Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

November 09, 2006 18:54 ET

Pure Energy-2006 Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 9, 2006) - Pure Energy Services Ltd. (TSX:PSV):



FINANCIAL REVIEW

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($ millions, except per Three Months ended September 30, Change
share amounts, unaudited) 2006 % 2005 % $ %
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Consolidated Results

Revenue $ 35.4 100% $ 26.7 100% $ 8.7 33%

EBITDA(1) 7.4 21% 6.4 24% 1.0 16%

Net income 3.3 9% 2.9 11% 0.4 15%
Net income
Basic $ 0.21 $ 0.26 ($ 0.05) (19%)
Diluted $ 0.20 $ 0.25 ($ 0.05) (20%)

Canadian Completion Services
Results

Revenue $ 20.7 100% $ 18.9 100% $ 1.8 9%
Income before income taxes 4.8 23% 4.6 24% 0.2 4%

US Completion Services
Results

Revenue $ 5.8 100% $ 4.0 100% $ 1.8 47%
Income / (loss) before income
taxes (0.2) (4%) 0.8 21% (1.0)(124%)

Canadian Drilling Services
Results

Revenue $ 8.9 100% $ 3.8 100% $ 5.1 131%
Income before income
taxes 3.3 37% 1.3 33% 2.0 163%
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(1) EBITDA does not have a standardized meaning prescribed by GAAP. Please
refer to the "Non-GAAP Disclosure" for the reconciliation to net
income.


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($ millions, except per Nine Months ended September 30, Change
share amounts, unaudited) 2006 % 2005 % $ %
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Consolidated Results

Revenue $ 100.5 100% $ 65.2 100% $ 35.3 54%

EBITDA(1) 21.4 21% 13.0 20% 8.4 64%

Net income 10.3 10% 5.2 8% 5.1 99%
Net income
Basic $ 0.67 $ 0.49 $ 0.18 37%
Diluted $ 0.64 $ 0.48 $ 0.16 33%

Canadian Completion Services
Results

Revenue $ 60.4 100% $ 48.0 100% $ 12.4 26%
Income before income taxes 14.1 24% 8.8 18% 5.3 61%

US Completion Services
Results

Revenue $ 15.3 100% $ 8.1 100% $ 7.2 88%
Income / (loss) before income
taxes (0.2) (1%) 1.6 19% (1.8)(110%)

Canadian Drilling Services
Results

Revenue $ 24.8 100% $ 9.1 100% $ 15.7 173%
Income before income
taxes 8.6 35% 2.4 26% 6.2 265%
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(1) EBITDA does not have a standardized meaning prescribed by GAAP. Please
refer to the "Non-GAAP Disclosure" for the reconciliation to net
income.


The 2006 third quarter revenue increase reflects a 131% increase in Drilling Services, a 47% increase in US Completion Services and a 9% increase in Canadian Completion Services. The emergence of the Motorworks rentals division, the deployment of 4 new drilling rigs and higher drilling day rates account for the large increase in Drilling Services revenue. The significant increase in Production Testing equipment capacity accounts for the increase in US Completion Services revenue. The increase in Canadian Completion Services revenue was a result of the improved performance of the Multiline division, additional Production Testing equipment capacity and higher revenue per job experienced in all divisions.

The increase in EBITDA was a result of the Drilling Services segment's 167% increase in EBITDA, an 11% increase in Canadian Completion Services EBITDA partially offset by a 53% increase in Corporate expenses and a 74% decrease in EBITDA experienced by US Completion Services. The significant increase in Drilling Services EBITDA was largely a result of the additional revenue generated by the Drilling division and the successful growth of the Motorworks rental division. The increase in Corporate expenses related to the growth of the Corporation coupled with additional public company expenses. Lower EBITDA recorded by US Completion Services was a result of a decline in EBITDA margins in the Production Testing division, a loss recorded in the Logging and Perforating division and the growth in administrative expenses relating to the US operations.

The results for the first nine months of 2006 reflect the increase in equipment capacity in the Completion Services Segment and the Drilling Services Segment coupled with higher margins in Canadian Completion Services and Drilling Services largely as a result of higher average revenue per job experienced in both Segments and increased operational leverage on each segment's fixed expenses. US Completion Services margins are lower as a result of lower production testing margins, a loss recorded by the logging and perforating division and higher administrative costs.

2006 Third Quarter financial highlights include:

Drilling Services income before income taxes increased $2.0 million

- Revenue increased 131% largely as a result of increased capacity combined with an increase in drilling day rates and the continued emergence of the Motorworks rental division. Drilling Services operated an average of eight rigs during the 2006 third quarter compared to an average of four rigs operating during the 2005 third quarter. Rig utilization during the quarter was 44%, a decrease relative to the 56% utilization experienced during the 2005 third quarter.

- The increase in income before income taxes reflected the significant increase in drilling revenue combined with the contribution from the Motorworks rental division translating into higher margins and operational leverage on the Drilling Services fixed expenses.

Canadian Completion Services income before income taxes increased $0.2 million

- The Multiline division's income before income taxes as a percentage of revenue increased approximately seventeen percentage points as a result of the increase in the higher margin deep critical sour work performed, coupled with an increase in revenue from other job types translating into higher margins and operational leverage on the division's fixed expenses compared to the 2005 third quarter results.

- The improved Multiline operating results were partially offset by weaker operating results produced by the Logging and Perforating division. A 4% decline in revenue combined with an increase in operating expenses resulting in a decrease in the division's income before income taxes.

US Completion Services income before income taxes decreased $1.0 million

- Revenue increased by 47% largely due to the growth in equipment capacity. Equipment capacity increased to an average of 19 testing units operating during the quarter compared to an average of 9.7 units operating during the 2005 third quarter.

- The decrease in income before income taxes was largely a result of lower margins experienced in the production testing division, an increase in US administrative expenses and an operating loss recorded by the logging and perforating division during the quarter.

Financial highlights for the nine months ended September 30, 2006 include:

Drilling Services income before income taxes increased $6.2 million or 265%

- Revenue increased 173% largely as a result of a significant increase in equipment capacity, incremental revenue from the Motorworks rental division and an increase in drilling day rates.

- The increase in income before income taxes reflected the increase in drilling revenue, operational leverage on fixed expenses and the incremental income before income taxes generated by the Motorworks rental division.

Canadian Completion Services income before income taxes increased $5.3 million or 61%

- The significant increase in revenue combined with higher income before income tax percentages realized by the Multiline division.

- The Multiline division's income before income taxes as a percentage of revenue increased approximately twenty percentage points largely as a result of an increase in revenue per job translating into higher margins and operational leverage on the division's fixed expenses.

US Completion Services income before income taxes decreased $1.8 million or 110%

- Revenue increased by $7.2 million primarily as a result of increased equipment capacity.

- A loss before income taxes of $0.2 million was recorded during the nine months ended September 30, 2006 and was largely a result of lower margins experienced in the Production Testing division, an increase in US administrative expenses and an operating loss recorded by the Logging and Perforating division during the first nine months of the year.

For further information on our financial results, please refer to Pure Energy's MD&A for the three and nine months ended September 30, 2006 available on SEDAR at www.sedar.com or available on our website at www.pure-energy.ca.

OPERATIONS REVIEW

About Pure Energy

Pure Energy is an oilfield services company and currently conducts operations through its two operating segments, the Completion Services Segment and the Drilling Services Segment. The Completion Services Segment currently offers services in both of the Western Canadian Sedimentary Basin ("WCSB"), and the United States Rocky Mountain region. The Drilling Services Segment currently offers services in the WCSB.

Canadian Completion Services offers its services through the following operating divisions: Logging and Perforating; Production Testing; Multiline; and Pressure Transient Analysis. Canadian Completion Services currently represents the core of the Corporation's business, accounting for approximately 60% of revenue for the nine months ended September 30, 2006.

US Completion Services currently offers Production Testing and Logging and Perforating services. The US Operations service complement will expand during the last quarter of 2006 to include Fracturing services. This operating segment accounted for approximately 15% of revenue for the nine months ended September 30, 2006 and is expected to substantially grow in 2007 with approximately 60% of Pure Energy's 2006 capital budget of $102 million dedicated to US Completion Services.

The Drilling Services segment offers contract drilling services and provides enhanced drilling services utilizing a fleet of positive displacement mud motors ("PDM") through its Motorworks rental division. This operating segment accounted for approximately 25% of revenue for the nine months ended September 30, 2006 and is also expected to grow significantly with approximately 27% of the Pure Energy's 2006 capital expenditure budget dedicated to the Drilling Services Segment.

Management believes that Pure Energy is a diversified oilfield service company that focuses on its employees and its customers' requirements. Pure Energy believes in Superior Value which is its operational system of excellence and is focused on four key elements: employees; customer requirements; superior equipment; and quality work at a fair price. Please visit our website at www.pure-energy.ca for more detail regarding Pure Energy and the services provided by the operating divisions within each operating segment.

2006 Growth Strategy

Canadian Completion Services

Production Testing Services

This division will be increasing its equipment fleet by 6 units through the 2006 fourth quarter, ending the year with 47 testing units.

Multiline Services

Additional equipment will not be added to this division in 2006. The focus will be on higher utilization in the northern areas of the WCSB and the continued focus on the deep critical sour completion market. The recent solid financial results of this division indicate that continued focus on this strategy should prove to be successful.

Logging and Perforating

The Logging and Perforating division has been separated into two service divisions. The Perforating division will focus on general wireline and perforating services, with 16 conventional and derrick trucks. The Specialty Logging division will add two more mini-loggers for a total of five. Specialty Logging will focus on the coal bed methane ("CBM") production logging market and other specialty logging services.

The Corporation continues to develop proprietary logging technology that is expected to enhance the Logging and Perforating division's service capabilities, as well as provide technological benefits to the Multiline and the US Logging and Perforating divisions.

US Completion Services

The Production Testing division will be adding four portable compact units for one of its customers to provide for a smaller worksite footprint in the Piceance Basin of Colorado and Wyoming. This segment will exit 2006 with twenty-one testing units, two fracturing spreads and two logging and perforating units. The Corporation's activity levels and customer demand remain strong in the Rocky Mountain region, with significant growth expected into 2007.

Drilling Services

Drilling Services exited the third quarter operating eight drilling rigs. The ninth rig, a 2,800 meter telescopic double rig, is anticipated to be operational during the fourth quarter and the tenth rig, a 3,400 meter telescopic double rig, is anticipated to be operational by the end of the first quarter of 2007.

Motorworks increased its rental fleet of drilling motors and jars during the year and plans to exit 2006 with a fleet of 65 motors and 24 jars. Motorworks has established a maintenance facility to service its fleet as well as third party tools. The maintenance facility is expected to add to the quality of service provided by Motorworks as well as become a profit centre in its own right.

Throughout 2006, Pure Energy is implementing training and recruiting programs to enhance operations and support its organic growth strategy.

Outlook

The near term outlook for natural gas prices is uncertain as a result of the historically high North American natural gas storage levels. This uncertainty is impacting the expected near term activity levels in the WCSB. Both of the Canadian Completion Services and Drilling Services segments felt the impact of the reduced activity levels during the third quarter. Activity levels early in the 2006 fourth quarter are consistent with third quarter activity levels as rig utilization has remained consistent with third quarter levels to date. Activity levels during the second half of the 2006 fourth quarter are expected to increase due to the onset of the winter drilling season; however, activity levels will likely not be as robust as the activity levels experienced during the 2005 fourth quarter as producers are not likely to accelerate their drilling programs similar to last year.

The expected activity levels for 2007 are uncertain at this time. Many industry watchers are forecasting a decline in the WCSB well count, with Petroleum Services Association of Canada recently revising its forecast and expecting a 10% decrease in 2007. It appears that producers will be moderately active during the winter drilling season and will likely take a wait-and-see approach to determine the magnitude of the drawdown of natural gas storage levels during the winter heating season. Management still believes the medium-to-long term outlook for the industry is positive as the impact of gas production decline rates will ultimately reduce the natural gas storage levels; the uncertainty revolves around the timing of the decline in natural gas storage.

The US Completion Services segment results so far this year have been disappointing relative to management's expectations. Significant growth in the Production Testing division has resulted in a weakening of margins for this division. Significant equipment delivery delays experienced in the Fracturing division have delayed the start up of this division by months. Management is still very optimistic regarding the prospects of the US Completion Services segment in 2007 despite the challenges encountered so far during the year. Management is working on improving the Production Testing and Logging and Perforating margins and increasing the under-balanced drilling activity. The first full fracturing spread was recently delivered and it has successfully completed its first fracturing job this week. Activity for the Fracturing division during the remainder of the year will likely be intermittent as the division works through initial start up operational issues, gains customer acceptance and starts receiving regular deliveries of 20/40 sand near the end of the year. Management also expects delivery of the second fracturing spread by the end of the year.

Non-GAAP Disclosure

EBITDA does not have a standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable to similar measures presented by other issuers. The following is a reconciliation of EBITDA, as used in this press release, to net income, being the most directly comparable measure calculated in accordance with Canadian GAAP.



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Three Months ended Nine Months ended
September 30, September 30,
($ millions, unaudited) 2006 2005 2006 2005
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EBITDA $ 7.4 $ 6.4 $ 21.4 $ 13.0
Deduct:
Depreciation and amortization 2.3 1.3 6.1 3.6
Other interest - 0.4 - 1.0
Interest on long-term debt 0.2 - 0.4 -
Income taxes (1) 1.6 1.8 4.6 3.2
Net income (GAAP financial measure) $ 3.3 $ 2.9 $ 10.3 $ 5.2
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(1) Income taxes consist of current income taxes and future income taxes.


Forward-Looking Statements

Certain statements in this press release may constitute "forward-looking information" which involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. When used in this press release, such information uses such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate" and other similar terminology. This information reflects the Corporation's current expectations regarding future events and operating performance and speaks only as of the date of this press release. Forward-looking information involves significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, the factors discussed below. Although the forward-looking information contained in this press release is based upon what management of the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with this forward-looking information. This forward-looking information is provided as of the date of this press release, and, subject to applicable securities laws, the Corporation assumes no obligation to update or revise such information to reflect new events or circumstances.

In particular, this press release contains forward-looking information pertaining to the following: capital expenditure programs; financing of the Corporation's activities including capital expenditures, supply and demand for oilfield services and industry activity levels, commodity prices, dependence on suppliers, dependence on personnel, collection of accounts receivable, expectations regarding market prices and costs, expansion of services in Canada and the United States and competitive conditions.

The Corporation's actual results could differ materially from those anticipated in the forward-looking information as a result of the following factors: general economic conditions in Canada and the United States; demand for oilfield services during drilling and completion of oil and natural gas wells; volatility in market prices for oil and natural gas and the effect of this volatility on the demand for oilfield services generally; competition; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, and skilled management, technical and field personnel; ability to integrate technological advances and match advances of competition; availability of capital; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; changes in legislation and the regulatory environment, including uncertainties with respect to implementing the Kyoto Protocol; and the other factors considered under "Risk Factors" in the Corporation's Annual Information Form dated March 10, 2006 which is available under the Corporation's profile at www.sedar.com.

Contact Information

  • Pure Energy Services Ltd.
    Kevin Delaney
    President and CEO
    (403) 262-4000
    (403) 262-4005 (FAX)
    Email: kdelaney@pure-energy.ca
    or
    Pure Energy Services Ltd.
    Michael Baldwin
    Chief Financial Officer
    (403) 262-4000
    (403) 262-4005 (FAX)
    Email: mbaldwin@pure-energy.ca
    or
    Pure Energy Services Ltd.
    #300, 1010 - 1st Street S.W.
    Calgary, Alberta T2R 1K4
    Website: www.pure-energy.ca