IROC Energy Services Corp.
TSX : ISC

IROC Energy Services Corp.

August 13, 2007 17:27 ET

IROC Energy Services Corp. Announces 2007 Second Quarter Results

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

THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN UNITED STATES OR TO ANY UNITED STATES NEWS SERVICES.

IROC Energy Services Corp. ("IROC" or the "Corporation") (TSX:ISC) announces the Corporation's financial results for the three and six months ended June 30, 2007.



FINANCIAL HIGHLIGHTS

For the 3 months For the 6 months
ended June 30, ended June 30,
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(Unaudited) (Unaudited)
2007 2006 %Change 2007 2006 %Change
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Revenue -
continuing
operations $11,815 $11,202 5% $37,777 $28,780 31%
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Operating costs 8,402 8,173 3% 23,074 18,778 23%
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Gross margin 3,413 3,029 13% 14,703 10,002 47%
Gross margin % 29% 27% 7% 39% 35% 12%
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General and
administrative
expenses 2,304 1,955 18% 5,238 3,639 44%
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EBITDAS -
continuing
operations (1) 1,109 1,074 3% 9,465 6,363 49%
Per share diluted 0.03 0.03 0% 0.22 0.16 38%
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Net earnings -
continuing
operations (1,682) (538) 213% 1,496 1,463 2%
Per share diluted (0.04) (0.01) 300% 0.04 0.04 0%
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Net earnings (1,681) (780) 116% 1,575 1,268 24%
Per share diluted (0.04) (0.02) 100% 0.04 0.03 33%
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Number of
shares
outstanding
Basic 44,226,794 37,850,981 17% 42,612,019 37,704,318 13%
Diluted 44,343,450 38,634,645 15% 42,731,012 38,666,179 11%
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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.


Second Quarter Results

The second quarter of 2007 has proved to be a very difficult period for most oilfield service companies as many experienced some of the lowest rates of utilization of equipment in a decade as excessive wet weather in some areas and, more notably, the continuing uncertainty of natural gas pricing has led many Canadian oil and gas producers to limit spending and curtail drilling and completion programs. Gas storage levels in North America remain above the five year average which has impacted pricing of the commodity. By reducing their activity levels in natural gas exploration and development for fiscal 2007, some customers are attempting to shift plans toward oil related activities as the fundamentals for this commodity have remained constant. Natural gas has historically represented the bulk of activities in Western Canada and as such expectations were for lower year over year operating results from oil and gas service companies. Despite the difficult conditions experienced during the quarter IROC was able to report increases in both revenues and EBITDAS for the three months ended June 30, 2007 as compared to the prior year as a result of tight cost controls, focus on sales and marketing efforts in all business lines, availability of some of 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.

IROC's revenue from continuing operations for the three months ended June 30, 2007 increased 5%, from $11.2 million to $11.8 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. Offsetting this IROC experienced significantly lower utilization levels of equipment in all others service lines during the quarter. For the three months ended June 30, 2007 IROC incurred a net loss from continuing operations of $1.7 million or ($0.04) loss per share compared to $0.5 million or ($0.01) loss per share in the comparable period of 2006. The increase in the net loss for the three months ended June 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, which increased 127% since June 30, 2006, as well as higher interest costs for debt servicing due to higher debt brought about by the growth over the past two of years.

EBITDAS from continuing operations for the three months ended June 30, 2007 was $1.1 million or $0.03 per share compared to $1.1 million, or $0.03 per share, in the same three month period of 2006. The increase in EBITDAS, despite a very difficult operating environment for the first half of 2007, particularly in the second quarter, 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.

Six Months Results

Revenue for the six months ended June 30, 2007 was $37.8 million compared to $28.8 million, representing an increase of 31%. Revenue increased year over year for the six 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 $1.5 million, or $0.04 per share, for both the six months ended June 30, 2007 and 2006 comparative period. Net earnings after the effect of discontinued operations for the six months ended June 30, 2007 was $1.6 million or $0.04 per share compared to $1.3 million or $0.03 per share for comparable period of the prior fiscal year representing an increase of 24%. For the six months ended June 30, 2007 EBITDAS was $9.5 million or $0.22 per share compared to $6.4 million or $0.16 per share in the same period of 2006, an increase of 49%. EBITDAS as a percentage of revenue was 25.1% for six months ended June 30, 2007 as compared to 22.1% for the same period of 2006.

Tom Alford, President and CEO of IROC commented that "while the second 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 anticipated to be completed during the third quarter, the company intends to use expected cash flows for the remainder of the year to strengthen its balance sheet and increase its flexibility in dealing with acquisition opportunities as they may arise."

Outlook

The first half of the year appears to have provided all the appropriate indicators for continued lower activity levels during the remainder of 2007. 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 levels at low levels with continued price competition. The increases in the North American natural gas supply has been driven by strong onshore drilling activity in the United States which has offset the anticipated production decrease of lower natural gas drilling in the Canadian market thought to help restore more normal gas storage levels. Further, the weakening of the U.S. dollar relative to the Canadian dollar has created an additional level of uncertainty for Canadian producers, 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.

The above conditions are expected to continue into 2008. IROC 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.

Additionally, the ongoing negative effects of the decision by the federal government to alter the taxation on royalty trusts provide obstacles to the return of increased activity. The service activity from the royalty trusts themselves has not diminished, in fact in many cases have increased, but the effect on the field activity generated by the junior oil and gas companies has been very significant. The cost of capital has risen appreciably for junior oil and gas companies with the reduction in valuations brought about by the taxation change. The existence of a vibrant junior sector was due in large part to the ability of these companies to have an exit strategy, something that the trusts provided. This situation has contributed significantly to the changed operating landscape that has unfolded over the past nine months and will continue to have a negative effect in the foreseeable future.

IROC, through its diverse operations, has concentrated on reacting to the needs of our customers by adding new equipment and attracting competent personnel. We continue to see the financial benefits with strong relative performance within the industry during this downturn and are well prepared to react to the inevitable increase in field activity during the winter months and in response to the increasing demand for Canadian oil and natural gas over time.

Publicly reported information regarding 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.

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