Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

May 12, 2008 09:10 ET

Pure Energy-2008 First Quarter Results And Operational Update

CALGARY, ALBERTA--(Marketwire - May 12, 2008) -



FINANCIAL REVIEW

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Three Months ended
($ millions, except per share March 31, Change
amounts, unaudited) 2008 % 2007 % $ %
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Consolidated Results
Revenue $46.7 100% $ 46.1 100% $ 0.6 1%
EBITDA(1) 7.3 16% 9.3 20% (2.0) 22%
EBITDAS(1) 8.0 17% 9.7 21% (1.7) (17%)
Net income (loss) 2.0 4% 3.8 8% (1.8) 48%
Net income (loss) per share
Basic $0.13 $ 0.24 $(0.11) (46%)
Diluted $0.13 $ 0.24 $(0.11) (46%)

Canadian Completion Services
Results
Revenue $18.3 100% $ 23.9 100% $ (5.6) (23%)
Income (loss) before income taxes 2.4 13% 3.9 17% (1.5) (40%)

US Completion Services
Results
Revenue $13.7 100% $ 8.8 100% $ 4.9 56%
Income (loss) before income taxes (0.4) (3%) (0.3) (3%) (0.1) 37%

Canadian Drilling Services
Results
Revenue $14.7 100% $ 13.4 100% $ 1.3 10%
Income (loss) before income taxes 3.7 25% 4.2 32% (0.5) (12%)
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(1) EBITDA and EBITDAS do not have standardized meanings prescribed by GAAP.
Management believes that, in addition to net income, EBITDA and EBITDAS
are useful supplemental measures. EBITDA and EBITDAS are provided as
measures of operating performance without reference to financing
decisions and income tax impacts, which are not controlled at the
operating management level. EBITDAS also excludes stock based
compensation expense as it is also not controlled at the operating
management level. Investors should be cautioned that EBITDA and EBITDAS
should not be construed as alternatives to net income determined in
accordance with GAAP as an indicator of the Corporation's performance.
The Corporation's method of calculating EBITDA and EBITDAS 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.


Highlights and Outlook

The Corporation's revenue for the 2008 first quarter increased $0.6 million compared to the 2007 first quarter. The Corporation's income before income taxes for the 2008 first quarter decreased $2.9 million compared to the 2007 first quarter. During the quarter, the Corporation recognized one-time expenses of $0.8 million relating to stock based compensation costs and severance obligations.

Revenue and overall job count for the Canadian Completion Services segment decreased 23% and 18%, respectively, which were reflective of decreased industry activity in the WCSB, as evidenced by the decline in the natural gas well count of 20% reported by the Petroleum Services Association of Canada and the 5% decline in the number of active rigs reported by the Canadian Association of Drilling Contractors.

In the past 12 to 15 months, the Corporation has transferred, or designated for transfer, a significant amount of equipment from its Canadian Completion Services segment to the US Operations. The Corporation has also taken steps to analyze and address the cost structure for its Canadian Completion Services segment. As a result, the Canadian Completion Services segment is right-sized, from both a cost structure and equipment and personnel complement perspective, for both the current and anticipated industry activity levels for 2008 and 2009.

Notwithstanding the decreased industry activity levels generally experienced in the WCSB, Drilling Services' revenue for the 2008 first quarter increased 10% compared to the 2007 first quarter as a result of higher than anticipated drilling rig utilization by the Quintera Drilling division. During the quarter, the Quintera Drilling division operated an average of 10.0 drilling rigs at an average utilization rate of 62%, compared to an average of 9.6 drilling rigs at an average utilization rate of 50% for the 2007 first quarter.

The Quintera Drilling division has received commitments for drilling services following break-up. As a result, management anticipates continued strong utilization and financial results from the Quintera Drilling division for the balance of 2008.

During the 2008 first quarter, natural gas prices increased as a result of decreases in North American natural gas storage levels and LNG imports. In the WCSB, provided that the increased natural gas prices are sustained, the increased prices and the further clarity received on the Alberta Royalty structure should provide incentive for oil and gas producers to drill and complete natural gas wells, leading to increased activity levels for Canadian Operations in the second half of 2008 and in 2009.

Activity levels in the US Rocky Mountain region have not declined in the same manner as experienced in the WCSB, with the 2008 first quarter rig count increasing 2% compared to the first quarter 2007 rig count. Revenue for the US Operations increased 56% for the 2008 first quarter compared to the 2007 first quarter. All of the US Operations' operating divisions experienced increased revenues.

The US Production Testing division continued to experience high demand and utilization for its services. The Corporation has expanded its production testing operations in North Dakota and plans to transfer additional production testing units to North Dakota from its Canadian Operations. In the 2008 first quarter, the Corporation agreed to locate its North Dakota operations in Minot, North Dakota. As a result, the Corporation has received grants and tax incentives from the City of Minot and the State of North Dakota for its North Dakota operations.

The Fracturing division's revenue for the 2008 first quarter increased by 217% as compared to the 2007 first quarter as a result of the commencement of services under the previously reported customer contracts and commitments for fracturing services in March 2008. Since the commencement of these services, the Fracturing division has experienced positive income before income taxes. Management anticipates that utilization of the Corporation's first two fracturing spreads will continue to increase during 2008 as scheduling for drilling and completion services is finalized by its customers. It is expected that the Corporation's third fracturing spread will become operational in the second half of 2008.

Management has been advised that the reconstruction of the sand processing facilities of Legacy Resources, the Corporation's primary fracturing sand supplier, remains on schedule and that, such reconstruction is over 90% complete. The Corporation has commenced receiving deliveries of fracturing sand contracted from Legacy. In addition, the Corporation continues to receive material quantities of fracturing sand from its other fracturing sand suppliers.

Both the Canadian Completion Services and the Drilling Services segments remain strong franchises. Management is confident that the Canadian Operations are well positioned to take advantage of the increase in industry activity levels which are expected to occur in the WCSB in the latter part of 2008 and in 2009.

Management is encouraged by the financial results achieved by the US Logging and Perforating and Fracturing divisions during the latter part of the first quarter and believes that the financial results of both divisions will continue to improve as the Corporation starts to receive its contractual commitments of fracturing sand on a regular and frequent basis.

The Corporation will continue to investigate growth and expansion opportunities, both organic and by acquisition. In addition, the Corporation will consider transferring additional equipment from the Canadian Operations to the US Operations, depending on customer demand in both the WCSB and the US Rocky Mountain region.

For further information on Pure Energy's financial results, please refer to Pure Energy's MD&A for the three months ended March 31, 2008 on SEDAR at www.sedar.com or available on our website at www.pure-energy.ca.

Non-GAAP Disclosure

EBITDA and EBITDAS do not have standardized meanings 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 and EBITDAS are useful supplemental measures. EBITDA and EBITDAS are provided as measures of operating performance without reference to financing decisions and income tax impacts, which are not controlled at the operating management level. EBITDAS also excludes stock based compensation expense as it is also not controlled at the operating management level. The following is a reconciliation of EBITDA and EBITDAS to net income, being the most directly comparable measure calculated in accordance with Canadian GAAP.



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Three Months ended
March 31,
($ millions, unaudited) 2008 2007
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EBITDAS 8.0 9.7
Deduct:
Stock-based compensation expense 0.7 0.4
EBITDA 7.3 9.3
Deduct:
Depreciation and amortization 3.8 3.2
Interest expense 0.8 0.5
Income taxes (1) 0.7 1.8
Net income (GAAP financial measure) 2.0 3.8
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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", "should" "will", "intend", "expect", "believe", "plan", "anticipate", "estimate", "forecast", "project" 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, except to the extent required by 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 19, 2008 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
    Email: kdelaney@pure-energy.ca
    or
    Pure Energy Services Ltd.
    Michael Baldwin
    Chief Financial Officer
    (403) 262-4000
    Email: mbaldwin@pure-energy.ca
    or
    Pure Energy Services Ltd.
    #300, 1010 - 1st Street S.W.
    Calgary, Alberta T2R 1K4
    (403) 262-4000
    (403) 262-4005 (FAX)
    Website: www.pure-energy.ca