Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

November 10, 2010 08:30 ET

Pure Energy Services Ltd. Announces Q3 2010 Results and Increase to 2010 Capital Expenditure Budget

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2010) - Pure Energy Services Ltd. (TSX:PSV)



SELECTED CONSOLIDATED FINANCIAL INFORMATION
----------------------------------------------------------------------------
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($000's Cdn, except Three months ended Nine months ended
per share amounts) September 30, September 30,
(Unaudited) 2010 2009 Change 2010 2009 Change
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Continuing operations
Revenue $ 45,996 $ 27,479 67% $ 120,545 $ 65,033 85%
Gross margin $ 13,062 $ 3,571 266% $ 27,635 $ 8,750 216%
Gross margin % 28% 13% 115% 23% 13% 77%
General and
administrative
expenses $ 5,599 $ 4,632 21% $ 16,198 $ 11,536 40%
EBITDAS (1) $ 7,463 $ (1,061) 803% $ 11,437 $ (2,786) 511%
EBITDA (1) $ 7,345 $ (1,295) 667% $ 11,104 $ (3,193) 448%
Net earnings (loss) $ 3,095 $ (3,333) 193% $ 501 $ (9,135) 105%
Loss per share:
Basic $ 0.13 $ (0.14) 193% $ 0.02 $ (0.49) 104%
Diluted $ 0.13 $ (0.14) 193% $ 0.02 $ (0.49) 104%
Funds flow from
operations (1) $ 6,952 $ (1,305) 633% $ 9,681 $ (4,709) 306%
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Discontinued
operations
EBITDAS (1) $ 1,034 $ (1,847) 156% $ 3,344 $ (861) 488%
Net earnings (loss) $ (6,932) $ (1,971) (252%)$ (5,777) $(15,864) 64%
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Total operations
EBITDAS (1) $ 8,497 $ (2,908) 392% $ 14,781 $ (3,647) 505%
EBITDA (1) $ 8,379 $ (3,142) 367% $ 14,448 $ (4,054) 456%
Net loss $ (3,837) $ (5,304) 28% $ (5,276) $(24,999) 79%
Loss per share:
Basic $ (0.16) $ (0.22) 27% $ (0.22) $ (1.33) 83%
Diluted $ (0.16) $ (0.22) 27% $ (0.22) $ (1.33) 83%
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(1) Refer to "Non-GAAP Measures" section


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September 30, December 31,
($000's Cdn) (Unaudited) 2010 2009 Change
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Total assets $ 185,813 $ 183,759 1%
Working capital net of long-term debt $ 5,179 $ (32,286) 116%
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BUSINESS OVERVIEW

The Corporation provides well completion and production related oilfield services to oil and natural gas exploration and development companies in Canada in the Western Canadian Sedimentary Basin ("WCSB") and in the United States ("US") in the Rocky Mountain, North Dakota and Appalachian Basin regions.

The Corporation's continuing operations are divided into three separate reporting segments: Canadian Completions Services ("CCS"), US Completions Services ("USCS") and Corporate Administration ("Corporate"). The CCS segment conducts operations in the WCSB, through its two operating divisions: wireline and well testing. The USCS segment conducts operations in the Rocky Mountain, North Dakota and Appalachian Basin regions of the US through its two operating divisions: wireline and well testing. The Corporate segment is a cost center which includes corporate administration and other costs not specifically attributable to the CCS and USCS segments.

Effective October 1, 2010, the Corporation sold its drilling rig division (including this division's property, equipment and operations) and effective April 20, 2010 the Corporation sold its drilling equipment rental division. As a result of these transactions, the financial results of these two divisions (which previously comprised the Corporation's "Drilling" segment) have been reflected as discontinued operations for the three and nine-month periods ended September 30, 2010.

Q3 2010 HIGHLIGHTS FROM CONTINUING OPERATIONS

Pure's Q3 2010 financial results exceeded management's expectations and reflected the better than expected drilling and well completion activity levels in the WCSB (despite the wet weather in western Canada during September) combined with continuing robust activity levels in the Corporation's US operating areas. As a result of the sale of the drilling rig division on October 1 for net proceeds of $33.5 million and the sale of two redundant properties in August for net proceeds of $5.4 million, the Corporation has accomplished a major objective of deleveraging its balance sheet. This has allowed Pure to focus on expansion of its core well testing and wireline service lines.

As 2010 draws to a close, Pure has been successful in achieving the following additional objectives:

- Increasing the Corporation's exposure to the emerging resource plays in western Canada and the US where technological advances in multi-stage fracturing and horizontal drilling have significantly enhanced the recovery of oil and natural gas;

- Moving equipment between Canada and the US to areas of higher demand; and

- Utilizing new technologies to gain a competitive advantage in the well completion and abandonment markets.

Pure exited Q3 2010 with a working capital surplus (ie. working capital exceeding long-term debt) of $5.2 million and available but undrawn amounts of approximately $32.9 million on the Corporation's credit facilities after giving effect to the sale of the drilling division which closed October 1. The working capital surplus is expected to grow as Pure enters into what are traditionally the busiest quarters of the year - Q4 and Q1.

During Q3 2010, Pure realized significantly improved revenue, EBITDA and net earnings from continuing operations on a consolidated basis over the comparable Q3 2009 period reflecting the improved activity levels and financial results from both the CCS and USCS operating segments. Drilling and completion activity levels in both the WCSB and in Pure's US core operating areas have increased quarter over quarter primarily due to:



a) increased access to capital for many of Pure's customers during 2010 as
compared to 2009 (reflecting the recovery in debt and equity markets)
allowing them to ramp up drilling programs;

b) improved oil prices; and

c) increased work in emerging resource plays (certain oil, shale gas and
deeper tight gas plays).


These factors contributed to a 66% increase in the number of wells drilled (rig released) in the WCSB from 1,958 in Q3 2009 to 3,251 in Q3 2010 (source: Nickles Energy Group).

In the US, evidence of the recovery in activity levels can be seen through significantly increased drilling rig counts in Pure's core operating areas. In North Dakota, the monthly average active rig count rose from 47 in September 2009 to 131 during September 2010 and in Pennsylvania and Colorado the rig counts increased from 54 to 91 and 45 to 68, respectively, for the same periods (US rig count data from Baker Hughes Rotary Rig Count report).

Consolidated revenue from continuing operations in Q3 2010 of $46.0 million was 67% higher than the $27.5 million recognized in Q3 2009 reflecting significantly higher revenue for both the CCS and USCS operating segments. Both segments experienced increased equipment utilization rates and increased pricing for services. As a result of the increased utilization and improved pricing, consolidated gross margin percentages more than doubled from 13% in Q3 2009 to 28% in Q3 2010. Pure continues to streamline its operating cost structures and evaluate pricing for services in all segments with an emphasis on maximizing margins going forward.

The improved operating results in the current quarter led to the significantly improved EBITDA from continuing operations from the negative $1.3 million recorded in Q3 2009 to the positive $7.3 million of EBITDA recorded in Q3 2010. Net earnings from continuing operations were $3.1 million ($0.13 per share) in the current quarter compared to a net loss of $3.3 million loss (negative $0.14 per share) reported in Q3 2009. Total EBITDA for Q3 2010 (ie. continuing plus discontinued operations) was $8.4 million after factoring in the results for the drilling rig division.

At the end of Q2 2010 and through Q3 2010, Pure continued to increase its high pressure equipment fleet by placing 7 high pressure well testing units into service, 5 of which were added to the Canadian testing fleet and the remaining 2 units added to the US testing fleet. The new Canadian units were deployed to a major client in the Horn River region of British Columbia for work involving fracturing fluid recovery and flow testing for a multi-well drilling program targeting shale gas. Due to delays related to wet weather and the customer's project planning, this work did not commence until October but is expected to continue through until year end. The 2 units added to the US fleet are currently working in the Marcellus shales in Pennsylvania.

During October, the Corporation's Board of Directors approved an additional $5.7 million in budgeted capital expenditures to be incurred during Q4 2010 ($3.4 million) and Q1 2011 ($2.3 million). The total 2010 capital expenditure budget will therefore be increased from the previously announced $14.9 million (which includes the cash component of a wireline business acquisition completed in Q2 2010) to approximately $18.3 million. The majority of the new capital expenditures are geared toward the purchase of 3 additional high pressure well testing units and related auxiliary testing equipment in Canada and the US, plus the buyout of certain rented equipment across all divisions. The buyout of the rented equipment will have an immediate positive impact on EBITDA and the new equipment is expected to provide incremental EBITDA commencing in Q1 2011.

Pure continues to invest operational efforts in the Corporation's new fibre optic technology program. During Q3 2010, the Corporation completed work on 9 different wells (all for major oil and gas companies) involving work related to: production profiling, water injection zones, and monitoring of initial production from a well with multi stage fracturing. In addition, Pure has seen opportunities to use this technology in the growing well abandonment business, particularly in Canada. The quality of down-hole data that has been obtained has met the expectations of Pure's management and work is continuing on refining the data collection and interpretation processes.

DISCONTINUED OPERATIONS - DISPOSITION OF DRILLING RIG, DRILLING EQUIPMENT RENTALS AND WELL FRACTURING DIVISIONS

Effective October 1, 2010, the drilling rig division was sold for net proceeds of $33.5 million to a private investment group and effective April 20, 2010 the drilling equipment rentals division was sold to an industry peer in exchange for the peer's US wireline assets and operations and a cash payment of $2.4 million. As a result of these sales, the financial results for these divisions have been disclosed under discontinued operations (in the "Drilling" segment) for the three and nine-month periods ended September 30, 2010 and 2009.

On August 14, 2009, the Corporation sold its US well fracturing assets and associated inventory to a competitor for net proceeds of $38.8 million. As a result of this disposition, the well fracturing operations have also been disclosed as discontinued operations for the three and nine months ended September 30, 2010 and 2009.

RESULTS OF CONTINUING OPERATIONS

FINANCIAL SUMMARY BY SEGMENT



The break-down of consolidated financial results by segment for the three
months ended September 30, 2010 and 2009 is as follows:

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Three months ended September 30, 2010
($000's Cdn) (Unaudited) CCS USCS Corporate Consolidated
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Revenue $ 28,831 $ 17,165 $ - $ 45,996
Operating expenses 19,870 13,064 - 32,934
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Gross margin $ 8,961 $ 4,101 $ - $ 13,062
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Gross margin % 31% 24% -% 28%
Selling, general and
administrative 2,797 1,368 1,434 5,599
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EBITDAS $ 6,164 $ 2,733 $ (1,434) $ 7,463
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Stock-based compensation - - 118 118
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EBITDA $ 6,164 $ 2,733 $ (1,552) $ 7,345
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Three months ended September 30, 2009
($000's Cdn) (Unaudited) CCS USCS Corporate Consolidated
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Revenue $ 18,525 $ 8,954 $ - $ 27,479
Operating expenses 16,859 7,049 - 23,908
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Gross margin $ 1,666 $ 1,905 $ - $ 3,571
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Gross margin % 9% 21% -% 13%
Selling, general and
administrative 2,409 815 1,408 4,632
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EBITDAS $ (743) $ 1,090 $ (1,408) $ (1,061)
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Stock-based compensation - - 234 234
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EBITDA $ (743) $ 1,090 $ (1,642) $ (1,295)
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The break-down of consolidated financial results by segment for the nine
months ended September 30, 2010 and 2009 is as follows:

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Nine months ended September 30, 2010
($000's Cdn) (Unaudited) CCS USCS Corporate Consolidated
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Revenue $ 76,309 $ 44,236 $ - $ 120,545
Operating expenses 59,381 33,529 - 92,910
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Gross margin $ 16,928 $ 10,707 $ - $ 27,635
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Gross margin % 22% 24% -% 23%
Selling, general and
administrative 7,854 4,187 4,157 16,198
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EBITDAS $ 9,074 $ 6,520 $ (4,157) $ 11,437
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Stock-based compensation - - 333 333
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EBITDA $ 9,074 $ 6,520 $ (4,490) $ 11,104
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Nine months ended September 30, 2009
($000's Cdn) (Unaudited) CCS USCS Corporate Consolidated
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Revenue $ 36,241 $ 28,792 $ - $ 65,033
Operating expenses 34,543 21,740 - 56,283
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Gross margin $ 1,698 $ 7,052 $ - $ 8,750
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Gross margin % 5% 24% -% 13%
Selling, general and
administrative 5,630 1,812 4,094 11,536
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EBITDAS $ (3,932) $ 5,240 $ (4,094) $ (2,786)
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Stock-based compensation - - 407 407
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EBITDA $ (3,932) $ 5,240 $ (4,501) $ (3,193)
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DISCUSSION OF SEGMENT RESULTS - CONTINUING OPERATIONS

Canadian Completion Services ("CCS") Segment (1)
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Three months ended Nine months ended
($000's Cdn) September 30, September 30,
(Unaudited) 2010 2009 Change 2010 2009 Change
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Revenue
Wireline (2) $ 18,387 $ 10,984 67% $ 49,201 $ 19,744 149%
Well Testing 10,444 7,541 38% 27,108 16,497 64%
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$ 28,831 $ 18,525 56% $ 76,309 $ 36,241 111%
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Gross margin
Wireline $ 5,319 $ 552 864% $ 9,597 $ 54 1,000%
Well Testing 3,642 1,114 227% 7,331 1,644 346%
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$ 8,961 $ 1,666 538% $ 16,928 $ 1,698 897%
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Gross margin %
Wireline 29% 5% 480% 20% -% 1,000%
Well Testing 35% 15% 133% 27% 10% 170%
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31% 9% 244% 22% 5% 340%
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Selling, general and
administrative $ 2,797 2,409 16% $ 7,854 $ 5,630 40%
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EBITDAS $ 6,164 $ (743) 930% $ 9,074 $ (3,932) 331%
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Average units in
operation during
the period:
Wireline (3) 69.0 68.0 1% 69.3 43.4 60%
Well Testing (4) 72.0 70.0 3% 76.0 43.8 74%
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Total 141.0 138.0 2% 145.3 87.2 67%
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Number of jobs
completed:
Wireline (3) 2,518 1,623 55% 6,733 2,892 133%
Well Testing 2,357 1,600 47% 7,004 3,434 104%
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Total 4,875 3,223 51% 13,737 6,326 117%
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(1) The CCS segment includes the financial results of Canadian Sub-Surface
Energy Services Corp ("CanSub") since the June 22, 2009 acquisition
date.
(2) The Canadian wireline division includes the following services:
electric line, slickline, swabbing, specialty logging and several other
services. The electric line and slickline services generate
approximately 80% of the revenue in this division.
(3) Wireline units consist of electric line and slickline units and
wireline jobs are from these units only (and exclude jobs from the
other service lines in the wireline division). Wireline unit counts for
2009 and 2010 only reflect available units (ie. not decommissioned
units). At September 30, 2010, there were 69 available wireline units
in CCS, which included 55 units in operation and 14 parked units.
(4) Well testing unit counts for 2009 and 2010 only reflect available units
(ie. not decommissioned units). At September 30, 2010, there were 70
available well testing units in CCS which included 65 units in
operation and 5 parked units. During 2010, 12 older testing units have
been decommissioned.


Pure operates one of the largest wireline and well testing fleets in the WCSB. A significant portion of the Corporation's equipment fleet at September 30, 2010 (25 of the 69 wireline units and 31 of the 70 well testing units) is capable of operating in the high pressure environments encountered in many of the Canadian emerging resource plays. Pure's exposure to these high activity areas has contributed to the robust equipment utilization rates in 2010.

As a result of increased equipment utilization and generally improved pricing, the CCS segment realized revenue during Q3 2010 of $28.8 million, a significant increase over the $18.5 million in revenue recorded in Q3 2009. Wireline division revenue increased by 67% quarter over quarter reflecting increased equipment utilization (jobs were up 55%) and better pricing. Well testing division revenues increased 38% on a quarter over quarter basis reflecting the job count increase of 47%. Average per job revenues for the testing division were lower in the current quarter due to the recovery of work in the shallow and medium depth oil and gas areas which typically have lower pricing (mainly in central and southern Alberta).

The higher utilization rates and improved pricing for both the wireline and well testing divisions were primarily responsible for the increase in CCS' blended margins from 9% in Q3 2009 to 31% in Q3 2010. In addition, the lower margins recorded in the prior period reflect significant integration costs associated with the CanSub acquisition which closed at the end of Q2 2009. The testing business (which has a primarily variable cost structure) can see margins ramp up significantly with improvements in pricing. The wireline business has a high fixed cost component and can therefore realize strong incremental margins once those costs are covered. The fixed costs associated with the Corporation's wireline business have been significantly reduced on a quarter over quarter basis at the field level due to the successful integration of the CanSub and Pure wireline businesses.

Selling, general and administrative expenses ("SG&A") in CCS increased from $2.4 million in Q3 2009 to $2.8 million in Q3 2010 reflecting the higher activity levels in the current quarter and one-time severance expenses of $0.3 million associated with the continuing right sizing efforts for this segment. As a percentage of revenue, SG&A improved from 13.0% of revenue in Q3 2009 to 9.7% of revenue in Q3 2010. SG&A expenses are targeted to be in the 9% range on an annualized basis going forward.

For the nine months ended September 30, 2010, CCS' revenue of $76.3 million was more than double the $36.2 million reported for the nine-month period in the prior year. The prior year revenue figure only included the CanSub results from June 22 - September 30. In addition, the current year's nine-month period reflects larger equipment fleet and utilization rates for both the wireline and testing divisions. The number of wells drilled (rig released) in the WCSB increased from 5,701 in the 2009 nine-month period to 8,055 in the 2010 nine-month period, a 41% increase (source: Nickles Energy Group). As a result of the higher equipment utilization and rationalization of operating costs, blended margins for the nine-month period improved significantly, climbing from 5% in the 2009 period to 22% in 2010. Margin percentages had been constrained for the first half of 2010 (due to the carry-over of competitive pricing from the challenging 2009 operating environment) but strengthened in Q3 2010 due to the improvement in pricing. SG&A expenses for the 2010 nine-month period of $7.9 million were 10.3% of revenue, which was significantly better than the 15.5% of revenue in the prior period.



US Completion Services ("USCS") Segment
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Three months ended Nine months ended
($000's Cdn) September 30, September 30,
(Unaudited) 2010 2009 Change 2010 2009 Change
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Revenue
Wireline $ 6,464 $ 2,898 123% $ 16,289 $ 8,501 92%
Well Testing 10,701 6,056 77% 27,947 20,291 38%
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$ 17,165 $ 8,954 92% $ 44,236 $ 28,792 54%
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Gross margin
Wireline $ 903 $ 968 (7%) $ 2,853 $ 2,424 18%
Well Testing 3,198 937 241% 7,854 4,628 70%
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$ 4,101 $ 1,905 115% $ 10,707 $ 7,052 52%
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Gross margin %
Wireline 14% 33% (58%) 18% 29% (38%)
Well Testing 30% 15% 100% 28% 23% 22%
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24% 21% 14% 24% 24% -%
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Selling, general and
administrative $ 1,368 $ 815 68% $ 4,187 $ 1,812 131%
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EBITDAS $ 2,733 $ 1,090 151% $ 6,520 $ 5,240 24%
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Average units
Available during
the period:
Wireline (1) 17.0 6.0 183% 12.7 6.0 111%
Well Testing (2) 40.3 36.3 11% 39.9 34.5 16%
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Total 57.3 42.3 35% 52.6 40.5 30%
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Number of jobs
completed:
Wireline (1) 797 432 84% 2,286 1,128 103%
Well Testing (2) 2,349 1,553 51% 6,384 4,232 51%
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Total 3,146 1,985 58% 8,670 5,360 62%
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(1) The USCS wireline fleet consists solely of electric line units. At
September 30, 2010, there were 17 wireline units available which
included 11 in operation and 6 parked units.

(2) At September 30, 2010, there were a total of 41 well testing units
available, all of which were in operation. There was 1 older testing
unit decommissioned during Q2 2010.


Drilling rig counts and associated well completion activity levels during 2010 have significantly increased over 2009 in several of the USCS segment's core operating areas including North Dakota (Bakken basin), Pennsylvania (Marcellus play) and Colorado (Piceance Basin). In addition, pricing of services, particularly for well testing, has increased in most operating areas which positively impacted gross margins.

Increased equipment utilization in the well testing division combined with improved pricing and larger equipment fleets for both wireline and well testing led to the 92% increase in USCS's revenue from the $9.0 million recognized in Q3 2009 to the $17.2 million recognized in Q3 2010. Total segment revenue on a USD basis was USD $8.2 million in Q3 2009 and USD $16.5 million in Q3 2010. Average CDN$ / USD exchange rates decreased from the prior period from approximately 1.096 in Q3 2009 to 1.041 in Q3 2010.

The well testing division experienced strong equipment utilization rates in all operating regions as evidenced by the 51% increase in jobs completed on a quarter over quarter basis. Combined with improved pricing, well testing division revenue in Q3 2010 was 77% higher than the revenue recorded in the prior year quarter. Wireline division revenue also increased, with Q3 2010 revenue being more than double the revenue in Q3 2009 and partially reflected the significant expansion of the wireline fleet to 17 units. Most of this expansion was due to the acquisition of 10 wireline units (9 of which remained in the US and the remaining unit sent to Canada) as part of the purchase of equipment and operations of an industry peer that was completed during Q2 2010.

The blended margin percentage for the USCS segment for Q3 2010 of 24% was higher than the blended margin for Q3 2009 of 21% reflecting improved margins on a quarter over quarter basis for well testing, offset by a margin erosion in wireline. Testing division margins were a robust 30% during Q3 2010 reflecting improved pricing and equipment utilization compared to the challenged operating environment of the prior year third quarter. The weak wireline division margins in the current quarter reflected integration costs associated with the acquisition of the wireline business during Q2 2010 including rationalization of staff and field stations. Due to staff constraints in both divisions, margins were negatively impacted by travel and subsistence costs as many crews were redeployed from their home bases to regions with higher activity levels. The high margin in the wireline division of 33% during Q3 2009 reflected significant project work in Colorado and Wyoming.

SG&A expense increased on a quarter over quarter basis from $0.8 million in Q3 2009 to $1.4 million in Q3 2010 reflecting the growth of US operations. As a percentage of revenue, SG&A dropped from 9.1% in Q3 2009 to 8.0% in Q3 2010. The targeted SG&A run rate going forward is 7.5% of revenue.

For the nine months ended September 30, 2010, the USCS segment recorded revenue of $44.2 million compared to revenue of $28.8 million for the prior year nine-month period. On a USD basis, revenues were USD $42.7 million and USD $24.6 million respectively for the 2010 and 2009 nine-month periods. Average CDN$ / USD exchange rates decreased from approximately 1.173 in the prior year nine-month period to approximately 1.035 for the current year nine-month period. The testing division experienced increased equipment utilization over the prior year of 51%, but revenue was up only 38% as average pricing in 2010 was lower on a per job basis than in 2009. The higher average per job revenue in 2009 was due to the fact that the downward adjustment to pricing in the testing division in 2009 did not commence until part way through Q2 2009. The wireline division revenues of $16.3 million in the nine-month period of 2010 were almost double the revenue recorded in the 2009 nine-month period reflecting the expanded wireline fleet.

The blended margin percentage for the USCS segment for the nine-month period in 2010 of 24% was in line with the blended margin for the nine-month 2009 period. Testing division margins of 28% in the current year period were better than the 23% in the prior year primarily reflecting higher utilization rates. The wireline division margins in the current nine-month period were only 18% and reflected the integration costs in Q2 and Q3 2010 of the acquired wireline business. The strong wireline margins in the nine-month period in 2009 were partly due to lucrative project work for two major customers in Wyoming and Colorado.

SG&A for the 2010 nine-month period was $4.2 million, a significant increase over the $1.8 million recognized in the same period of the prior year. The increase reflects the higher staff levels in 2010 and a severance payment of approximately $0.3 million to the previous head of US operations in Q2 2010. In addition, the prior period expenses were reduced by the receipt of $0.7 million from the Corporation's former US legal counsel in settlement of a malpractice claim initiated by Pure.

Going forward, USCS' management will continue to focus on improving the wireline division utilization rates and margins, including crewing some of the 6 wireline units that remained parked through the end of October 2010.



OTHER EXPENSES - CONTINUING OPERATIONS

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Three months ended Nine months ended
($000's Cdn) September 30, September 30,
(Unaudited) 2010 2009 Change 2010 2009 Change
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Stock-based
compensation $ 118 $ 234 (50%) $ 333 $ 407 (18%)
Depreciation and
Amortization $ 2,885 $ 2,881 -% $ 8,014 $ 7,526 6%
Interest on
long-term debt $ 602 $ 713 (16%) $ 1,790 $ 1,567 14%
Other interest $ 69 $ 10 590% $ 116 $ 15 673%
Gain on sale of
property and
equipment $ (790) $ (282) (180%) $ (854) $ (334) (156%)
Foreign exchange
(gain) loss $ 56 $ 422 (87%) $ (15) $ 242 (106%)
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Depreciation and Amortization Expense

Depreciation and amortization expense of $2.9 million in Q3 2010 was in line with the expense recognized in Q3 2009 even though the average net book value of property and equipment was approximately 4% higher in the prior year quarter. This partially reflected the non-depreciation of certain owned properties (land portion) that were included in the property and equipment balance in Q3 2009. These properties were reclassified to "held for sale" during Q4 2009. The nine-month 2010 depreciation expense of $8.0 million was approximately 6% higher than the nine-month 2009 depreciation expense although the average net book value of property and equipment was approximately 2% higher in the prior year. This also partially reflected the non-depreciation in the prior period of a portion of the owned properties.

Total Interest

Total interest of $0.7 million in Q3 2010 was in line with the $0.7 million of total interest reported in Q3 2009. Although the average drawn debt balances were higher in the prior quarter (ie. approximately $58.5 million in Q3 2009 compared to approximately $55.3 million in Q3 2010), this was offset by a lower average interest rate charged in the prior period primarily due to the lower Canadian prime interest rate in Q3 2009.

Total interest for the nine-month period ended September 30, 2010 of $1.9 million was approximately $0.3 million higher than the comparable nine-month period in 2009. Although the average debt balances were higher in the prior year period (ie. approximately $60.8 million in 2009 compared to approximately $54.7 million in 2010), the average interest rate was higher in the current nine-month period. This primarily reflected the rate spreads charged by Pure's Canadian lender which were prime plus 0.5% for the first six months of 2009 on a majority of the drawn debt, but then increased to prime plus 2.5% for a majority of the drawn debt thereafter.

INCOME TAX EXPENSE - CONTINUING OPERATIONS

Due to the net earnings before income taxes of $4.5 million from continuing operations in Q3 2010, Pure recorded a total income tax expense of $1.4 million in the current quarter. Based on a blended Canadian/US income tax rate of approximately 32.5%, the expected income tax recovery should be approximately $1.5 million. The difference of approximately $0.1 million reflects a refund claimed on the filed 2009 corporate tax returns which was higher than initially estimated.

As at September 30, 2010, the Corporation had non-capital losses and deferred expense pools that can be used to reduce future taxable income in Canada and the US of approximately $62.6 million and $32.3 million, respectively. Based on management's estimates, these losses and deferred expense pools are more likely than not to be realized in future periods and, as such, a future income tax asset has been recorded on the balance sheet.

RESULTS OF DISCONTINUED OPERATIONS

The net loss from discontinued operations for the three and nine-month periods ended September 30, 2010 and 2009 was as follows:



2010

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Three months ended Nine months ended
($000's Cdn) September 30 September 30
(Unaudited) Drilling Fracturing Total Drilling Fracturing Total
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Revenue $ 7,116 $ - $ 7,116 $ 21,658 $ - $21,658
Operating
expenses 5,813 - 5,813 17,388 - 17,388
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Gross margin 1,303 - 1,303 4,270 - 4,270
Other expenses
Selling,
general and
administrative 269 - 269 926 - 926
Depreciation
and
amortization 441 - 441 1,418 - 1,418
Impairment of
property and
equipment 9,867 - 9,867 9,867 - 9,867
Loss (Gain) on
sale of
equipment 1 - 1 (194) - (194)
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Loss before
income taxes (9,275) - (9,275) (7,747) - (7,747)
Future income
tax recovery (2,343) - (2,343) (1,970) - (1,970)
----------------------------------------------------------------------------
Net loss $ (6,932) $ - $(6,932) $ (5,777) $ - $(5,777)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


2009

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
($000's Cdn) September 30 September 30
(Unaudited) Drilling Fracturing Total Drilling Fracturing Total
----------------------------------------------------------------------------
Revenue $ 3,054 $ 3,812 $ 6,866 $ 12,589 $ 21,233 $33,822
Operating
expenses 3,181 5,000 8,181 11,087 21,223 32,310
----------------------------------------------------------------------------
Gross margin (127) (1,188) (1,315) 1,502 10 1,512
Other expenses
Selling,
general and
administrative 408 124 532 1,653 720 2,373
Depreciation
and
amortization 389 326 715 1,203 2,670 3,873
Impairment of
property and
equipment - - - - 16,925 16,925
Impairment of
intangible
assets and
goodwill - - - 247 - 247
Loss (Gain) on
sale of
equipment (37) 844 807 (140) 844 704
----------------------------------------------------------------------------
Loss before
income taxes (887) (2,482) (3,369) (1,461) (21,149) (22,610)
Future income
tax recovery (221) (1,177) (1,398) (322) (6,424) (6,746)
----------------------------------------------------------------------------
Net loss $ (666) $ (1,305)$(1,971) $ (1,139) $ (14,725)$(15,864)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On September 23, 2010, the Corporation entered into a definitive agreement to sell its drilling rig division to a private investment group for net proceeds of $33.5 million. This transaction closed effective October 1, 2010, with the Corporation receiving $31.0 million of the net proceeds in cash with the remaining $2.5 million in the form of a note receivable from the purchaser which is scheduled to be received in full by February 28, 2011. The drilling equipment rentals division was sold on April 20, 2010. As a result of the sale of these two divisions, the related financial results have been classified as discontinued operations under the "Drilling" segment for the three and nine months ended September 30, 2010 and 2009.

On August 14, 2009 the Corporation sold all of its well fracturing division assets (formerly a part of the USCS segment). As such, the financial results of the fracturing division for the three and nine months ended September 30, 2010 and 2009 have also been classified as discontinued operations.

During Q3 2010, the financial results for discontinued operations related entirely to the drilling rig division. Despite the strong demand for drilling services in western Canada, the division was only able to achieve a 46% utilization rate during the current quarter due to the significant amount of wet weather, particularly during early July and mid September. However, this rate was slightly better than the industry utilization rate of 42% (source: CAODC). As a result of continued improved pricing, average revenue per day during Q3 2010 climbed to $16,793 which was higher than day rates realized in the two previous quarters of this year. The drilling rig division recorded revenue and margins during the current quarter of $7.1 million and $1.3 million respectively. The margin of only 18% partially reflects the lower utilization rates caused by the wet weather.

As a result of the net proceeds from the sale of the drilling rig division being less than the carrying value of the related property and equipment sold, the Corporation recognized an impairment charge of $9.9 million during Q3 2010. All of the assets and liabilities of the drilling rig division were reflected as part of the current assets and current liabilities of discontinued operations on the September 30, 2010 balance sheet.



SUMMARY OF QUARTERLY RESULTS (1)

2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($000's Cdn, except per share amounts)
(Unaudited) Q3 Q2 Q1
----------------------------------------------------------------------------
Continuing operations
Revenue 45,996 32,401 42,148
Gross margin 13,062 4,203 10,370
Gross margin % 28% 13% 25%
Selling, general and
administrative expenses 5,599 5,555 5,044
EBITDAS 7,463 (1,352) 5,326
EBITDA 7,345 (1,460) 5,219
Net earnings (loss) 3,095 (3,592) 998
Earnings (loss) per share:
Basic 0.13 (0.15) 0.04
Diluted 0.13 (0.15) 0.04
Funds flow from operations 6,952 (1,987) 4,716
Discontinued operations
Net earnings (loss) (6,932) (375) 1,530
Total operations
Earnings (loss) per share:
Basic (0.16) (0.17) 0.11
Diluted (0.16) (0.17) 0.11
----------------------------------------------------------------------------
----------------------------------------------------------------------------


2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($000's Cdn, except per share amounts)
(Unaudited) Q4 Q3 Q2 Q1 Q4
----------------------------------------------------------------------------
Continuing operations
Revenue 29,936 27,479 12,675 24,879 31,712
Gross margin 3,731 3,571 (1) 5,180 8,184
Gross margin % 12% 13% (-%) 21% 26%
Selling, general and
administrative expenses 4,532 4,632 3,615 3,289 4,434
EBITDAS (801) (1,061) (3,616) 1,891 3,750
EBITDA (1,120) (1,295) (3,696) 1,798 3,709
Net earnings (loss) (3,183) (3,333) (4,933) (869) (390)
Earnings (loss) per share:
Basic (0.13) (0.14) (0.30) (0.05) (0.02)
Diluted (0.13) (0.14) (0.30) (0.05) (0.02)
Funds flow from operations (1,425) (1,305) (4,394) 990 825
Discontinued operations
Net earnings (loss) 38 (1,971)(14,721) 828 1,898
Total operations
Earnings (loss) per share:
Basic (0.13) (0.22) (1.18) 0.00 0.09
Diluted (0.13) (0.22) (1.18) 0.00 0.09
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Q4 2008 has been adjusted to reflect the change in accounting policy
adopted by the Corporation in 2009 related to the accounting for
intangible assets. The periods in 2009 and Q4 2008 have also been
adjusted to reflect the reclassification of balances related to the
discontinued drilling rig, drilling equipment rental and well
fracturing operations.


During 2008 and 2009, two distinct operating environments existed for Pure's Canadian and US operations. The Canadian operations were focused on navigating through the challenges of lower industry activity levels, whereas the US operations were focused on expansion to capitalize on robust US industry activity during late 2007 and through the first three quarters of 2008. This robust US activity significantly declined subsequent to Q3 2008 in response to lower commodity prices and reduced access to debt and equity capital for the Corporation's customers.

The Corporation's US well fracturing operations began to significantly increase during Q2 2008 as a result of resolving a sand supply issue, resulting in the first ever quarter of positive income contribution from that division. The contribution from the well fracturing operations continued to increase in Q3 and Q4 2008 resulting in the well fracturing division generating $34.6 million in revenue during the second half of 2008 versus only $5.0 million in the comparative period in 2007. This significant increase in well fracturing revenue combined with the strength of the US well testing and wireline operations offset the continued lower activity levels experienced in the Corporation's CCS segment. However, on a positive note for the Corporation's operations in Canada, there was an improvement in utilization of the Corporation's drilling rigs. This improvement was a direct result of the improved marketing efforts initiated in late 2007 and early 2008.

The impact of a global recession combined with significantly reduced oil and natural gas prices caused a sharp decline in industry activity in the US and further declines from already low activity levels in Canada during Q1 2009. The number of drilling rigs operating in the US during the quarter was approximately 50% lower than the peak number of rigs operating in the US during 2008. Drilling activity in Canada during the quarter was also the lowest seen during a first quarter since 1999 (source: Daily Oil Bulletin). These lower industry activity levels resulted in lower operating results for the Corporation during the quarter.

Activity levels continued to fall in Q2 2009 in all of the Corporation's operating segments. The impact of lower industry activity in both Canada and the US was further exacerbated by the seasonal activity decline in the Corporation's Canadian and North Dakota operations associated with spring break-up conditions that prevented the movement of equipment for the majority of the quarter. In response to the lower activity levels and competitive pricing pressure for the Corporation's services experienced in Q1 and Q2 of 2009, the Corporation undertook a number of cost cutting measures intended to reduce operating costs. These cost cutting measures helped to mitigate some of the impact of the margin compression caused by the lower activity levels and reduced pricing for services.

On June 22, 2009 the Corporation acquired CanSub and merged its Canadian completions operations with CanSub, creating one of the largest wireline and well testing service providers in the WCSB. The Q2 2009 financial results include 8 days of revenue and operating results from CanSub.

On August 14, 2009, the Corporation sold its well fracturing assets for net proceeds of $38.8 million. As a result of this sale, a $16.9 million impairment was recognized in Q2 2009 to reflect the proceeds received on the sale being lower than the carrying value of the related assets. A further $0.8 million loss was recorded in Q3 2009 due to post closing adjustments and changes in foreign exchange rates. The financial results for the well fracturing operations for the eight quarters reflected in the chart above have been disclosed as discontinued operations.

Activity levels in Canada during Q4 2009 increased over Q3 2009, due in part to the typical increase for winter drilling and completion activities but also due to higher commodity prices for oil and natural gas. In addition, many of the Corporation's customers benefited from infusion of capital from equity offerings completed during Q3 and Q4 2009, as capital markets became more receptive to oil and natural gas exploration and development companies. The drilling rig division posted improved utilization rates of 47% in Q4 2009 compared to the 34% posted in Q4 2008. Activity levels for Q4 2009 in the CCS segment's operations also realized improved equipment utilization rates over Q3 2009. However, margins for both the Drilling and CCS segments remained constrained due to the continuing competitive pricing for these services. In the US, equipment utilization rates also improved in Q4 2009 over the Q3 2009 levels, but were still well behind the previous years' Q4 2008 levels. In addition, similar to Canada, competitive pricing also constrained margins in the US in Q4 2009.

Drilling and completion activity levels in Canada continued to recover in Q1 2010, due to the improved commodity prices and improved financial position of Pure's customers. During Q1 2010, the Corporation's Canadian equipment fleets (CCS and Drilling segments) realized significantly higher utilization rates than the comparable Q1 2009 period. However, gross margins for both of the Corporation's Canadian segments continued to be challenged by the competitive pricing rates implemented during the second half of 2009. In Pure's USCS segment, revenues and gross margin improved over Q4 2009 due to higher equipment utilization as the active rig count increased in some of the segment's core operating areas over Q4 2009. However, gross margin percentages remained constrained due to the impact of competitive pricing continued over from 2009 as well as costs incurred in Q1 2010 to staff up in several of the segment's core operating areas.

The continuing robust oil prices and stabilized natural gas prices resulted in a continued recovery in drilling and completion activity levels in both Canada and the US in Q2 2010. As a result of the improved equipment utilization rates, Pure recorded improved revenue and margins for all operating segments in Q2 2010. The strengthening activity levels allowed Pure to implement modest price increases for some of its services at the end of Q2 and into Q3 2010 with the target of improving previously constrained margins in the second half of 2010.

On April 20, 2010, Pure acquired the US wireline assets and operations of an industry peer (including 10 wireline units) in exchange for Pure's non-core "Motorworks" drilling equipment rentals division and a cash payment of $2.4 million. As a result of this transaction, the Corporation's US wireline fleet expanded from 8 units to 17 units with the remaining wireline unit being added to the Canadian wireline fleet. The expanded geographic reach and increased wireline capacity in the US is expected to attract and retain more of the large customers operating in the Corporation's core US operating areas. As a result of the sale of Motorworks, the drilling equipment rental division financial results have been classified as discontinued operations for the eight quarters reflected in the chart above.

During Q3 2010, due to the continuing strong drilling activity levels in both western Canada and Pure's operating areas in the US, the Corporation realized strong equipment utilization rates and improved pricing for almost all services. As a result, the Corporation realized significantly increased revenues, margins and net earnings from continuing operations compared to Q3 2009.

On September 23, 2010, the Corporation entered into a definitive purchase and sale agreement to sell its drilling division to a private investment group for net proceeds of $33.5 million with a closing date of October 1, 2010. As a result of this sale, the results of the drilling rig division were classified as discontinued operations for the three and nine months ended September 30, 2010 and 2009. An impairment charge of $9.9 million was taken on the drilling rig property and equipment that was sold to reflect the net proceeds being lower than the carrying value of these assets.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2010 Pure's working capital exceeded long-term debt by $5.2 million reflecting the reclassification of the drilling rig division property and equipment into current assets (as they were disposed of effective October 1, 2010). At June 30, 2010, the Corporation was in a Net Debt position (ie. long-term debt exceeded working capital) of $38.5 million. The significant decrease in Net Debt of $43.7 million during Q3 2010 primarily reflects the following: funds flow from continuing and discontinued operations of $8.0 million; net proceeds from the sale of two redundant properties of $5.4 million; and the reclassification of $33.5 million of drilling rig division property and equipment from long-term assets into current assets. These items were offset by capital expenditures for continuing and discontinued operations during the quarter of $3.1 million.

Through the first nine months of 2010, Pure incurred approximately $14.0 million of the Corporation's budgeted $14.9 million capital expenditure program (which includes continuing and discontinued operations and the $2.4 million cash component of the wireline business acquisition completed in Q2 2010). During October, the Corporation's Board of Directors approved an additional $5.7 million in budgeted capital expenditures to be incurred during Q4 2010 ($3.4 million) and Q1 2011 ($2.3 million). The new capital expenditures included 3 high pressure well testing units and related auxiliary testing equipment in Canada and the US plus the buyout of certain rented equipment across all divisions. The buyout of this rented equipment will have an immediate positive impact on EBITDA and the new equipment is expected to provide incremental EBITDA commencing in Q1 2011.

In addition to Pure's capital expenditure program for the remainder of 2010 and into Q1 2011 discussed above, the Corporation has the following operating lease and debt commitments over the next five years:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Payments for years ending September 30,

Contractual Obligations After
($000's Cdn) (Unaudited) Total 2011 2012 2013 2014 2014
----------------------------------------------------------------------------
Long-term debt
obligations (1) $46,929 $37,556 $ 2,582 $ 2,471 $ 2,471 $ 1,849
Operating leases 33,107 7,359 5,840 5,458 4,485 9,965
----------------------------------------------------------------------------
Total contractual
Obligations $80,036 $44,915 $ 8,422 $ 7,929 $ 6,956 $11,814
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Long-term debt obligations represent balances outstanding under the
Canadian Revolving Facility, the US Term Loan, the US Revolving Loan
and miscellaneous capital lease facilities.


The net proceeds from the sale of the drilling rig division of $33.5 million were comprised of $31.0 million in cash and $2.5 million in the form of a note receivable from the purchaser (which is scheduled to be collected in full by February 28, 2011). Upon receipt of the $31.0 million cash portion, the Corporation drew an additional $4.0 million from the Canadian Operating Facility and then during early October paid out the entire $35.0 million outstanding on the Canadian Revolving Facility.

At September 30, 2010, on a proforma basis after giving effect to the paydown of the Canadian Revolving Facility described above, the Corporation had total debt of $23.4 million. Assuming the payout of the Canadian Revolving Facility had occurred on September 30, 2010, the Corporation would have had an aggregate of $32.9 million available but undrawn on its various credit facilities as follows: Canadian Revolving Facility - $26.9 million; Canadian Operating Facility - $3.5 million; and US Revolving Loan - $2.5 million.

The Corporation believes that its available credit facilities, combined with funds flow from operations, will provide sufficient capital resources to fund near-term capital expenditures and ongoing operations. Pure's management continues to evaluate its capital and operational spending programs in response to industry conditions.

SHARE CAPITAL

As at November 9, 2010, the Corporation had 23,768,147 common shares issued and outstanding and 1,751,834 stock options issued and outstanding, of which 407,993 were vested.

OUTLOOK

The Corporation remains optimistic about the remainder of 2010 and early 2011 based on the robust drilling rig counts and activity levels in western Canada and in Pure's US operating areas. Although the currently weak natural gas prices may affect shallow and medium depth natural gas drilling and completion work in both regions, this has been more than offset by significant increases in oil related work and continuing high activity levels related to liquids rich natural gas in western Canada's deep basin and shale gas work in Canada and the US. Technology improvements in multi-stage fracturing and horizontal drilling have driven the strong activity in the emerging resource plays involving shale gas, deeper tight gas and certain conventional oil and natural gas plays. Pure has benefited from the increased work in these plays, given the locations of the Corporation's operating facilities and the significant amount of wireline and testing equipment capable of working in high pressure environments.

The strong utilization rates in both Canada and the US, coupled with continued improvement in pricing for services, resulted in significantly improved financial results in Q3 2010. Pure's management expects these factors to continue through the next two quarters given the improved pricing for services and bookings of equipment. To meet the strong demand for Pure's services, management will continue to focus on staff recruitment and retention.

Over the past 15 months, Pure has sold all of its non-core businesses including the US fracturing division in August 2009, the drilling equipment rental business in April 2010 and the drilling rig division on October 1, 2010. Going forward, Pure can now focus entirely on its remaining core business units of well testing and wireline in which management has extensive expertise.

As a result of the sale of the drilling rig division (for net proceeds of $33.5 million), combined with the sale of two redundant properties in Q3 2010 (for net proceeds of $5.4 million), Pure has significantly deleveraged the Corporation's balance sheet. At September 30, 2010, Pure was in a strong financial position with working capital exceeding long-term debt by $5.2 million. Pure is now heading toward year end 2010 having accomplished the following important objectives:

- Disposal of the Corporation's non-core businesses to allow for a focus on the core competencies of well testing and wireline;

- Continuing to build critical mass in the well testing and wireline businesses, including expansion of high pressure capability to take advantage of the emerging resource plays;

- Reducing the Corporation's bank debt to ensure financial stability going forward; and

- Leveraging new technology to provide future growth.

NON-GAAP MEASURES

EBITDA, EBITDAS and Funds flow from operations do not have standardized meanings prescribed by Canadian GAAP. Management believes that, in addition to net earnings (loss), EBITDA and EBITDAS are useful supplemental measures. EBITDA and EBITDAS are provided as measures of operating performance without reference to financing decisions, depreciation or 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 earnings (loss) determined in accordance with Canadian GAAP as an indicator of the Corporation's performance. The Corporation's method of calculating EBITDA and EBITDAS may differ from that of other entities and accordingly may not be comparable to measures used by other entities. See section titled "Reconciliation of EBITDA and EBITDAS to Net Earnings (Loss)" below.

Funds flow from operations is defined as cash from operating activities before changes in non-cash working capital, as presented on the Corporation's statement of cash flows. Funds flow from operations is a measure that provides investors with additional information regarding the Corporation's liquidity and its ability to generate funds to finance its operations. Funds flow from operations does not have a standardized meaning prescribed by Canadian GAAP and may not be comparable to similar measures provided by other entities.



RECONCILIATION OF EBITDA AND EBITDAS TO NET EARNINGS (LOSS) - CONTINUING
OPERATIONS

----------------------------------------------------------------------------
----------------------------------------------------------------------------
($000's Cdn, from Three months ended Nine months ended
continuing operations) September 30, September 30,
(Unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Net earnings (loss) before
income tax $ 4,523 $ (5,039) $ 2,053 $ (12,209)
Add: Depreciation and
amortization 2,885 2,881 8,014 7,526
Interest (total) 671 723 1,906 1,582
Gain on sale of property
and equipment (790) (282) (854) (334)
Foreign exchange
(gain) loss 56 422 (15) 242
----------------------------------------------------------------------------
EBITDA $ 7,345 $ (1,295) $ 11,104 $ (3,193)
Add: Stock-based compensation
expense 118 234 333 407
----------------------------------------------------------------------------
EBITDAS $ 7,463 $ (1,061) $ 11,437 $ (2,786)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements and other information that are based on the Corporation's current expectations, estimates, projections and assumptions made by management in light of its experience and perception of historical trends, current conditions, anticipated future developments and other factors believed by management to be relevant.

All statements and other information contained in this document that address expectations or projections about the future are forward-looking statements. Some of the forward-looking statements may be identified by words such as "may", "would", "could", "will", "intends", "targets", "expects", "believes", "plans", "anticipates", "estimates", "continues", "maintains", "projects", "indicates", "outlook", "proposed", "objective" and other similar expressions. These statements speak only as of the date of this document. 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 could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed in the "Risks and Uncertainties" section in the most recent Annual Information Form, Information Circular, quarterly reports, material change reports and news releases. The Corporation cannot assure investors that actual results will be consistent with the forward-looking statements and readers are cautioned not to place undue reliance on them. The forward-looking statements are provided as of the date of this document and, except as required pursuant to applicable securities laws and regulations, the Corporation assumes no obligation to update or revise such statements to reflect new events or circumstances.

The forward-looking statements and information contained in this document reflect several major factors, expectations and assumptions of the Corporation, including without limitation, that the Corporation will continue to conduct its operations in a manner substantially consistent with past operations, other than its well fracturing operations, drilling equipment rental operations and the drilling rig operations; the general continuance of current or, if applicable, assumed industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) taxation, royalty and regulatory regimes; the continuance of current or future increased pricing for the Corporation's services; certain commodity prices and other cost assumptions; certain conditions regarding oil and natural gas supply, demand and storage in North America; and the continued availability of adequate debt and/or equity financing and cash flow from the Corporation's operations to fund its capital and operating requirements as needed; and the extent of its liabilities. Many of these factors, expectations and assumptions are based on management's knowledge and experience in the industry and on public disclosure of industry participants and analysts relating to anticipated exploration and development programs of oil and natural gas producers, the effect of changes to regulatory, taxation and royalty regimes, expected active rig counts and industry equipment utilization in the WCSB and the US Rocky Mountain, North Dakota and Appalachian Basin regions and other matters. The Corporation believes that the material factors, expectations and assumptions reflected in the forward-looking statements and information are reasonable; however, no assurances can be given that these factors, expectations and assumptions will prove to be correct.

In particular, this document contains forward-looking information pertaining to the following: ability to reduce costs in response to lower industry activity levels; success of marketing programs; capital expenditure programs; ability to move equipment within operating locations; availability of debt financing and ability to renew the Corporation's existing credit facilities, at acceptable terms; supply and demand for oilfield services and industry activity levels; oil and natural gas prices; oil and natural gas drilling activity; treatment under governmental royalty programs or regimes; collection of accounts receivable; operating risk liability; expectations regarding market prices and costs; ability to sell certain properties in Canada listed for sale; expansion of services and operations in Canada and the United States; the integration of assets and personnel from acquisitions; increases in the pricing for the Corporation's services; reduction of debt levels; net working capital levels; the amount and timing of recognition of income tax recoveries, income tax losses and deferred expense pools; future customer work; expected levels of the Corporation's sales, general and administrative expenses; and competitive conditions.



Pure Energy Services Ltd.

Consolidated Balance Sheets

----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31,
($000's Cdn) (Unaudited) 2010 2009
----------------------------------------------------------------------------

Assets
Current assets
Cash and cash equivalents $ 2,561 $ 1,986
Accounts receivable 29,790 23,297
Income taxes receivable 705 532
Inventory 2,792 2,887
Deposits and prepaid expenses 2,331 2,002
Current assets of discontinued operations 38,244 446
----------------------------------------------------------------------------
76,423 31,150
Property and equipment 83,083 123,119
Property and equipment held for sale 1,601 6,266
Future income taxes 24,506 23,224
Long-term assets of discontinued operations 200 -
----------------------------------------------------------------------------
$ 185,813 $ 183,759
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Operating loan $ 7,469 $ -
Accounts payable and accrued liabilities 15,467 15,275
Current portion of long-term debt 37,556 103
Current liabilities of discontinued operations 1,379 110
----------------------------------------------------------------------------
61,871 15,488
Long-term debt 9,373 47,948
----------------------------------------------------------------------------
71,244 63,436
----------------------------------------------------------------------------
Shareholders' equity
Share capital 120,980 120,913
Contributed surplus 4,546 4,236
Accumulated other comprehensive loss (3,151) (2,296)
Deficit (7,806) (2,530)
----------------------------------------------------------------------------
114,569 120,323
----------------------------------------------------------------------------
$ 185,813 $ 183,759
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Pure Energy Services Ltd.

Consolidated Statements of Earnings (Loss) and Retained Earnings (Deficit)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
($000's Cdn, except Three months ended Nine months ended
per share amounts) September 30, September 30,
(Unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Revenue $ 45,996 $ 27,479 $ 120,545 $ 65,033
Operating expenses 32,934 23,908 92,910 56,283
----------------------------------------------------------------------------
Gross margin 13,062 3,571 27,635 8,750
Other expenses
Selling, general and
administrative 5,599 4,632 16,198 11,536
Stock-based compensation 118 234 333 407
Depreciation and amortization 2,885 2,881 8,014 7,526
Interest on long-term debt 602 713 1,790 1,567
Other interest 69 10 116 15
Gain on sale of property
and equipment (790) (282) (854) (334)
Foreign exchange (gain) loss 56 422 (15) 242
----------------------------------------------------------------------------
Earnings (loss) before
income taxes 4,523 (5,039) 2,053 (12,209)
----------------------------------------------------------------------------
Income taxes
Current expense (recovery) (150) (479) (150) 233
Future expense (recovery) 1,578 (1,227) 1,702 (3,307)
----------------------------------------------------------------------------
1,428 (1,706) 1,552 (3,074)
----------------------------------------------------------------------------
Net earnings (loss) from
continuing operations 3,095 (3,333) 501 (9,135)
Loss from discontinued operations (6,932) (1,971) (5,777) (15,864)
----------------------------------------------------------------------------
Net loss (3,837) (5,304) (5,276) (24,999)
Retained earnings (deficit),
beginning of period (3,969) 5,919 (2,530) 25,614
----------------------------------------------------------------------------
Retained earnings (deficit),
end of period $ (7,806) $ 615 $ (7,806) $ 615
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings (loss) per share
from continuing operations
Basic and diluted $ 0.13 $ (0.14) $ 0.02 $ (0.49)
Loss per share from
discontinued operations
Basic and diluted $ (0.29) $ (0.08) $ (0.24) $ (0.84)
Loss per common share
Basic and diluted $ (0.16) $ (0.22) $ (0.22) $ (1.33)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Pure Energy Services Ltd.

Consolidated Statements of Comprehensive Income (Loss) and Accumulated
Other Comprehensive Income (Loss)

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000's Cdn) (Unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------

Comprehensive income (loss)
Net loss $ (3,837) $ (5,304) $ (5,276) $ (24,999)
Add/deduct other comprehensive
income (loss) items:
Foreign currency translation
adjustment (1,240) (3,472) (855) (5,472)
Foreign exchange gain on
reduction of net investment
in US subsidiary - 422 - 242
----------------------------------------------------------------------------
(1,240) (3,050) (855) (5,230)
----------------------------------------------------------------------------
Comprehensive income (loss) $ (5,077) $ (8,354) $ (6,131) $ (30,229)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000's Cdn) (Unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------

Accumulated other comprehensive
income (loss)
Balance, beginning of period $ (1,911) $ 1,992 $ (2,296) $ 4,172
Loss on translation of US
operations during the period (1,240) (3,050) (855) (5,230)
----------------------------------------------------------------------------
Balance, end of period $ (3,151) $ (1,058) $ (3,151) $ (1,058)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Pure Energy Services Ltd.

Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
($000's Cdn) (Unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------

Cash provided by (used in):
Operating activities
Net earnings (loss) from
continuing operations $ 3,095 $ (3,333) $ 501 $ (9,135)
Items not involving cash
from continuing operations:
Depreciation and amortization 2,885 2,881 8,014 7,526
Stock-based compensation 118 234 333 407
Future income tax expense
(recovery) 1,578 (1,227) 1,702 (3,307)
Gain on sale of property
and equipment (790) (282) (854) (334)
Unrealized portion of foreign
exchange (gain) loss 66 422 (15) 134
----------------------------------------------------------------------------
6,952 (1,305) 9,681 (4,709)
Changes in non-cash working
capital balances from
continuing operations (8,624) (5,302) (10,498) 9,490
----------------------------------------------------------------------------
Continuing operations (1,672) (6,607) (817) 4,781
Discontinued operations (452) (2,099) 3,407 6,853
----------------------------------------------------------------------------
(2,124) (8,706) 2,590 11,634
----------------------------------------------------------------------------
Investing activities
Purchases of property and
equipment (2,418) (1,076) (10,546) (3,142)
Proceeds from sale of
property and equipment 5,474 204 6,524 1,635
Business acquisition - - (2,367) (5,524)
Changes in non-cash working
capital balances (1,565) (80) (970) (2,292)
Discontinued operations (729) 34,972 (941) 31,752
----------------------------------------------------------------------------
762 34,020 (8,300) 22,429
----------------------------------------------------------------------------
Financing activities
Borrowings under operating loan 2,268 - 7,469 -
Net repayments of revolving
term loans - (21,794) (12,788) (27,710)
Proceeds from fixed term loans - - 12,329 -
Repayments of fixed term loans (652) (410) (690) (4,209)
Issue of share capital, net
of issue costs 44 - 44 (20)
Discontinued operations - (3,522) - (3,699)
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1,660 (25,726) 6,364 (35,638)
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 298 (412) 654 (1,575)
Effect of translation on foreign
currency cash and cash equivalents (86) (198) (79) (274)
Cash and cash equivalents,
beginning of period 2,349 2,962 1,986 4,201
----------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 2,561 $ 2,352 $ 2,561 $ 2,352
----------------------------------------------------------------------------
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Contact Information

  • Pure Energy Services Ltd.
    Kevin Delaney
    Chief Executive Officer
    (403) 262-4000
    (403) 262-4005 (FAX)
    kdelaney@pure-energy.ca
    or
    Pure Energy Services Ltd.
    Chris Martin
    Chief Financial Officer
    (403) 262-4000
    (403) 262-4005 (FAX)
    cmartin@pure-energy.ca
    or
    Pure Energy Services Ltd.
    10th Floor, 333 - 11th Avenue S.W.
    Calgary, AB T2R 1L9