Leader Energy Services Ltd.
TSX VENTURE : LEE

Leader Energy Services Ltd.

November 25, 2008 17:02 ET

Leader Energy Services Announces Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 25, 2008) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Leader Energy Services Ltd. (TSX VENTURE:LEE) ("Leader" or the "Company") today announced financial and operating performance for the three and nine-month periods ended September 30, 2008.



Third Quarter Performance Summary (in '000s of dollars)

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Quarter ended, September 30, September 30, $ %
2008 2007 Change Change
--------------------------------------------

Revenue - continuing operations $4,505 $7,571 (3,066) (40)
Operating expenses - continuing
operations 3,160 6,967 (3,807) (55)
G&A - continuing operations 1,141 1,697 (556) (33)
--------------------------------------------
EBITDAS from continuing
operations(i) 204 (1,093) 1,297 119
Amortization - continuing
operations 756 2,114 (1,358) (64)
Stock Compensation - continuing
operations 2 258 (256) (99)
Interest - continuing operations 1,881 1,382 499 36
Other - continuing operations (33) 12,840 (12,873) (100)
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Net loss before tax - continuing
operations (2,402) (17,687) 15,285 86
Provision for tax expense-
continuing operations - - - -
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Net loss - continuing operations (2,402) (17,687) 15,285 86
Net income - discontinued
operations 1,315 (7,261) 8,576 118
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Net loss (1,087) (24,948) 23,861 95
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Nine months ended, September 30, September 30, $ %
2008 2007 Change Change
--------------------------------------------

Revenue - continuing operations $12,124 $20,836 (8,712) (42)
Operating expenses - continuing
operations 9,860 21,981 (12,121) (55)
G&A - continuing operations 3,366 5,188 (1,822) (35)
--------------------------------------------
EBITDAS from continuing
operations(i) (1,102) (6,333) 5,231 83
Amortization - continuing
operations 3,522 6,085 (2,563) (42)
Stock Compensation - continuing
operations 389 820 (431) (53)
Interest - continuing operations 7,444 3,757 3,687 98
Other - continuing operations 210 12,770 (12,560) (98)
--------------------------------------------
Net (loss) income before Tax -
continuing operations (12,667) (29,765) 17,098 57
Provision for tax expense
(recovery) - continuing
operations - (916) 916 100
--------------------------------------------
Net loss - continuing operations (12,667) (28,849) 16,182 56
Net income (loss) discontinued
operation 1,329 (8,011) 9,340 117
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Net loss (11,338) (36,860) 25,522 69
--------------------------------------------

(i) EBITDAS means earnings from continuing operations before interest,
taxes, amortization, and stock based compensation. Readers are
cautioned that EBITDAS is generally regarded as an indirect measure of
operating cash flow, and, as such, the Company believes it is a
significant indicator of success of public companies, and is
particularly relevant to readers within the investment community.
EBITDAS is not a measure that has a standardized meaning prescribed by
Canadian GAAP, and accordingly may not be comparable to similar
measures used by other companies.


Overview

Headquartered out of Calgary, Alberta, Leader Energy Services Ltd.'s ("Leader" or the "Company") operations are managed from its operations base in Grande Prairie, Alberta. From this base the Company offers well stimulation services across the Western Canadian Sedimentary Basin.

Although commodity prices were relatively strong during the first half of the year, industry activity levels continued to decline as commodity prices softened during the third quarter. Petroleum explorers continued to shift drilling activity out of Alberta to other regions of the WCSB due to unfavorable economic implications associated with the changes to the royalty system in Alberta. Over the past 18 months the price of natural gas was, at various times, lower than required in order for drilling of wells to be economically viable.

Although the Company experienced a 40% decrease in total revenue to $4.5 million for the third quarter of 2008 relative to the same period last year, Leader achieved a 119% improvement in earnings before interest, taxes, depreciation and stock-based compensation ("EBITDAS") from continuing operations to $204,000. Approximately half of the quarterly reduction in revenue was a result of the sale of the Company's US operations. The $1.3 million improvement in EBITDAS relative to the comparable quarter last year was a result of the divestiture of unprofitable Canadian cementing operations in the third quarter of 2007 and efficiencies realized in operational and general and administrative expenses. The loss before income taxes showed an improvement of 86% to ($2.4) million. Interest expense increased 36%, or $499,000 as compared to comparative 2007 quarter as a result of the increased cost of debt incurred by the Company since that latter part of 2007. Interest expense on an ongoing basis is expected to be significantly reduced with the Company having paid out its credit facility in July of 2008.

On July 22, 2008, the Company completed a transaction with Key Energy Pressure Pumping Services, LLC, a wholly owned subsidiary of Key Energy Services, Inc. ("Key"), whereby the Company's operating assets in the United States were sold to Key Energy. Completion of this transaction enabled the Company to repay its secured demand credit facility in its entirety.



Results of Continuing Operations

Well Stimulation Services (in '000s of dollars except for per day amounts)

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Quarter ended, September 30, September 30, Change % Change
2008 2007
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Revenue $4,505 $4,766 (261) (5)
Operating 3,160 3,256 (96) (3)
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Field profit (loss) 1,345 1,510 (165) (11)
Number of operating days 336 409 (73) (18)
Average revenue per day 13,408 11,653 1,755 15


-------------------------------------------------
Nine months ended, September 30, September 30, $ %
2008 2007 Change Change
-------------------------------------------------

Revenue $12,124 $13,499 (1,375) (10)
Operating 9,860 11,924 (2,064) (17)
-------------------------------------------------
Field profit 2,264 1,575 689 44
Number of operating days 1,027 1,172 145 (12)
Average revenue per day 11,805 11,518 287 2


(i) Field profit is a measure not recognized under Canadian GAAP.
Management believes that field profit provides investors with an
indication of earnings before administrative costs, depreciation,
interest, and taxes. Readers are cautioned that field profit should not
be considered as an alternative to net income determined in accordance
with Canadian GAAP as an indicator of the Company's performance.


Revenues decreased 5% over the comparable 2007 third quarter to $4.5 million with activity levels achieved in the third quarter of 2008 being reduced due to poor weather conditions.

With continuing cost efficiencies, operating expenses decreased by 3% in the third quarter of 2008 as compared to 2007, declining from $3.3 million to $3.2 million. The Company continues to look for cost efficiencies and will be diligent in cost reduction efforts.



General & Administrative expenses - continuing operations
(in '000s of dollars except for per job amounts)

-------------------------------------------------
Quarter ended September 30, September 30, $ %
2008 2007 Change Change
-------------------------------------------------

General & Administrative 1,141 2,153 (1,012) (47)%
-------------------------------------------------


-------------------------------------------------
Nine months ended, September 30, September 30, $ %
2008 2007 Change Change
-------------------------------------------------

General & Administrative 3,366 6,185 (2,819) (46)%
-------------------------------------------------


General and administrative expenses consist primarily of costs relating to staffing and shared corporate services. During the quarter, average staff levels within the general and administration group dropped substantially as compared to the 2007 second quarter as a result of the Company discontinuing its cementing operations in the latter part of 2007 and reducing overall staff levels at corporate head office.

Amortization, Stock Compensation and Interest Expense - continuing operations

The Company's amortization expense decreased by $1,358,000, or 64% in the third quarter of 2008 over 2007 as the Company's property and equipment base decreased substantially during the quarter compared to the same period ended June 30, 2007 due to the sale of US assets to Key Energy and the disposition of cementing and certain other assets. Stock compensation expense decreased by $256,000, or 99%, due to the expiration and cancellation of stock options period over period. Interest expense decreased to $1.9 million due to the Company's payout of its credit facility.

Liquidity and Capital Resources

On July 22, 2008, subsequent to the end of the 2008 second quarter, the Company completed a transaction with Key Energy Pressure Pumping Services, LLC, a wholly-owned subsidiary of Key Energy Services, Inc. ("Key"), whereby the Company's operating assets in the United States were sold to Key Energy. Completion of this transaction enabled the Company to repay its secured demand credit facility in its entirety. The Company intends to identify and secure a lower cost credit facility in the near future. Certain taxes will be payable as a result of this transaction. These taxes have been estimated and recorded in the financial statements.

During August 2008, the Company was released from its sale-leaseback commitment with respect to its Red Deer, Alberta, facility. The lease was to run through December 31, 2026 with annual base rent payments of approximately $864,000 escalating to higher base rent levels in years 6, 11 and 16 of the lease, plus additional facility costs for items such as utilities, insurance and taxes. The retirement of the related capital leases, less closing costs, approximates the net book value of the capital assets, and therefore no gain or loss has been recorded due to this transaction. Savings resulting from the elimination of base and additional rent costs for the Red Deer facility will be used for general working capital purposes.

Investing Activities

Total assets declined by $46.7 million from December 31, 2007 to September 30, 2008. The majority of this decline in assets is attributable to a $33.1 million decrease due to the sale of the Company's United States operations, a $5.0 million decrease due to the sale of other assets during the year, a $7.2 million decrease due to the release of the Company from its sale leaseback commitment in Red Deer, Alberta, and ongoing amortization of assets.

Outlook

Global financial and economic turmoil has added to near-term uncertainty for commodity prices. Weaker commodity prices have, however, been buffered to a large extent by the devaluation of the Canadian dollar relative to the US dollar. Continuing credit market instability will adversely affect the energy industry during 2009.

With the reduction of Leader's debt levels during the third quarter, the Company's financial condition has improved. Leader has been fortunate to retain a loyal client base and high-calibre field and office staff during its financial restructuring.

Short-term fluctuations in commodity prices have increased the uncertainty concerning oilfield activity levels. Additionally, recent concerns around the prospects of global economic recession and its consequential effect on overall demand for energy supplies, and the ongoing impact of the new royalty regime that will be implemented by the Alberta government at the start of 2009.

Leader's future success is contingent upon continued effective execution at the field level and achieving positive operational cash flows.

Certain statements contained in this press release, including statements which may contain words such as "could", "should", "expect", "estimate", "believe", "likely", "will", or estimates of business activity, and similar expressions and statements relating to matters that are not historical facts, are forward looking statements. Such statements involve known and unknown risks and uncertainties that may cause the actual results, performance or achievements of Leader to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Factors include commodity prices, demand for oil and gas related products and service, competition, political and economic conditions, demand and acceptance of new products and ways of doing business, changes in laws and regulations to which Leader is subject, and the ability to attract and retain key personnel.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this news release.

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