Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

August 13, 2007 17:11 ET

Pure Energy-2007 Second Quarter Results and Operational Update

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2007) - Pure Energy Services Ltd. (TSX:PSV):



FINANCIAL REVIEW

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($ millions, except per share Three Months ended June 30, Change
amounts, unaudited) 2007 % 2006 % $ %
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Consolidated Results

Revenue $16.5 100% $22.9 100% ($ 6.4) (28%)

EBITDA(1) (10.4) (63%) 0.7 3% (9.7)

Net income (loss) (9.3) (56%) (0.2) (1%) (6.2)
Net income (loss) per share
Basic ($0.58) ($0.02) ($0.56)
Diluted ($0.58) ($0.02) ($0.56)

Canadian Completion Services
Results

Revenue $ 6.6 100% $13.5 100% ($ 6.9) (51%)
Income (loss) before income
taxes (5.4) (83%) 0.0 7% (5.4)

US Completion Services Results

Revenue $ 8.5 100% $ 4.5 100% $ 4.0 90%
Income (loss) before income
taxes (0.7) (8%) (0.6) (13%) (0.1) (16%)

Canadian Drilling Services
Results

Revenue $ 1.4 100% $ 5.0 100% ($ 3.6) (72%)
Income (loss) before income
taxes (1.3) (94%) 0.9 17% (2.2) (259%)

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($ millions, except per share Six Months ended June 30, Change
amounts, unaudited) 2007 % 2006 % $ %
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Consolidated Results

Revenue $62.6 100% $65.0 100% ($ 2.4) (4%)

EBITDA(1) (1.1) (2%) 14.0 22% (10.6) (76%)

Net income (loss) (5.4) (9%) 6.9 11% (9.5) (138%)
Net income (loss) per share
Basic ($0.34) $0.46 ($0.80) (174%)
Diluted ($0.34) $0.44 ($0.78) (177%)

Canadian Completion Services
Results

Revenue $30.5 100% $39.7 100% ($ 9.2) (23%)
Income (loss) before income
taxes (1.5) (5%) 7.7 20% (9.1) (119%)

US Completion Services Results

Revenue $17.3 100% $ 9.4 100% $ 7.9 83%
Income (loss) before income
taxes (1.0) (6%) 0.0 (1.0)

Canadian Drilling Services
Results

Revenue $14.8 100% $15.8 100% ($ 1.0) (6%)
Income (loss) before income
taxes 2.9 20% 5.1 32% (2.2) (43%)

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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 second quarter consolidated revenue decreased by 28% when compared to its 2006 second quarter results. A net loss of $9.3 million and a diluted loss per share of $0.58 were recorded during the 2007 second quarter. These results reflect the decreased industry activity levels experienced in the Western Canadian Sedimentary Basin ("WCSB") during the 2007 second quarter compared to the 2006 second quarter.

Revenue for US Completion Services in the 2007 second quarter increased by 90% when compared to the 2006 second quarter, while revenues for Drilling Services and Canadian Completion Services decreased by 72% and 51%, respectively, for the same comparative periods. The increase in revenue for US Completion Services is attributable to a 49% 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 Drilling Services decreased as a result of a decline in rig and mud motor utilization which occurred on account of lower industry activity levels experienced in the WSCB in the 2007 second quarter when compared to the same period in 2006. 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 Second Quarter financial highlights include:

Canadian Completion Services income before income taxes decreased $5.4 million

- Income before income taxes as a percentage of revenue for this segment decreased significantly in the 2007 second quarter when compared to the same period in 2006. The financial results reflect the significant decrease in revenue, the negative leverage on fixed expenses resulting from lower industry activity and increases in fuel costs, and wages and benefits, repairs and maintenance and depreciation expenses.

Canadian Drilling Services income before income taxes decreased $2.2 million

- The decrease in income before income taxes reflected the significant slowdown in industry activity levels in the WCSB in the quarter compared to the 2006 second quarter and the resultant negative leverage on Drilling Services' fixed cost structure as well as increases in SG&A and depreciation expenses for the Motorworks Rentals division.

US Completion Services income before income taxes consistent

- Income before income taxes for the 2007 second quarter was consistent with the 2006 second quarter as a result of the significant increase in the US Production Testing division's income before income taxes being almost completely offset by the operating losses incurred in the US Fracturing and Logging and Perforating divisions and increases in administrative expenses for the US Operations and depreciation and amortization expenses.

Corporate loss before income taxes increased $4.8 million

- The increase in the loss before income taxes was largely a result of an allowance for loan impairment of $4.2 million recorded during the quarter. The allowance is related to the note receivable due from the Corporation's fracturing sand supplier. The allowance has been recorded as a result of the deterioration in the credit quality of the fracturing sand supplier. For further discussion, please refer to the Critical Accounting Estimates section in Pure Energy's MD&A for the three and six months ended June 30, 2007.

For further information on Pure Energy's financial results, please refer to Pure Energy's MD&A for the three and six months ended June 30, 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. Completion Services currently offers services in both of the WCSB and the United States Rocky Mountain region. Drilling Services 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 accounts for approximately 49% of revenue for the six months ended June 30, 2007.

US Completion Services currently offers services through three operating divisions: Production Testing, Logging and Perforating, and Fracturing. This operating segment accounted for approximately 28% of revenue for the six months ended June 30, 2007.

Drilling Services offers contract drilling services and provides enhanced drilling services utilizing a fleet of positive displacement mud motors through its Quintera Drilling and Motorworks Rentals divisions. This operating segment accounted for approximately 23% of revenue for the six months ended June 30, 2007.

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.

Change in Executive Officers

Effective immediately, Ronald Green, Pure Energy's Chief Operating Officer, is no longer employed by the Corporation. Pure Energy would like to thank Mr. Green for his contributions to Pure Energy.

2007 Capital Program and Forecast

Given current industry activity levels in the WCSB, Pure Energy has cancelled certain capital projects related to the Canadian Completion Services segment. In total, the Corporation has cancelled $2.5 million relating to portable in-line units, support equipment and sustaining capital. No capital projects have been cancelled in Drilling Services or US Completion Services. Management will continue to review its outstanding capital projects, its equipment capacity and current and expected industry activity levels to determine whether any further capital projects should be added or cancelled.

Pure has revised its projected revenues for its 2007 fiscal year, decreasing its forecasted revenue from approximately $172 million to approximately $133 million.

Canadian Completion Services

Production Testing Services

This division currently operates 45 testing units. Two testing units were transferred to the US Operations during the 2007 second quarter. Given current industry conditions, the Corporation has elected not to proceed with the addition of three additional testing units previously disclosed.

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 third 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 23 testing units, two fracturing spreads and two logging and perforating units. Management expects to receive delivery of the final components of a third fracturing spread during the 2007 third quarter and anticipates it to be commissioned for operation in Q3 2007. During the 2007 second quarter, two additional production testing units were transferred from Canadian Completion Services to the US Production Testing division. 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.

On July 6, 2007, the Corporation's wholly-owned subsidiary, Pure Energy Services (USA), Inc. ("Pure USA") issued notices of default to its main fracturing sand supplier (the "Supplier") in respect of the failure by the Supplier to:

a. pay to Pure USA the quarterly installment of $500,000 (USD) which was due on June 30, 2007; and

b. make available for purchase by Pure USA sufficient quantities of fracturing sand necessary to satisfy the purchase commitments provided for under the sand purchase agreement entered into between Pure USA and the supplier.

Under the terms of the agreement between Pure USA and the Supplier, the Supplier had 30 days from the date of receipt of the notices of default to cure these defaults. The Supplier failed to cure these defaults during the 30 day period and Pure USA has commenced legal action against the Supplier for breach of contract and other causes of action.

The inability of the Supplier to cure the defaults is disappointing, but not unexpected by management. Pure USA has received small quantities of fracturing sand from the Supplier and expects to continue to receive similar quantities in the near future. The quantity of sand received has allowed Pure USA to perform a number of fracturing treatments for customers and is providing the Corporation with the opportunity to establish its reputation in the Rocky Mountain region. Management is hopeful that it will continue to receive fracturing sand in the near future as the Supplier addresses its financial and operational issues and ramps its operations up to full capacity. Pure USA will continue to actively pursue all options available to assist the Supplier in resolving its financial and operational issues and to protect its interest.

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 60 mud 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

A significant decline in industry activity has been experienced in the WCSB during the first half of 2007. High natural gas inventory levels have resulted in low natural gas prices realized by the Corporation's customers and negatively impacted their exploration and development programs. Activity levels in the WCSB are expected to increase from the current seasonally low levels, but are expected to continue to be significantly lower than the activity levels experienced during recent years. Canadian Completion Services and Drilling Services are expected to continue to be negatively impacted by weak demand until natural gas inventory levels decline and prices strengthen.

Fracturing sand supply delays have materially impacted the year-to-date financial results of the US Fracturing division. Small quantities of fracturing sand from the sand supplier commenced in June 2007 and have continued to date. These deliveries are a positive step in the establishment of the US Fracturing division in the Piceance basin market; however, material increases in the quantities made available to the US Fracturing division need to be received to achieve the high level of equipment utilization expected of this division. This division's financial results are expected to continue to be weak-to-mixed at best for the remainder of 2007 as a result of the fracturing sand supply issue. Management believes that the Corporation has the right people and equipment in place and that the division has a good customer presence despite the nominal amount of fracturing jobs completed to date. Management is guardedly optimistic that the fracturing sand supply issue will be resolved in the near term and the US Fracturing division will gain positive momentum going into 2008.

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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Three Months ended Six Months ended
June 30, June 30,
($ millions, unaudited) 2007 2006 2007 2006
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EBITDA $(10.4) $ 0.7 $ (1.1) $ 14.0
Deduct:
Depreciation and amortization 2.9 1.9 6.0 3.8
Interest expense 0.6 0.1 1.0 0.3
Income taxes (1) (4.6) (1.1) (2.7) 3.0
Net income (GAAP financial measure) (9.3) (0.2) (5.4) 6.9
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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

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