Leader Energy Services Ltd.
TSX VENTURE : LEA

Leader Energy Services Ltd.

August 15, 2012 17:36 ET

Leader Energy Services Reports Second Quarter 2012 Results

CALGARY, ALBERTA--(Marketwire - Aug. 15, 2012) - Leader Energy Services Ltd. ("Leader" or the "Company") (TSX VENTURE:LEA) has released its financial and operating results for the three and six month periods ended June 30, 2012.

Performance Summary
(000's) (Unaudited)
June 30 , June 30 ,
Quarter ended 2012 2011 $ Change % Change
Revenue - continuing operations $2,330 $2,920 $(590 ) (20 )%
Operating Expenses - continuing operations 4,173 3,856 317 8 %
(1,843 ) (936 ) (907 ) n/a
General and Administrative - continuing operations 1,115 1,183 (68 ) (6 )%
Amortization - continuing operations 828 635 193 30 %
Finance cost 610 859 (249 ) (29 )%
Loss on settlement of loans and borrowings 762 - 762 n/a
Other (gains) losses (49 ) 37 (86 ) n/a
Loss - continuing operations (5,109 ) (3,650 ) (1,459 ) n/a
Income - discontinued operations - 15 (15 ) n/a
Net loss $(5,109 ) $(3,635 ) $(1,474 ) n/a
Loss per share - Basic $(0.17 ) $(0.19 ) $(0.02 ) n/a
Loss per share - Diluted $(0.17 ) $(0.19 ) $(0.02 ) n/a
EBITDA* $(2,937 ) $(2,056 ) $(881 ) n/a
June 30 , June 30 ,
6 months ended 2012 2011 $ Change % Change
Revenue - continuing operations $13,402 $13,058 $344 3 %
Operating Expenses - continuing operations 10,893 8,987 1,906 21 %
2,509 4,071 (1,562 ) (38 )%
General and Administrative - continuing operations 2,393 2,241 152 7 %
Amortization - continuing operations 1,538 1,224 314 26 %
Finance cost 1,489 1,634 (145 ) (9 )%
Loss on settlement of loans and borrowings 1,338 1,401 (63 ) (4 )%
Other gains (77 ) (54 ) (23 ) n/a
Loss - continuing operations (4,172 ) (2,375 ) (1,797 ) n/a
Income - discontinued operations - 31 (31 ) n/a
Net loss $(4,172 ) $(2,344 ) $(1,828 ) n/a
Loss per share - Basic $(0.17 ) $(0.12 ) $(0.05 ) n/a
Loss per share - Diluted $(0.17 ) $(0.12 ) $(0.05 ) n/a
EBITDA* $168 $1,941 $(1,773 ) (91 )%
* EBITDA means loss from continuing operations before finance costs, loss on settlement of loans and borrowings, taxes, amortization, other (gains) losses, and share based compensation. 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

In the second quarter of 2012 revenues were $2.3 million, a $0.6 million reduction from the second quarter of 2011. On a year-to-date basis, revenues increased to $13.4 million as compared to $13.1 million reported for the six month period in 2011. Activity in the second quarter was severely constrained by a prolonged spring break-up and extremely wet weather conditions delaying the completion of work in the quarter. In addition, the reduction in stand-alone nitrogen work had a negative effect on revenue in the quarter. For the six month period, the 3% increase in revenue reflects the increase in horizontal drilling activity requiring deeper and larger diameter coil which translates to higher day rates. The Company has continued to focus its service activities to meet the demands of the growing horizontal drilling market and has increased its operational focus to cover a larger area within the Western Canadian Sedimentary Basin ("WCSB").

In the second quarter of 2012, the Company reported a loss from continuing operations of $5.1 million as compared to a loss of $3.7 million in the second quarter of 2011. During the second quarter, the Company experienced a reduction in field activity due to spring break-up and weather related delays, along with higher operating costs. To prepare operations for an expected increase in activity in the latter half of 2012, the Company, where possible, retained qualified field personnel during spring break-up, took advantage of opportunities to hire additional field and mechanical personnel and performed maintenance on its key equipment. On a year-to-date basis, the Company reported a loss from continuing operations of $4.2 million as compared to a loss from continuing operations of $2.4 million in the six month period ended June 30, 2011.

On March 27, 2012, the Company completed its 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 transaction costs, net proceeds from the equity financing were $6.1 million. On April 4, 2012, the Company repaid $6.1 million of the outstanding $15 million balance to the holder of its secured debt facility.

On June 14, 2012, the Company entered into new credit facilities with a Canadian chartered bank. The credit facilities include a new demand revolving facility of up to $5 million, a three year committed non- revolving term loan of up to $9.0 million amortized over 60 months with provision to extend for two additional one year terms subject to lender approval, and a demand revolving reducing capital expenditure loan of up to $2.0 million. These credit facilities contemplate interest at prime plus 1.25% and are subject to normal and customary terms and coverage ratios including working capital, tangible net worth, debt to EBITDA and fixed charge coverage ratios. As a result of entering into these facilities, Leader made an $8.9 million payment to retire its 12% secured debt facility and transferred its $5.0 million demand revolving facility to its new lender.

Results of Continuing Operations
Well Stimulation Services (000's) (Unaudited)
June 30 , June 30 ,
Quarter ended 2012 2011 $ Change % Change
Revenue $2,330 $2,920 $(590 ) (20 )%
Operating Expenses 4,173 3,856 317 8 %
Gross profit* $(1,843 ) $(936 ) $(907 ) n/a
June 30 , June 30 ,
Six months ended 2012 2011 $ Change % Change
Revenue $13,402 $13,058 $344 3 %
Operating Expenses 10,893 8,987 1,906 21 %
Gross profit* $2,509 $4,071 $(1,562 ) (38 )%
* Management believes that gross profit provides investors with an indication of income before administrative costs, amortization, finance costs, taxes and other. Readers are cautioned that gross profit should not be considered as an alternative to income determined in accordance with International Financial Reporting Standards ("IFRS") as an indicator of the Company's performance.

Revenues from well stimulation services decreased 20% in the second quarter of 2012 as compared to the second quarter of 2011. On a year-to-date basis, revenue increased 3% to $13.4 million.

As a result of the typical seasonality in the oil and gas industry in western Canada, the Company experienced reduced activity in mid-March which carried forward throughout the second quarter of 2012. Historically, the second quarter represents the lowest level of activity in the calendar year due to spring break-up. The wet spring and early summer weather combined with the thawing of ground frost renders many roads incapable of supporting the weight of heavy equipment. As a result, operators are subject to road bans which restrict the ability to access well sites. In the second quarter of 2012, the Company experienced a prolonged spring break-up due to rain in western Canada which delayed the completion of work scheduled during the quarter. This reduction in activity resulted in lower than expected equipment utilization across the industry which had the effect of increasing competition for available work. In addition, the Company experienced a reduction in the number of nitrogen jobs performed in the quarter as compared to the second quarter of 2011. This decrease is attributed to the reduction in stand-alone nitrogen work caused by customers reducing activity on gas wells.

For the six month period ended June 30, 2012, revenue increased $0.3 million to $13.4 million. This 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, particularly in the first quarter of 2012. This concentration on larger diameter deep coil work focuses on oil and liquids-rich resource plays, and has resulted in higher day rates being charged by the Company. These higher revenues reported in the first quarter were partially offset by an increase in equipment standby at lower day rates as a result of an industry-wide shortage of class three 2" and 2 3/8" coiled tubing units. As a result of this shortage in the first quarter, customers requested equipment stay on location at lower standby rates in anticipation of further work at these locations, forcing the Company to delay upcoming jobs and in some circumstances turn down potential projects while this equipment was deployed. Increases in revenue reported in the first quarter of 2012 as compared to the same period in 2011 were substantially reversed in the second quarter due to a prolonged spring break-up and wet weather in the WCSB resulting in lower than expected equipment utilization across the industry which had the effect of increasing competition for available work. Activity was also affected as customers evaluated their capital expenditure spending in light of current commodity price fluctuations. In addition, the Company experienced a reduction in the number of stand-alone nitrogen jobs particularly in the second quarter.

The Company exited the quarter with six coil units plus one reel trailer with 2 3/8" coil, seven nitrogen pumpers and three fluid pumpers.

Operating costs totaled $4.2 million during the second quarter of 2012 compared to $3.9 million during the comparable period in 2011. During the current quarter, the Company retained its qualified field personnel through spring break-up and took advantage of opportunities to hire additional mechanics and field personnel, particularly fluid pumper personnel to run equipment added to the fleet late in the first quarter of 2012. Over the past few years, the biggest challenge facing the Company has been the ability to hire enough qualified personnel to operate the equipment in the field. In response to this challenge, the Company has been successful in hiring personnel from both within and outside western Canada. In addition to the above, the wet weather and extended road bans experienced during the second quarter resulted in the Company renting additional trailers to redistribute weight of its equipment to ensure that it complied with road ban and published weight restrictions. These modifications reduce operational efficiency due to an increase in personnel traveling to location, higher fuel costs due to an increase in the number of tractors transporting equipment to location, and varying travel times, resulting in higher daily costs for lodging and field pay such as day rates and subsistence. The Company also incurred additional training of personnel during spring break-up and repair and maintenance costs to prepare the equipment for an expected increase in activity in the second half of 2012.

For the six month period ended June 30, 2012, the Company reported operating costs of $10.9 million as compared to $9.0 million in the six month period ended June 30, 2011. Operating costs for the first six months increased 21% over the same period in 2011 reflecting the increased costs incurred in the second quarter to hire additional qualified field staff to operate equipment added to the fleet, the repair and maintenance of equipment in anticipation of increased activity in the second half of 2012, the inefficiencies caused by weight re-distribution during spring break-up, and the reliance on third party transportation services in the first quarter of 2012. As stated previously, the Company has taken delivery of additional equipment in April 2012 to reduce the reliance on third party transportation on a go-forward basis.

Outlook

The recent volatility in commodity prices has reduced drilling, well licensing and completion activities in Alberta. In an environment of continued commodity price volatility, many customers may choose to further reduce or delay capital expenditures. Although the summer has continued to be fairly wet in central and northern Alberta, Leader expects activity levels to increase consistently during the course of the third quarter, heading into the busy winter drilling season. The Company expects some compression of its operating margins relative to the first quarter of 2012, due to an increase in competing coiled tubing units and recently announced reductions in customers' budgets. Although there is some near-term uncertainty facing industry activity levels, the Company is confident of the direction the Company is headed. Leader remains focused on operational excellence, growing its client base, increasing profitability and reducing debt.

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 was 29,378,021 which does not include 1,636,000 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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