Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

May 01, 2007 17:05 ET

Pure Energy-2007 First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 1, 2007) - Pure Energy Services Ltd. (TSX:PSV) -



PURE ENERGY - 2007 FIRST QUARTER RESULTS

FINANCIAL REVIEW

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($ millions, except Three Months ended March 31, Change
per share amounts, % of % of
unaudited) 2007 Revenue 2006 Revenue $ %
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Consolidated Results

Revenue $ 46.1 100% $ 42.1 100% $ 4.0 10%

EBITDA (1) 9.3 20% 13.3 32% (4.0) (30)%
Net income 3.8 8% 7.2 17% (3.4) (47)%
Net income per share
Basic $ 0.24 $ 0.49 $(0.25) (51)%
Diluted $ 0.24 $ 0.47 $(0.23) (49)%

Canadian Completion
Services Results
Revenue $ 23.9 100% $ 26.3 100% $ (2.4) (9)%
Income before income
taxes 3.9 17% 7.7 29% (3.8) (49)%

US Completion Services
Results
Revenue $ 8.8 100% $ 4.9 100% $ 3.9 78%
Income before income
taxes (0.3) (3)% 0.6 12% (0.9)

Canadian Drilling Services
Results
Revenue $ 13.4 100% $ 10.8 100% $ 2.6 24%
Income before income
taxes 4.2 32% 4.3 40% (0.1) (1)%

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(1) EBITDA does not have a standardized meaning prescribed by GAAP.
Management believes that, in addition to net income, EBITDA is a useful
supplemental measure. EBITDA is provided as a measure of operating
performance without reference to financing decisions and income tax
impacts, which are not controlled at the operating management level.
Investors should be cautioned that EBITDA should not be construed as an
alternative to net income determined in accordance with GAAP as an
indicator of the Corporation's performance. The Corporation's method of
calculating EBITDA may differ from that of other corporations and
accordingly may not be comparable to measures used by other
corporations. Please refer to the "Non-GAAP Disclosure" for the
reconciliation to net income.


Pure Energy's 2007 first quarter consolidated revenue increased by 10% when compared to its 2006 first quarter results, while its consolidated EBITDA, net income and diluted earnings per share decreased by 30%, 47% and 49%, respectively, when compared to the same period in 2006. These results reflect the decreased industry activity levels experienced in the Western Canadian Sedimentary Basin ("WCSB") during the 2007 first quarter compared to the 2006 first quarter.

Revenue for US Completion Services increased by 78%, Drilling Services' revenue increased by 24% and Canadian Completion Services' revenue decreased by 9% when compared to the 2006 first quarter. The increase in revenue for US Completion Services is attributable to a significant increase in the US Production Testing division's revenue, as well as incremental revenue generated by the US Logging and Perforating and Fracturing divisions. Revenue for the Drilling Services segment increased largely as a result of the significant growth of the Motorworks Rentals division and a slight increase in the average revenue per day for the Quintera Drilling division. The decrease in Canadian Completion Services' revenue was due to lower job counts resulting from the lower industry activity in the WCSB and was partially offset by a small increase in average revenue per job realized by this segment during the quarter.

QUARTERLY RESULTS

2007 First Quarter financial highlights include:

Canadian Completion Services income before income taxes decreased $3.8 million

- Income before income taxes as a percentage of revenue for each of the Multiline, the Logging and Perforating and the Production Testing divisions decreased by approximately 14 percentage points, 12 percentage points and 9 percentage points, respectively, when compared to the same period in 2006. The financial results reflect the negative leverage on fixed expenses resulting from lower industry activity and increases in fuel costs, repairs and maintenance and depreciation expenses.

Canadian Drilling Services income before income taxes decreased nominally

- Revenue increased 24% compared to the 2006 first quarter largely as a result of the significant growth achieved in the Motorworks Rentals division. The Quintera Drilling division operated an average of 9.6 rigs during the 2007 first quarter compared to an average of 6 rigs operating during the 2006 first quarter. Rig utilization during the quarter was 50%, a decrease relative to the 75% utilization experienced during the 2006 first quarter.

- The $57,000 decrease in income before income taxes reflected the significant slowdown in contract drilling activity in the quarter compared to the 2006 first quarter and the resultant negative leverage on Quintera Drilling division's fixed cost structure, which was largely offset by the increase in income before income taxes achieved by the Motorworks Rentals division in the quarter.

US Completion Services income before income taxes decreased $0.9 million

- The increase in revenue for this segment was largely attributable to the performance of the Production Testing division, which experienced solid equipment utilization during the quarter. This division operated an average of 21 units during the quarter, compared to 15 units in the 2006 first quarter.

- The decrease in income before income taxes was largely a result of increases in US administrative expenses and depreciation and amortization expenses, an operating loss recorded by the Fracturing division and a small operating loss incurred by the Logging and Perforating division.

For further information on Pure Energy's financial results, please refer to Pure Energy's MD&A for the three months ended March 31, 2007 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 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 four operating divisions: Logging and Perforating, Production Testing, Multiline, and Pressure Transient Analysis. Canadian Completion Services currently represents the core of the business, accounting for approximately 52% of revenue for the three months ended March 31, 2007.

US Completion Services currently offers services through three operating divisions: Production Testing, Logging and Perforating, and Fracturing. This operating segment accounted for approximately 19% of revenue for the three months ended March 31, 2007 and is expected to continue to grow in 2007 as this segment realizes revenue on the equipment added through Pure Energy's 2006 and 2007 capital expenditure budgets.

The Drilling Services segment offers contract drilling services and provides enhanced drilling services utilizing a fleet of positive displacement mud motors ("PDMs") through its Quintera Drilling and Motorworks Rentals divisions. This operating segment accounted for approximately 29% of revenue for the three months ended March 31, 2007. Revenue for this segment is expected to grow in 2007 as it achieves increased utilization of the equipment added through Pure Energy's 2006 and 2007 capital expenditure budgets.

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.

2007 Growth Strategy and Forecast

Given current industry activity levels in the WCSB, Pure Energy approved a relatively modest 2007 capital expenditure budget for the Canadian Completion Services and Drilling Services segments. On May 1, 2007, the Board of Directors of Pure Energy approved an increase of $3.7 million to its capital expenditure budget for the construction of an operating facility in Grande Prairie, Alberta for the Multiline division. Management continues to review its equipment capacity and current and expected industry activity levels and believes that Pure Energy is well positioned to increase its capital expenditure budget to address opportunities which may present themselves as a result of customer demand and any future increase in industry activity levels.

For the US Completion Services segment, the immediate focus will continue to be on establishing the Fracturing and Logging and Perforating divisions as recognized service providers within the Rocky Mountain region. Management expects significant improvement in these divisions' financial results. Management will continue to review opportunities as customer demands and industry activity levels dictate.

Pure has revised its projected revenues for its 2007 fiscal year, decreasing its forecasted revenue from approximately $193 million to approximately $172 million.

Canadian Completion Services

Production Testing Services

This division currently operates 47 testing units. It is expected that this division will add up to three additional testing units during 2007 to meet specific requirements of certain customers. In addition, one testing unit will be transferred to the US Operations during the 2007 second quarter.

Multiline Services

Currently, 16 wireline units are operated by this division. No equipment is expected to be added in 2007. The focus of the division will continue to be on higher utilization in the northern areas of the WCSB and the deep critical sour completion market.

Logging and Perforating

The Logging and Perforating division consists of two service lines. The Perforating service line focuses on general wireline and perforating services, with 16 conventional and derrick trucks. The Specialty Logging service line focuses on the coal bed methane production logging market and other specialty logging services. The Specialty Logging service line currently operates five mini-loggers. Management expects the delivery of a sixth mini-logger during the 2007 second quarter.

Pure Energy 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 US Completion Services currently operates 21 testing units, one fracturing spread and two logging and perforating units. A second fracturing spread was delivered to Pure Energy during the 2007 first quarter and was commissioned for operation in April. Management expects to receive delivery of a third fracturing spread near the end of the 2007 second quarter and anticipates it to be commissioned for operation in Q3 2007. During the 2007 second quarter, an additional production testing unit will be transferred from the Canadian Completion Services segment to the US Production Testing division and will be stationed at the Evanston, Wyoming field facility. Management continues to have high expectations for the US Completion Services segment and will focus on increasing the utilization of its logging and perforating units and fracturing spreads.

Drilling Services

The Quintera Drilling division presently operates 10 drilling rigs. Further expansion opportunities will be reviewed by management as customer demand and industry conditions arise.

The Motorworks Rentals division presently operates a fleet of 57 motors. Its service facility is now fully operational and has allowed for the reduction of operating expenses and higher utilization of motors due to quicker servicing turnaround time.

Outlook

The Canadian Completion Services and Drilling Services segments' Q1 2007 financial results were negatively impacted by reduced industry activity levels in the WCSB relative to the record activity levels experienced over the past few years. The medium term outlook is more positive for these segments as the outlook for natural gas prices has improved. However, management still anticipates that the middle six months of 2007 will be financially challenging as it expects relatively lower activity levels to persist during this time period. Management remains confident that the Canadian Completion Services and Drilling Services segments will continue to hold their own during the low activity level period and will be in a position to take advantage of any future activity increases as these operating segments are experienced and established in the market place.

The US Completion Services segment's Q1 2007 financial results were mixed. On the positive side, the Production Testing division has continued to increase revenue and margins and is now considered to be established in the US Rocky Mountain region marketplace. Management is very proud of this accomplishment. The US Completion Services segment has worked very hard taking this division from an organic start up in a new market to an established production testing service provider in the US Rocky Mountain region.

On the negative side, the growth of the Fracturing division continues to be hampered by delays - this time relating to fracturing sand supply. The latest delay negatively impacted the division's Q1 2007 financial results. That being said, the outlook for this division is more positive. The Fracturing division completed 23 jobs during the quarter despite the intermittent supply of fracturing sand. A number of these jobs were highly technical and provided the division with the opportunity to show the high quality of service the personnel and new equipment can provide to the customers in the US Rocky Mountain region. Management is seeing progress from the fracturing sand supplier with the first delivery of sand being shipped recently and is optimistic that the supplier will be able to consistently provide Pure Energy with commercial quantities of sand in the near future. Management is confident the Fracturing division will start to realize the financial growth expected of it once this last piece of the puzzle is put into place.

Obviously, management has been disappointed with the equipment manufacturing and fracturing sand delivery delays experienced by the Fracturing division to date. Pure Energy commenced operations in the WCSB in 2001 providing production testing and logging and perforating services. It started providing multiline services in the WCSB in 2003 and production testing services in the US Rocky Mountain region in 2004. All of these divisions have become established service providers in their respective markets. Management remains confident that the US Fracturing division will also become an established service provider in the US Rocky Mountain region.

Non-GAAP Disclosure

EBITDA does not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Management believes that, in addition to net income, EBITDA is a useful supplemental measure. EBITDA is provided as a measure of operating performance without reference to financing decisions and income tax impacts, which are not controlled at the operating management level. 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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($ millions, unaudited) Three Months ended March 31,
2007 2006
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EBITDA $ 9.3 $ 13.3
Deduct:
Depreciation and amortization 3.2 1.9
Interest expense 0.5 0.2
Income taxes (1) 1.8 4.0
Net income (GAAP financial measure) 3.8 7.2
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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 Pure Energy, 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 Pure Energy'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 Pure Energy believes are reasonable assumptions, Pure Energy 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, Pure Energy 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 Pure Energy'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.

Pure Energy'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 Pure Energy's Annual Information Form dated March 8, 2007 which is available under Pure Energy's profile at www.sedar.com.

Contact Information

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