than65. timeof unvestedshares retirementis areforfeited. equaltoor greaterthan65. Deathor Allsalaryand Cashbonusis Unvested Vestedstock Unvestedshares PSUs,including Disability benefit paidonaproͲ awards, optionsmustbe heldintrustvest thedividend programscease ratabasis. includingthe exercisedwithin inanaccelerated reinvestment (exceptforthe dividend 90days; manner(onthe component, payoutof reinvestment unvestedstock dateofdeath). continuetovest applicablelife component,vest optionsare normally. insurance inanaccelerated forfeited. benefits). manner(onthe dateofdeath). Termination Allsalaryand Cashbonusis Unvested Vestedstock Unvestedshares PSUs,including withoutCause benefit forfeited. awards, optionsmustbe heldintrustare thedividend programscease. includingthe exercisedwithin forfeited. reinvestment Severance dividend 90days; component,are providedonan reinvestment unvestedstock forfeited. individualbasis component,are optionsare pursuantto forfeited. forfeited. applicablelaw, whichinmost jurisdictions reflectslengthof service,position, age,salarylevel andother applicable factors.
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Termination None.Allsalary Cashbonusis Unvested Vestedstock Unvestedshares PSUsare withCause andbenefit forfeited. awards, optionsmustbe heldintrustare forfeited. programscease. includingthe exercisedwithin forfeited. dividend 90days; reinvestment unvestedstock component,are optionsare forfeited. forfeited. Changeof Notrigger. Notrigger. Accelerated Noaccelerated Noaccelerated Noaccelerated Control vestingupona vestingunless vestingunless vestingunless changeof employmentis employmentis employmentis control. alsoterminated. alsoterminated. alsoterminated. (1) TheCanadianEmployeeSavingsPlanisanemployeebenefitplanavailabletoemployeesresidentinCanadaonly.Similar plansmaybeinplaceforthebenefitofemployeesintheCorporation’sotherjurisdictionsofoperation.
Therewouldbenootherincrementalpayments,payablesandbenefitsthataretriggeredby,orresult from,achangeofcontrolscenarioforcompensation.IfanyoftheNEOswereterminatedfollowinga changeofcontrol,suchexecutiveswouldbeentitledtosalary,annualbonusandothercompensatory benefitsforaseveranceperiodtobedeterminedatthetimeofsuchchangeofcontrol,dependingupon lengthofservice,age,salarylevelandanumberofotherfactors. InMarch2017,theCompensationCommitteeadoptedcertainamendmentstotheStockOptionPlan (discussedinfurtherdetailinthesectionbelowentitled“StockOptionPlan”).TheamendedStockOption Planaddeda“doubletrigger”withrespecttotheacceleratedvestingofoptionsuponachangeofcontrol. Upon a change of control, substitute or replacement options on similar terms will be provided to participants.Onlywherethisreplacementdoesnotorwillnotoccurupontheoccurrenceofthechange ofcontrolforanyreason,wouldoutstandingOptionsvestautomatically.Thereplacementstockoptions willvestimmediatelyiftheexecutiveisterminatedwithoutcauseorconstructivelyterminatedwithin12 monthsfollowingthechangeofcontrol.SimilarprovisionsareapplicabletoPSUs. ExecutiveShareOwnershipGuideline Withaviewtofurtheraligningmanagement’sinterestswiththoseoftheShareholders,theCorporation hasimplementedaguidelinethatexecutiveofficers(beingtheChairman,President&ChiefOperating Officer,ChiefFinancialOfficer,DivisionalPresidentsandExecutiveVicePresidents)andseniormanagers (beingSeniorVicePresidentsandVicePresidents),holdthelevelofCommonSharesoutlinedbelow: ExecutiveLevel OwnershipRequirement Chairman 4timesannualconsultingfee President&ChiefOperatingOfficer 4timesbasesalary DivisionalPresidents,ExecutiveVicePresidentsand 3timesbasesalary ChiefFinancialOfficer SeniorVicePresidents 2timesbasesalary VicePresidents 1timesbasesalary Executiveofficersandseniormanagerstowhomthisguidelineappliesmustreachtheminimumrequired levelofshareownershipwithinfive(5)yearsoftheirdateofpromotionorappointmenttotheexecutive officer or senior manager level position. In calculating Common Share ownership for officers, the aggregatevalueofCommonSharesowned(butnotthevalueofanyexercisableandvestedstockoptions)
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isused.Theminimumrequirementforthelevelsnotedabovefluctuatesyearlybasedonsalarychanges andchangestothepriceoftheCommonShares. Inordertoavoidtheneedtocontinuouslymonitorandadjustholdingsbasedonfluctuationsinthe market price of the Common Shares, for the purposes of the minimum shareholdingrequirement applicabletotheCorporation’smembersofmanagement,thevalueofshareholdingsiscalculated basedonthegreaterof: i. ThecurrentmarketvalueoftheCommonShares; ii. ThemarketvalueoftheCommonSharesasatDecember31oftheimmediatelyprecedingyear; and iii. TheacquisitioncostofsuchCommonShares. Oncetheapplicablethresholdismet,furtherpurchasesarenotrequiredifthevalueoftheCommon ShareshelddecreasessolelyasaresultofadeclineinthetradingpriceoftheCommonShares.However, ifthevaluedecreasesforanyotherreason(i.e.saleofCommonShares),suchmemberofManagementis requiredtoincreasethevalueofhisorherinvestmenttotherequiredthreshold. AsofDecember31,2016,alloftheexecutiveofficersandseniormanagerssubjecttothisguidelinehave satisfiedtheirownershiprequirements,otherthanthoseseniormanagerswhoarewithinthefive(5)year time period during which such senior managers have to accumulate these holdings. The table below summarizestheshareownershiplevelsforeachofthefive(5)NEOsasofMarch17,2017(andbasedon theclosingpriceoftheCommonSharesonMarch17,2017of$7.98. AsatMarch17,2017 OwnershipRequirement Actual Actual MultipleofCurrent Ownership($) Ownership BaseCompensation Requirement Meets NameandPrincipalPosition (1) (#)(2) (CAD$)(3) (CAD$) Requirement Geddes,RobertH. $5,233,292 655,801 4x$573,000 $2,292,000 Yes President&ChiefOperating Officer Kautz,EdwardD. $1,771,217 221,957 3x$530,000 $1,590,000 Yes President UnitedStates&LatinAmerican Operations MichaelGray $26,103 3,271 4x$220,000 $880,000 N/A(4) CurrentChiefFinancialOfficer MichaelNuss $746,186 93,507 3x$490,000 $1,470,000 N/A(4) ExecutiveVicePresidentUnited States&LatinAmerican Operations Edwards,N.Murray $209,977,197 26,312,932 4x$403,040 $1,612,160 Yes Chairman (1) TheownershipvalueandvalueofthesharerequirementarecalculatedbasedontheclosingpricefortheCommonSharesonMarch 17,2017of$7.98. (2) IncludesCommonSharesbeneficiallyowned,controlledordirectedbytheNEO. (3) ForreportingpurposesandconsistencythroughoutthisInformationCircular,currentbasecompensationlevelspaidinUSdollarshave beentranslatedattheexchangerateonDecember30,2016,beingUSD$1.00=CAD$1.34.
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(4) Mr.GrayhasuntilOctober22,2021,being5yearsfromthedateofhisappointmenttotheofficeofChiefFinancialOfficer,tomeet therequirement. (5) Mr.NusshasuntilAugust31,2021,being5yearsfromthedateofhisappointmenttotheofficeofExecutiveVicePresident,United States&LatinAmericanOperations,tomeettherequirement.HecurrentlymeetstherequirementforhispriorpositionofSeniorVice President,basedontheacquisitioncostofhisshares.
Page57 EnsignManagementInformationCircular–2017 SECTION4–DIRECTORCOMPENSATION
DirectorsCompensationPhilosophyandObjectives In 2016, all nonͲmanagement Directors of the Corporation received a comprehensive compensation packagecomprisedofbothcashandequitycompensation,asfollows: i. Anannualretainerintheformofacashretainer; ii. An annual equity retainer in the form of deferred share units (“DSUs”) or Common Shares pursuanttothe“DirectorsDeferredShareUnitandCommonSharePaymentPlan”(describedin detailbelow); iii. Committeechairandcommitteemembercashretainers;and iv. Meetingfees. CompensationprogramsandlevelsfornonͲmanagementDirectorsaredesignedtoattractandretainhigh quality individuals who possess experience and capabilities appropriate for the demands of the Corporation’sboard,andtoaligntheinterestsofthenonͲmanagementDirectorswiththeShareholders. Inaddition,theremunerationpackageforDirectorsisintendedtocompensatetheseindividualsfortheir timecommitment,thedischargeoftheirresponsibilitiesandtheaccountabilitiesofservingasaDirector oftheCorporation. TheCorporateGovernance,Nominations&RiskCommittee(the“CGNRCommittee”)andtheBoardof Directorsasawholereviewdirectorcompensationonanannualbasisforitsadequacyinlightofthe foregoingfactors,aswellasforcompetitivenessagainsttheCorporation’speergroup. NonͲManagementDirectors–RetainersandFees: On January 28, 2015, in light of uncertain market conditions, the Board of Directors unanimously volunteeredtotakea20%reductionincompensationfrom2014levels,beingtheannualcashretainer, annualequityretainer,committeechairpersonretainer,committeemembershipretainer,leaddirector feeandmeetingfees.Thisfeereductionremainedinplacethroughout2016. ThisreductionwaseffectiveJanuary1,2015andwasinalignmentwiththe10%salaryreductionaccepted bytheNEOsfor2015,asdescribedinthesectionentitled“ExecutiveCompensationComponents–Detailed Description”. This reduction reflects the Corporation’s belief in the importance of demonstrating leadership and emphasizingcostcontrolinlightofthecurrentoilfieldservicesindustryoutlook. The Board of Directors will continue to monitor evolving industry conditions and may make further adjustmentstoDirectorcompensationasmaybedeemedappropriateunderthecircumstances. Assuch,Directorcompensationfor2016ascomparedwith2015,andcurrent2017compensation,isas follows:
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2017(1) 2016 2015 NoChangefrom NoChangefrom 20%Reductionfrom CompensationDescription 2016Levels 2015Levels 2014Levels BaseRetainer $32,000 $32,000 $32,000 BaseEquityRetainer(DSUor DSUsorCommon DSUsorCommon DSUsorCommon CommonShareRetainer) Sharesvaluedat Sharesvaluedat Sharesvaluedat $80,000 $80,000 $80,000 CommitteeChairperson $6,000 $6,000 $6,000 Retainer AuditCommitteeChairRetainer $12,000 $12,000 $12,000 LeadDirectorRetainer $8,000 $8,000 $8,000 CommitteeMemberRetainer(2) $2,400 $2,400 $2,400 AuditCommitteeMember $4,000 $4,000 $4,000 Retainer(2) BoardandCommitteeMeeting $1,200 $1,200 $1,200 Attendance(3) TravelAllowance(4) $1,500/day $1,500/day $1,500/day (1) ThenextregularannualreviewofnonͲmanagementDirectorcompensationisscheduledtotakeplaceinMay2017. (2) Committeechairsdonotalsoreceiveacommitteememberretainerforthesamecommittee. (3) IncludesmeetingsheldinͲpersonandbytelephoneconferencecall;includesattendanceatstrategicplanningsessionswith membersoftheCorporation’sseniormanagement,ifany,heldintheyear. (4) ThefullamountofthetravelallowancedayrateispaidwhereaDirectorfliestoorfromoutsideNorthAmericatoattenda meeting.Halfthedayrate($750)ispaidwhereaDirectorfliestoorfromameetingwithinNorthAmerica,wheretheflight timeisequaltoorgreaterthantwohours.OutͲofͲpocketexpensesarealsoreimbursed. Allfees(otherthantheequityretainer,whichiscreditedorpaidquarterly)arepaidtoDirectorsannually, in December of the year in which the fees are earned. Fees are proͲrated for partial service. Where applicable,DSUsarecreditedtoaDSUaccountmaintainedfortheeligibleDirectoronaquarterlybasisand CommonSharesarepurchasedontheopenmarketbytheCorporationonaquarterlybasisandarepaid toeacheligibleDirector. The equity component of the annual retainer for Directors is intended to ensure an alignment of interestsbetweentheDirectorswhoarenotalsofulltimeemployeesoftheCorporation,andthoseof theShareholders.
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EquityͲBasedCompensation–DirectorsDSUPlanandCommonSharePaymentPlan The Board of Directors believes that equityͲbased compensation for Directors provides for greater alignmentofinterestsbetweenDirectorsandShareholders.Assuch,nonͲmanagementDirectorsreceive equitybasedcompensationintheformofDeferredShareUnits(notionalshares)orCommonShares. EffectiveJanuary1,2011,theCGNRCommitteeimplementedadeferredshareunitplan.Thisplan,called the“DirectorsDeferredShareUnitandCommonSharePaymentPlan”(the“DSUPlan”),appliestononͲ managementDirectorsoftheCorporation. PursuanttotheDSUPlan,eligibleDirectorsmaybeawardedDSUs,ormayelectinsteadtoreceiveupto 100%oftheawardinCommonShares,insuchnumbersasmaybeawardedbytheCGNRCommitteefrom timetotime.AnelectiontoreceiveCommonSharesinlieuofDSUslastsforoneyearandoncemade,is irrevocable for such year. If a Director elects to receive Common Shares, these Common Shares are purchasedontheopenmarket,onaquarterlybasis,attheprevailingmarketpriceontheTSXforthe CommonShares. DSUsarecreditedquarterlytoaDSUaccountforeacheligibleDirector,atafairmarketvaluebasedupon thevolumeweightedaveragetradingpriceoftheCommonSharesontheTSXforthefive(5)tradingdays immediatelypriortothedatetheDSUsarecredited.TheDSUsmaynotberedeemeduntilaDirectorhas ceasedtoholdanypositionwiththeCorporation.FollowingthedatetheeligibleDirectorceasestohold anypositionwiththeCorporation,heorshewillhaveuntilJuly1ofthefollowingcalendaryeartoredeem hisorherawardsinexchangeforacashpaymentequaltothenumberofDSUsheldmultipliedbythe volumeweightedaveragetradingpriceoftheCommonSharesontheTSXforthefive(5)tradingdays immediatelypriortothedateofsettlement,adjustedfordividends. DSUs are regarded as equivalent to Common Shares for the sole purpose of evaluating a Directors’ shareholdingsinconnectionwiththeminimumshareholdingrequirementapplicabletoDirectors. The CGNR Committee may amend, suspend or terminate the DSU Plan at any time, the last such amendmentshavingoccurredin2015,asfollows: i. Theannualequityretainerwasreducedby20%over2014levelstoavalueof$80,000peryear; and; ii. OnceanyapplicableminimumequityholdingrequirementwasmetbyaDirector,suchDirector canelectto takeup toamaximumof60%of theequityretainerincashinsteadofDSUsor CommonShares.
Approximately 44% of nonͲmanagement Directors total compensation in 2016 was paid through the issuance of DSUs or Common Shares, and the remaining 56% was paid in cash. Once the applicable minimum shareholding requirement is met (discussed in further detail in the section above entitled “DirectorEquityOwnershipRequirement”),Directorscanelecttotakealloraportionoftheirequity retainerincashinsteadofCommonSharesorDSUs.
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2016DirectorsSummaryCompensationTable The following table sets forth, for the year ended December 31, 2016, information concerning the compensationpaidtoDirectors(otherthanDirectorswhoarealsoNEOs,beingRobertH.GeddesandN. MurrayEdwards,whosecompensationinformationisprovidedinSection3–CompensationDiscussion andAnalysis). The Corporation does not provide any nonͲequity incentive plan compensation to nonͲmanagement Directors.
NonͲCash NonͲCashRetainer FeesEarned AllOther TotalComp Name Retainer ElectedtoBe ($) Comp($)(2) ($) ($)(1) TakeninCash($)(1)
Howe,JamesB. 61,200 32,000 48,000 0 141,200 Kangas,LenO. 66,400 40,000 40,000 0 146,400 Moomjian,Jr.,CaryA. 63,500 80,000 0 7,500 151,000 Schroeder,JohnG. 65,600 80,000 0 0 145,600 Skirka,KennethJ. 96,912(3) 80,000 0 6,000 182,912 Surkan,GailD. 56,000 80,000 0 0 136,000 Whitham,BarthE. 63,900 80,000 0 7,500 151,400 TOTAL: 473,512 472,000 88,000 21,000 1,054,512 (1) “NonͲcashretainer”includestheDSUorCommonShareawardcomponentoftheDirectorsannualretainer,pursuanttothe DSUPlan.Theequityretainervaluesreportedinthetableabovehavebeenroundedtototal$80,000,thefullamountofthe equityretainer.Actualvalues,withoutrounding(duetothecalculationmethodsfortheDSUandCommonSharesawarded), areshowninthetablesimmediatelybelow. (i) DSUs:Eligible(nonͲemployee)DirectorswhoreceivedDSUsin2016(Kangas,Moomjian,Schroeder)werecreditedsuch DSUsattheendofeachfiscalquarter.Mr.Kangaselectedtoreceive50%ofhisquarterlyequityretainerinDSUs,with 50%paidincash. DSUs DSUs ValueofDSUs DSUsCredited ValueofDSUs QuarterEnded BasePrice($) Credited(50% (50%Election) (#) ($) Election)(#) ($) 31ͲMarͲ16 5.91 3,381 19,982 1,691 9,994 30ͲJunͲ16 7.17 2,791 20,011 1,396 10,009 30ͲSepͲ16 7.45 2,685 20,003 1,343 10,005 31ͲDecͲ16 9.43 2,121 20,001 1,060 9,996 TOTAL:10,978 79,997 5,490 40,004 ThepricingoftheDSUspaidtoDirectorswhoreceivedtheirequityretainerintheformofDSUsin2016isbasedonthe volumeweightedaveragetradingpriceoftheCommonSharesontheTSXforthefive(5)tradingdayspriortothedate theDSUsarecredited.ThegrantdatefairvalueoftheDSUawardsiscalculatedforcompensationdisclosurepurposes usingaBlackͲScholespricingmodel,asdetailedinNote4totheSummaryCompensationTable. (ii) CommonShares:Eligible(nonͲemployee)DirectorswhoelectedtoreceiveCommonSharesin2016(Howe,Skirka, SurkanandWhitham)werepaidsuchCommonSharesattheendofeachfiscalquarter.Mr.Howeelectedtoreceive 40%ofhisannualequityretainerinCommonShares,with60%paidincash.
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CommonShares
Valueof Valueof CommonShares Common Common QuarterEnded BasePrice($) CommonShares (40%Election) Shares(#) Shares(40% ($) (#) Election)($)
31ͲMarͲ16 5.89 3,396 20,002 1,358 7,999 30ͲJunͲ16 7.20 2,779 20,009 1,112 8,006 30ͲSepͲ16 7.50 2,667 20,003 1,067 8,003 31ͲDecͲ16 9.45 2,117 20,006 845 7,985 TOTAL:10,959 80,019 4,382 31,993 TheaggregatevalueoftheCommonSharespaidtoDirectorswhoelectedtoreceivetheirequityretainerintheform ofCommonSharesin2016isbasedontheacquisitionpriceoftheCommonSharesontheTSX.Incertaininstances,as aconsequenceoftheCommonSharesbeingpurchasedontheopenmarket,theCommonSharecreditdatemaydiffer fromthetradesettlementdate. (2) “Allothercompensation”includesthetravelallowanceamountspaidtocertainDirectorsin2016. (3) InadditiontocompensationprovidedbytheCorporationtoMr.SkirkainhiscapacityasaDirectorofEnsign,Mr.Skirka receivesfees,inAustraliandollars,forservicesrenderedbyhimasadirectorofcertainofoursubsidiarycorporationsin Australia.HereceivesanannualbasefeeofAUD$33,000forsuchservices(CAD$32,512),includingcertainstatutorily requiredpayments,andreimbursementofexpenses.Forreportingpurposes,theseamountshavebeentranslatedatthe averageexchangeratefor2016,beingCAD$100=AUD$98.52. DirectorsFees–Breakdown The following table sets forth a detailed breakdown of the fees earned by our Directors (other than Directors who are also NEOs, being Robert H. Geddes and N. Murray Edwards, whose compensation information is provided in Section 3 – Compensation Discussion and Analysis), for the year ended December31,2016: Retainer Board Committee Travel Equity Fees(1) Meetings Meetings Allowance Other(3) Retainer(2) Total Name ($) ($) ($) ($) ($) ($) ($) Howe,JamesB. 42,000 8,400 10,800 0 0 80,000 141,200 Kangas,Len.O. 48,400 8,400 9,600 0 0 80,000 146,400 Moomjian,Jr.,CaryA. 36,800 8,400 10,800 7,500 0 80,000 143,500 Schroeder,JohnG. 46,400 8,400 10,800 0 0 80,000 145,600 Skirka,KennethJ. 40,400 8,400 9,600 6,000 32,512 80,000 176,912 Surkan,GailD. 36,800 8,400 10,800 0 0 80,000 136,000 Whitham,BarthE. 38,400 8,400 9,600 6,000 0 80,000 142,400 TOTAL: 289,200 58,800 72,000 21,000 32,512 560,000 1,032,012 (1) Retaineramountsreportedincludetheannualbasecashretainerpluscashretaineramountsforcommitteechairsand committeemembership. (2) See Note 1 to the Directors Summary Compensation Table for a description of the calculation of the equity retainer, comprised of DSUs or Common Shares credited or paid to Directors in 2016. Subject to qualifying conditions, certain Directorselectedtotakeaportionoftheirannualequityretainerincash. (3) TheamountsreportedforMr.SkirkaincludeCAD$31,697(AUD$33,000)inretainerfeespaidtohimwithrespecttoservices providedasadirectorofcertainofourAustraliansubsidiaries.Forreportingpurposes,theseamountshavebeentranslated attheaverageexchangeratefor2016,beingCAD$100=AUD$96.05.
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Directors’OutstandingShareͲBasedAwards ThefollowingtablesetsforthasatDecember31,2016informationconcerningallshareͲbasedawards outstanding for all of our Directors, other than Directors who are also NEOs (whose compensation informationisprovidedinSection3–CompensationDiscussionandAnalysis).
ShareͲBasedAwards
MarketorPayoutValueof #ofSharesorUnitsof MarketorPayoutValueof VestedShareͲBased SharesThatHaveNot ShareͲBasedAwardsThat AwardsNotPaidOutor Name Vested(1)(#) HaveNotVested($) Distributed(2)($) Howe,JamesB. N/A N/A N/A(3) Kangas,LenO. 0 0 339,584 Moomjian,Jr.,CaryA. 0 0 208,902 Schroeder,JohnG. 0 0 436,151 Skirka,KennethJ. N/A N/A N/A(3) Surkan,GailD. N/A N/A 45,999(3) Whitham,BarthE. N/A N/A N/A(3) (1) AlthoughDSUsvestimmediatelyuponbeingcreditedtoaparticipant’saccount,inaccordancewiththe“DirectorsDeferred ShareUnitandCommonSharePaymentPlan”,DSUscannotberedeemeduntilretirementorotherseparationofserviceof theDirector. (2) CalculatedbasedontheclosingpriceoftheCommonSharesonDecember31,2016of$9.38multipliedbytheaccumulated numberofDSUscreditedtotheDirectoronsuchdate,includingDSUequivalentsissuedinlieuofcashdividendspaidonthe underlyingCommonShares,fortheperiodfromthegrantdatetoDecember31,2016(beingatotalof109,876DSUs– 36,203creditedtoMr.Kangas;22,271creditedtoMr.Moomjian;46,498creditedtoMr.Schroeder;and4,904creditedto Ms.Surkan). (3) PursuanttotheDSUPlan,Mr.Howe,Mr.Skirka,Ms.SurkanandMr.WhithamelectedtoreceiveCommonSharesinlieuof DSUsin2016. TheCorporationhasnotgrantedoptionstononͲmanagementDirectorssince2007andtheamended StockOptionPlanapprovedbyShareholdersattheannualandspecialmeetingoftheShareholdersheld onMay20,2009nolongerpermitsanysuchgrantstoDirectors.
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Directors’IncentivePlanAwards–ValueVestedorEarnedDuringtheYear TheonlyshareͲbasedawardsgrantedbytheCorporationarepursuanttothe“DirectorsDeferredShare UnitandCommonSharePaymentPlan”,institutedin2011bytheCorporationforDirectorswhoarenot alsofullͲtimeemployeesoftheCorporation.Alloftheseawardsvestedontheircreditorpaymentdate. DSUsexpireonJuly1ofthecalendaryearimmediatelyfollowingtheyearinwhichaholderceasestobe aDirector.ThevalueexcludesdividendequivalentscreditedtosuchDirector’sDSUaccountanddividends paidonCommonSharesduringtheyearendedDecember31,2016. Name ShareͲBasedAwards–ValueVestedDuringtheYear($)(1) Howe,JamesB. 32,111(2) Kangas,LenO. 40,248 Moomjian,Jr.,CaryA. 80,486 Schroeder,JohnG. 80,486 Skirka,KennethJ. 80,316(2) Surkan,GailD. 80,316(2) Whitham,BarthE. 80,316(2) (1) CalculatedbasedontheclosingpriceoftheCommonSharesonthecreditorawarddate,multipliedbythenumberofDSUs orCommonSharescreditedorawarded.In2016,Mr.Kangaselectedtotake50%ofhisquarterlyequityretainerinDSUs (theremaining50%waspaidincash). DSUs:
DSUsCredited DSUsCredited ValueVested ValueVested– CreditorAwardDate ClosingPrice($) –50%Election (#) ($) 50%Election($) (#)
31ͲMarͲ16 5.98 3,381 20,218 1,691 10,112 30ͲJunͲ16 7.25 2,791 20,235 1,396 10,121 30ͲSepͲ16 7.50 2,685 20,138 1,343 10,073 31ͲDecͲ16 9.38 2,121 19,895 1,060 9,943 TOTAL:10,978 80,486 5,490 40,248 (2) PursuanttotheDSUPlan,Mr.Howe,Mr.Skirka,Ms.SurkanandMr.WhithamelectedtoreceiveCommonSharesinlieuof DSUsin2016.Incertaininstances,asaconsequenceoftheCommonSharesbeingpurchasedontheopenmarket,the CommonSharecreditorawarddatemaydifferfromthetradesettlementdate.In2016,Mr.Howeelectedtotake40%of hisannualequityretainerinCommonShares(theremaining60%waspaidincash). COMMONSHARES:
Common ClosingPrice CommonShares Valuevested– CreditorAwardDate Valuevested($) Shares–40% ($) (#) 40%Election($) Election(#)
31ͲMarͲ16 5.98 3,396 20,308 1,358 8,121 30ͲJunͲ16 7.25 2,779 20,148 1,112 8,062 30ͲSepͲ16 7.50 2,667 20,003 1,067 8,003 31ͲDecͲ16 9.38 2,117 19,857 845 7,926 TOTAL:10,959 80,316 4,382 32,111
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SECTION5–STATEMENTOFCORPORATEGOVERNANCEPRACTICES
National Instrument 58Ͳ101 entitled "Disclosure of Corporate Governance Practices" ("NI58Ͳ101") requires thatifmanagementofanissuersolicits proxiesfromitssecurityholdersforthepurposeof electing directors, that certain prescribed disclosure respecting corporate governance matters be includedinitsmanagementinformationcircular.TheTorontoStockExchange("TSX")alsorequireslisted companiestoprovide,onanannualbasis,thecorporategovernancedisclosurewhichisprescribedby NI58Ͳ101. The Board of Directors of Ensign is responsible for the overall stewardship and governance of the Corporation, and has put in place standards and benchmarks by which that responsibility can be measured. DirectorIndependence TheBoardofDirectorsofEnsignhasdeterminedthatamajorityofDirectors(sevenofthenineDirectors) standingforelectionareconsideredtobeindependentwithinthemeaningofNI58Ͳ101. TheCGNRCommitteeandtheBoardreviewsannuallytherelationshipthateachDirectorhaswiththe Corporation (either directly, or as a partner, shareholder or officer of an organization that has a relationshipwiththeCorporation).Followingthisreview,onlythoseDirectorswhotheBoardandthe CGNR Committee affirmatively determine have no direct or indirect material relationship with the Corporationwillbeconsideredindependentdirectors. ThefollowingtableillustratestheindependencestatusofeachDirectornominee: Director IndependenceStatus BasisforDeterminationofNonͲIndependence Edwards,N.Murray NonͲindependent AsasignificantshareholderandasChairmanofthe (Chairman) Corporation,Mr.Edwardshassubstantialinfluencefrom theBoardofDirector’sperspectiveontheCorporation's businessapproach,strategies,practicesandculture. Geddes,RobertH. NonͲindependent Mr. Geddes,President&ChiefOperatingOfficerofthe Corporation,isnotconsideredtobeanindependent directorduetohiscurrentroleasanofficerofthe Corporation. Howe,JamesB. Independent N/A Kangas,LenO. Independent N/A (LeadDirector) Moomjian,Jr.CaryA. Independent N/A Schroeder,JohnG. Independent N/A Skirka,KennethJ. Independent N/A Surkan,GailD. Independent N/A Whitham,BarthE. Independent N/A
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Asnotedabove,theBoardofDirectorshasdeterminedthattheChairmanoftheBoardofDirectors,N. MurrayEdwards,isnotanindependentdirector.TheBoardofDirectors,inconjunctionwiththeCGNR CommitteehasdevelopedabroadmandatefortheCGNRCommittee(ofwhichMr.Edwardsisnota member),whichincludesmanaginganddevelopingamoreeffectiveboardandensuringthattheBoard ofDirectorscanfunctionindependentlyofmanagement. TheCorporation’sbylawsdonotpermitasecondorcastingvotebytheChairmanintheeventofatie. To provide additional leadership to its independent Directors, the Board of Directors encourages all DirectorstoaddagendaitemstoanyBoardofDirectorsmeetingortothemeetingofanycommittee. Further,theChairmanoftheCGNRCommittee(whoisalsotheLeadDirector)actsasthechairforthe“inͲ camera”sessionofeachBoardofDirectorsmeeting,duringwhichtheindependentDirectorsareprovided withanopportunitytoexpressviewsintheabsenceofmembersofmanagement. LeadDirector OnMarch14,2013,theBoardofDirectorsacceptedarecommendationoftheCGNRCommitteeand approvedtheestablishmentofaleaddirectorrole,whichwouldbeassumedbytheChairoftheCGNR Committee,whoisanindependentdirectoror,atthediscretionoftheindependentdirectors,byanother independentdirector.Thisprovidestheindependentdirectorswithflexibilityindeterminingwhoisbest toleadtheindependentdirectorsascircumstancesdictate. TheLeadDirectorischargedwithprovidingindependentleadershiptotheBoardincircumstances wherethenonͲindependentChairmancouldpotentiallybeinconflict,oratanyothertimetheBoard determinesthatleadershipofaLeadDirectorisappropriate.Mr.KangascurrentlyservesasLead Director. OtherIssuerDirectorships ThereisnoformallimitplacedonthenumberofpubliccorporationdirectorshipsthataDirectormay have.HowevertheCorporation’sDirectorsareencouragedtoconsultwiththeCGNRCommitteewhen considering any appointment to the board of another public company, so that such Committee may ensurethattheDirector’sothercommitments,includingtosuchotherproposedpublicboard,donot interferewiththetimecommitmentrequiredbytheCorporation’sBoardofDirectors.Moreover,the Corporation’sCodeofIntegrity,BusinessEthicsandConductprohibitsaDirectorfromactingasadirector, officerorinanyotherroleofanyotherentityengagedintheoilandgasdrillingand/orservicebusiness andwhichcompetesdirectlyorindirectlywithanyactivityoftheCorporation. In addition to the foregoing, the Board’s mandate does not specifically prohibit interlocking Board positions.TheBoardpreferstoexamineeachsituationonitsownmeritswithaviewtoexaminingmaterial relationships which may affect a Director’s independence. There are currently no interlocking Board membershipsamongourDirectors. TheCGNRCommitteeisoftheviewthateachDirectorwasin2016,andwillbefor2017,abletodevote thetimeandresourcesnecessaryfortheproperdischargeofhisorherdutiesasaDirector.Thetable belowsetsforththecurrentdirectorshipsofotherissuersheldbyEnsign’sDirectornominees:
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NameofDirectorNamesofOtherReportingIssuers Edwards,N.MurrayCanadianNaturalResourcesLimited MagellanAerospaceCorporation Howe,JamesB. BengalEnergyLtd. PasonSystemsInc. Whitham,BarthE.IntrepidPotashInc. “InCamera”SessionsoftheIndependentDirectors TheagendaforeachBoardofDirectorsmeetingandeachcommitteemeeting,whetherregularly scheduledorspeciallyconvened,includesan“inͲcamera”sessionwhichisscheduledandalwaystakes placetowardsorattheendofeachsuchmeeting. The“inͲcamera”sessionincludesonlytheindependentDirectors,absenttheDirectorswhoaremembers ofmanagement,beingRobertH.Geddes,thePresident&ChiefOperatingOfficeroftheCorporation,N. MurrayEdwards,theCorporation’sChairman,andanyothermemberofmanagementpresentatsuch BoardofDirectorsorcommitteemeeting. TheLeadDirectoractsaschairpersonofeach“incamera”sessionoftheBoardofDirectors.TheLead Directororchairpersonofeach“inͲcamera”sessionreportsanyitemsofbusinessthataroseorresolutions passedduringsuchsessiontotheCorporateSecretaryoftheCorporationimmediatelyfollowingeach such“inͲcamera”session. 2016BoardandCommitteeMeetingAttendance TheoverallaverageattendanceforallmeetingsoftheBoardofDirectorsanditscommitteesheldin2016 is100%.ThespecificattendancerecordofeachDirectorforallBoardofDirectorsmeetings(including strategicplanningmeetings)andmeetingsofanycommitteeoftheBoardofDirectorsforthefinancial yearendedDecember31,2016issetforthbelow:
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Corporate Governance, Health,Safety Boardof Audit Comp. Nominations& &Environment Directors Committee Committee RiskCommittee Committee Overall Director Meetings(2) Meetings(2) Meetings(2) Meetings(2) Meetings(2) Attendance Edwards,N.Murray(1) 7/7 ͲͲͲ ͲͲͲ ͲͲͲ ͲͲͲ 100% Geddes,RobertH.(1) 7/7 ͲͲͲ ͲͲͲ ͲͲͲ ͲͲͲ 100% Howe,JamesB. 7/7 4/4 5/5 ͲͲͲ ͲͲͲ 100% Kangas,LenO. 7/7 ͲͲͲ ͲͲͲ 4/4 4/4 100% Moomjian,Jr.,CaryA. 7/7 ͲͲͲ 5/5 4/4 ͲͲͲ 100% Porter,SelbyW.(1) 3/3 ͲͲͲ ͲͲͲ ͲͲͲ ͲͲͲ 100% Schroeder,JohnG. 7/7 4/4 5/5 ͲͲͲ ͲͲͲ 100% Skirka,KennethJ. 7/7 ͲͲͲ ͲͲͲ 4/4 4/4 100% Surkan,GailD. 7/7 ͲͲͲ 5/5 4/4 ͲͲͲ 100% Whitham,BarthE. 7/7 4/4 ͲͲͲ ͲͲͲ 4/4 100% (1) Asmembersofmanagement,Mr.EdwardsandMr.Geddes(andMr.Porter,priortohisretirementonMay4,2016)may attend,andinpracticedoregularlyattend,committeemeetingsbutdonotserveonanyoftheCommitteesoftheBoardof Directors. (2) InͲcamerameetingswithoutDirectorswhoarealsomembersofmanagementwereheldaftereachBoardandCommittee meeting that took place in 2016. Directors in attendance at each of the meetings indicated in this table were also in attendancefortheinͲcameraportionofsuchmeetings. BoardMandate TheBoardofDirectorshastheobligationtooverseetheconductofthebusinessoftheCorporationand tosuperviseseniormanagementwhoareresponsibleforthedayͲtoͲdayconductofthebusiness.Acopy ofthemandateoftheBoardofDirectorsisincludedinSchedule1attheendofthisInformationCircular. TheCorporation’scorporategovernanceguidelinesstatethattheBoardofDirectorsisresponsibleforthe stewardship of the Corporation and supervising the management of the business and affairs of the Corporation. Accordingly, the Board of Directors, through its quarterly meetings and meetings of its committees, and through its directions to management and policies and resolutions of the Board, regularlyreviewsandsupervisesthebusinessandaffairsoftheCorporation.Inaddition,theBoardof Directors,inconjunctionwithseniormanagement,determinesthelimitsofmanagement’sauthorityand responsibilityandestablishesandmonitorsthecorporateobjectiveswhichmanagementisresponsible formeeting. TheBoardofDirectorshasdevelopedwrittenpositiondescriptionsfortheChairmanoftheBoardof DirectorsandtheChairmanofeachCommitteeoftheBoardofDirectors. TheCorporationdoesnothaveanamedCEO.ThisroleisdelegatedbytheBoardofDirectorstothe Executive Management Committee, currently composed of the senior executives of the Corporation actinginthefollowingcapacities:Chairman,President&ChiefOperatingOfficer,ChiefFinancialOfficer, DivisionalPresidentandExecutiveVicePresident.Collectively,thesepositionscarrytheresponsibilities normallyassociatedwithaCEO.
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CommitteesandCommitteeComposition The Board of Directors currently has four (4) standing committees: the Audit Committee, CGNR Committee,theCompensationCommitteeandtheHSECommittee.AllCommitteesarecomposedentirely ofindependentDirectors. TheCGNRCommittee,whichiscomposedentirelyofindependentDirectors,reviewsthemakeupofthe BoardanditsCommitteesonanannualbasis.ThisCommitteethenactsasanominatingcommitteeto considerifandwhennewdirectorsaretobeproposedasadditionsto,ortofillvacanciesof,theBoardof Directors, having regard to the competencies, skills and personal qualities of the candidates and the membersoftheBoardofDirectorsandtheirperceptionoftheneedsoftheCorporation. TheBoardofDirectorsperiodicallyconsiderswhetheradditionalcommitteesarerequiredorwhetherthe mandatesofexistingcommitteesshouldbeexpandedtoincludeadditionalareasofresponsibilityand consideration. DirectorSkillsandExperience Directorsareonlynominatediftheyhaveanappropriatemixofskills,knowledgeandbusinessexperience, andahistoryofachievement.ThisexperienceiscriticalfortheBoardtoprovideeffectiveoversightand supportourfuturegrowth. The CGNR Committee has developed a skills and experience matrix, which is used to assess the compositionoftheBoardandasatooltoassistintheassessmentandrecruitmentofpotentialcandidates fortheBoardofDirectors. Inadditiontotheidentifiedskillsandexperiencequalifications,candidatesmustexhibitthehighest degreeofprofessionalism,integrity,valuesandindependentjudgment. TheageandgenderofcurrentandprospectiveDirectorsarealsoconsideredinthematrix.Theobjective istomaintainasufficientrangeofskills,expertise,experienceanddiversitynecessarytoenabletheBoard asawholetocarryoutitsresponsibilitieseffectively.
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Skills&Experience Edwards Geddes Howe Kangas Moomjian Schroeder Skirka Surkan Whitham BoardofDirectorExperience:Priororcurrentexperienceas XXXXX X XX X aboardmemberofamajororganization(public,privateor nonͲprofit). SeniorLeadershipExperience:Experiencedrivingstrategic X X X X X X X X X insightanddirection,achievinginnovationandgrowthina private,publicorgovernmentalinstitution. StrategicPlanning:Experiencewithplanning,evaluatingand XXXX X XX X implementingastrategicplan;demonstratedabilitytofocus onlongertermgoalsandstrategicoutcomes. IndustrySpecialist:Experienceinoilfieldservicesoroiland X X X X X X X X gasexplorationandproduction;knowledgeofcustomers, markets,operationalchallenges,strategies,regulatory mattersandtechnology. FinancialExpertise:Executiveexperienceinfinancial XX X X accounting,reportingandknowledgeofotherconsiderations andissuesassociatedwithauditingrequirementsofpublic companies;experienceincorporatefinancewith demonstratedknowledgeofdebtandequitymarkets,M&A activities,tax,investorrelationsandinsurance. InternationalExperience:Seniorexecutiveexperienceinan X X X X X X organizationwithglobaloperations;understandingof cultural,politicalandregulatoryrequirementsoutsideof NorthAmerica. Compensation:Executiveorboardcompensationcommittee XXX X X XX X experience,leadingtoathoroughunderstandingof compensation,benefits,incentives,equityandperquisites.
HumanResources:Executiveorboardexperiencein X X X X X X attracting,promoting,developingandretainingpersonnel, includingsuccessionplanningandtalentmanagement
Health,Safety,Environment:Understandingofindustry XX XX XX regulationsandrequirementsrelatedtoworkplacehealth, safetyandenvironment. Legal:Experienceinlitigation,contracts,internationallegal X systemsandsecurities/capitalmarketsregulatory framework. RiskManagement:Experienceintheprocessofidentifying XXXXX X XX X andmanagingprincipalcorporaterisks. SecuritiesandCapitalMarkets:Experienceindomesticand X X X X X crossͲbordertransactions(includingdebt,equityand financingtransactions),includingstructure,regulatory complianceanddisclosureobligations.
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DirectorOrientation UndertheCorporation’sorientationprogram,seniormanagement,alongwithcertainDirectors,provide orientationtonewDirectors.Inaddition,newDirectorsareprovidedbackgroundmaterialregardingthe Corporationthatinclude,amongotherthings,detailsontheCorporation’sfinancialoperatingresults, investorpresentations,philosophyandpolicies,corporatemanagementandlegalstructure,alistofall corporate divisions and their principal business activities and industry information. Field visits are arrangedasappropriate. DirectorEducation Atregularlyscheduledmeetings,theBoardofDirectorsreceivesanddiscussesreportsconcerningthe operations and financial results of the Corporation and each of its business segments. These reports provideDirectorsongoingoperationalinformationrelevanttomarketconditionsandtrendsimpacting short and longͲterm divisional results and are important in the Board of Directors’ ability to provide strategicdirection. Quarterly presentations are held on topics relevant to the Directors’ understanding of the Corporation’sbusinessortheirroleasaDirector,andtoeducateandinformthemofrelevantmatters including in the following areas: industry changes, requirements and standards, business trends, challengesandopportunities,corporategovernanceandlegaltrendsandissues,marketanalyses,and technologicaldevelopmentsrelevanttotheindustry. BoardofDirectorsmeetingsareoccasionallyheldatdivisionofficestoallowforatourofthefacilitiesand improvetheDirectors’generalknowledgeoftheCorporation’sbusiness. Further,strategicplanningsessionsareperiodicallyheldwiththeBoardofDirectorsandseniorexecutives. Thesesessionsprovideintensiveadditionaldetailedoperational,marketandbusinessactivityinformation totheDirectors.Aspecificfocusofthesesessionsistoprovideabriefingonstrategicissuesaffectingthe Corporation,includingareviewofthecompetitiveenvironment,industrytrends,andtheCorporation’s performancerelativetoitspeers,andtoprovideaforumforareviewoftheCorporation’sperceived strengths,weaknesses,opportunitiesandthreats. During2016,thefollowingcontinuingeducationpresentations,strategysessionsandrelatedeventswere heldfororattendedbyallorsomeoftheDirectors:
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Date Topic Presenter/Host Attendees March3 FinanceUpdate–“Focuson TimothyLemke(VicePresident AllDirectors FinanceandBanking” Finance&ChiefFinancialOfficer) May3 SystemsUpdate–“Ensign2.0– TimothyLemke(VicePresident AllDirectors WorldwideSystems Finance&ChiefFinancialOfficer); Implementation” MichaelGray(CorporateController) BusinessUpdate–Latin MichaelNuss(SeniorVicePresident, America US&LatinAmericanDrilling) August4 BusinessUpdate–“Speed RickDannis,AreaManager (Drilling – AllDirectors Dating”–tenminutesof California);RyanHessler,Operations highlightswitheachofthe Manager(Drilling–USSouth);Robin following: Finley,GeneralManager(Testing– Canada),ChadWerbowesky,Director x USCalifornia–Drilling Sales&Marketing(Drilling–Canada), x USSouthern–Drilling DavidSchyfͲYoung,GlobalCredit x Canada–Testing Manager x Canada–DrillingSales x CreditandCollections November3 TechnologyUpdate–“Ensign RandyMutch,VicePresidentWellsite AllDirectors EdgeControls”–alookat Technology;SeanHalloren, Ensign’sAdvancedPerformance AutomationandControlEngineer, Managementsystem. WellsiteTechnology RepresentativesoftheexternalauditoroftheCorporationarepresentatallmeetingsoftheAudit Committee,providingaforumfordiscussionofanyemergingtrends,requirementsandissuesrelated toaccountingandauditmatters.Further,allDirectorsareinvitedtoattend,andinpracticedoattend, eachmeeetingoftheAuditCommittee.TheCGNRCommitteereceivesregularupdatesoncorporate governancetrendsandbestpracticesfromManagement.TheCompensationCommitteereceivessemiͲ annualreportsfromManagementregardingcompensationprogramsandtrends,successionplanning andleadershipdevelopmentprograms. Further,ManagementprovidesquarterlyreportstotheHSECommitteeregardingcurrentissues,trends, regulatoryrequirements,riskareasandcomplianceprograms. Directorsarealsoencouragedtoidentifytheircontinuingeducationneedsthroughavarietyofmeans, includingdiscussionswithmanagementandatBoardandCommitteemeetings.Courseandconference attendanceontopicsrelevanttoaDirector’sknowledgeandskillsetareencouraged.Managementalso periodicallyprovidesDirectorsnewslettersandcorporateoroutsidereportsrelevanttotheCorporation’s businessortheircommitteeresponsibilities.Directorsalsoperiodicallyconductsitevisits.
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DirectorTermLimitsandOtherMechanismsofBoardRenewal Ensign’shasnotadoptedapolicyfortermlimitsforDirectors.See“DirectorTenure”aboveforadditional disclosureandbackgroundregardingEnsign’sdecisiontorefrainfromimplementingapolicyforterm limitsforDirectors.See“DirectorsSkillsandExperience”aboveregardingtheskills,experienceandother attributesconsideredbytheCGNRCommitteeinconnectionwiththenominationprocessoftheBoard. Diversity Ensign’sBoardofDirectorssupportstheobjectivesofincreasingdiversityonboardsofdirectorsandat the executive levels of issuers, and recognizes that gender and other diversity characteristics and backgroundsprovidesadepthandbreadthofviewpointsandperspectives. While Ensign’s Board of Directors has not adopted any policies, quotas or targets specifically addressingthelevelofrepresentationofwomenonitsBoardorinexecutiveofficerpositions,Ensign iscommittedtoadvancingwomen,andotherindividualsrepresentingadiversityofbackgroundsinto leadership roles through its talent management, learning development, and succession planning processes. In considering candidates for both Board and executive officer appointments, the Board considers primarilyskill,knowledge,experience,businessrequirementsandindividualcharacter,asitbelievesthis approachisinthebestinterestsofShareholders.ThegenderandageofcurrentandprospectiveDirectors arealsoconsidered.EnsigniscommittedtoameritandqualificationsͲbasedmethodofselectingDirectors and executive officers and Ensign believes that imposing quotas or targets would compromise its principleͲbasedcandidateselectionsystem. One(1)ofEnsign’sDirectorsstandingforelectionattheMeeting(11%),andtwo(2)ofEnsign’scurrent officersatthevicepresidentlevelandabove(9%),arewomen. BycontinuingtofosteropportunitiesfordevelopmentandpromotionatalllevelsoftheCorporation, Ensign’sobjectivesofdiversityarecontinuallybeingpursued. EthicalBusinessConduct TheCorporationhasdevelopedaCodeofIntegrity,BusinessEthicsandConduct(the"CodeofConduct") thatincludessuchtopicsasemploymentstandards,conflictofinterest,andthetreatmentofconfidential informationandtradingintheCorporation'sshares,tofosterconductoftheCorporation'sbusinessina consistently legal and ethical manner. Each Director, all employees, contractors and consultants are requiredtoabidebytheCorporation'sCodeofConduct. The CGNR Committee periodically reviews the Corporation's Code of Conduct to ensure it addresses appropriatetopicsandcomplieswithregulatoryrequirements.Anyrecommendedchangesaresubmitted totheBoardofDirectorsforapproval.TheCGNRCommitteelastconcludedaregularlyscheduledreview oftheCodeofConductin2016,andcertainamendmentstothepriorversionoftheCodeofConductwere adopted.ThenextregularlyscheduledreviewoftheCodeofConductisscheduledtotakeplaceinthe thirdquarterof2019. Ensignhasdistributedtoeachemployee,anddistributestoallnewemployees,anemployeehandbook thatincludesasummaryoftheCodeofConductaswellaslinkstothefulltextoftheCodeofConducton theCorporation’swebsite.
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In2015,werolledoutaneͲtrainingmoduleontheCodeofConduct,whichisrequiredtobecompleted onanannualbasisbyeachDirectorandemployeeonagoͲforwardbasis.Asaresult,allDirectorsand employees are now required to complete, and in fact do complete, the training module and acknowledgetheirunderstandingofthetrainingandtheCodeofConduct,annually. TheCodeofConductalsorequiresDirectorsandemployeestodiscloseanyrealorperceivedconflictof interestastheyarise.AlinktotheconflictofinterestdisclosureformisalsoincludedintheeͲtraining module. TheCodeofConducteͲtrainingmodule,thethreeͲyearreviewcycleoftheCodeofConductitself,andthe annualacknowledgmentsandconflictofinterestdisclosuresarealloverseenbytheCGNRCommittee. In addition to the foregoing, the Corporation’s Business Ethics Hotline (previously called the “WhistleblowerProgram”)providesaprocedureforthesubmissionofinformationbyanyDirector,officer oremployeerelatingtopossibleviolationsoftheCodeofConductoranyotherpolicy.Historically,reports couldbemadedirectlytotheChairmanoftheAuditCommitteebyphoneormail. In2015,Ensignengagedanindependentthirdparty“hotline”serviceprovider.Asaresult,reportsof violationsoftheCodeofConductoranyotherpolicycanbemadeanonymouslyandconfidentially online,byemail,bymailandbyphoneinover150languages.Reportsalsocanstillbemadetothe ChairmanoftheAuditCommittee. TheChairmanoftheAuditCommitteeoverseesinvestigationsofallegedbreachesoftheCodeofConduct togetherwithmanagementwhereappropriate.TheChairmanoftheAuditCommitteereportsonBusiness EthicsHotlineactivitytotheBoardofDirectorsonaquarterlybasis. Nomaterialchangereportswerefiledin2016orin2017uptothedatehereofpertainingtoanyconduct ofaDirectororexecutiveofficerthatconstitutesadeparturefromtheCodeofConduct. TheCodeofConductisavailableontheCorporation’swebsite(www.ensignenergy.com),onSEDARat www.sedar.com,orbycontactingtheCorporateSecretaryoftheCorporationat400–5thAvenueS.W., Suite1000,Calgary,Alberta,T2P0L6. IndependentJudgmentofDirectors Directorswhoareapartytoorareadirectororanofficerofapersonwhoisapartytoamaterialcontract ormaterialtransactionoraproposedmaterialcontractorproposedmaterialtransactionarerequiredto disclosethenatureandextentoftheirinterestandnottovoteonanyresolutiontoapprovethecontract or transaction. Such Directors excuse themselves from that portion of the meeting. If required, an independentcommitteemaybeformedtodeliberateonsuchmattersintheabsenceoftheinterested party.
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NominationofDirectors TheCGNRCommitteeisresponsibleforidentifyingandrecommendingtotheboardnewcandidatesfor nominationtotheBoardofDirectors,havingregardtothecompetencies,skillsandpersonalqualitiesof thecandidatesandthemembersoftheBoardofDirectors,diversity,andaperceptionoftheneedsofthe Corporation. From time to time the CGNR Committee will make recommendations to the Board of DirectorsastotheappropriatesizeoftheBoardofDirectors.Inaddition,theCGNRCommitteewillreview annuallyandrecommendtotheBoardofDirectorsthenominationofdirectorsforelectionattheannual meetingofshareholders,theappointmentstoeachcommitteeoftheBoardofDirectorsandanychanges tothetermsofreferenceofsuchcommittees. TheCGNRCommitteeoftheBoardofDirectorsmaintainsa“skillsmatrix”toassistinidentifyingand evaluatingpotentialnewmembersoftheBoardofDirectorsagainstexistingskillsandexperienceonthe Board.The“skillsmatrix”isreviewedandupdatedbytheCGNRCommitteeonanongoingbasis. SeethesectionofthisInformationCircularabovecalled“DirectorSkillsandExperience”,wherethe currentskillsmatrixisdisclosed. DirectorCompensation The CGNR Committee and the Board of Directors periodically reviews the adequacy and structure of Directors’ compensation to ensure that the level of compensation reflects the responsibilities, time commitmentandrisksinvolvedinbeinganeffectivedirector.Forfurtherdetails,pleaseseethesubsection ofthisInformationCircularentitled"DirectorCompensation". Board,BoardMemberandCommitteeAssessments Regular assessments of the efficiency of the Board, its committees and individual Directors are conducted. TheresponsibilityforassessingtheeffectivenessoftheBoardofDirectorsasawhole,thecommitteesof theBoardofDirectorsandthecontributionofindividualDirectorshasbeenincludedinthemandateof theCGNRCommittee.Assessments,includingDirectorpeerassessments,areconductedinalternating yearsbytheCGNRCommittee,asfollows:
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Year1: PeerReview Outcome
Peer assessments by all Directors of their own performance as well as the x Fullresponsesare performanceoftheotherDirectors,directedprimarilyatthefollowing: reviewedbythe x EffectivenessoftheChairoftheBoardofDirectorsandCommitteeChairs; CGNRCommittee. x ContributionsofindividualDirectorstotheBoardofDirectorsasawholeand x Asummaryreportis toCommittees; providedbytheChair oftheCGNR x TheapparentpreparationofindividualDirectorsforBoardofDirectorsand Committeetothefull Committeemeetings;and BoardofDirectors. x The conduct of individual Directors in Board of Directors and Committee x TheCGNR meetings. CommitteeChair Year2: BoardReview followsupwith individualDirectors AssessmentbyallDirectorsoftheoverallfunctioningoftheBoardofDirectorsandits onanymattersof Committees,andselfͲassessmentofpersonalcontributions,specifically: concernraisedinthe x Review,approvalandmonitoringofstrategicandoperatingplans; assessmentandtakes x Corporatecomplianceandcontrols; action,as appropriate. x Reviewandapprovalofmanagementperformanceandcompensation; x Reviewofsuccessionplanning; x Adviceandcounseltomanagement; x SelectionandevaluationofBoardcandidates; x Boardpracticesgenerally;and x Committeestructureandperformance. Assessments are conducted in the form of an onͲline questionnaire, aimed at facilitating fulsome responses,includingqualitativeresponsesandcomments,andprovidingassuranceastotheanonymity of the responses provided. The Chair of the CGNR Committee compiles the results of the annual assessments,includinganyqualitativecomments,andprovidesaformalreport,inasummaryform,to thisCommitteeandtotheBoardofDirectorsasawhole. AreasofconcernraisedbyDirectorsintheassessments,whetherwithrespecttoindividualDirectors,the BoardofDirectorsasawholeoritsCommittees,arehighlighted.Trendsareobservedandstrategiesfor improvementarediscussed,withreviewandfollowͲupbytheentireBoardofDirectors.Meetingsare heldbetweentheChairoftheCGNRCommitteeandindividualDirectorsonanasͲneededbasistoaddress anyissuesofconcernbroughtforthintheaboveassessments. MandatoryShareOwnership The Corporation has adopted mandatory share ownership policies that apply to Directors and senior officers of the Corporation. Please see the sections of this Information Circular entitled “Election of Directors”, “Director Share Ownership Requirements” and “Compensation Discussion and Analysis – Mandatory Executive Share Ownership Guidelines”, for details on requirements for mandatory share ownershipforDirectorsandseniorofficers,respectively. AsatDecember31,2016,eachDirectorandseniorofficersubjecttothispolicyholdsmorethanthe minimumrequirednumberofCommonSharesand/orDSUspursuanttothesepolicies.
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CommunicationsPolicy TheBoardhasadisclosurepolicywhereinithasdelegatedthecommunicationsfunctiontothesenior managementoftheCorporation.ThePresident&ChiefOperatingOfficerortheChiefFinancialOfficer generallyhandleshareholdercommunications.Theyalsoareresponsibleforallcommunicationsfromand totheCorporation'sshareholders,otherstakeholdersandthepublicgenerally. BoardApprovalsandStructure Inadditiontomaintainingthepowersitmustretainbystatute,significantbusinessactivities,actionsand communicationsproposedtobetakenorsubmittedforconsiderationbytheCorporationaresubjectto approvalbytheBoardofDirectors. Annualcapitalandoperatingbudgetsandsignificantchanges,longrangeplans,theannualproxycircular, theAnnualInformationForm,majorchangesintheorganizationalstructureoftheCorporation,annual and quarterly financial statements, major acquisition and disposition transactions, major financing transactions involving the issuance of shares, debt securities and other securities, major banking relationships, dividends, longͲterm contracts with significant cumulative financial commitments, appointmentofofficersandsuccessionplansforDirectorsandseniorofficersareallsubjecttoapproval bytheBoardofDirectors.
Page77 EnsignManagementInformationCircular–2017 SECTION6–STOCKOPTIONPLAN
In1997,theShareholdersapprovedtheestablishmentofastockoptionplan(the"Plan").Pursuantto suchPlan,theCorporationispermittedtograntoptions("Options")fromtimeͲtoͲtimetoofficersand otheremployeesoftheCorporationanditssubsidiaries.SincetheinitialapprovalofthePlan,periodic amendmentshavebeenmadetosuchPlan,asfollows: •In2001,theShareholdersapprovedanamendmenttothePlantoprovideallcurrentoptionholders the right to elect to receive Common Shares or a direct cash payment in exchange for Options exercised. This amendment to the Plan was designed to balance the need for a longͲterm compensationprogramtoretainemployeesandtheconcernsofshareholdersregardingthedilution causedbystockoptions. •In2005,theShareholdersapprovedanamendmenttothePlantodeletethereferencetoamaximum numberofCommonSharesissuableorreservedpursuanttothePlan,andprovidethemaximum numberofCommonSharesissuablepursuanttothePlanshallbeequalto10%oftheoutstanding CommonShares.AnyincreaseintheissuedandoutstandingCommonShareswillresultinanincrease intheavailablenumberofCommonSharesissuableunderthePlan,andanyexerciseofOptionswill makenewgrantsavailableunderthePlan. •In2009,theShareholdersagainapprovedcertainamendmentstothePlan,whichwereproposedby the Board of Directors in light of trends in corporate governance and the objective of providing principledexecutivecompensation.TheprimaryamendmentsapprovedbyShareholdersonthatdate were:(i)toprescribeafixedmaximumnumberofCommonSharesof15,300,000tobesetasideand reservedforthegrantingofstockoptionsunderthePlan;(ii)tofixthenumberofCommonShares issuableunderthePlaninanycalendaryearat2%ofthethenoutstandingCommonShares;(iii)to eliminatetheeligibilityofnonͲmanagementmembersoftheBoardofDirectorstoreceivegrantsof stockoptions;(iv)toextendtheexpirydateofastockoptionwhichwouldotherwiseexpireduringa blackoutperiodforaperiodof10businessdaysaftertheblackoutperiodends;and(v)toprovidefor the Board of Directors to amend, modify or discontinue the Plan or any stock options granted thereunder.Shareholderapprovalisrequiredto:(a)increasethemaximumnumberof15,300,000 CommonSharesreservedforissuance;(b)reducetheexercisepriceoforcancelandreͲissueany stockoption;(c)extendtheexpirydatesonanyoutstandingstockoption;(d)allownonͲmanagement directorstobeeligibleforthegrantofstockoptions;(e)permittransfers(orassignments)ofstock optionsexceptforestatesettlementpurposes;or(f)increasethenumberofCommonSharesissuable toinsidersbeyondthecurrentrestrictions. •On March 10, 2017, in connection with the ongoing reͲdesign of the Corporation’s executive compensationplans,theCompensationCommitteeapprovedcertain“housekeeping”amendments tothePlan.Shareholderapprovaloftheseamendmentsisnotrequired. Inparticular,thePlannowspecifiesthatintheeventofachangeofcontroloftheCorporation,Options grantedtoexecutiveofficersdonotautomaticallyvestunlesstheemploymentofsuchexecutiveofficer isalsoactuallyorconstructivelyterminatedwithin12monthsofthechangeofcontrolevent.
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OtherfeaturesofthecurrentPlanareasfollows: • EligibleparticipantsincludeofficersandkeyemployeesoftheCorporation. •ThenumberofCommonSharesissuable(orreservedforissuance)toinsiderswillnotexceed5%of theoutstandingCommonShares. •ThenumberofCommonSharesissuable(orreservedforissuance)toanyoneoptioneewillnotexceed 5%oftheoutstandingCommonShares. •ThenumberofCommonShares,togetherwithalloftheCorporation'sotherpreviouslyestablishedor proposedsharecompensationarrangements: o issuable(orreservedforissuance)toinsidersatanytimewillnotexceed10%oftheoutstanding CommonShares; o whichmaybeissuedtoinsiderswithinaoneͲyearperiodwillnotexceed10%oftheoutstanding CommonShares;and o whichmaybeissuedtoanyoneinsiderandsuchinsider'sassociateswithinaoneͲyearperiodwill notexceed5%oftheoutstandingCommonShares. •TheexercisepriceofOptionsgrantedwillbetheclosingpriceperCommonShareontheToronto StockExchangeonthelasttradingdayprecedingthedateofgrantoftheOptions. • OptionsgrantedpursuanttothePlanhaveatermnotexceeding10yearsandhavegenerallybeen issuedonthebasisofvestingequallyoverfive(5)years. •Incaseofcessationofemploymentofanoptionee,Optionsareexercisablewithin90daysfromsuch cessation. •Incaseofdeathofanoptionee,Optionsmaybeexercisedbythepersonalrepresentativesofheirsof thedeceasedoptioneewithin90daysfromthedateofdeath. • OptionsarenonͲassignable. TheBoardofDirectorsbelievesthatgrantingofstockoptionsisandshouldbeusedbytheCorporationto augmenttheoverallcompensationpackageofferedtoitsemployees.TheCorporationhasalongͲstanding policy of awarding stock options to executive officers and employees, assisting the Corporation in providingcompensationpackagesthatarecompetitivewithitsindustrypeergroup. ThePlanalsoconstitutesaprincipalcomponentinthecompensationarrangementsfortheexecutives andemployeesoftheCorporation,aidingintherecruitmentandretentionofskilled,knowledgeableand dedicatedstaff.TheBoardofDirectorsbelievesthisestablishedpolicyofawardingstockoptionsmeets the Corporation’s business objectives, specifically those of retention and competitive compensation, balancedbytheoverridingprinciplethatoutstandingoptionsandtheabilitytograntadditionaloptions shouldberestrictedtolevelsbelowacceptabledilutionthresholds. TheBoardofDirectorsisoftheviewthattheOptionsprovideanincentiveforallemployeesandofficers toensuretheyarestrivingtomaximizeshareholdervalue.
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EquityCompensationPlanInformationAsAtDecember31,2016 #ofSecuritiestobe WeightedͲAverage #ofSecuritiesRemaining IssuedUponExerciseof ExercisePriceof AvailableforFuture OutstandingOptions, OutstandingOptions, IssuanceUnderEquity PlanCategory WarrantsandRights WarrantsandRights CompensationPlans Equitycompensation 5,037,700 $10.74 9,848,200 plansapprovedby securityholders Equitycompensation Nil Nil Nil plansnotapprovedby securityholders TheStockOptionPlanistheonlyequitycompensationplanoftheCorporation.Fromtimetotime,stock appreciationrights(“SARs”)aregrantedtocertainemployeesoftheCorporationinlieuofstockoptions, where such employee’s jurisdiction of residence or taxation makes the receipt of stock options undesirable.AllSARsgrantedaresubjecttothesamegeneralconditionsandrestrictionsassetforthin theStockOptionPlan,withtheexceptionofanyrightorabilitytoexercisetheSARforCommonShares (SARsmayonlybeexercisedforcash).Thenumberofsecuritiestobeissueduponexerciseofoutstanding Options,asofDecember31,2016,represented3.27%ofthetotalnumberofCommonSharesissuedand outstandingasofthatdate(2015–4.84%). In2016,noOptionsweregrantedpursuanttothePlan(2015–2,259,500).Thisrepresented0%ofthe issuedandoutstandingCommonSharesasofDecember31,2015(2015–1.48%).Thestockoptionannual grantrateoverthepastthree(3)yearsisasfollows:
OptionsGrantedDuringtheYearasa #ofCommonSharesIssuedand #ofOptionsGranted %ofIssuedandOutstanding Year OutstandingasatJanuary1 DuringtheYear CommonSharesfortheYear 2016 154,140,909 00% 2015 153,060,132 2,259,500 1.48% 2014 153,060,132 2,456,500 1.60% OnMarch10,2017theCompensationapprovedagrantofstockoptionsandSARs.Atotalof1,221,750 stockoptionswereawardedwhichrepresented0.79%oftheissuedandoutstandingCommonShares. Thisgrantbringsthecurrentnumberofsecuritiestobeissuedupontheexerciseofoutstandingoptions to6,184,250whichrepresents4.01%ofthetotalnumberofCommonSharesissuedandoutstandingas ofthedatehereof.Atotalof116,500SARswereawardedtoemployeesandofficersresidingoutsideof NorthAmerica.ForinformationonthestockoptionsandSARSgrantedtoNEOsonMarch10,2017,please seethesectionaboveentitled“2016StockOptionGrants”.
Page80 EnsignManagementInformationCircular–2017 SECTION7–OTHERINFORMATION
VotingSecuritiesandPrincipalHoldersThereof TherecorddatefordeterminationoftheholdersofCommonSharesentitledtonoticeofandtovoteat theMeetingisMarch17,2017.AsatMarch17,2017therewere154,939,693CommonSharesissuedand outstandingandentitledtovoteattheMeeting.EachShareholderorhisorherproxyrepresentedatthe MeetingwillbeentitledtoonevoteforeachCommonShareheldbysuchShareholder. The following are the only parties known to the Directors and senior officers of the Corporation to beneficially own, directly or indirectly or exercise control or direction over, more than 10% of the outstandingvotingsecuritiesoftheCorporationasatMarch17,2017: NumberofVotingSecurities,Owned, PercentageofOutstandingVoting DirectlyorIndirectly,orOverWhichControl SecuritiesSoOwned,Controlled Name orDirectionisExercised orDirected Edwards,N.Murray 26,312,932CommonShares 17.07% London,UnitedKingdom InterestofInformedPersonsinMaterialTransactions ManagementoftheCorporationisnotawareofanymaterialinterest,directorindirect,ofanyDirector orofficeroftheCorporation,anynomineefordirectoroftheCorporation,oranypersonbeneficially owning,directlyorindirectly,morethan10%oftheCorporation'svotingsecurities,oranyassociateor affiliate of any such person in any material transaction during 2016 or in any material proposed transactionwhichineithercasehasmateriallyaffectedorwouldmateriallyaffecttheCorporationorany ofitssubsidiaries. OtherMatters ManagementoftheCorporationknowsofnoamendment,variationorothermattertocomebeforethe MeetingotherthanthosesetforthintheNotice.IfothermattersproperlycomebeforetheMeeting,the accompanyingproxywillbevotedonsuchmattersinaccordancewiththebestjudgmentoftheperson orpersonsvotingtheproxy.
Page81 EnsignManagementInformationCircular–2017
AdditionalInformation AdditionalinformationrelatingtotheCorporationisavailableonSEDARatwww.sedar.com. FinancialinformationisprovidedintheCorporation’scomparativeconsolidatedfinancialstatementsand management’s discussion and analysis ("MD&A") for the fiscal year ended December31, 2016. ShareholdersmayrequestcopiesoftheCorporation’sconsolidatedfinancialstatementsandMD&Aby contacting: ENSIGNENERGYSERVICESINC. 400–5thAvenueS.W.,Suite1000 Calgary,AlbertaT2P0L6 Attention:CorporateSecretary Telephone(403)262Ͳ1361 Fax(403)262Ͳ8215 Website:www.ensignenergy.com
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Schedule1 MandateoftheBoardofDirectors
SCHEDULE1
ENSIGNENERGYSERVICESINC. (THE"CORPORATION")
MANDATEOFTHEBOARDOFDIRECTORS RoleandObjectives:
TheBoardofDirectors(the“Board”)ofEnsignEnergyServicesInc.(the“Corporation”)isresponsiblefor thestewardshipoftheCorporation.Indischargingitsresponsibility,theBoardwillexercisethecare, diligenceandskillthatareasonablyprudentpersonwouldexerciseincomparablecircumstancesandwill acthonestlyandingoodfaithwithaviewtothebestinterestsoftheCorporation.Ingeneralterms,the Boardwill:
(a) review, discuss and approve the Corporation’s strategic planning and organizational structure,includinginconsultationwithseniormanagementoftheCorporationwhere appropriate; (b) supervisethemanagementofthebusinessandaffairsoftheCorporationwhiledelegating toseniormanagementtheresponsibilityfordayͲtoͲdaymanagementoftheCorporation, withthegoalofachievingtheCorporation’sprincipalobjectivesasdefinedbytheBoard; (c) dischargethedutiesimposedontheBoardbyapplicablelaws,theconstatingdocuments oftheCorporation,thisMandateandthecommitteemandates;and (d) forthepurposeofcarryingouttheforegoingresponsibilities,takeallsuchactionsasthe Boarddeemsnecessaryorappropriate.
Meetings
1. TheagendaoftheBoardmeetingwillbepreparedbythechairpersonoftheBoard(the“Chair”), workingwiththesecretary,and,wheneverreasonablypracticable,circulatedtoeachdirector priortoeachmeeting.
2. TheBoardshallmeetatleastfourtimesperyearand/orasdeemedappropriatebytheChair.
3. MinutesofallBoardmeetingsshallbetakenbythesecretaryofthemeeting.Theminutesofthe meetingsshallaccuratelyrecordthediscussionsofanddecisionsmadebytheBoardandshallbe distributedtoalldirectors.
4. ThePresidentorhisorherdesignatesmaybepresentatallmeetingsoftheBoard.
5. ViceͲPresidentsandsuchotherstaffasappropriatetoprovideinformationtotheBoardshall attendmeetingsattheinvitationoftheBoard.
Delegation
6. SubjecttolimitssetoutintheBusinessCorporationsAct(Alberta),theBoardmaydelegateits dutiesto,andreceivereportsandrecommendationsfrom,anycommitteeoftheBoard. 7. SubjecttolimitssetoutintheBusinessCorporationsAct(Alberta)andotherapplicablelawsand stockexchangerules,delegatetotheofficersoftheCorporationpowerstomanagethebusiness andaffairsoftheCorporation.
MandateandResponsibilitiesoftheBoard:
The Board’s primary roles are overseeing both corporate performance and the quality, depth and continuityofmanagementrequiredtomeettheCorporation’sstrategicobjectives.Withoutlimitingthe generalityoftheforegoing,theBoard’sprincipaldutiesincludethefollowing:
StrategicDirection,OperatingandCapitalPlans:
8. Oversee,review,questionandapprovethemissionoftheCorporationanditsstrategy,objectives andgoals,takingintoaccounttheopportunitiesavailabletotheCorporation,thepotentialrisks itfacesandtheCorporation’sriskappetite.
9. Approvetheannualoperatingandcapitalplansproposedbymanagement.
10. Review progress towards the achievement of the goals established in the strategic planning process and the operating and capital plans and revise and alter the Board’s direction to managementinlightofchangingcircumstances.
11. Approveissuancesofadditionalcommonsharesorothersecuritiestothepublic.
RiskManagement:
12. OverseetheCorporation’ssystemsforeffectivelyidentifying,monitoringandmanagingtherisks itfaceswithaviewtoachievingaproperbalancebetweentherisksincurredandthepotential returnstotheCorporationandthelongͲtermsustainabilityoftheCorporation.
13. ApprovepoliciesandproceduresdesignedtoensurethattheCorporationactsresponsiblyandin compliancewithapplicablelaws,rulesandregulations.
ManagementandOrganization:
14. AppointthePresidentandapprovethepositiondescriptionandannualperformancegoalsand compensationofthePresident.
15. EvaluatetheperformanceofthePresidentatleastannually.
16. Establishthelimitsofmanagement’sauthorityandresponsibilityinconductingtheCorporation’s business.
17. OverseetheappointmentofallotherexecutiveofficersoftheCorporation.
18. Oversee succession planning processes for the President and senior management of the Corporation.
19. Approve any proposed significant change in the management organization structure of the Corporation. 20. ApproveallretirementplansforofficersandemployeesoftheCorporation.
21. Generallyprovideadviceandguidancetomanagement.
CommunicationsandReporting:
22. ReviewthecommunicationspolicyfortheCorporation,includingwithrespecttoshareholders, employees,customers,financialanalysts,governmentsandregulatoryauthorities,themediaand otherstakeholders.
23. Oversee management’s process for the timely, accurate and complete disclosure of developmentsthathaveasignificantandmaterialimpactontheCorporation.
24. Overseetimely,accurateandregulardisclosureandreportingofthefinancialperformanceofthe Corporationtoshareholders,othersecurityholdersandregulatorsinaccordancewithapplicable lawsandaccountingstandards.
25. Monitor and support the Corporation’s investor relations activities and its stakeholder engagement policies and practices, including the processes for receiving feedback from shareholders.
26. ReportannuallytoshareholdersontheBoard’sstewardshipfortheprecedingyear.
FinancesandControls:
27. Monitor the appropriatenessoftheCorporation’scapitalandfinancialstructureandapprove changestothatstructure.
28. Oversee management’s institution and maintenance of the integrity of internal control and informationsystems,includingmaintenanceofallrequiredrecordsanddocumentation.
29. Delegate to senior management the authority for expenditures and transactions, subject to specifiedlimitsbeyondwhichBoardapprovalwouldberequired.
CorporateResponsibilityandEthics:
30. Supportacultureofintegrityandresponsiblestewardship.
31. Satisfyitself,totheextentfeasible,theintegrityofthePresidentandotherseniormanagement andthatsuchindividualspromoteacultureofintegritythroughouttheCorporation.
Governance:
32. Approve the Corporation’s approach to corporate governance, including this Mandate, the mandates of the Board’s committees and the position descriptions for the Chair, the Lead Director, the President and committee chairs and facilitate the continuity, effectiveness and independenceoftheBoard,includingby:
(a) OverseeingsuccessionplanningfortheBoardandselectingnomineesforelectiontothe Board; (b) Approving the appointment of directors to the audit committee and the other committeesoftheBoardapprovedbytheBoardfromtimetotime; (c) Conductingregular(andnotlessthanannual)assessmentsoftheBoardasawhole,the committeesoftheBoard,thecontributionofeachindividualdirectorandtheChair,Lead Directorandcommitteechairpersons,ineachcasebyreferencetothisMandate,the applicablecommitteemandateand/ortheapplicablepositiondescription; (d) Reviewingtheorientationandeducationprogramsfornewdirectors;and (e) ApprovingtheCorporation’sapproachtodirectorcompensationandprotection.
33. Overseestructuresandprocedures,includingtheappointmentofaLeadDirector(ifapplicable), to enable the Board to exercise independent judgment and make decisions on director independence.
34. Delegate to the Board committees oversight of specific matters while retaining ultimate responsibilityforthosedelegatedmatters.
35. ApprovetheCorporation’sapproachtodirectorcompensationandprotection.
36. EnforceBoardpolicyrespectingconfidentialityoftheCorporation’sproprietaryinformationand Boarddeliberations.
General:
37. ReviewandreassesstheadequacyofthisMandateperiodicallyandasitdeemsappropriate,and recommendchanges.TheperformanceoftheBoardshallbeevaluatedwithreferencetothis Mandateannually.