Leader Energy Services Ltd.
TSX VENTURE : LEA

Leader Energy Services Ltd.

August 28, 2013 16:00 ET

Leader Energy Services Reports Second Quarter 2013 Results

CALGARY, ALBERTA--(Marketwired - Aug. 28, 2013) - 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, 2013.

Performance Summary
(000's) (unaudited)
Quarter ended June 30,
2013
June 30,
2012
$
Change
%
Change
Revenue $ 2,673 $ 2,330 $ 343 15%
Operating Expenses 3,137 4,173 (1,036) (25)%
(464) (1,843) 1,379 n/a
General and Administrative 989 1,115 (126) (11)%
Amortization 1,002 828 174 21%
Finance cost 829 610 219 36%
Loss on settlement of loans and borrowings - 762 (762) n/a
Other losses (gains) 1 (49) 50 n/a
Net loss $ (3,285) $ (5,109) $ 1,824 n/a
Loss per share - Basic $ (0.11) $ (0.17) $ 0.06 n/a
Loss per share - Diluted $ (0.11) $ (0.17) $ 0.06 n/a
EBITDA* $ (1,426) $ (2,937) $ 1,511 n/a
6 months ended June 30,
2013
June 30,
2012
$
Change
%
Change
Revenue $ 10,940 $ 13,402 $ (2,462) (18)%
Operating Expenses 8,756 10,893 (2,137) (20)%
2,184 2,509 (325) (13)%
General and Administrative 2,000 2,393 (393) (16)%
Amortization 1,993 1,538 455 30%
Finance cost 2,019 1,489 530 36%
Loss on settlement of loans and borrowings 233 1,338 (1,105) (83)%
Other losses (gains) 60 (77) 137 n/a
Net loss $ (4,121) $ (4,172) $ 51 n/a
Loss per share - Basic $ (0.14) $ (0.17) $ 0.03 n/a
Loss per share - Diluted $ (0.14) $ (0.17) $ 0.03 n/a
EBITDA* $ 243 $ 168 $ 75 45%

* EBITDA means income before finance costs, loss on settlement of loans and borrowings, taxes, amortization, other losses (gains), 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.

Revenues from well stimulation services increased 15% to $2.7 million in the second quarter of 2013 as compared to $2.3 million reported in the second quarter of 2012. Like prior second quarters, the Company was affected by the typical seasonality in the oil and gas industry in western Canada. 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. Despite the effects of spring break-up and the June flood in southern Alberta, the Company was able to generate a 15% increase in revenue as compared to the second quarter of 2012. This increase is attributed to the completion of some large deep coil jobs during the second quarter which kept all services active while these jobs were in process combined with an increase in the utilization of nitrogen pumpers. During the second quarter, the number of nitrogen jobs completed by the Company increased by 30% including some stand-alone nitrogen jobs where the Company was required to supply significant volumes of nitrogen having a positive effect on reported revenue.

For the six month period ended June 30, 2013, revenue decreased by $2.5 million to $10.9 million. Despite the 15% increase in second quarter revenue as discussed above, the Company reported a 25% decrease in revenue in the first quarter of 2013 which accounted for the shortfall in the first six months of 2013. The first quarter decrease is mainly attributed to a slow start to winter drilling activity, a small reduction in average pricing for Leader's services on a per job basis, the continued effect of equipment on standby, and the availability of personnel to operate the equipment at certain times during the first quarter. After the slow start in January and early February, activity improved significantly in the last six weeks of the first quarter with Leader remaining active through until the end of March. Although, Leader performed fewer jobs in the first quarter as compared to 2012, a higher percentage of work required the Company to supply equipment to complete full service deep coiled tubing jobs utilizing 2" and 2 3/8" coiled tubing units, nitrogen units and fluid pumpers. Based on this activity in the quarter, the Company continued to see demand for deeper, larger diameter coil equipment applicable to the horizontal drilling market where the Company concentrates its operations in north-central Alberta and northeast British Columbia. In addition to fewer jobs performed in the quarter, another factor contributing to lower revenues in the first quarter was the increase in work performed in geographic areas where pricing for services is historically lower than other areas within the WCSB. As a result of lower prices charged in these areas, increased competition for available work due to the slow start in the quarter, and the mix of jobs performed in the quarter, the Company experienced a small reduction in average pricing on a per job basis as compared to the first quarter of 2012. In addition to the above, changes in customer timing resulted in the Company continuing to experience situations where its equipment was deployed at lower standby rates waiting for work to commence. In these situations and when the demand for services was at its highest, the Company was periodically short of qualified personnel due to regular scheduled days off. At times, this forced the Company to delay upcoming work and in some circumstances turn down potential jobs while equipment and personnel were not available.

During the first six months of 2013, the Company's fleet consisted of six coiled tubing units plus one reel trailer capable of 2-3/8" deep coil applications, seven nitrogen pumpers and three fluid pumpers. Three of the coiled tubing units and one reel trailer are classified as "deep" coil units. The Company has the equipment capable of running up to six coiled tubing jobs concurrently.

Operating costs in the second quarter of 2013 totaled $3.1 million as compared to $4.2 million for the second quarter of 2012. During the second quarter, the Company has reduced its operating costs by $1.0 million while increasing its revenue by $0.3 million. During the quarter, the Company has realized savings in repair and maintenance, third party charges, field pay, fuel, lodging and wages. These savings were partially offset by higher nitrogen and chemical costs as a result of a higher level of activity in the field for nitrogen and fluid pumping services. As a result of lower activity levels during spring break-up, the Company takes the opportunity to perform routine repair and maintenance on its equipment. In the second quarter of 2013, the Company realized savings in repair and maintenance as compared to the second quarter of 2012 due to a substantial reduction in third party personnel utilized to assist with certain maintenance issues. Having hired and developed much of this expertise in house has assisted Leader in reducing its maintenance costs in the current period. Like 2012 and other second quarters, the wet weather and road bans result in the Company renting additional trailers to redistribute the weight of its equipment to comply with road ban and published weight restrictions. These modifications tend to reduce operational efficiency due to an increase in personnel travelling 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. As a result of the Company operating a number of longer full service jobs during the quarter, the Company was able to limit these inefficiencies as equipment remained at a single location for an extended period of time reducing its costs accordingly. In conjunction with the cost reduction initiatives implemented in the fourth quarter of 2012 and further reductions during spring break-up, the Company has maintained a smaller, but more experienced operations group in 2013 as compared to 2012 resulting in further cost savings.

For the six month period ended June 30, 2013, the Company reported operating costs of $8.8 million as compared to $10.9 million for the six month period ended June 30, 2012. In this six month period, the Company has experienced a 3% decrease in variable costs as a percentage of revenue as compared to the same period in 2012. Savings in repair and maintenance and third party equipment rentals and transportation charges noted above, partially offset by higher coiled tubing charges resulting from the Company utilizing a higher percentage of larger diameter coiled tubing which is more expensive than smaller diameter coiled tubing, higher fuel costs due to an increase in equipment on location (with the addition of fluid pumpers added to the fleet and support trailers utilized on the deep coil jobs) and higher field compensation rates accounted for the decrease in variable costs. As a result of cost reduction initiatives implemented in late 2012 and to coincide with spring break-up, the Company also saved $0.6 million in operational wages in the first six months of 2013.

For the three months ended June 30, 2013, the Company reported a net loss of $3.3 million ($0.11 per basic and diluted share) compared to a loss of $5.1 million ($0.17 per basic share and diluted share) for the three months ended June 30, 2012. A significant contributor to the reduced loss during spring break-up was the $0.3 million increase in revenue combined with a $1.0 million reduction in operating costs. For the six month period ended June 30, 2013, the Company reported a loss of $4.1 million as compared to a loss of $4.2 million for the comparative period in 2012.

Outlook

Wet weather including flooding in Alberta in late June had the effect of extending spring breakup into the third quarter. Although second quarter revenue increased relative to the comparable period last year, inclement weather postponed some activity, however this activity is expected to be recovered in the remainder of the year. Resulting competitive pressures highlight the importance of managing corporate and operating costs, and the Company has continued its efforts in this regard. During the third quarter, the Company continues to establish formal relationships with large customers. The Company expects solid demand for its services during the winter season.

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 29,388,021 which does not include 2,608,000 unexercised stock options and 4,400,000 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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