IROC Energy Services Corp.
TSX : ISC

IROC Energy Services Corp.

November 12, 2007 07:00 ET

IROC Energy Services Corp. Announces 2007 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 12, 2007) - IROC Energy Services Corp. ("IROC" or the "Corporation") (TSX:ISC) announces the Corporation's financial results for the three and nine months ended September 30, 2007.



FINANCIAL HIGHLIGHTS

For the 3 months ended For the 9 months ended
September 30, September 30,
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(Unaudited) (Unaudited)
% %
2007 2006 Change 2007 2006 Change
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Revenue -
continuing
operations $18,899 $16,359 16% $56,675 $45,139 26%
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Operating
costs 11,742 9,890 19% 34,816 28,669 21%
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Gross margin 7,157 6,469 11% 21,859 16,470 33%
Gross margin % 38% 40% -5% 39% 36% 8%
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General and
administrative
expenses 2,593 2,353 10% 7,830 6,117 28%
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EBITDAS -
continuing
operations (1) 4,564 4,116 11% 14,029 10,353 36%
Per share
diluted 0.10 0.11 -9% 0.32 0.27 19%
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Net earnings -
continuing
operations 367 971 -62% 1,865 2,435 -23%
Per share
diluted 0.01 0.03 -67% 0.05 0.07 -29%
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Net earnings 369 933 -60% 1,945 2,201 -12%
Per share
diluted 0.01 0.03 -67% 0.05 0.06 -17%
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Number of
shares
outstanding
Basic 44,251,080 37,908,819 17% 43,164,377 37,634,643 15%
Diluted 44,336,011 38,192,163 16% 43,273,275 38,168,496 13%
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(1) EBITDAS and EBITDAS per share are "NON-GAAP MEASURES". EBITDAS is
defined as "earnings before interest, taxes, depreciation and
amortization, stock-based compensation expense, foreign exchange gains
and losses and gains or losses on disposal of property and equipment."
EBITDAS and EBITDAS per share are not recognized measures under GAAP.


Overview

Despite difficult conditions, IROC posted positive earnings for the quarter and showed increases in both revenues and EBITDAS as compared to 2006. The continuing uncertainty in our industry created by the federal government taxation on oil and gas trusts, the Alberta governments handling of the royalty changes and continued weakness in natural gas pricing has led many Canadian oil and gas producers to limit spending and curtail drilling and completion programs throughout 2007. Industry forecasters believe this will continue through fiscal 2008. The reductions in forecasted wells comes at time when equipment capacity of oilfield service companies is at an all time high, creating significant competition in terms of pricing and ultimately profitability. Natural gas pricing remains a function of storage volumes which remain at record levels. Natural gas has historically represented the bulk of activities in Western Canada and as such, expectations are for lower year over year operating results from oil and gas service companies as a result of fewer wells being drilled and completed. Unlike most of the smaller public companies in the oilfield services segment IROC was able to report the increases as a result of its geographic and product diversity, having the newest equipment in the industry providing efficiencies to customers leading to higher utilization rates than our peer group, and exposure to international markets in our downhole tools division.

Third Quarter Results

IROC's revenue from continuing operations for the three months ended September 30, 2007 increased 16%, from $16.4 million to $18.9 million compared to the same period in 2006. Revenue increased year over year primarily as a result of additional equipment capacity from internal growth initiatives in service rigs and rental assets, manufacturing capacity increases in downhole tools coupled with the purchase of drilling rig assets during the first quarter of 2007. IROC experienced higher than industry average utilization of service rig equipment during the quarter, although lower in comparison to the prior year period. For the three months ended September 30, 2007 IROC earned net income from continuing operations of $0.4 million or $0.01 per share compared to $1.0 million or $0.03 per share in the comparable period of 2006. The decrease in the net earnings for the three months ended September 30, 2007 compared to 2006 is due to higher depreciation and amortization expense in the current year as a result of significant additions to equipment in the past year as well as higher interest costs for debt servicing due to higher debt incurred to support the growth over the past two years.

EBITDAS from continuing operations for the three months ended September 30, 2007 increased 11% as compared to the year earlier period, coming in at $4.6 million or $0.10 per share compared to $4.1 million, or $0.11 per share, in the same three month period of 2006. The increase in EBITDAS is as a result of the continuing growth in revenue as discussed above coupled with gross margin improvements driven by cost containment across all divisions and above industry average utilization on service rigs.

Nine Months Results

Revenue for the nine months ended September 30, 2007 was $56.7 million compared to $45.1 million for the same period in 2006, representing an increase of 26%. Revenue increased year over year for the nine month period primarily as a result of additional equipment capacity from internal growth initiatives in service rigs and rental assets, manufacturing capacity increases in downhole tools coupled with the purchase of drilling rig assets during the first quarter of 2007 which contributed positively to the year to date results. The Corporation recorded net earnings from continuing operations of $1.9 million, or $0.05 per share, for the nine months ended September 30, 2007, a decrease of 23% compared to the net earnings from continuing operations of $2.4 million for the nine months ended September 30, 2006. Net earnings after the effect of discontinued operations for the nine months ended September 30, 2007 was $1.9 million or $0.05 per share compared to $2.2 million or $0.07 per share for comparable period of the prior fiscal year representing a decrease of 12%. For the nine months ended September 30, 2007 EBITDAS was $14.0 million or $0.32 per share compared to $10.4 million or $0.27 per share in the same period of 2006, an increase of 36%. EBITDAS as a percentage of revenue was 24.8% for nine months ended September 30, 2007 as compared to 22.9% for the same period of 2006.

Tom Alford, President and CEO of IROC commented that "while the third quarter proved to be difficult for the industry, our company performed well on a relative basis as it continues to grow through its internally generated initiatives. Increased revenues, and more importantly, increased EBITDAS will allow the company to continue its stated course while weathering a significant reduction in field activity." Additionally Mr. Alford indicated that "with the bulk of our capital expenditure plans for 2007 completed during the third quarter, the company intends to use expected cash flows from the winter to strengthen its balance sheet, creating flexibility for IROC going forward."

Outlook

Demand for oilfield services has fallen significantly from levels seen in recent years. The recent build of underground natural gas storage levels and record industry equipment capacity are expected to keep equipment utilization at low levels for the foreseeable future, with continued price competition. The increases in the North American natural gas supply has been driven by favorable weather conditions as well as strong onshore drilling activity in the United States which offsets the anticipated production decrease created by reduced natural gas drilling in the Canadian market. The weakening of the U.S. dollar relative to the Canadian dollar has also created an additional level of uncertainty for Canadian producers cash flows further impacting near term prospects for improving demand for services. IROC expects that these conditions will persist until natural gas inventory levels fall to more normal levels and near term natural gas prices strengthen.

Management expects that continued lower drilling activity to eventually help restore balance to North American gas storage levels and stimulate Canadian drilling and well servicing demand. Some of the factors that will impact this include lower initial well production, steep first-year production decline rates, lower service company pricing and rising natural gas consumption from North American economic growth which should positively affect natural gas storage levels and ultimately the pricing leading to potentially higher activity.

Compounding the issues affecting the oil and gas industry is the announcement on October 25, 2007 by the Alberta government for a new royalty tax framework for oil and gas producers. The timing of the announcement has created significant uncertainty in the oil and gas industry as we enter what is typically our busiest time of year. We anticipate that as a result of this announcement there will be a further reduction in industry activity levels through this winter and into 2008. Industry forecasters, such as PSAC and CAODC, have reflected this in their 2008 forecast for wells drilled both of which are calling for substantial decreases from 2007 levels which were already seen as low. While the magnitude of the actual impact will depend on the results of oil and gas companies analysis of the impact and the final form of the royalty framework it will very likely affect many oilfield service providers. At this point, significant job losses are expected across the industry due to the reduced activity.

As we enter the winter months our enthusiasm for what we are accomplishing at IROC is tempered somewhat by the uncertainty hanging over our industry. Government intervention at the federal and provincial levels, reduced natural gas economics, the soaring Canadian dollar and increased merger activity between our customers all contribute to projections for drilling activity for 2008 that could prove uneconomic for service providers. We believe that the quality of our operations and the geographic diversity that is evident at IROC will cushion the impact of the downturn to some degree. Continued year over year improvement in revenues and EBITDAS is our goal, something that we are confident in accomplishing over the winter.

Publicly reported information for IROC Energy Services Corp. is available at www.sedar.com.

About IROC Energy Services Corp.

IROC Energy Services Corp is an Alberta based oilfield services company that, through the IROC Energy Services Partnership, supplies a comprehensive and diverse range of products, services and equipment to the oil and gas industry, including: IROC's well servicing division, Eagle Well Servicing, which operates free standing single and double service rigs across Central and Southern Alberta; IROC's drilling division, Mission Drilling, which began operations in the first quarter of 2007 when IROC purchased four drilling rigs rated to depths of approximately 3400 meters; IROC's rental division, Aero Rentals, which offers a wide range of rental equipment to the oil and gas industry in Alberta; IROC's environmental division, Envirocore, which offers lease building and road construction services; IROC's safety division, IROC Safety, which has developed key technologies to address remote air quality monitoring, designed and deployed air breathing systems and provides a complete range of safety services for drilling, completion, production and plant shut-down operations; IROC's communications division, Oricomm, which provides premium communication solutions to a variety of customers in the oil and gas industry; and Canada Tech Corp, which has developed and offers a wide line of memory gauges and permanent monitoring systems that measure pressure and temperature in the downhole and surface environment of oil and gas wells.

Cautionary Statements

Certain statements contained in this press release may constitute forward looking statements concerning, among other things, expected revenues, expected expenses, profits, developments and strategies for IROC's operations all of which are subject to certain risks, uncertainties and assumptions. These forward looking statements are identified by their use of terms and phrases such as "anticipate", "continue", "estimate", "expect", "may", "will", "projected", "should", "believe" and other similar terms and phrases. By its nature, such forward looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. These risks include, but are not limited, to the risks associated with the oil and gas industry generally, fluctuating prices in crude oil and natural gas, changes in drilling activity, general global economic, political and business conditions, weather conditions, regulatory changes and availability of products, qualified personnel and manufacturing capacity and raw materials. If any of these uncertainties materialize, or if assumptions are incorrect actual results may vary materially from those expected. IROC relies on litigation protection for any forward looking statements.

This press release is not for dissemination in the United States or to any United States news services. The Common Shares of IROC have not and will not be registered on the United States Securities Act of 1933, as amended (the "United States Securities Act") or any state securities laws are not offered or sold in the United States or to any US person except in certain transactions exempt from the registration requirements of the United States Securities Act and applicable state securities laws.

Contact Information

  • IROC Energy Services Corp.
    Mr. Thomas M. Alford
    President and CEO
    (403) 263-1110
    or
    IROC Energy Services Corp.
    Mr. Kevin Howell
    CFO
    (403) 263-1110
    Email: investorrelations@iroccorp.com