Sikanni Services Ltd.
TSX VENTURE : SKI

Sikanni Services Ltd.

November 29, 2007 09:15 ET

Sikanni Reports 2007 Third Quarter Results

RED DEER, ALBERTA--(Marketwire - Nov. 29, 2007) - SIKANNI SERVICES LTD. (TSX VENTURE:SKI) ("Sikanni" or the "Corporation") is pleased to announce its operating results for the quarter ended September 30, 2007 ("Q3 2007").

Consolidated revenues increased to $ 7.5 million for Q3 2007 from $1.0 million for Q3 2006 and the Company finished with $1.3 million of positive Ebitda during a quarter that continued to be impacted by reduced capital spending by oil and gas customers. The improvement in Ebitda and funds generated from operations 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 September 30, 2007 include Sikanni, Twilight Oilfield Hauling and Northwell Oilfield Hauling. This is the first full quarter for the Northwell operation.

"Our Q3 results were below our early 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 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 Highlights Three Months Ended Nine Months Ended
September 30 September 30
------------------------- ---------------------------
2007 2006 2007 2006

Revenues $ 7,474,251 $ 984,311 $ 19,388,555 $ 2,869,867
Operating costs 5,111,442 821,305 13,316,608 2,330,864
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Operating income 2,362,809 163,006 6,071,947 539,003
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31.6% 16.6% 31.3% 18.8%
General and
administrative
expenses 1,019,060 206,584 2,470,892 534,324
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EBITDA (1) 1,343,749 (43,578) 3,601,055 4,679
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18.0% -4.4% 18.6% 0.2%
Stock based
compensation 787,957 - 1,101,250 -
Interest (net of
revenue on short
term deposits) 118,019 79,757 238,472 169,968
Depreciation and
amortization 1,599,879 208,938 3,712,177 480,725
(Gain) loss on sale of
property and equipment (30,589) 28,379 4,788 46,488
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Net loss (997,387) (176,765) (1,337,927) (419,615)
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Funds from (used in)
operations (2) 1,225,730 (123,448) 3,362,583 (165,402)
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Purchase of property
and equipment $ 2,052,428 $ 2,080,142 $ 7,974,864 $ 4,843,763
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(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 provides 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 September 30, 2007

- Generated Q3 revenues of $7.5 million (2006: $1.0 million) and positive Ebitda of $1.3 million (2005: $0.0 million) during a period of challenging industry activity levels, a significant improvement from comparative Q3 2006 results. On a year-to-date basis, Sikanni had revenues of $19.4 million (2006: $2.9 million) and Ebitda of $3.6 million (2006:$0.0 million).

- Established a new branch location in Slave Lake to provide its customers with an oilfield hauling alternative in that market area. Equipment is being re-deployed from existing branches to the new location, which will result in an increase in overall equipment utilization across the organization.

- Diversified its Canadian market exposure with a long term contract to supply 40 wheeled frac tanks to a US based energy services company.

- Further invested in its waste development plans with the recruitment of a senior waste industry manager to oversee the facility approval and construction processes.

- Consolidated components of the administration infrastructure into the Company's head office resulting in lower costs and better overall control.

Outlook

Third quarter activity levels improved over the second quarter but remain below levels seen for several years in Western Canada as the industry experienced some wet weather, reduced drilling activity, uncertainty of the royalty review and weaknesses in the price of natural gas. The Company anticipates that these market conditions will continue into Q4 2007 and Q1 2008. 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 the latter part of 2008.

The Petroleum Services Association of Canada has forecasted a significant decline in wells to be drilled in 2008 from the 2007 from 2006 levels. Management expects that this reduction will be manifested in competitive pricing pressures. This pricing trend began in Q2 and continued unabated in 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 continue to positively impact the 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 September 30, 2007 and December 31, 2006
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2007 2006
----------------------------------------------------------------------------
(Unaudited) (Audited)
ASSETS

Current assets
Cash $ - $ 88,083
Accounts receivable 5,152,027 1,275,975
Future income taxes 691,400 727,249
Inventory 142,141 55,943
Prepaids and deposits 553,523 182,616
-------------------------------------------------------------- -------------
6,539,091 2,329,866

Property and equipment 37,056,276 11,419,543
Intangibles 15,503,786 -
Goodwill 19,570,661 -
-------------------------------------------------------------- -------------
$ 78,669,814 $ 13,749,409
-------------------------------------------------------------- -------------
-------------------------------------------------------------- -------------

LIABILITIES

Current liabilities
Bank indebtedness $ 393,320 $ -
Accounts payable and accrued liabilities 2,965,928 1,197,526
Short-term advances 104,097 1,065,828
Current portion of long-term debt 1,317,049 689,532
Non-current portion of callable long-term debt 4,526,101 2,977,580
Current portion of obligations under capital
lease 537,005 503,058
-------------------------------------------------------------- -------------
9,843,500 6,433,524

Long-term debt 425,758 478,213
Obligations under capital lease 1,100,630 1,492,934
Future income taxes 6,538,670 235,249
-------------------------------------------------------------- -------------
17,908,558 8,639,920
-------------------------------------------------------------- -------------

SHAREHOLDERS' EQUITY

Share capital 57,206,711 6,454,112
Warrants 4,803,395 -
Contributed surplus 1,433,700 -
Deficit (2,682,550) (1,344,623)
-------------------------------------------------------------- -------------
60,761,256 5,109,489
-------------------------------------------------------------- -------------
$ 78,669,814 $ 13,749,409
-------------------------------------------------------------- -------------


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

Revenues $ 7,474,251 $ 984,311 $ 19,388,555 $ 2,869,867

Expenses
Operating 3,502,387 787,356 7,451,982 2,203,945
Subcontractors 1,609,055 33,949 5,864,626 126,919
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Operating Income 2,362,809 163,006 6,071,947 539,003

General and
administration 1,019,060 206,584 2,470,892 534,324
Stock-based
compensation 787,957 - 1,101,250 -
Depreciation 1,033,744 208,938 2,491,463 480,725
Amortization of
intangible
assets 566,135 - 1,220,714 -
Interest on
long-term debt 97,427 79,757 238,776 169,968
Interest on
obligations
under capital lease 46,992 - 154,751 -
(Gain) loss on sale
of property and
equipment (30,589) 28,379 4,788 46,488
Interest revenue on
short-term deposits (26,400) - (155,055) -
----------------------------------------------- ----------------------------
3,494,326 523,658 7,527,579 1,231,505
----------------------------------------------- ----------------------------
Loss before income
taxes (1,131,517) (360,652) (1,455,632) (692,502)
----------------------------------------------- ----------------------------
Income tax
(recovery) expense
Current - 113 - 113
Future (134,130) (184,000) (117,705) (273,000)
----------------------------------------------- ----------------------------
(134,130) (183,887) (117,705) (272,887)
----------------------------------------------- ----------------------------
Net loss (997,387) (176,765) (1,337,927) (419,615)

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

Deficit, end of
period $ (2,682,550) $ (1,201,395) $ (2,682,550) $ (1,201,395)
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SIKANNI SERVICES LTD.
Consolidated Statements of Cash Flows
----------------------------------------------------------------------------
(Unaudited) Three months ended Sept.30 Nine months ended Sept.30
2007 2006 2007 2006
----------------------------------------------------------------------------

CASH PROVIDED BY
(USED IN):

Operating

Net loss $ (997,387) $ (176,765) $ (1,337,927) $ (419,615)
Items not affecting
cash:
(Gain) loss on sale
of equipment (30,589) 28,379 4,788 46,488
Stock based
compensation 787,957 - 1,101,250 -
Future income tax
(recovery) (134,130) (184,000) (117,705) (273,000)
Depreciation and
amortization 1,599,879 208,938 3,712,177 480,725
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Funds from (used
in) operations 1,225,730 (123,448) 3,362,583 (165,402)
Net change in
non-cash working
capital (1,055,492) (351,084) (840,406) (274,412)
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170,238 (474,532) 2,522,177 (439,814)
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Investing

Business
acquisitions (470) - (34,401,046) -
Purchase of
property
and equipment (2,052,428) (2,080,142) (7,974,864) (4,843,763)
Proceeds on sale of
equipment 318,750 148,757 382,500 177,232
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(1,734,148) (1,931,385) (41,993,410) (4,666,531)
----------------------------------------------------------------------------

Financing

Issuance of
long-term debt 2,500,000 1,689,209 2,622,451 2,788,247
Repayment of
long-term debt (215,505) (106,298) (503,457) (177,042)
Repayment of
capital lease
obligations (124,644) (119,026) (358,357) (254,490)
Issuance of
short-term advances - 387,450 1,733,123 387,450
Repayment of
short-term advances (450,000) - (3,612,380) -
Shareholder loans - - - 220,000
Issuance of common
shares (net of
costs) - - 39,108,450 2,000,000
Redemption of
common shares - - - (30,000)
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1,709,851 1,851,335 38,989,830 4,934,165
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Increase (decrease)
in cash 145,941 (554,582) (481,403) (172,180)

(Bank indebtedness)
cash, beginning of
period (539,261) 832,554 88,083 450,152
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(Bank indebtedness)
cash, end of period $ (393,320) $ 277,972 $ (393,320) $ 277,972
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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. Forwardlooking 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 forwardlooking 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