Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

November 13, 2007 08:00 ET

Pure Energy-2007 Third Quarter Results and Operational Update

CALGARY, ALBERTA--(Marketwire - Nov. 13, 2007) -



FINANCIAL REVIEW

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Three Months ended September 30, Change
($ millions, except per
share amounts, unaudited) 2007 % 2006 % $ %
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Consolidated Results
Revenue $ 31.5 100% $ 35.4 100% $ (3.9) (11%)

EBITDA(1) 4.2 13% 7.4 21% (3.2) (46%)

Net income (loss) 0.9 3% 3.3 9% (2.4) 75%
Net income (loss) per share
Basic $ 0.05 $ 0.21 $ (0.16)
Diluted $ 0.05 $ 0.20 $ (0.15)

Canadian Completion Services
Results

Revenue $ 15.5 100% $ 20.7 100% $ (5.2) (25%)
Income (loss) before income
taxes 0.4 3% 3.8 19% (3.4) (89%)

US Completion Services
Results

Revenue $ 11.8 100% $ 5.8 100% $ 6.0 103%
Income (loss) before income
taxes 0.5 5% (0.2) (4%) 0.7 351%

Canadian Drilling Services
Results

Revenue $ 4.2 100% $ 9.0 100% $ (4.8) (54%)
Income (loss) before income
taxes 1.6 38% 3.3 36% (1.7) (51%)
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Nine Months ended September 30, Change
($ millions, except per
share amounts, unaudited) 2007 % 2006 % $ %
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Consolidated Results
Revenue $ 94.1 100% $100.5 100% $ (6.4) (6%)

EBITDA(1) 3.1 3% 21.4 21% (18.3) (85%)

Net income (loss) (4.6) (5%) 10.3 10% (14.9) (145%)
Net income (loss) per share
Basic $(0.29) $ 0.67 $ (0.96) (143%)
Diluted $(0.29) $ 0.64 $ (0.93) (145%)

Canadian Completion Services
Results

Revenue $ 46.0 100% $ 60.4 100% $ (14.4) (24%)
Income (loss) before income
taxes (1.0) (2%) 11.6 19% (12.6) (109%)

US Completion Services
Results

Revenue $ 29.1 100% $ 15.3 100% $ 13.8 91%
Income (loss) before income
taxes (0.4) (2%) (0.2) (1%) (0.2) 136%

Canadian Drilling Services
Results

Revenue $ 19.0 100% $ 24.8 100% $ (5.8) (23%)
Income (loss) before income
taxes 4.5 24% 8.4 34% (3.9) (46%)
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(1) EBITDA does not have a standardized meaning prescribed by GAAP. Management believes that, in addition to net income, EBITDA is a useful supplemental measure. EBITDA is provided as a measure of operating performance without reference to financing decisions and income tax impacts, which are not controlled at the operating management level. Investors should be cautioned that EBITDA should not be construed as an alternative to net income determined in accordance with GAAP as an indicator of the Corporation's performance. The Corporation's method of calculating EBITDA may differ from that of other corporations and accordingly may not be comparable to measures used by other corporations. Please refer to the "Non-GAAP Disclosure" for the reconciliation to net income.

Pure Energy's 2007 third quarter consolidated revenue decreased by 11% when compared to its 2006 third quarter results. Net income of $0.9 million and a diluted earnings per share of $0.05 were recorded during the 2007 third quarter. These results reflect the decreased industry activity levels experienced in the Western Canadian Sedimentary Basin ("WCSB") during the 2007 third quarter compared to the 2006 third quarter.

Revenue for US Completion Services in the 2007 third quarter increased by 103% when compared to the 2006 third quarter, while revenues for Drilling Services and Canadian Completion Services decreased by 54% and 25%, respectively, for the same comparative periods. The increase in revenue for US Completion Services is attributable to a 70% increase in the US Production Testing division's revenue, as well as incremental revenue generated by the US Logging and Perforating and Fracturing divisions. Revenue for Drilling Services decreased predominantly as a result of a decline in rig utilization which occurred on account of lower industry activity levels experienced in the WSCB in the 2007 third quarter when compared to the same period in 2006. The decrease in Canadian Completion Services' revenue was due to lower job counts resulting from the lower industry activity in the WCSB.

Operational Review and Highlights

The financial results of the Corporation for the 2007 third quarter reflect the industry slowdown in the WCSB and the start-up nature of the fracturing and logging and perforating operations in the US Rocky Mountain region.

In Canada, both Canadian Completion Services and Drilling Services experienced declines in activity. Rig utilization in the Quintera Drilling division was lower than the industry average given this division's focus on shallow gas drilling related activities and the significant decline in drilling activity by one of its major customers. While utilization was down for both the Multiline and Logging and Perforating divisions, the decrease in utilization experienced by these divisions was less than the decrease in industry well count and rig count.

The Corporation's Canadian operations are comprised of four strong franchises. Significant steps have been taken throughout the year from both an operational and cost perspective to adapt to the reduced activity levels. The Canadian operations are well positioned to maximize utilization in this time of reduced activity and Management will continue to review all costs associated with the Canadian operations and take appropriate steps to address any further changes in activity levels to ensure continued profitability from its operations. Canadian Completion Services transferred four production testing units during the third quarter and one logging and perforating unit subsequent to the third quarter to US Completion Services. Additional equipment transfers may be considered in light of the reduced activity levels in Canada and stronger activity levels in the US Rocky Mountain region.

The financial results for US Completion Services continue to improve. The US Production Testing division has made considerable strides from a start-up operation just four years ago to a proven and respected operator in the US Rocky Mountain region. This division continues to achieve record revenues and financial results as a result of high equipment utilization and margins achieved in its operations.

The Fracturing division continued to experience inconsistent utilization and financial results during the 2007 third quarter, which is reflective of the start-up nature of the division's operations and the problems associated with the lack of a consistent supply of fracturing sand. The modest improvement of the division's financial results during the 2007 third quarter compared to the 2007 second quarter continued a trend of a quarter over quarter increase in revenues and is a positive indicator that the division is gaining customer acceptance in its markets, as evidenced by the recent award of two fracturing services contracts by a major independent oil and gas producer. Given the anticipated resolution of the issues relating to the supply of fracturing sand, Management believes that the Fracturing division is well positioned to be awarded additional service contracts for the 2008 contract year and beyond.

Like other industry participants, the Corporation's balance sheet and financial position have been negatively affected by the reduced activity levels in the WCSB. Management believes that the Corporation continues to have adequate and appropriate resources through its working capital and available credit lines for the Corporation to continue operations through the period of reduced activity so that it will be well situated to take advantage of the anticipated increase in activity levels, whenever that may occur.

QUARTERLY RESULTS

2007 Third Quarter financial highlights include:

Canadian Completion Services income before income taxes decreased $3.4 million

- Income before income taxes as a percentage of revenue for this segment decreased significantly in the 2007 third quarter when compared to the same period in 2006. The financial results reflect the significant decrease in revenue and a $0.7 million one time charge to SG&A relating to severance and termination costs.

Canadian Drilling Services income before income taxes decreased $1.7 million

- The decrease in income before income taxes reflected the significant slowdown in industry activity levels in the WCSB in the quarter compared to the 2006 third quarter and the resultant negative leverage on the Drilling Services segment's fixed cost structure. The decrease in operating results was offset by the $1.8 million gain on sale of a rig recorded during the quarter.

US Completion Services income before income taxes increased $0.7 million

- Income before income taxes for the 2007 third quarter increased compared to the 2006 third quarter as a result of the significant increase in the US Production Testing division's income before income taxes. This increase was partially offset by an operating loss incurred in the Fracturing division and increases in administrative and depreciation and amortization expenses.

For further information on Pure Energy's financial results, please refer to Pure Energy's MD&A for the three and nine months ended September 30, 2007 on SEDAR at www.sedar.com or available on our website at www.pure-energy.ca.

2007 Capital Program and Forecast

Given current industry activity levels in the WCSB, Pure Energy has cancelled certain capital projects related to the Canadian Completion Services and Drilling Services segments. In total, the Corporation has cancelled $4.1 million relating to portable in-line units, support equipment and sustaining capital. The 2007 capital program has been increased by $4.8 million to include the construction of a deep double rig. This rig replaces the single rig sold during the 2007 third quarter and the proceeds of the sale fund the cost of the new double rig. Management will continue to review its outstanding capital projects, its equipment capacity and current and expected industry activity levels to determine whether any further capital projects should be added or cancelled.

Pure has revised its projected revenues for its 2007 fiscal year, decreasing its forecasted revenue from approximately $133 million to approximately $124 million. This decrease largely relates to reduced activity expectations for the 2007/2008 Canadian winter drilling season.

Outlook

The decrease in industry activity experienced in the WCSB during the first half of 2007 has persisted through the 2007 third quarter as a result of continued high natural gas storage levels and resultant low natural gas prices. Activity levels in the 2007 fourth quarter and in 2008 are expected to continue to be low as a result of the low natural gas prices and the uncertainty caused by the Alberta Royalty Review. These expectations are evidenced by PSAC's 2008 Canadian Drilling Forecast, which shows a decline in forecasted Canadian drilling activity from 17,550 wells in 2007 to 14,500 wells in 2008, representing a 17% decrease. PSAC also forecasts a decrease in the number of natural gas wells drilled from 9,404 in 2007 to 6,215 in 2008, representing a decline of 33%. Management will continue to monitor the cost structure of the Canadian Operations and will take appropriate steps to address the cost structure as industry activity levels warrant.

Activity levels in the US Rocky Mountain region have not declined in the same manner as experienced in the WCSB and other producing regions of the United States. Management expects the continued strengthening of financial results from US Completion Services as a result of the anticipated: continuation of high utilization and margins experienced in the US Production Testing division; continued increases in utilization for the US Logging and Perforating division; and increases in utilization for the Fracturing division. Management expects that the anticipated resolution of the problems associated with the sand supply agreement will result in increased utilization of the fracturing equipment in 2008 as it will provide the US Completion Services with the opportunity to enter into additional service contracts with customers for the provision of fracturing services for the 2008 contract year and beyond. Management believes that US Completion Services continues to gain customer and market acceptance for all of its services in the US Rocky Mountain region.

Non-GAAP Disclosure

EBITDA does not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Management believes that, in addition to net income, EBITDA is a useful supplemental measure. EBITDA is provided as a measure of operating performance without reference to financing decisions and income tax impacts, which are not controlled at the operating management level. The following is a reconciliation of EBITDA, as used in this press release, to net income, being the most directly comparable measure calculated in accordance with Canadian GAAP.



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Three Months ended Nine Months ended
September 30, September 30,
($ millions, unaudited) 2007 2006 2007 2006
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EBITDA $ 4.2 $ 7.4 $ 3.1 $ 21.4
Deduct:
Depreciation and amortization 3.1 2.3 9.2 6.1
Interest expense 0.6 0.2 1.7 0.4
Income taxes (1) (0.4) 1.6 (3.2) 4.6
Net income (GAAP financial measure) 0.9 3.3 (4.6) 10.3
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(1) Income taxes consist of current income taxes and future income taxes.


Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking information" which involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Pure Energy, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. When used in this press release, such information uses such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate", "forecast", "project" and other similar terminology. This information reflects Pure Energy's current expectations regarding future events and operating performance and speaks only as of the date of this press release. Forward-looking information involves significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, the factors discussed below. Although the forward-looking information contained in this press release is based upon what management of Pure Energy believes are reasonable assumptions, Pure Energy cannot assure investors that actual results will be consistent with this forward-looking information. This forward-looking information is provided as of the date of this press release, and, subject to applicable securities laws, Pure Energy assumes no obligation to update or revise such information to reflect new events or circumstances.

In particular, this press release contains forward-looking information pertaining to the following: capital expenditure programs; financing of Pure Energy's activities including capital expenditures, supply and demand for oilfield services and industry activity levels, commodity prices, dependence on suppliers, dependence on personnel, collection of accounts receivable, expectations regarding market prices and costs, expansion of services in Canada and the United States and competitive conditions.

Pure Energy's actual results could differ materially from those anticipated in the forward-looking information as a result of the following factors: general economic conditions in Canada and the United States; demand for oilfield services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; competition; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, and skilled management, technical and field personnel; ability to integrate technological advances and match advances of competition; availability of capital; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; changes in legislation and the regulatory environment, including uncertainties with respect to implementing the Kyoto Protocol; and the other factors considered under "Risk Factors" in Pure Energy's Annual Information Form dated March 8, 2007 which is available under Pure Energy's profile at www.sedar.com.

Contact Information

  • Pure Energy Services Ltd.
    Kevin Delaney
    President and CEO
    (403) 262-4000
    Email: kdelaney@pure-energy.ca
    or
    Pure Energy Services Ltd.
    Michael Baldwin
    Chief Financial Officer
    (403) 262-4000
    Email: mbaldwin@pure-energy.ca
    or
    Pure Energy Services Ltd.
    #300, 1010 - 1st Street S.W.
    Calgary, Alberta T2R 1K4
    (403) 262-4000
    (403) 262-4005 (FAX)
    Website: www.pure-energy.ca