Sikanni Services Ltd.
TSX VENTURE : SKI

Sikanni Services Ltd.

August 29, 2007 09:15 ET

Sikanni Reports 2007 Second Quarter Results

RED DEER, ALBERTA--(Marketwire - Aug. 29, 2007) - SIKANNI SERVICES LTD. (TSX VENTURE:SKI) ("Sikanni" or the "Corporation") is pleased to announce its operating results for the quarter ended June 30, 2007 ("Q2 2007").

Consolidated revenues increased to $ 4.4 million for Q2 2007 from $1.0 million for Q2 2006 and the Company finished with $0.5 million of positive Ebitda during a quarter that was impacted by reduced capital spending and prolonged wet weather. The increase in the quarterly and year-to-date results is attributable to the impact of strategic acquisitions and the deployment of additional equipment and resources. The financial results for the three months ended June 30, 2007 include Sikanni and Twilight Oilfield Hauling for the entire quarter and the results of Northwell Oilfield Hauling for 12 days only. The full impact of the Northwell acquisition will be seen in Q3 2006.

"Our Q2 results were well below our expectations but were consistent with our industry peers. No one is immune to industry trends, but we are pleased to have finished the quarter with positive Ebitda.", reported Rod MacDonald, President and CEO of Sikanni, "With the recent addition of Northwell and our expansion into the US markets, we are positioning Sikanni to withstand short term industry cycles and provide long term value to our shareholders."



-----------------------------------------------------
Consolidated Three Months Ended Six Months Ended
Highlights June 30 June 30
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(Unaudited) 2007 2006 2007 2006
-----------------------------------------------------
Revenues $ 4,382,527 $ 965,115 $ 11,914,304 $ 1,885,556
Operating costs 3,094,385 780,362 8,205,166 1,622,594
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Operating income 1,288,142 184,753 3,709,138 262,962
General and
administrative
expenses 811,144 132,629 1,451,832 222,744
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EBITDA (1) 476,998 52,124 2,257,306 40,218
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Stock based
compensation 4,265 - 313,293 -
Interest (net of
revenue on
short term deposits) (9,027) 53,355 120,453 82,173
Depreciation and
amortization 1,296,419 158,868 2,112,298 271,787
Loss on sale of
property and
equipment 35,377 - 35,377 18,108
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Net income (loss) (562,589) (100,099) (340,540) (242,850)
----------------------------------------------------------------------------
Funds from operations (2) 486,025 (1,231) 2,136,853 (41,955)
----------------------------------------------------------------------------
Purchase of property
and equipment $ 4,879,586 $ 1,234,935 $ 5,922,436 $ 2,763,621
----------------------------------------------------------------------------

(1) EBITDA is calculated from the statement of loss as revenue less
operating costs and general and administrative expenses and is used in
assessing the Company's ability to generate cash from operations. EBITDA
is a non-GAAP measure and does not have any standardized meaning
prescribed by GAAP and may not be comparable to similar measures
provided by other companies.

(2) Funds from operations is defined as cash from operating activities
before changes in non-cash working capital. It is a measure that
provides investors additional information regarding the Company's
liquidity and its ability to generate funds to finance its operations
Funds from operations does not have any standardized meaning prescribed
by GAAP and may not be comparable to other companies.


Highlights for the three months ended June 30, 2007

- Generated revenues of $4.4 million and positive Ebitda of $0.5 million during a period of challenging industry activity levels.

- Acquired Northwell Oilfield Hauling Ltd. on June 18, 2007 for cash consideration of $13.9 million and 4.4 million shares of Sikanni, adding a profitable operation with an enviable track record and strategic locations in Swan Hills and Fox Creek in the process. The entire management and operating teams were retained and will continue to operate this business going forward.

Northwell is primarily focused on production related oilfield transportation, which typically generates more stable revenue steams that are less impacted by drilling levels. The results of operations include the Northwell activity for the 12 day period commencing on June 19, 2007.

- Closed the sale of an additional 4,570,683 common shares for gross proceeds of $2,742,410 in connection with the over-allotment option in the prospectus.

- Expanded its operations into the US market with a long term contract to supply 40 wheeled frac tanks to a US based energy services company.

- Commenced the EUB approval process for the first of its waste management facilities. Although construction will not commence until final approval has been rendered, the Company is hopeful it will begin operating during Q1 2008.

Outlook

Second quarter activity levels in 2007 were below levels seen for several years in Western Canada as the industry experienced prolonged wet weather conditions, reduced drilling activity and weaknesses in the underlying commodity prices. The Company expects to see an improvement its financial performance during Q3 2007, as activity levels increase from the Q2 2007 levels. However, management anticipates that there will continue to be volatility in the sector and that industry activity levels will remain below the comparative for Q3 2006. While management acknowledges that commodity pricing is subject to a wide range of external factors that can materially impact industry activity levels, they remain cautiously optimistic that activity levels will begin to increase during Q4 2007 and continue on into 2008.

The Petroleum Services Association of Canada has forecasted a 25% decline in wells drilled in 2007 from 2006. Management expects that this reduction will be manifested in competitive pricing pressures for the remaining service work. This pricing trend was experienced in Q2 and has continued into Q3.

At the end Q2 2007, the Company closed the Northwell acquisition, which was both accretive and strategic to its goal of expanding its oilfield services. Management expects that Northwell will positively impact the Q3 2007 results and that the combined operations will benefit from a broader service line, more geographic diversity and the ability to cross sell services to a larger customer base.

The Company entered into an equipment rental contract with a US based customer during Q2 2007 and will continue to seek out market opportunities for strategic advantage and strong organic growth.

Management is adapting to difficult industry conditions by remaining extremely focused on minimizing overhead costs, scrutinizing all capital expenditures, concentrating on its core businesses and being receptive to strategic acquisition opportunities that are accretive to its shareholders. The management and directors of Sikanni are collectively focused on positioning the Company for significant growth when the industry returns to historical activity levels.



SIKANNI SERVICES LTD.
Consolidated Balance Sheets
As at June 30, 2007 and December 31, 2006
----------------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS

Current assets
Cash $ - $ 88,083
Accounts receivable 3,809,851 1,275,975
Future income taxes 771,050 727,249
Inventory 110,443 55,943
Prepaids and deposits 515,756 182,616
-------------------------------------------------------------- -------------
5,207,100 2,329,866

Property and equipment 37,158,004 11,419,543
Intangibles 16,332,421 -
Goodwill 18,766,791 -
-------------------------------------------------------------- -------------
$ 77,464,316 $ 13,749,409
-------------------------------------------------------------- -------------
-------------------------------------------------------------- -------------

LIABILITIES

Current liabilities
Bank indebtedness $ 539,261 $ -
Accounts payable and accrued liabilities 2,844,986 1,197,526
Short-term advances 318,891 1,065,828
Current portion of long-term debt 871,731 689,532
Non-current portion of callable long-term debt 2,638,024 2,977,580
Current portion of obligations under capital
lease 521,748 503,058
-------------------------------------------------------------- -------------
7,734,641 6,433,524

Long-term debt 474,658 478,213
Obligations under capital lease 1,240,531 1,492,934
Future income taxes 7,043,800 235,249
-------------------------------------------------------------- -------------

16,493,630 8,639,920
-------------------------------------------------------------- -------------

SHAREHOLDERS' EQUITY

Share capital 57,206,711 6,454,112
Warrants 4,803,395 -
Contributed surplus 645,743 -
Deficit (1,685,163) (1,344,623)
-------------------------------------------------------------- -------------

60,970,686 5,109,489
-------------------------------------------------------------- -------------

$ 77,464,316 $ 13,749,409
-------------------------------------------------------------- -------------
-------------------------------------------------------------- -------------


SIKANNI SERVICES LTD.
Consolidated Statements of Loss and Deficit
----------------------------------------------------------------------------
(Unaudited) Three months ended June 30 Six months ended June 30
2007 2006 2007 2006
------------------------------------------------ ---------------------------

Revenues $ 4,382,527 $ 965,115 $ 11,914,304 $ 1,885,556

Expenses
Operating 1,848,126 741,655 3,949,591 1,529,624
Subcontractors 1,246,259 38,707 4,255,575 92,970
------------------------------------------------ ---------------------------
Operating Income 1,288,142 184,753 3,709,138 262,962

General and
administration 811,144 132,629 1,451,832 222,744
Stock-based
compensation 4,265 - 313,293 -
Depreciation 835,268 158,868 1,457,719 271,787
Amortization of
intangible
assets 461,151 - 654,579 -
Interest on long
term debt 57,785 20,800 141,349 22,710
Interest on
obligations
under capital
lease 59,162 32,555 107,759 59,463
Loss on sale of
property and
equipment 35,377 - 35,377 18,108
Interest revenue
on short term
deposits (125,974) - (128,655) -
------------------------------------------------ ---------------------------
2,138,178 344,852 4,033,253 594,812
------------------------------------------------ ---------------------------
Loss before income
taxes (850,036) (160,099) (324,115) (331,850)
------------------------------------------------ ---------------------------
Income tax (recovery)
expense
Current - - - -
Future (287,447) (60,000) 16,425 (89,000)
------------------------------------------------ ---------------------------
(287,447) (60,000) 16,425 (89,000)
------------------------------------------------ ---------------------------
Net loss (562,589) (100,099) (340,540) (242,850)

Deficit, beginning
of period (1,122,574) (624,531) (1,344,623) (451,790)
Excess of
redemption value
over par value of
redeemed common
shares - - - (29,990)
Excess of fair
value over book
value of purchase
of Sikanni Waste
Management Ltd. - (300,000) - (300,000)
------------------------------------------------ ---------------------------

Deficit, end of
period $ (1,685,163) $ (1,024,630) $ (1,685,163) $ (1,024,630)
------------------------------------------------ ---------------------------
------------------------------------------------ ---------------------------


SIKANNI SERVICES LTD.
Consolidated Statements of Cash Flows
------------------------------------------------ ---------------------------
(unaudited) Three months ended June 30 Six months ended June 30
2007 2006 2007 2006
------------------------------------------------ ---------------------------

CASH PROVIDED BY
(USED IN):

Operating

Net loss $ (562,589) $ (100,099) $ (340,540) $ (242,850)
Items not
affecting cash:
Loss on sale of
property and
equipment 35,377 - 35,377 18,108
Stock based
compensation 4,265 - 313,293 -
Future income
tax (recovery) (287,447) (60,000) 16,425 (89,000)
Depreciation and
amortization 1,296,419 158,868 2,112,298 271,787
------------------------------------------------ ---------------------------
Funds from (used
in) operations 486,025 (1,231) 2,136,853 (41,955)
Net change in
non-cash
working capital 1,065,919 300,573 (120,511) 76,673
------------------------------------------------ ---------------------------

1,551,944 299,342 2,016,342 34,718
------------------------------------------------ ---------------------------

Investing

Business
acquisitions (13,894,246) - (34,400,576) -
Purchase of
property and
equipment (4,879,586) (1,234,935) (5,922,436) (2,763,621)
Proceeds on sale
of property and
equipment 63,750 - 63,750 28,475
------------------------------------------------ ---------------------------

(18,710,082) (1,234,935) (40,259,262) (2,735,146)
------------------------------------------------ ---------------------------

Financing

Issuance of
long-term debt 122,451 - 122,451 1,099,038
Repayment of
long-term
debt (194,603) (59,458) (287,952) (70,744)
Repayment of
obligations
under capital
lease (112,477) - (233,713) (135,464)
Issuance of
obligations
under capital
lease - (76,380) - -
Issuance of
short-term
advances 581,085 - 1,733,123 (30,000)
Repayment of
short-term
advances (2,737,802) - (3,162,380) -
Shareholder loans - (100,000) - 250,000
Issuance of common
shares - net of
issue costs 2,563,130 2,000,000 39,444,047 2,000,000
Redemption of
common shares - - - (30,000)
------------------------------------------------ ---------------------------

221,784 1,764,162 37,615,576 3,082,830
------------------------------------------------ ---------------------------

(Decrease) increase
in cash (16,936,354) 828,569 (627,344) 382,402
Cash, beginning of
period 16,397,093 3,985 88,083 450,152
------------------------------------------------ ---------------------------

(Bank indebtedness)
cash, end of
period $ (539,261) $ 832,554 $ (539,261) $ 832,554
------------------------------------------------ ---------------------------
------------------------------------------------ ---------------------------

Supplemental cash
flow information:
Interest received 128,450 - 128,450 -
Interest paid 106,125 56,656 227,247 84,739


Forward-Looking Statements

Certain information included herein is forward-looking. Forward-looking statements include, without limitation, statements regarding the future financial position, business strategy, capital expenditures, financial results, taxes and plans and objectives of or involving the Company. Many of these statements can be identified by looking for words such as "believe", "expects", "expected", "will", "intends", "projects", "anticipates", "estimates", "continues", or similar words and include but are not limited to, statements regarding the accretive effects of the acquisition and the anticipated results and expected benefits of the acquisition upon closing thereof. Sikanni believes the expectations reflected in such forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties some of which are described in Sikanni's continuous disclosure documents. Such forward-looking statements necessarily involve known and unknown risks and uncertainties and other factors, which may cause Sikanni's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general economic, market and business conditions; industry capacity; competitive action by other companies; refining and marketing margins; the ability of suppliers to meet commitments; actions by governmental authorities including increases in taxes; changes in environmental and other regulations; and other factors, many of which are beyond the control of Sikanni. Any forward-looking statements are made as of the date hereof and Sikanni does not undertake any obligation, except as required under applicable law, to publicly update or revise such statements to reflect new information, subsequent or otherwise.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Sikanni Services Ltd.
    Rod MacDonald
    President & Chief Executive Officer
    (403) 348-2172
    (403) 348-0451 (FAX)
    Email: rmacdonald@sikanni.com
    or
    Sikanni Services Ltd.
    Thomas E. Lewis, CA
    Chief Financial Officer
    (403) 348-2172
    (403) 348-0451 (FAX)
    Email: tlewis@sikanni.com
    or
    Sikanni Services Ltd.
    4757 60th Street
    Red Deer, Alberta T4N 2N8
    Website: www.sikanni.com