Leader Energy Services Ltd.
TSX VENTURE : LEA

Leader Energy Services Ltd.

April 03, 2012 16:48 ET

Leader Energy Services Reports Fourth Quarter and 2011 Results

CALGARY, ALBERTA--(Marketwire - April 3, 2012) - Leader Energy Services Ltd. ("Leader" or the "Company") (TSX VENTURE:LEA) has released its fourth quarter and year-end 2011 results.

Performance Summary

(000's)

Year ended Dec. 31,
2011
Dec. 31,
2010
$ Change % Change
Revenue - continuing operations $ 34,219 $ 26,474 $ 7,745 29 %
Operating Expenses - continuing operations 20,417 15,195 5,222 34 %
13,802 11,279 2,523 22 %
General and Administrative - continuing operations 4,819 4,185 634 15 %
Amortization - continuing operations 2,520 2,231 289 13 %
Finance cost 3,390 3,165 225 7 %
Loss on settlement of convertible debenture 1,401 - 1,401 n/a
Other gains (139 ) (273 ) 134 n/a
Income - continuing operations 1,811 1,971 (160 ) (8 )%
Income - discontinued operations 31 208 (177 ) n/a
Net Income $ 1,842 $ 2,179 $ (337 ) (15 )%
Earnings (loss) per share - Basic (continuing ops.) $ 0.10 $ 0.14 $ (0.04 )
Earnings (loss) per share - Diluted (continuing ops.) $ 0.08 $ 0.08 $ 0.00

EBITDA*
$ 9,186 $ 7,175 $ 2,011 28 %

* EBITDA means income from continuing operations before finance costs, loss on settlement of convertible debenture, taxes, amortization, other (gains) losses, and share based payments. Readers are cautioned that EBITDA 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. EBITDA is not a measure that has a standardized meaning and accordingly may not be comparable to similar measures used by other companies.

Overview

Revenues from well stimulation services increased to $34.2 million in the year ended December 31, 2011 as compared to $26.5 million in the year ended December 31, 2010. This 29% increase in revenue is mainly attributed to the continued demand for deeper, larger diameter coil equipment applicable to the horizontal drilling market in north-central Alberta and northeast British Columbia. This concentration on larger diameter deep coil work has resulted in higher day rates being charged by the Company. Leader's focus on a larger area within the WCSB along with a general increase in economic activity, with the exception of reduced activity in the second quarter, has also contributed to higher revenues as compared to the prior year.

As a result of the typical seasonality in the oil and gas industry in western Canada, the Company experienced reduced activity in the second quarter of 2011. During the second quarter, operations were hampered by a prolonged spring break-up due to rain and low temperatures in western Canada. Operational activity in the third quarter returned to levels experienced in the first quarter of 2011 which translated into the highest third quarter revenue reported from the WCSB in the Company's ten year history. The Company saw strong growth in revenue in the fourth quarter and again reported record revenue from the WCSB of $11.1 million.

The Company exited 2011 with five coil units plus one reel trailer capable of 2 3/8" deep coil applications, seven nitrogen pumpers and one fluid pumper. The Company took delivery of its new 2 3/8" deep coiled tubing unit in February 2012 and its two new fluid pumpers in February and late March respectively. This equipment is in very high demand and forms an integral component of longer-reach coiled tubing applications. As of March 31, 2012, the Company has six coiled tubing units plus one reel trailer, seven nitrogen pumpers and three fluid pumpers. Three of these coiled tubing units and one reel trailer are classified as "deep" coil units.

For the year ended December 31, 2011, the Company reported operating costs of $20.4 million as compared to $15.2 million in the prior year. As a percentage of revenue, 2011 operating costs increased 2% over 2010 reflecting the increased costs incurred in the second quarter to retain qualified field staff and repair equipment in anticipation of increased activity in the second half of 2011 along with an increase in reliance on the transportation of nitrogen by third parties. In the second quarter, weather related standby also had a significant negative effect on results in 2011.

The increase in revenue and stability in margins resulted in the Company contributing an additional $2.5 million towards overall profitability from field operations during 2011.

In 2011, the Company reported income from continuing operations of $1.8 million as compared to income from continuing operations of $2.0 million in 2010. The Company's income from continuing operations of $1.8 million in 2011 includes a one-time loss on the settlement of its convertible debenture in the amount of $1.4 million. Excluding this loss, the Company reported income from continuing operations of $3.2 million, compared to income from continuing operations of $2.0 million reported for the year ended December 31, 2010.

Fourth Quarter Results (000's - unaudited):

Quarter ended Dec. 31,
2011
Dec. 31,
2010
$ Change % Change
Revenue - continuing operations $ 11,141 $ 8,771 $ 2,370 27 %
Operating Expenses - continuing operations 6,374 4,868 1,506 31 %
4,767 3,903 864 22 %
General and Administrative - continuing operations 1,382 1,480 (98 ) (7 )%
Amortization - continuing operations 653 591 62 10 %
Finance cost 885 756 129 17 %
Loss on settlement of convertible debenture - - - n/a
Other gains (117 ) (29 ) (88 ) n/a
Income - continuing operations 1,964 1,105 859 78 %
Income (loss) - discontinued operations - (2 ) 2 n/a
Net Income $ 1,964 $ 1,103 $ 861 78 %
Earnings per share - Basic $ 0.10 $ 0.08 $ 0.02
Earnings per share - Diluted $ 0.09 $ 0.03 $ 0.06

EBITDA*
$ 3,442 $ 2,449 $ 993 41 %

Revenues from well stimulation services increased 27% in the fourth quarter of 2011 as compared to the same period in 2010. As previously stated, horizontal drilling activity in northwest Alberta and northeast British Columbia along with an improvement in the economic environment have been key contributors to the increase in revenue. This activity is driving demand for deeper and larger diameter coil applications which normally translates to higher daily revenues. The Company had five units including two larger diameter 2" coil units operating during the quarter. These units, combined with one deep coil reel trailer enabled the Company to run three deep coil jobs concurrently. In addition, the Company offers nitrogen services in conjunction with coiled tubing applications and also offers these services on a stand-alone basis. The improvement in revenue is also attributed to the Company offering its services in a larger area within the WCSB.

In December 2010, the Company expanded its service line by adding a fluid pumper to its fleet of equipment. Applications for this equipment include pumping fluids down the wellbore to activate downhole motors used in drilling out composite plugs in the horizontal sections, and providing chemical injections. Revenue from this fluid pumper is included for the entire fourth quarter of 2011, whereas in 2010 the unit was operational for less than one month.

Operating costs totaled $6.4 million (57% of revenue) in the fourth quarter of 2011 as compared to $4.9 million (56% of revenue) in the fourth quarter of 2010. Operating costs were slightly higher as a percentage of revenue in 2011 due to the increase in reliance on third parties to transport nitrogen and an increase in travel time due to the location of the jobs in relation to the Company's Grande Prairie location. This increase was partially offset by deeper and larger diameter coil work during the quarter which equates to higher day rates and higher margins versus 2010.

Income from continuing operations in the fourth quarter of 2011 was $2.0 million versus income from continuing operations of $1.1 million for the fourth quarter of 2010. EBITDA of $3.4 million for the fourth quarter of 2011, increased in comparison to the corresponding period for 2010 by $1.0 million. As a result of focusing its services on higher margin activities and effectively managing its costs and overhead expenses, the Company was able to increase its EBITDA as a percentage of revenues to 31% as compared to 28% in the fourth quarter of the prior year.

Equity financing subsequent to December 31, 2011

On March 27, 2012, the Company completed a bought deal equity financing for gross proceeds of $6,853,000 representing the issue of 9,790,000 common shares of the Company at $0.70 per share, including 1,218,000 common shares pursuant to the partial exercise of an over-allotment option. After deducting underwriter fees and estimated transaction costs, net proceeds from the equity financing are expected to approximate $6.1 million. After completing the bought deal equity financing, the Company notified the holder of its secured debt facility regarding its intention to repay $6.1 million of the outstanding $15 million balance in early April, 2012.

Outlook

In the coming years Leader expects the Western Canadian petroleum industry to remain focused on the development of oil and liquids-rich natural gas resource plays utilizing horizontal drilling and multistage completion techniques. Industry forecasts anticipate a small increase in drilling activity in 2012, with strong oil prices anticipated throughout the year. Leader is well positioned in the current commodity price environment with approximately 85% of its revenue coming from horizontal oil and liquids-rich drilling activity. Leader's operating areas include established and emerging plays in which the underlying fundamentals are expected to remain strong through the coming year. Leader has seen the trend toward 24-hour operations in the majority of its deep coiled tubing operations, which has improved equipment utilization and corresponding margins. Coiled tubing and affiliated services are in high demand, and this is expected to continue through 2012.

The majority of equipment built under the 2011 capital program has now been deployed and Leader expects a significant increase in year-over-year revenue as a result of the increased job capacity. At present Leader operates 6 coiled tubing units (3 rated as "deep-capacity") and one deep coiled tubing reel trailer, 7 nitrogen units and 3 fluid pumpers. With continued profitability, Leader is focused on reducing overall debt levels while opportunistically increasing its capital expenditures to take advantage of growing demand expected in its three service lines. Leader is strongly positioned to provide large diameter coiled tubing, nitrogen and fluid pumping services to an increasing client base.

Other

Additional information can be found on SEDAR at www.sedar.com or the Company web site at www.leaderenergy.com. The number of common shares issued and outstanding at the date hereof is 29,368,021 which does not include 1,643,500 unexercised stock options and 4,250,000 share purchase warrants.

Forward-looking information

This press release contains certain statements or disclosures relating to the Company that are based on the expectations of the Company as well as assumptions made by and information currently available to the Company which may constitute forward-looking information under applicable securities laws. All such statements and disclosures, other than those of historical fact, which address activities, events, outcomes, results or developments that the Company anticipates or expects may, or will occur in the future (in whole or in part) should be considered forward-looking information.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

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