Pure Energy Services Ltd.
TSX : PSV

Pure Energy Services Ltd.

March 18, 2009 21:56 ET

Pure Energy Services Ltd. Announces Results for the Year Ended December 31, 2008

CALGARY, ALBERTA--(Marketwire - March 18, 2009) - Pure Energy Services Ltd. (TSX:PSV)



Selected Consolidated Financial Information

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($ thousands, except per share amounts) 2008 2007 2006
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Revenue $ 192,506 $ 125,086 $ 135,355
Gross margin $ 42,886 $ 27,967 $ 44,219
Gross margin % 22% 22% 33%
General and administrative expenses $ 21,558 $ 21,549 $ 17,100
EBITDA (1) $ 20,907 $ 6,661 $ 27,695
EBITDAS (1) $ 22,023 $ 7,929 $ 28,866
Net income (loss) $ 1,012 $ (3,529) $ 13,046
Income (loss) per share:
Basic $ 0.06 $ (0.22) $ 0.84
Diluted $ 0.06 $ (0.22) $ 0.81
Funds flow from operations (2) $ 17,286 $ 4,322 $ 28,084
Total assets $ 229,215 $ 193,254 $ 192,606
Total long-term debt $ 65,314 $ 40,833 $ 13,667
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(1) EBITDA and EBITDAS do not have standardized meanings prescribed by
Canadian generally accepted accounting principles ("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,
amortization 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 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.

(2) 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 from operations does not have a standardized
meaning prescribed by GAAP and may not be comparable to similar measures
provided by other corporations.


2008 Highlights

The 2008 fiscal year was a year of contrasts for the oil and gas services industry in general. Record industry activity levels in the US were contrasted by declining activity levels in the WCSB. What started off as a year of optimism with increasing activity levels and strong commodity prices ended with a great amount of uncertainty amidst the challenges of a global recession and declining commodity prices.

Similar to the industry, Pure experienced a year of contrasts within its own operations and in comparison to the industry. The following is a brief overview of a number of key highlights for 2008:

- Generated record revenue through a 54% increase in consolidated revenue to $192.5 million from the $125.1 million generated in 2007. The majority of this improved performance came in the final two quarters of 2008 which experienced consecutive record revenue results in stark contrast to declining industry activity levels;

- Commenced full operation of the Corporation's well fracturing division;

- Expanded Pure's US operations in Wyoming and North Dakota;

- Improved utilization of the Corporation's drilling rigs by 54% to 43% from 28% in the prior year. This compares favourably to the 11% increase in utilization experienced by the industry year over year (source: CAODC); and

- Low industry activity levels in the WCSB negatively impacted the Corporation's CCS segment, however, the Corporation was able to partially mitigate the impact of these lower activity levels by relocating eight production testing and two wireline units into its expanding US markets.

The strength of Pure's diversified operations, both geographically and through its service offerings, provided Pure with the opportunity to make these achievements in 2008 and help mitigate the impact of the challenging industry environment.

The increase in revenue year over year was largely due to the increased utilization of Pure's fracturing assets in the US which saw a 563% increase in fracturing revenue to $50.0 million during 2008 versus $7.5 million in 2007. This significant increase in fracturing revenue combined with the growth of wireline and production testing operations in the US resulted in the US revenue increasing to 51% of Pure's consolidated revenue from 32% in the prior year.

This increase in contribution from Pure's US operations combined with a 61% increase in the Corporation's Drilling segment revenue more than offset a 9% decline in revenue experienced in the CCS segment. The lower revenue result in the CCS segment was due to continued softening in industry activity levels in the WCSB. The transfer of equipment to the Corporation's busier US operations and the expansion of services into deeper natural gas plays in north eastern British Columbia and Alberta helped to mitigate the impact of the lower industry activity.

Consistent with the 54% increase in revenue year over year, gross margin increased 53% to $42.9 million from the $28.0 million generated in 2007. Gross margin as a percentage of revenue was consistent year over year at 22%. Increased activity and improved financial performance from the Corporation's US operations offset gross margin declines in the CCS segment which was negatively impacted by lower industry activity levels and competitive pricing pressures.

The increase in gross margin had a positive impact on EBITDA which increased 214% to $20.9 million from $6.7 million in 2007. EBITDA also benefited from general and administrative expenses remaining consistent year over year in spite of the 54% increase in revenue. The Corporation was able to hold general and administrative costs consistent year over year due to the majority of the Corporation's general and administrative infrastructure being put in place during 2007 in anticipation of the increased activity levels experienced in 2008. Cost cutting initiatives implemented during 2007 also helped to mitigate general and administrative cost increases during 2008.

This improved EBITDA result year over year was achieved in spite of the 2007 results benefiting from a $2.1 million gain on sale of assets from the sale of the Corporation's original drilling rig. This gain was partially offset by a $1.2 million impairment of goodwill and a $0.7 million impairment of a note receivable recognized in 2007. In comparison, the Corporation only recognized $0.1 million in gains on sale of assets during 2008 which was offset by a $0.4 million impairment of intangible assets.

The improved operating performance during the year allowed Pure to generate $1.0 million in net income, $0.06 per share, during the year versus a loss of $3.5 million, ($0.22) per share, during 2007.

Management also announces that Richard Kuzyk has decided to leave the board of directors of Pure effective March 19, 2009, in order to dedicate more time to other personal opportunities. Management and the board of directors thank Rick for his contributions over the past three and a half years and wish him success in his future endeavours.



Results of Operations

US Completion Services

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Year ended December 31
($ thousands) 2008 2007 Variance % Change
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Revenue $ 98,805 $ 40,077 $ 58,728 147%
Operating expenses 77,009 32,822 44,187 135%
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Gross margin $ 21,796 $ 7,255 $ 14,541 200%
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Gross margin % 22% 18% 4% 22%

Average units available during the
period:
Production testing 31.2 23.0 8.2 36%
Wireline 3.6 2.1 1.5 71%
Fracturing spreads 3.0 1.8 1.2 67%
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Total 37.8 26.9 10.9 41%
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Number of jobs completed:
Production testing 7,866 6,013 1,853 31%
Wireline 1,195 440 755 172%
Fracturing 1,335 183 1,152 630%
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Total 10,396 6,636 3,760 57%
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2008 was a year of significant growth for Pure's USCS segment which saw revenue increase by 147% to $98.8 million from the $40.1 million generated in 2007. A number of key factors contributed to the increase in revenue during 2008:

- The segment's well fracturing division began full operation in 2008 which resulted in the number of jobs increasing by 630% in 2008 versus 2007. All three fracturing spreads were fully operational by the fourth quarter of 2008. In contrast, lack of fracturing sand availability from the Corporation's sand supplier hindered well fracturing operations throughout 2007. These sand supply constraints were largely overcome in the second quarter of 2008 with the completion of commissioning on the sand supply mine by the Corporation's sand supplier;

- Strong operational performance resulted in the well fracturing division being awarded a number of contracts for fracturing services during 2008;

- Customer demand allowed the Corporation to transfer eight well testing and two wireline units from the Corporation's Canadian operations to the US during 2008. An additional wireline unit was transferred subsequent to year end;

- During the first quarter of 2008, the Corporation expanded its USCS production testing operations into North Dakota through the establishment of a new Minot, North Dakota, operating base. A total of 11 production testing units now operate out of this base providing production testing services primarily in the Bakken oil resource play in North Dakota; and

- The USCS division also expanded its wireline field operations into Wyoming during the second quarter of 2008. A total of ten production testing and three wireline units now operate out of this base.

While all of the above factors contributed to the increase in revenue and activity for the USCS segment during the year, the commencement of full operations for the segment's well fracturing division had the single largest impact on the segment's improved performance. Well fracturing accounted for 51% of the segment's total revenue during the year, with approximately 70% of this division's revenue being generated in the second half of 2008. The significant increase in revenue for this division during the second half of 2008 was due to the increased availability of fracturing sand as well as the commencement of operations for the division's third fracturing spread at the beginning of the fourth quarter.

The USCS has also benefited from its bundling of services marketing strategy whereby Pure often provides wireline, well fracturing and flow-back services on the same job. This approach allows Pure to provide a cost effective and efficient well completions solution to its customers.

The increase in activity and services provided by the segment's wireline division resulted in a 17% average pricing increase for the segment's wireline services year over year. Average pricing for the segment's production testing division was essentially consistent year over year. Pricing for the segment's well fracturing services decreased by 9% year over year. This decrease was a result of the commencement of activity under the division's contracted services with its key customers. The impact on revenue from these lower average revenue rates for the segment's well fracturing division were more than offset by the significant increase in activity during 2008.

The increase in revenue allowed gross margin for the USCS segment to increase 200% to $21.8 million from the $7.3 million generated in 2007. As a result of improved operating efficiencies associated with the increased field activity for all of the segment's divisions, combined with the reduction of unusually high operating costs associated with the ramp up of the segment's well fracturing operations in 2007, gross margin as a percentage of revenue increased to 22% during 2008 versus 18% in 2007.

As discussed above, the segment's well fracturing operations were hindered during 2007 and the first half of 2008 due to delays in receiving sand from the Corporation's primary sand supplier. As a result, the division was required to incur unusually high costs to procure sand from alternative suppliers and the delay in ramp up of the division's operations caused the division to carry proportionately high overhead costs in comparison to the abnormally low field activity levels.

The impact of these unusually high costs on the fracturing division resulted in the division incurring negative gross margin results during 2007 and the first quarter of 2008. Financial results for the division began to improve coinciding with the commencement of deliveries of sand during the second quarter of 2008 and the division was able to generate sufficient positive gross margin in the second and third quarters of 2008 to offset all of the gross margin losses incurred in the previous five quarters.

The segment's expansion of its wireline and production testing operations during the year also had a positive impact on gross margins. In particular, the wireline division generated a 13 fold increase in gross margin year over year. This positive result was due to the benefits of economies of scale from the 71% increase in average operating units for the division and its expansion into additional territories of operation during the year. This expansion of operating units and operational territory resulted in a 172% increase in the number of jobs completed for the wireline division year over year. While modest in comparison to the increases experienced in the well fracturing and wireline divisions, the production testing division enjoyed a 31% increase in job count which was a direct result of the 36% increase in average production testing units operated in the division year over year.




Canadian Completion Services

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Year ended December 31
($ thousands) 2008 2007 Variance % Change
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Revenue $ 55,306 $ 61,102 $ (5,796) (9%)
Operating expenses 44,041 46,834 (2,793) (6%)
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Gross margin $ 11,265 $ 14,268 $ (3,003) (21%)
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Gross margin % 20% 23% (3%) (13%)

Average units available during
the period:
Production testing 36.2 44.7 (8.5) (19%)
Wireline 36.4 37.0 (0.6) (2%)
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Total 72.6 81.7 (9.1) (11%)
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Number of jobs completed:
Production testing 5,957 6,253 (296) (5%)
Wireline 5,230 6,073 (843) (14%)
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Total 11,187 12,326 (1,139) (9%)
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As a result of a 9% decline in jobs completed during 2008, revenue for the CCS segment declined by 9% to $55.3 million from $61.1 million in 2007. The decline in activity levels in the segment is consistent with the overall 9% decline in the number of wells drilled in the WCSB during 2008 (source: Daily Oil Bulletin) and an 11% decline in average operating units in the CCS segment. Activity levels in the CCS segment have also been negatively impacted by further declines in shallow natural gas exploration activity which has traditionally been a key area of activity for the CCS segment's operations.

As a result of the decline in shallow natural gas activity levels, the Corporation undertook a number of initiatives in 2008 to help mitigate the segment's exposure to shallow natural gas activities in the WCSB. These initiatives include the following:

- Transferred eight low pressure production testing units and two wireline units to Pure's busier US operations. An additional wireline unit was transferred to the US subsequent to year end;

- Purchased three high pressure testing units during the third quarter for $1.2 million which are being utilized in the expanding non-conventional natural gas exploration areas such as the Montney resource play in north eastern British Columbia; and

- Utilized the expertise from the Corporation's US operations personnel in the US Rockies to assist in the successful completion of multi-stage perforating operations in the technical Montney resource play during the second half of 2008.

These initiatives will help balance the segment's operating activities throughout the WCSB and should help mitigate the impact of lower activity levels currently being experienced in conventional and shallow natural gas exploration and development areas in the WCSB.

While activity levels for the CCS segment and the industry were lower during the year, the CCS segment was able to maintain average job pricing year over year. On an individual division basis, pricing in the segment's wireline division was consistent year over year. Competitive pricing pressures caused price declines in some services provided in the wireline division, however, an increase in more complex, higher priced work in northern British Columbia and Alberta helped to mitigate lower pricing in other service areas. This increase in northern British Columbia and Alberta work also benefited the segment's production testing division which experienced a 4% increase in average pricing year over year.

While activity levels and the resulting revenue generated in the segment have declined year over year, a similar decline in operating costs did not occur during the year. Reasonably strong activity in the first quarter of the year was followed by the traditionally slow spring breakup period in April and May which was then followed by increasing commodity prices and a temporary increase in activity. These unpredictable activity levels during 2008 resulted in the CCS segment carrying excess field staff and higher support costs in anticipation of continued higher activity levels.

This higher cost structure combined with an overall decline in activity levels during 2008 resulted in fixed operating costs as a proportion of total operating costs increasing during the year. The carrying of higher fixed operating costs relative to actual activity during 2008 caused gross margin as a percentage of revenue to decline to 20% during the year from the 23% generated in 2007. Gross margin as a percentage of revenue was also impacted by an increase in rental equipment and other start-up items related to the segment's transition into deeper production areas in northern British Columbia and Alberta, combined with inflationary increases in regular operating expense items such as fuel and maintenance costs.

As a result of the lower revenue and gross margin as a percentage of revenue, gross margin for the CCS segment declined to $11.3 million from the $14.3 million generated in the prior year. In response to the lower operating results for the CCS segment, management has initiated a number of cost cutting measures which are aimed at reducing the segment's fixed operating costs and overhead structure to reflect the current lower activity levels being experienced by the industry and the CCS segment.



Drilling Services

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Year ended December 31
($ thousands) 2008 2007 Variance % Change
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Revenue $ 38,395 $ 23,907 $ 14,488 61%
Operating expenses 28,570 17,463 11,107 64%
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Gross margin $ 9,825 $ 6,444 $ 3,381 52%
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Gross margin % 26% 27% (1%) (4%)

Average units available during
the period:
Drilling rigs 10.0 9.5 0.5 5%
Mud motors 58.3 59.2 (0.9) (2%)
Utilization:
Drilling rigs 43% 28% 15% 54%
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Revenue for Pure's Drilling Services segment increased by 61% during the year to $38.4 million from the $23.9 million generated in 2007. This significant improvement is due primarily to a 54% increase in utilization for the Corporation's drilling rigs and a 69% increase in revenue contribution from the segment's Motorworks mud motor and directional drilling operations.

The 54% increase in utilization for Pure's drilling rigs compares favourably to the 11% increase in industry activity levels in the WCSB over the same period (source: CAODC). The improved utilization for the Corporation's drilling rigs is due to marketing efforts to contract Pure's drilling rigs with new customers that were more active in 2008 than Pure's previous customers in 2007.

Partially offsetting the positive contribution from increased activity for the Corporation's drilling rigs was a 2% decline in average day pricing for the segment's drilling rigs to $17,017 per day versus $17,316 per day in 2007. The higher result achieved in 2007 was due primarily to strong pricing in the first quarter of 2007, as pricing for the remaining three quarters has been higher in 2008 than the comparative quarters in 2007. This higher average pricing for the remaining three quarters was largely due to higher pass-through items such as fuel, equipment rentals and trucking. These items are passed through to the customer at cost or a small mark-up which, while increasing revenue, has little impact on gross margin for the division. If the impact of these pass-through items is excluded, average day rate pricing declined approximately 10% year over year.

The significant increase in revenue contribution from the segment's Motorworks division was due to an increase in directional drilling services provided by the division. Directional drilling services accounted for 68% of the division's revenue in 2008 versus only 42% in the prior year. While overall utilization of the division's mud motors decreased year over year, higher job pricing due to the increased amount of services provided with directional drilling versus the division's prior mud motor rental focus, allowed revenues to increase year over year.

As a result of the increased revenue for the Drilling Services segment, gross margin increased by 52% to $9.8 million from $6.4 million in the prior year. Combined gross margin as a percentage of revenue for the segment was 26% in 2008 versus 27% in 2007. The slight decline in gross margin as a percentage of revenue was due to average base pricing declines in the segment's drilling rig division and the incurrence of higher field operating costs associated with the segment's directional drilling and mud motor division. These items were partially offset by lower average fixed operating costs as a percentage of total operating costs for the segment's drilling rig division due to improved equipment utilization year over year. The higher equipment utilization provides for greater economies of scale resulting in fixed operating costs being spread over a larger revenue base. In addition, due to the lower activity levels experienced in 2007, additional overhead and operating costs were incurred in 2007 due to efforts by the drilling rig division to retain field staff during the slower activity periods. These improved operating efficiencies offset margin pressures caused by the average pricing declines discussed above as well as a 10% field labor increase implemented in the fourth quarter of 2008.

Operating costs for the segment's directional drilling and motor rental division have increased year over year in conjunction with the increase in directional drilling operations. Directional drilling requires additional field personnel and office support services. In addition, the division currently does not own any Measurement While Drilling ("MWD") tools which are used for directional drilling services. As a result the division must rent this equipment from third party suppliers.

General and Administrative Expenses

General and administrative expenses were consistent year over year at $21.6 million. Included in general and administrative expenses in 2008 was $0.5 million of additional stock-based compensation expense that was incurred as a result of the cancellation of a number of outstanding options during the year. In addition, the Corporation incurred $0.7 million in final settlement costs for an outstanding employment litigation with a group of former employees. This amount was in addition to $0.5 million previously accrued in 2007 as a contingent liability for this matter. Subsequent to year end, US $0.6 million was recovered from the Corporation's former legal counsel in a malpractice claim initiated by the Corporation related to legal advice provided on this matter.

While the total dollar amount for general and administrative costs is consistent year over year, general and administrative costs decreased to 11% of revenue in 2008 versus 17% of revenue in the prior year. The decrease in general and administrative costs as a percentage of revenue is primarily due to the Corporation's USCS segment's general and administrative structure being largely in place during 2007 prior to the ramp-up of operating activities in 2008. In addition, over the last two years the Corporation has undertaken a number of steps to improve operating and administrative efficiencies. These efficiencies allowed the Corporation to increase its revenue 54% year over year with no increase in total general and administrative costs.

Depreciation and Amortization Expense

Depreciation and amortization expense increased to $15.7 million in 2008 from the $12.6 million incurred in 2007. The increase is due to the impact of the full year of depreciation in 2008 from the $35.8 million in capital asset additions from 2007 combined with the $27.4 million in capital assets added throughout 2008.

A $0.4 million impairment charge was recognized in the fourth quarter related to the Corporation's intangible assets acquired from its 2005 acquisition of Ross Wireline Services Ltd. As a result of lower financial contribution and a turnover of customers for this division, management determined that the carrying value of the division's customer list and trade name could no longer be supported and a full write-down of the carrying value for these intangible assets was recorded.

In the prior year, an impairment charge for goodwill related to the Corporation's Ross Wireline Services Ltd. and Motorworks Drilling Solutions Inc. acquisitions was recorded in the fourth quarter of 2007. The total impairment charge recorded in 2007 was $1.2 million, which represented the full carrying value of goodwill on the Corporation's financial statements.

Interest Expense

As a result of a $12.5 million increase in average debt levels during 2008, total interest expense increased to $2.6 million in 2008 from $2.4 million in 2007. Partially mitigating the impact from increased debt levels during 2008 was a lower average effective interest rate on the Corporation's debt facilities during 2008 versus 2007. The lower average effective interest rate was due to a number of prime lending rate reductions that were implemented throughout 2008 by the Corporation's lender.

Other Expenses (Income)

Other expenses are comprised of a nominal $0.2 million foreign exchange loss which is partially offset by a $0.1 million gain on sale of equipment. In comparison, $2.1 million in gains from the sale of equipment were recognized in other income in 2007 which was primarily related to the sale of the Corporation's oldest drilling rig. This gain was partially offset by a $0.7 million loss incurred from the net write-off of an outstanding note receivable advanced by the Corporation to its US fracturing sand supplier to assist in the start-up of the supplier's sand supply mine.

Income Tax Expense

Pure recorded an income tax expense of $1.5 million during 2008, which represents a 60.3% effective income tax rate versus the 29.5% statutory rate for the Corporation's Canadian operations and a 37.5% statutory rate for the Corporation's US operations. The higher effective income tax rate relates to non-deductible expense items and adjustments from the filing of amended tax returns. These items were partially mitigated by a $1.4 million reduction in future income tax expense related to lower future income tax rates.



2008 Fourth Quarter Discussion

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Three months ended December 31
($ thousands) 2008 2007 Variance % Change
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Revenue $ 60,534 $ 31,013 $ 29,521 95%
Gross margin $ 14,036 $ 6,826 $ 7,210 106%
Gross margin % 23% 22% 1% 5%

General and adminstrative expenses $ 5,551 $ 5,561 $ (10) 0%
EBITDA $ 8,110 $ 3,552 $ 4,558 128%
EBITDAS $ 8,151 $ 3,904 $ 4,247 109%
Net income $ 1,427 $ 1,060 $ 367 35%
Net income per share:
Basic $ 0.08 $ 0.07 $ 0.01 14%
Diluted $ 0.08 $ 0.07 $ 0.01 14%
Funds flow from operations $ 5,599 $ (119) $ 5,718 4,806%
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Continued strong activity in the Corporation's USCS segment allowed Pure to generate consecutive quarters of increasing record quarterly revenue. Consolidated revenue in the fourth quarter of 2008 increased by 95% to $60.5 million from the $31.0 million generated in the fourth quarter of 2007. The improved result relative to the fourth quarter of 2007 was due to increased revenue in all three of the Corporation's reporting segments. The largest increase was experienced in the Corporation's USCS segment which experienced a 227% increase in revenue quarter over quarter to $35.8 million from the $11.0 million in revenue generated in the fourth quarter of 2007. This significant increase was due primarily to the segment's well fracturing division being fully operational in the fourth quarter of 2008 versus the curtailed operations experienced in the fourth quarter of 2007.

The Corporation's Drilling Services segment also experienced a significant increase in revenue with revenue increasing by 79% to $8.8 million during the quarter from $4.9 million in the fourth quarter of 2007. This increase was due to improved utilization of the segment's drilling rigs. Subsequent to the fourth quarter of 2007, the segment's marketing efforts have been directed towards increasing activity with larger customers that tend to remain active throughout slower periods of industry activity. This change in customer base resulted in the improved operating performance in 2008 relative to the comparative period in 2007.

Activity for the Corporation's CCS segment experienced a nominal increase resulting in revenue increasing to $15.9 million during the quarter from $15.1 million in the fourth quarter of 2007. Industry activity levels, in particular shallow natural gas activity, continued to be depressed throughout 2008 which constrained activity for the Corporation's CCS segment. As a result of the lower activity levels in Canada, the Corporation transferred one production testing and one wireline unit from its Canadian operations to its US operations during the quarter. This transfer of underutilized units had no impact on activity for the CCS segment, however, it allowed the Corporation's USCS segment to increase its overall activity levels.

With the increased activity, gross margin increased to $14.0 million during the quarter versus $6.8 million in the fourth quarter of 2007. Gross margin as a percentage of revenue increased to 23% during the quarter from 22% in the comparative period in 2007. This nominal increase in gross margin as a percentage of revenue is due to an improvement in operating results for the Corporation's USCS and Drilling Services segments. The increase in contribution from these segments offsets margin declines in the Corporation's CCS segment.

The improved operating results led to an increase in EBITDA to $8.1 million during the quarter from $3.6 million in the fourth quarter of 2007. The increase in EBITDA was $2.6 million less than the increase in gross margin experienced in the fourth quarter of 2008 versus the comparative period in 2007. The $2.6 million variance is due to the fourth quarter of 2007 benefiting from a $3.5 million recovery of a previously recorded impairment of a note receivable, which was partially offset by a $1.2 million impairment of goodwill recognized in the fourth quarter of 2007.



US Completion Services

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Three months ended December 31
($ thousands) 2008 2007 Variance % Change
----------------------------------------------------------------------------

Revenue $ 35,834 $ 10,958 $ 24,876 227%
Operating expenses 27,118 9,109 18,009 198%
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Gross margin $ 8,716 $ 1,849 $ 6,867 371%
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Gross margin % 24% 17% 7% 41%
Average units available during the
period:
Production testing 34.0 25.0 9.0 36%
Wireline 5.0 2.3 2.7 118%
Fracturing spreads 3.0 2.0 1.0 50%
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Total 42.0 29.3 12.7 43%
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Number of jobs completed:
Production testing 1,852 1,621 231 14%
Wireline 463 143 320 224%
Fracturing 417 109 308 283%
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Total 2,732 1,873 859 46%
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Activity levels for Pure's USCS segment continued to be strong in the fourth quarter of 2008 resulting in revenue increasing by 227% to a record $35.8 million during the fourth quarter of 2008 versus $11.0 million in the comparative quarter of 2007. The majority of the improved performance quarter over quarter was due to the increased contribution from the segment's well fracturing operations which contributed $20.1 million in revenue during the quarter versus only $2.6 million in the fourth quarter of 2007. As a result of having sufficient well fracturing sand supply, combined with the commencement of field operations for the division's third and final fracturing spread, activity for the division increased by 283% with the completion of 417 jobs during the quarter.

Strong customer demand in the Corporation's USCS segment allowed the Corporation to transfer production testing and wireline equipment from the Corporation's Canadian operations. A total of nine production testing units and three wireline units have been transferred to the US since the beginning of the fourth quarter of 2007. These unit transfers resulted in a 224% and 14% increase in activity levels for the segment's wireline and production testing divisions, respectively. The segment's expansion of production testing and wireline services in Wyoming and North Dakota during 2008 supported the transfer of additional equipment from the Corporation's Canadian operations.

The increased activity from the strong customer demand for the segment's services combined with an expansion of services subsequent to the fourth quarter of 2007 resulted in average pricing increasing in all three divisions quarter over quarter. Pricing for the segment's wireline and production testing divisions increased approximately 22% in the quarter versus the fourth quarter of 2007 with pricing for the segment's well fracturing division increasing 11% over the comparative period.

The significant increase in activity levels for all three of the segment's divisions combined with the reduction of start-up costs and operational inefficiencies for the segment's well fracturing operations allowed the segment to increase gross margin as a percentage of revenue to 24% during the quarter from 17% in the fourth quarter of 2007. This improved operational performance resulted in a 371% increase in gross margin to $8.7 million during the quarter from $1.9 million in the fourth quarter of 2007.



Canadian Completion Services

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Three months ended December 31
($ thousands) 2008 2007 Variance % Change
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Revenue $ 15,896 $ 15,125 $ 771 5%
Operating expenses 12,260 10,823 1,437 13%
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Gross margin $ 3,636 $ 4,302 $ (666) (15%)
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Gross margin % 23% 28% (5%) (18%)

Average units available during
the period:
Production testing 35.0 42.0 (7.0) (17%)
Wireline 35.0 37.7 (2.7) (7%)
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Total 70.0 79.7 (9.7) (12%)
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Number of jobs completed:
Production testing 1,685 1,462 223 15%
Wireline 1,418 1,618 (200) (12%)
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Total 3,103 3,080 23 1%
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Revenue increased to $15.9 million in the fourth quarter of 2008 versus $15.1 million in the fourth quarter of 2007. This increase in revenue was a result of an approximately 5% increase in average gross pricing experienced in the quarter related to an increase in work performed in unconventional gas projects in northern British Columbia and Alberta for both the production testing and wireline divisions. This increase in average pricing is due to higher charge-out rates as a result of the more complex work performed in these unconventional resource plays. In addition, pricing is skewed higher from pass-through items such as equipment rentals used for these northern projects.

Although the average number of production testing units decreased 17% quarter over quarter, activity for the production testing division increased 15%. The increase in activity was due to more work being performed in northern locations as these projects tend to be longer in duration. The decrease in wireline activity quarter over quarter was due to lower industry activity levels in the areas in which the wireline division operates.

Gross margin as a percentage of revenue declined to 23% during the quarter versus 28% in the fourth quarter of 2007. This decline in gross margin is largely a function of an increase in revenue contribution from the segment's production testing division which generates a lower gross margin as a percentage of revenue versus the wireline division. Approximately 46% of the segment's revenue was generated from the production testing division in the quarter versus 35% in the comparative quarter in 2007. Gross margin as a percentage of revenue was also negatively impacted by competitive pricing pressures in both divisions. While average gross revenue rates increased 5% during the quarter versus the comparative period in 2007, the majority of this increase was due to increased revenue from pass-through items. These pass-through items are billed to customers at cost or a nominal mark-up, thus while increasing revenue, these items have no impact on gross margin.



Drilling Services

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Three months ended December 31
($ thousands) 2008 2007 Variance % Change
----------------------------------------------------------------------------

Revenue $ 8,804 $ 4,931 $ 3,873 79%
Operating expenses 7,120 4,254 2,866 67%
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Gross margin $ 1,684 $ 677 $ 1,007 149%
----------------------------------------------------------------------------
Gross margin % 19% 14% 5% 36%

Average units available during the
period:
Drilling rigs 10.0 9.0 1.0 11%
Mud motors 56.0 59.7 (3.7) (6%)
Utilization:
Drilling rigs 34% 22% 12% 55%
----------------------------------------------------------------------------


Consistent with the results in the prior three quarters, the Drilling Services segment improved upon its financial results in comparison to 2007. As a result of improved utilization of the segment's drilling rigs and higher revenue contribution from directional drilling services, revenue for the Drilling Services segment increased by 79% to $8.8 million from $4.9 million in the fourth quarter of 2007. Activity for the division's drilling rigs was unusually slow in the fourth quarter of 2007 as the division was in the process of refocusing its marketing efforts on increasing the division's exposure to larger exploration and drilling companies who were relatively more active than the division's traditional smaller customers.

While activity for the drilling rig division increased during the quarter, the 34% rig utilization achieved in the fourth quarter was lower than the 42% achieved by the industry during the quarter (source: CAODC). Activity for the division during the quarter was hampered by unusually warm weather in northern drilling locations which prevented the division from moving its rigs onto locations to commence drilling operations. In addition, a customer project was delayed due to well licensing issues which would have utilized two drilling rigs during the quarter. Due to the unexpected delay of the project, the division was not able to re-contract these rigs with another customer on a timely basis.

Revenue also benefited from a 24% increase in average gross revenue rates to $19,518 per operating day during the quarter from $15,767 in the fourth quarter of 2007. This increase in gross revenue rates was due to increased revenue from pass-through items such as fuel and equipment rentals. In addition, due to weather delays which hindered equipment movement from location to location, increased standby revenue was generated during the quarter.

As a result of the increased activity, gross margin as a percentage of revenue increased to 19% in the quarter from 14% in the fourth quarter of 2007. Higher operating costs were incurred during the fourth quarter of 2007 to retain staff during the unusually slow period. The higher activity levels in 2008 provided for greater operating efficiencies.

Liquidity and Capital Resources

Pure exited the year with $4.2 million in cash and $65.3 million outstanding on the Corporation's long-term debt facilities compared to $2.0 million in cash and $42.4 million outstanding on these facilities as at December 31, 2007. On a net debt basis, long-term debt less positive working capital, the Corporation's debt increased to $35.1 million from $27.6 million as at December 31, 2007. This nominal increase in net debt arose from the Corporation investing $27.4 million in property and equipment expenditures during 2008. The majority of the Corporation's investment in property and equipment during the year was financed from the $17.3 million in positive funds flow from operations generated during the year.

During 2008, Pure's board of directors approved a total capital expenditure budget of $40.0 million, of which $27.4 million has been incurred with $6.0 million to carryover into the first quarter of 2009. In light of the continued slowdown in industry activity levels, the remaining unspent portion of the Corporation's 2008 capital budget has been cancelled. This unspent 2008 capital budget was focused on various growth capital initiatives which will be reconsidered for further investment once industry activity increases to a level that will support further investment in growth initiatives. For 2009, the Corporation's board of directors has approved a nominal $2.0 million capital budget which will be used as required to maintain and supplement, where required, the Corporation's existing operating capacity and capabilities.

In addition to the capital expenditures discussed above, the Corporation has the following operating and debt commitments over the next five years:



----------------------------------------------------------------------------
Payments Due by Period
----------------------------------------------------------------------------

Contractual
Obligations After
($ thousands) Total 2009 2010 2011 2012 2012
----------------------------------------------------------------------------
Long-term debt
obligations (1)$ 65,314 $ 7,909 $ 15,042 $ 15,020 $ 14,986 $ 12,357
Purchase
obligations 48,745 11,691 8,791 9,297 9,485 9,481
Operating
leases 15,573 5,596 4,215 2,913 1,329 1,520
----------------------------------------------------------------------------
Total
Contractual
Obligations $129,632 $ 25,196 $ 28,048 $ 27,230 $ 25,800 $ 23,358
----------------------------------------------------------------------------

(1) Long-term debt obligations represent balances outstanding under the
extendible revolving loan facility and the non-revolving loan facility
and the obligations in the table above assumes the revolving facility
is not renewed in 2009.


Included in the Corporation's purchase obligations is a take-or-pay sand supply contract to support Pure's US well fracturing operations. For 2009, the Corporation is obligated to purchase $11.7 million in sand on this contract. In light of the current slowdown in industry activity, management is negotiating with the Corporation's sand supplier to determine if this level of commitment can be reduced for 2009. Given the level of market uncertainty in 2009, it is unknown at this time whether this full allotment of sand will be required for 2009. The Corporation's commitment for future years is a minimum of 80,000 tons of sand per year, with a right to increase this up to 150,000 tons on an annual basis via an election at the Corporation's option each year.

At this time, Pure has $88.0 million in available debt facilities to fund its operating requirements, of which $65.3 million was drawn upon as at December 31, 2008. Of this $88.0 million in facilities, $60.0 million is an extendible revolving loan facility that is renewable annually at the option of the lender. This facility was last renewed in the second quarter of 2008 and extends until June 30, 2009. If this facility is not renewed, it converts into a four year term loan, repayable monthly. The remaining $28.0 million in available facilities consist of $20.0 million in a demand operating line of credit and $8.0 million in term loans to finance the Corporation's various real estate operating facility assets.

Management believes these debt facilities combined with Pure's ability to generate positive funds flow from operations will be sufficient to finance the Corporation's current business operations and announced capital expenditure plans. The Corporation's ability to generate positive funds flow from operations will be key to allowing Pure to not only prosper during the current slowdown in industry activity but also allow Pure to be in a position to take advantage of growth opportunities that may present themselves during 2009.

As at March 18, 2009, the Corporation had 15,905,431 common shares issued and outstanding and 1,260,960 stock options issued and outstanding, of which 892,461 were vested.

Outlook

As the Corporation enters 2009, there is a great amount of uncertainty as to what the year ahead has to offer. In the midst of a global recession and low commodity prices, management recognizes that the strong growth and expansion during the previous four years has now been replaced by the need to aggressively manage costs and to make defensive decisions in light of declining industry activity levels. Unfortunately these cyclical highs and lows are a part of the industry in which Pure operates.

The diversity of Pure's operations during 2008 helped to mitigate the impact of these cyclical challenges as Pure's US operations continued to prosper throughout 2008 while activity levels in Canada softened. However, it appears that Pure's US operations will not be able to escape the impact of lower industry activity levels in 2009 as US drilling activity is expected to fall significantly in 2009 from the record levels enjoyed for much of 2007 and 2008.

During the first two months of 2009, activity in Pure's Canadian operations has been slower due to the low industry activity levels, however, activity in Pure's US operations has remained reasonably active. While the US activity has certainly been positive in light of the current challenges being faced by the industry, management recognizes that the remaining 10 months of 2009 may be challenging in both its Canadian and US operations.

As a result of the lower activity levels expected for the remainder of 2009, management has taken steps during the first quarter of 2009 to proactively adjust its operating cost structure. Among a number of steps taken, these cost saving initiatives include the reduction of staffing levels and wage reductions in both Canada and the US and the elimination of excess overhead and support infrastructure to reflect the lower activity levels. These initiatives are designed to help the Corporation maintain its current margins in light of potentially lower activity levels.

While being proactive on controlling costs, Pure is also aggressively marketing its services. In particular, with its diversified product offering, Pure has been approaching its key customers with creative solutions to provide cost savings opportunities for its customers. The Corporation's diversified geographic operations is also allowing Pure to transfer equipment between locations to meet customer demand in areas of higher activity.

Management believes that the Corporation's aggressive cost cutting initiatives, combined with the strength of its US operations and its ability to relocate equipment into areas of relatively higher activity, Pure is in position to weather the current challenges being faced by the oil and gas services industry. Pure has a stable balance sheet today, and it is management's intention to ensure this balance sheet remains stable throughout 2009.

Forward-looking Statements

This press release 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 press release that address expectations or projections about the future are future-looking statements. Some of the forward-looking statements may be identified by words such as "may", "would", "could", "will", "intends", "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 below and under "Risks and uncertainties" discussed in the Corporation's MD&A of the audited December 31, 2008 financial statements and 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 press release 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 press release 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; 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; certain commodity prices and other cost assumptions; certain conditions regarding natural gas storage in North America; 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 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 Rocky Mountain region 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 press release 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 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, collection of accounts receivable; operating risk liability; expectations regarding market prices and costs; expansion of services and operations in Canada and the United States; and competitive conditions.

The Corporation's actual results could differ materially from those anticipated in such forward-looking statements as a result of the risk factors set forth below and elsewhere in this document: general economic conditions in Canada and the United States; changes in the level of capital expenditures made by oil and natural gas producers and the resultant effect on 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; risks inherent in the Corporation's ability to generate sufficient cash flow from operations to meet its current and future obligations; increases in debt service charges; the Corporation's ability to access external sources of debt and equity capital; changes in legislation and the regulatory environment, including uncertainties with respect to implementing binding targets for reductions of emissions; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; competition; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, and skilled management, technical and field personnel; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; ability to integrate technological advances and match advances of competition; credit risk to which the Corporation is exposed in the conduct of its business; and changes to the royalty regimes applicable to entities operating in the WCSB or the Rocky Mountain region. Many of these factors are discussed in further detail in the Corporation's audited December 31, 2008 consolidated financial statements and related MD&A filed on SEDAR.



PURE ENERGY SERVICES LTD.

Consolidated Balance Sheets

----------------------------------------------------------------------------
----------------------------------------------------------------------------

(Stated in thousands of dollars)
----------------------------------------------------------------------------
As At December 31 2008 2007
----------------------------------------------------------------------------

Assets

Current assets
Cash and cash equivalents $ 4,201 $ 2,043
Accounts receivable 37,304 22,176
Inventory 5,041 2,915
Deposits and prepaid expenses 1,996 1,514
----------------------------------------------------------------------------
48,542 28,648

Property and equipment 179,002 162,291
Intangible assets 1,671 2,315
----------------------------------------------------------------------------
$ 229,215 $ 193,254
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
Operating loan $ - $ 1,568
Accounts payable and accrued liabilities 16,598 13,539
Income taxes payable 1,455 274
Deferred government grant 270 -
Current portion of long-term debt 7,909 333
----------------------------------------------------------------------------
26,232 15,714

Long-term debt 57,405 40,500
Future income taxes 4,886 6,973
----------------------------------------------------------------------------
88,523 63,187
----------------------------------------------------------------------------

Shareholders' equity
Share capital 106,510 106,002
Contributed surplus 3,511 2,853
Accumulated other comprehensive income (loss) 4,349 (4,098)
Retained earnings 26,322 25,310
----------------------------------------------------------------------------
140,692 130,067

$ 229,215 $ 193,254
----------------------------------------------------------------------------
----------------------------------------------------------------------------


PURE ENERGY SERVICES LTD.

Consolidated Statements of Income (Loss) and Retained Earnings

----------------------------------------------------------------------------
----------------------------------------------------------------------------

(Stated in thousands of Canadian Dollars, except per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------

Revenue $ 192,506 $ 125,086
Operating expenses 149,620 97,119
----------------------------------------------------------------------------
Gross margin 42,886 27,967

Expenses
Selling, general and administrative 21,558 21,549
Depreciation and amortization 15,728 12,581
Interest on long-term debt 2,304 1,913
Other interest 326 534
Gain on sale of equipment (113) (2,135)
Impairment of intangible assets and goodwill 376 1,230
Impairment of note receivable - 736
Other expense (income) 158 (74)
----------------------------------------------------------------------------
Income (loss) before income taxes 2,549 (8,367)

Income taxes
Current expense 2,375 903
Future reduction (838) (5,741)
----------------------------------------------------------------------------
1,537 (4,838)

----------------------------------------------------------------------------
Net income (loss) 1,012 (3,529)

Retained earnings, beginning of year 25,310 29,556

Adjustment relating to fair value accounting
of financial instrument - (717)
----------------------------------------------------------------------------

Retained earnings, end of year $ 26,322 $ 25,310
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Earnings (loss) per share
Basic $ 0.06 $ (0.22)
Diluted $ 0.06 $ (0.22)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


PURE ENERGY SERVICES LTD.
Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
----------------------------------------------------------------------------

(Stated in thousands of Canadian Dollars, except per share amounts)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the years ended December 31, 2008 2007
----------------------------------------------------------------------------
Cash provided by (used in)
Operating activities
Net income (loss) $ 1,012 $ (3,529)
Items not involving cash:
Depreciation and amortization 15,728 12,581
Stock-based compensation expense 1,116 1,268
Impairment of intangible assets and goodwill 376 1,230
Future income tax reduction (838) (5,741)
Impairment of note receivable - 736
Interest income on note receivable - (112)
Gain on sale of equipment (113) (2,135)
Unrealized foreign exchange loss 5 24
----------------------------------------------------------------------------
17,286 4,322
Changes in non-cash working capital balances (12,428) 11,544
----------------------------------------------------------------------------
4,858 15,866

----------------------------------------------------------------------------

Investing activities
Purchases of property and equipment (27,432) (35,840)
Proceeds from the sale of equipment 547 6,286
Note receivable - 5,098
Changes in non-cash working capital balances 676 (3,562)
----------------------------------------------------------------------------
(26,209) (28,018)

----------------------------------------------------------------------------

Financing activities
Operating loan (1,568) (14,643)
Net proceeds from revolving term loans 20,489 27,500
Proceeds from fixed term loans 3,840 -
Repayment of fixed term loans (541) (333)
Government grant received 245 -
Issue of share capital 50 -
----------------------------------------------------------------------------
22,515 12,524

----------------------------------------------------------------------------
Increase (decrease) in cash 1,164 372
Effect of translation on foreign currency
cash and cash equivalents 994 (686)
Cash, beginning of year 2,043 2,357
----------------------------------------------------------------------------

Cash, end of year $ 4,201 $ 2,043
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Requests for shareholder information should be directed to the contacts below:

Contact Information

  • Pure Energy Services Ltd.
    Kevin Delaney
    President and CEO
    (403) 262-4000
    Email: kdelaney@pure-energy.ca
    or
    Pure Energy Services Ltd.
    Brian Peters
    Chief Financial Officer
    (403) 262-4000
    Email: bpeters@pure-energy.ca
    or
    Pure Energy Services Ltd.
    10th Floor, 333 - 11th Avenue S.W.
    Calgary, AB
    T2R 1L9
    (403) 262-4005 (FAX)
    Website: www.pure-energy.ca