Palko Environmental Ltd.
TSX : PLK

Palko Environmental Ltd.

November 12, 2010 09:15 ET

Palko Environmental Ltd. Announces Improved Third Quarter 2010 Results

CALGARY, ALBERTA--(Marketwire - Nov. 12, 2010) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES.

Palko Environmental Ltd. ("Palko" or "the Company") (TSX:PLK) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2010. The following should be read in conjunction with management's discussion and analysis, the interim financial statements and notes of Palko as at and for the three and nine months ending September 30, 2010. Additional information relating to the Company, including the Company's Annual Information Form for the year ended December 31, 2009 is available on Sedar at www.sedar.com.



Financial Highlights Three months ended Nine months ended
September 30 September 30
($000's except per
share data) 2010 2009 % change 2010 2009 % change
----------------------------------------------------------------------------
Revenue $ 6,666 $ 3,025 120 $ 15,502 $ 8,441 84
Operating expenses 4,000 1,823 119 9,913 5,705 74
----------------------------------------------------------------------------
Operating margin
(1) 2,666 1,202 122 5,589 2,736 104
Selling, general
and administrative 1,100 662 66 2,696 1,924 40
Restructuring and
reorganization
costs 136 25 444 459 147 212
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EBITDA (1) 1,430 515 178 2,434 665 266
EBITDA as % of
revenue (1) 21 17 24 16 8 100
Per share, basic
and diluted 0.06 0.07 (14) 0.14 0.09 56
----------------------------------------------------------------------------
Net income (loss) $ 144 $ (1,455) 110 $ (774) $ (4,133) 81
Per share, basic
and diluted 0.01 (0.20) 105 (0.04) (0.57) 93
----------------------------------------------------------------------------
Funds from (used
in) operations (1)$ 1,186 $ (285) 516 $ 1,505 $ (666) 326
Per share, basic
and diluted 0.05 (0.04) 225 0.08 (0.09) 189
----------------------------------------------------------------------------
Capital
expenditures $ 2,052 $ 495 315 $ 2,553 $ 2,180 17
Total assets, end
of period $ 49,821 $ 56,527 (12)
Total liabilities,
end of period $ 20,174 $ 23,579 (14)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average
common shares
Basic 22,855 7,200 217 17,899 7,200 149
Diluted 23,735 7,200 230 17,899 7,200 149
----------------------------------------------------------------------------

1. These financial measures are Non-GAAP financial measures and do not have
any standardized meaning prescribed by Canadian generally accepted
accounting principles("GAAP") and are therefore unlikely to be
comparable to measures presented by other reporting issuers. See
management's discussion and analysis available at www.sedar.com for a
description of the Non-GAAP financial measures.

The third quarter of 2010 resulted in the following corporate highlights:

-- Revenues totaled $6.7 million for the third quarter and $15.5 million
for the nine months of the year as compared to $3.0 million and $8.4
million respectively in 2009, reflecting a quarter-over- quarter
increase of 120% and a year-to-date over year-to-date increase of 84%.

-- EBITDA before restructuring and reorganization costs increased to $1.6
million in the third quarter of 2010 as compared to $0.5 million in the
third quarter of 2009, an increase of 190%. For the nine months of the
year in 2010, EBITDA before restructuring and reorganization costs was
$2.9 million as compared to $0.8 million in 2009, representing an
increase of 256%.

-- Palko continued to make operational improvements, increasing its EBITDA
margin as a % of revenue in the third quarter to 21% from 17% quarter
over quarter

-- Announced the addition of a new VP Finance and CFO, which has further
strengthened our management team, and will directly assist us in
executing on our corporate growth strategies.

-- Continued with organic growth program with capital expenditures of over
$2 million on various projects and facilities.

-- Palko Environmental Ltd. operated its first full quarter as a publicly
traded corporation, a result of the combination of Palko Energy Ltd and
Deepwell Energy Services Trust.

-- Subsequent to the third quarter ending, Palko announced that it had
gained access to another facility in Midale Saskatchewan that will
enable us to provide custom treating of oil emulsions, disposal of
water, and pipeline access for crude oil.

Overview

-- Western Canadian drilling showed continued momentum with 3,080 wells rig
released in the third quarter of 2010 as compared to 1,981 in the prior
comparative quarter. An increase in activity and volumes at our Alberta
facilities plus the inclusion of 100% ownership of the Midale facility
from July 1 to September 30, 2010 provided for a majority of our revenue
growth compared to prior periods.

-- We are particularly excited about our increased EBITDA margins in the
third quarter and year-to-date. Our results are beginning to illustrate
that our cost containment strategy in the prior year was successful when
comparing to our increased revenues and we look forward to continued
improvement in regards to leverage on our fixed cost structure at our
facilities and at head office.

-- For the three and nine months ended September 30, 2010, operating
expenses were $4.0 million, 119% increase and $9.9 million, 74% increase
compared to $1.8 million and $5.7 million in the comparative periods in
2009. The operating expenses were expected to increase as our revenue
increased 120% for the third quarter and 84% for the first nine months
of this year. The operating margin for the third quarter of 2010 was 40%
as compared to 25% for the 2010 second quarter and 40% for the 2009
third quarter. For the nine months ended September 30, 2010 our
operating margin has increased to 36% as compared to 32% in 2009.
Activity has increased which is positive but pricing pressure persists
in many of the areas we operate in. Some of the pricing pressure is
starting to ease as activity increases and we anticipate that our
margins will continue to improve for the next two quarters.

-- Selling, general and administrative expenses plus restructuring costs
("SGA") decreased to 19% and 20% of revenue for the three and nine
months ended September 30, 2010 versus 23% and 25% for the comparative
periods in 2009. This improvement is also positive due to the fact that
the restructuring costs were quite a bit more in 2010 as compared to
2009. The majority of the restructuring costs in 2010 were incurred in
relation to the conversion from a Trust structure to a Corporation in
the second quarter of 2010. The gross amount of SGA increased due to
acquiring the remaining 50% of Palko Energy, growth of the sales
function established in the later part of 2009 and the addition of the
business development group during 2010. We are currently in the process
of hiring at head office for positions that have been vacant during the
economic downturn. We do not expect the additional costs to be material
in nature.


Outlook

All indications are that increased activity levels will continue for the remainder of 2010 and we have entered a period of increased optimism in the markets that we operate in. Energy prices, in particular oil prices, have remained relatively stable resulting in a more robust exploration and development horizon. The Petroleum Services Association of Canada ("PSAC") has forecasted 19.9 million meters to be drilled in 2011 a 23% improvement over the 16.2 million meters projected for 2010. Drilling activity has remained focused on horizontal wells employing multistage fracturing technology in unconventional resource plays. It is expected through the balance of 2010 this trend will continue which when combined with increased drilling activity will strengthen overall demand for disposal or treatment of spent waste fluids, crude emulsion treatment and other services provided by Palko.

Palko's previously announced addition of a crude oil terminal capacity in the Saskatchewan Bakken is scheduled to commence operations in the fourth quarter. Palko is building specialized equipment to monitor volumes and qualities of crude required to operate this business unit. This new facility will give Palko access to a main pipeline for dry crude and increase our ability to custom treat additional crude oil emulsions. It will also enable us to leverage off our strategic relationship with Gibson Energy ULC employing both their credit rating and crude oil marketing knowledge.

After restricting our capital budget in 2009 due to reduced activity, we have implemented prudent investments into our facilities in the last few quarters of 2010. The Grande Cache plant received a well and pump upgrade that has decreased operational risk and has materially increased volumes this facility can handle. At our Midale waste facility additional tanks and heating systems were added to assist in managing this facility's increased service offering and growing client base. Palko expects to see improved financial and operating results as a result of this capital program.

Palko has been working on new oil treatment systems that were successfully tested during the second quarter which resulted in us ordering units to deploy. One of the units will be commissioned before the end of the year, with additional units being delivered in 2011. We are currently reviewing requests for services in regards to the new oil treatment systems, including onsite installation at various client locations from the oilsands to emerging plays such as the Cardium and Bakken to best optimize the benefits of this technology.

The business combination completed at the end of the second quarter that created Palko Environmental Ltd. left behind various internal entities and a partnership that were amalgamated or wound up at the end the third quarter resulting in a more streamlined and efficient corporate structure. In addition we strengthened our management team with the addition of Corey Zahn as our new VP Finance and CFO which has effectively provided the business with a well-rounded and experienced management team to execute our corporate growth strategies. Palko now finds itself with a simplified corporate structure, extensive tax pools, a strong strategic position and a simple clear mandate to grow the business in an improving and more positive market for our services.

About Palko Environmental Ltd.

Palko Environmental Ltd. is an oil & gas waste management and resource recovery company headquartered in Calgary, Alberta, with six waste management facilities located across Western Canada. In Alberta Palko owns and operates full service waste management facilities located in Claresholm, Mayerthorpe, and Grande Cache, and a waste water disposal facility in Rycroft, Alberta. In Saskatchewan, Palko owns and operates a full service waste management facility in Midale, and offers emulsion custom treating and oil terminal access at a second facility in the Midale area.

As a result of reorganization effective June 11, 2010 pursuant to a Plan of Arrangement (the "Arrangement"), Deepwell Energy Services Trust ("Deepwell" or the "Trust") was converted from an open-ended unincorporated investment trust into Palko Environmental Ltd., a newly incorporated company. The Company's shares were listed for trading on the Toronto Stock Exchange on June 16, 2010. For each trust unit held, the Trust's unitholders received one common share in Palko which holds the assets and liabilities previously held, directly or indirectly, by the Trust. In conjunction with the Arrangement, Palko acquired the remaining 50% ownership in Palko Energy Ltd. ("Palko Energy") on June 30, 2010.

Additional information about Palko Environmental Ltd. is available at www.sedar.com and on the company's website at www.palko.com.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements in this press release constitute "forward-looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of Palko, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this document, such statements use such words as "may", "will", "intend", "should", "expect", "believe", "plan", "anticipate", "estimate", "predict", "potential", "continue", or the negative of these terms or other similar terminology.

Such statements include:



-- Palko's expectation that their operating margins will continue to
improve for the next two quarters;
-- Palko's expectation that there will be increased demand for disposal or
treatment of spent waste fluids, crude emulsion treatment and other
services provided by Palko;
-- Palko's expectation that they will be able to leverage off their
strategic relationship with Gibson Energy ULC;
-- Palko's expectation that their capital program will result in improved
financial and operating results; and
-- that Palko will operate as a growth-oriented environmental services
company providing the stated range of services and be in a position to
grow.

These statements reflect current expectations regarding future events and
operating performance and speak only as of the date of this document. These
statements are based on certain assumptions, including:

-- a stable or improving economy;
-- increased drilling activity levels for the remainder of 2010;
-- drilling activity remaining focused on horizontal wells in
unconventional resource plays
-- stable or increasing commodity prices,;
-- ability to maintain relationships and retain qualified personnel and
management.


Although Palko believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that these expectations will prove to be correct. There are risks which could affect Palko Environmental's future results and could cause the results to differ materially from those expressed in these forward looking statements including that:



-- regulatory approvals will not be received;
-- Palko's strategic relationship with Gibson will not be maintained;
-- the impact of general economic conditions in Canada and the risk that
they will deteriorate;
-- industry conditions, including fluctuations in the price of oil and
natural gas and the risk that they decrease;
-- the impact of governmental regulation, including environmental
regulation;
-- stock market volatility;
-- the need to obtain required approvals from regulatory authorities;
-- drilling activity will not be at the level or of the nature anticipated;
-- the inability to maintain and capitalize on existing business
relationships or retain qualified personnel or management; and
-- the uncertainty inherent in attracting capital.


Statements of past performance should not be construed as an indication of future performance. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors, including those discussed above, could cause actual results to differ materially from the results discussed in the forward-looking statements. Any such forward-looking statements are expressly qualified in their entirety by this cautionary statement. Moreover, Palko Environmental does not assume responsibility for the accuracy or completeness of such forward-looking statements.

The forward-looking statements included in this Press Release are made as of the date of this Press Release and Palko Environmental undertakes no obligation to publicly update or revise forward-looking statements other than as required by applicable laws. You should not place undue reliance on forward-looking statements.

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