North American Energy Partners Inc.

North American Energy Partners Inc.

January 18, 2005 23:59 ET

North American Energy Partners: News Release

North American Energy Partners: News Release

ACHESON, ALBERTA--(CCNMatthews - Jan. 18, 2005) - North American Energy Partners
Inc. (the "Company") announced that it is conducting a review of its previously
reported financial statements for the quarters ended June 30, 2004 and September
30, 2004. It has come to management's attention during the preparation of the
unaudited interim financial statements for the third quarter ended December 31,
2004 that certain expenses were not appropriately accrued and reported in the
financial statements for the quarters ended June 30, 2004 and September 30,
2004. As a result, operating income was overstated and net loss was understated
for each of the quarters ended June 30, 2004 and September 30, 2004. While the
Company's review is not yet complete, management believes that the cumulative
overstatement of operating income is at least Cdn $5 million and may range up to
approximately Cdn $8 million. While the Company's assessment of the issue is
still preliminary, the Company believes a restatement of its financial
statements for the quarters in question will be necessary. Accordingly, the
Company's previously reported financial statements for the quarters ended June
30, 2004 and September 30, 2004, as well as the Company's discussion of its
results of operations, financial condition and future liquidity needs as
reported for those quarters, should no longer be relied upon. As soon as
practicable following the completion of its review, the Company will restate its
financial statements for the respective quarters and amend the accompanying
management's discussion and analysis to reflect the restatement. The Company has
notified and discussed this matter with its external auditors and its Board of
Directors. Management is currently conducting a review of the Company's system
of internal controls to track third party accounts payable invoices and accrue
for these costs in the appropriate quarterly period and will engage a third
party to assist in this review.

Although the Company's review is not complete, the Company believes that the
delay in accruing the costs described above relates primarily to field review of
invoices from third parties prior to receipt of those invoices for payment by
the Company's main office. Historically, the Company has accrued project
expenses after the project managers have reviewed invoices received to evaluate
whether the Company's expenses are appropriate in light of the goods and
services provided to it. After field approval, the invoices have been forwarded
to the Company's main office for payment. This process of incorporating the
project managers' expertise into the payables process has generally served the
Company's financial interests. In this case, however, delivery of a significant
number of invoices from vendors to the Company's main office was delayed.

The Company believes that a majority of the understated costs described above
relate to a large steam assisted gravity drainage site project undertaken for a
new customer. While the previously reported financial statements for the
quarters ended June 30, 2004 and September 30, 2004 included a slight profit
from this project, the restated financial statements for those two quarters will
include a significant loss on this project. Although the Company's review of the
bid and performance of this contract is not complete, management believes that
the loss on this contract results from the price at which the contract was bid,
as well as the fact that the contract as bid did not sufficiently account for
contingencies including permitting delays, weather delays, lack of available
labor and work acceleration to meet original deadlines. These issues also
impacted the project in the third quarter and, while not yet quantified, the
Company's third quarter results are anticipated to be significantly negatively
impacted by the project. As of December 31, 2004, Management estimates that this
project was approximately 85% complete.

Management has informed the bank lenders under its senior secured credit
agreement that the additional costs described herein will likely result in
breaches of the Company's financial covenants under the credit agreement for the
quarter ending December 31, 2004. The need to restate the interim financial
statements discussed above may result in similar breaches for each of the two
preceding quarters as well. The lending banks have provided a waiver dated
January 14, 2005, which expires on February 14, 2005, in respect of such
defaults. During this waiver period, the lending banks have provided Cdn $10
million on a revolving basis as well as Cdn $5 million for letters of credit. In
connection with the waiver, the Company is obligated to update various
information regarding its assets, provide more current financial information
regarding its operations than currently required by the credit agreement and
cooperate with a third party the banks expect to engage, in addition to the
third party to be engaged by the Company, to review the Company's businesses,
financial affairs and operations.

While the new funding arrangements provided by the lenders under the Company's
credit agreement are expected to satisfy the Company's cash needs in the near
term, the Company is evaluating alternatives to satisfy its longer-term
financing needs. The alternatives include extending the waivers of various
financial covenants under its existing credit agreement, substantially amending
those covenants, and identifying new financing sources to replace the existing
credit agreement. The Company has currently received an alternative proposal to
provide funding to replace the existing credit agreement. While there can be no
assurance that any of these approaches will prove successful, management remains
optimistic that it can either obtain resolution of these matters with the
lending banks under its existing credit agreement or obtain alternative
financing.

This document contains forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause future actions, conditions or events to differ materially from the
anticipated actions, conditions or events expressed or implied by such forward-
looking statements. Forward-looking statements included in this document include
statements regarding: the anticipated results of management's review of the
Company's previously reported financial statements and the reporting and effect
of any restated financial statements; the effectiveness of the Company's
internal controls in future periods; the Company's ability to comply with, its
potential to breach or its ability to receive waivers or amendments from the
lenders under the Company's credit agreement; and potential alternative
financing arrangements. Factors that could cause actual results to vary from
those in the forward-looking statements include: unanticipated discoveries in
the financial review process; changes in oil and gas prices; decreases in
outsourcing work by the Company's customers; shut-downs or cutbacks at major
businesses that use the Company's services; changes in laws or regulations,
third party relations and approvals, and decisions of courts, regulators and
governmental bodies that may adversely affect the Company's business or the
business of the customers the Company serves; the Company's ability to obtain
surety bonds as required by some of its customers; the Company's ability to
retain a skilled labor force; the Company's ability to continue to bid
successfully on new projects and accurately forecast costs associated with unit
price or lump sum contracts; provincial, regional and local economic,
competitive and regulatory conditions and developments; technological
developments; capital markets conditions; inflation rates; foreign currency
exchange rates; interest rates; weather conditions; the timing and success of
business development efforts; and the Company's ability to successfully identify
and acquire new businesses and assets and integrate them into its existing
operations and the other risk factors set forth in the Company's most recent
Annual Report on Form 20-F filed with the Securities and Exchange Commission.
You are cautioned not to put undue reliance on any forward-looking statements,
and the Company undertakes no obligation to update those statements.

North American Energy Partners Inc. is one of the largest providers of mining
and site preparation, piling and pipeline installation services in western
Canada.

Contact Information

  • North American Energy Partners Inc.
    Bernie Robert
    Assistant Treasurer
    (780) 960-2266
    Email: brobert@nacg.ca