High Arctic Energy Services Inc.
TSX : HWO

High Arctic Energy Services Inc.

March 24, 2008 08:00 ET

High Arctic Announces 2007 Financial Results and Management Appointments

RED DEER, ALBERTA--(Marketwire - March 24, 2008) -

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High Arctic Energy Services Inc. (TSX:HWO) (the "Company" or "High Arctic") today announced its results for the year ended December 31, 2007 as well as management appointments.

The Company's Consolidated Financial Statements and the Management Discussion and Analysis for the year ended December 31, 2007 will be filed on SEDAR (www.sedar.com).

The results for 2007 reflect difficult market conditions exacerbated by Company specific challenges. The Company has taken steps to restructure operations, including certain management changes discussed below, to address the issues affecting 2007 performance. While the Company is unlikely to meet the debt reduction requirements under its loan agreements, it is in constructive discussions with its Lenders. High Arctic is optimistic that it will be able to negotiate extensions to its loan agreements that will provide reasonable time to permanently reduce its debt to a level consistent with industry norms. That debt reduction may be achieved through proceeds raised from the sale of certain underperforming assets and/or share issues.

Notwithstanding the difficult conditions, the Company was able to increase its annual revenues to $130.1 million for 2007 (2006 - $123.8 million), due largely to an increase in its international operations in Papua New Guinea. The Company has reported an EBITDA loss of $1.8 million for the year ended December 31, 2007. However, excluding the write-off of a large receivable, EBITDA was $18.9 million for the year ended December 31, 2007 (2006 - $34.9 million).

The Company reported a net loss of $69.6 million for 2007, compared to net earnings of $17.1 million in 2006. The loss per share for the period was $1.83 per share, compared to earnings per share of $0.67 in 2006. The 2007 results included an asset impairment write-down of $31.4 million for assets that have been identified for sale and a write-down of $20.7 million related to amounts claimed against Transeuro Energy.

During the year, senior secured debt increased to $126.4 million from $118.6 million in 2006 and the Company issued a further $27.9 million in subordinated convertible debentures. The high debt level has curtailed the Company's ability to grow, and decisions have been made to reduce the less profitable activities of the Company and to focus on those which are more profitable. In particular, during 2007, the strategic decision to aggressively focus on international development was executed, as demonstrated by the award of significant contracts in Papua New Guinea ("PNG") and the newly created joint venture with Schlumberger (Optimal Pressure Drilling Services) to provide underbalanced services worldwide. The Company believes the joint venture is a cost effective way of marketing the Company's underbalanced equipment and technology, including assets recently deployed to Mexico, and will be an area of significant development in 2008.

To improve results from the Middle East region and to generate proceeds to pay down debt, High Arctic's intention is to consolidate its operational bases, primarily through the closing of underutilized facilities and disposal of certain underperforming assets. A greater emphasis will be placed on using existing support services from Canada.

Assets held for sale at December 31, 2007 have a net book value of $52.9 million, after recording an impairment of $31.4 million. In addition, the receivables were scrutinized in light of poor market conditions and credit risk related to specific customers. As a result, the Company has taken a write-down of $20.7 million, as described above. The failure to collect that specific receivable is a significant reason behind the liquidity challenges faced by the Company, and measured actions have been applied to improve credit control.

Continuing to move forward, strengthening management is key to successfully refocusing our operations. Shareholders will be asked at the upcoming shareholder meeting to approve changes in the current Stock Option Plan to enable the Company to properly reward and retain key management and employees. In anticipation of receiving shareholder support for this important restructuring initiative, management changes have been made. The Board of Directors has appointed a restructuring committee with a firm mandate in place. In addition, the following appointments have recently been made, primarily directed at strengthening the finance and administration of the business.

Morley Myden has been appointed Chief Financial Officer ("CFO") effective immediately. Mr. Myden joined High Arctic in November 200, with the intention that he would replace the interim CFO, Peter Julien, once he gained sufficient background with the Company to effectively guide its financing activities. Morley has 22 years experience in the oilfield services industry with a major international energy services company and will bring important skills to enhancing the management controls within High Arctic.

Peter Julien has stepped down as interim CFO, having successfully fulfilled that appointment since September 1, 2007. His position has changed from Vice-President Finance to Vice-President, Corporate Controller; this new title reflects his duties as a key member of the finance group. Peter is a Certified General Accountant and has been with High Arctic for over 5 years.

The position held by Dennis Sykora has changed from Vice President, Legal and Corporate Development to Executive Vice-President and General Counsel. Mr. Sykora is a lawyer and Chartered Accountant and joined High Arctic in April 2007 in order to provide greater legal and contractual support to the Company. He has also been actively involved in managing the credit facilities and other finance activities.

Kevin Doran, Country Manager, Papua New Guinea has been promoted to the newly formed position of Regional Manager Australia/Asia Pacific. Mr. Doran has 28 years experience with a major international drilling company. Mr. Doran has been employed with High Arctic since September 2006 as the Country Manager, for Papua New Guinea. He has been instrumental in establishing High Arctic's presence in PNG and the continuing award of major contracts in PNG with Oil Search Limited. He will continue with that responsibility as well as focusing on the development of new business opportunities in the regions of Australia & Asia Pacific.

For 2008, the Company has set the following goals:

- Increase EBITDA to over $30 million;

- Reduce secured debt through the sale of non-performing assets;

- Reduce debt to EBITDA leverage ratio to below 3.5 to 1;

- Focus on Optimal Pressure Drilling Services (the joint venture) as a source of market share growth and EBITDA; and

- Further cost reductions to increase profit margins.

Jed Wood, President and CEO said "we believe the decisive actions that have been implemented in the past six months are being realized and that we are well on our way to meeting our 2008 goals. I greatly appreciate the loyalty of our employees, management and our customers. In addition the support of the Board of Directors in becoming directly involved in the restructuring process along with our Lenders support continues to be productive in regards to the restructuring plan."

Forward-Looking Statements

This news release may contain forward-looking statements relating to expected future events and financial and operating results of the Company that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed in the Company's Management Discussion and Analysis for the year ended December 31, 2007 found on SEDAR (www.sedar.com) and in the Company's Annual Information Form for the year ended December 31, 2007 that will be filed on SEDAR. Due to the potential impact of these factors, the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

About High Arctic

The Corporation, through its subsidiaries, is a global provider of specialized oilfield equipment and services, including drilling, completion and workover operations. Based in Red Deer, High Arctic has domestic operations in Alberta, British Columbia and the Northwest Territories. International operations are currently active in Mexico, the Middle East, Northern Africa and Asia.

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

Contact Information

  • High Arctic Energy Services Inc.
    Morley Myden
    Chief Financial Officer
    (403) 340-9825
    Email: morley.myden@haes.ca
    Website: higharcticenergyservices.com