Leader Energy Services Ltd.
TSX VENTURE : LEA

Leader Energy Services Ltd.

May 23, 2012 16:01 ET

Leader Energy Services Reports Strong First Quarter 2012 Results

CALGARY, ALBERTA--(Marketwire - May 23, 2012) - Leader Energy Services Ltd. ("Leader" or the "Company") (TSX VENTURE:LEA) has released its financial and operating results for the three months ended March 31, 2012.

Highlights for the Three Months Ended March 31, 2012

  • Revenue from continuing operations increased 9% to $11.1 million for the three months ended March 31, 2012, compared with $10.1 million in Q1/2011.
  • EBITDA decreased 22% to $3.1 million, compared with $4.0 million in Q1/2011.The early arrival of spring breakup and consequential reliance on third party transportation curtailed EBITDA for the first quarter.
  • Income from continuing operations decreased 27% to $0.9 million ($0.05 per basic common share), compared with $1.3 million ($0.07 per basic common share) in Q1/2011. Excluding a non-cash loss on settlement of loans and borrowings, the Company reported a profit of $1.5 million ($0.08 per basic common share).
  • Added a new 2-3/8" deep coiled tubing unit and two new fluid pumpers to its fleet of equipment in the latter part of the first quarter.
  • 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.
  • Completed a bought deal equity financing at $0.70 per share for gross proceeds of $6.9 million.
  • Subsequent to quarter-end, the Company repaid $6.1 million of the outstanding $15 million balance to the holder of its 12% secured debt facility, resulting in a non-cash charge to the consolidated statement of comprehensive income of $0.6 million.
  • The Company expects to invest between $3.5 million and $4.5 million in capital equipment in 2012. The Company plans to utilize additional operating cash flow to further reduce corporate indebtedness during the course of 2012.
Performance Summary

(000's) (unaudited)
Quarter ended Mar. 31,
2012
Mar. 31,
2011
% Change
Revenue - continuing operations $11,072 $10,138 9 %
Operating Expenses - continuing operations 6,720 5,131 31 %
4,352 5,007 (13 )%
General and Administrative - continuing operations 1,278 1,058 21 %
Amortization - continuing operations 710 589 21 %
Finance cost 879 775 13 %
Loss on settlement of loans and borrowings 576 1,401 n/a
Other gains (28 ) (91 ) n/a
Income - continuing operations 937 1,275 (27 )%
Income (loss) - discontinued operations - 16 n/a
Net Income $937 $1,291 (27 )%
Earnings per share - Basic $0.05 $0.07
Earnings per share - Diluted $0.04 $0.05
EBITDA* $3,105 $3,997 (22 )%

* EBITDA means income from continuing operations before finance costs, loss on settlement of loans and borrowings, taxes, amortization, other 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.

Overview

Headquartered out of Calgary, Alberta, Leader Energy Services Ltd.'s ("Leader" or the "Company") operations are managed from its operations base in Grande Prairie, Alberta. From this base the Company offers well stimulation services across the Western Canadian Sedimentary Basin ("WCSB").

For the first quarter ended March 31, 2012, revenues increased 9% to $11.1 million, a $0.9 million increase compared to the first quarter ended March 31, 2011. The 9% increase in revenue mainly reflects the increase in horizontal drilling activity resulting in continued demand for deeper and larger diameter coil applications, which translates to higher day rates. Consistent with 2011, the Company has continued to focus its service activities to meet the demands of the growing horizontal drilling market and is providing its services to a larger area within the WCSB.

The Company estimates that the late start in January combined with an early spring break-up resulted in the loss of approximately $1.75 million in revenue. The early spring break-up had the added effect of increasing costs to transport equipment to the field.

In the first quarter of 2012, the Company reported income from continuing operations of $0.9 million as compared to income from continuing operations of $1.3 million in 2011. Excluding non-cash losses on settlement of loans and borrowings, the Company reported income from continuing operations of $1.5 million in the first quarter of 2012 as compared to $2.7 million in the first quarter of 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 paid $6.1 million of the outstanding $15 million balance to the holder of its secured debt facility.

Results of Continuing Operations

Well Stimulation Services

(000's) (unaudited)
Quarter ended March 31,
2012
March 31,
2011

$ Change

% Change
Revenue $11,072 $10,138 $934 9 %
Operating Expenses 6,720 5,131 1,589 31 %
Gross profit* $4,352 $5,007 $(655 ) (13 )%

* 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 IFRS as an indicator of the Company's performance.

Revenues from well stimulation services increased to $11.1 million in the first quarter ended March 31, 2012 as compared to $10.1 million in the first quarter ended March 31, 2011. This 9% 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 focuses on oil and liquids-rich resource plays, and has resulted in higher day rates being charged by the Company. These higher revenues 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, 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. The Company estimates that an additional $0.4 million in revenue would have been earned had the equipment been operational rather than on standby. In addition, the late start to activity in January combined with the early spring break-up, reduced revenue reported in the quarter by an estimated $1.75 million.

The Company took delivery of its new 2 3/8" deep coiled tubing unit in late 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 first quarter ended March 31, 2012, the Company reported operating costs of $6.7 million as compared to $5.1 million in the same quarter in 2011. The increase in operating expenses in the current quarter is a result of an increase in field personnel required to operate the new 2 3/8" coiled tubing unit and the new fluid pumpers, higher compensation charges for field personnel, rental of equipment in the field, and a continued reliance on third party transportation of nitrogen. In addition, the early start to spring break-up in March 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. In response to the reliance on third party transportation, the Company has taken delivery of additional equipment in April 2012 to reduce this reliance on a go-forward basis.

Outlook

Spring breakup arrived early this year, curtailing revenue for the first quarter by approximately 15%. The early breakup, combined with below average snow levels over the winter could see a return to summer operating conditions sooner than normal. Leader expects utilization rates for the second half of 2012 to be similar to 2011 as demand remains strong for the Company's services. The remainder of equipment built under the 2011 capital program was delivered at the end of the first quarter of 2012; given a larger equipment fleet and steady utilization rates, the Company expects an increase in year-over-year revenue. Leader remains focused on reducing overall debt levels while opportunistically increasing its capital expenditures to take advantage of growing demand expected in its three service lines.

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 29,378,021 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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