Strad Energy Services Ltd.

TSX : SDY


Strad Energy Services Ltd.

November 08, 2012 18:08 ET

Strad Energy Services Announces Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2012) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

The news release contains "forward-looking information and statements" within the meaning of applicable securities laws. For full disclosure of the forward-looking information and statements and the risks to which they are subject, see the "Cautionary Statement Regarding Forward-Looking Information and Statements" later in this news release.

Strad Energy Services Ltd., ("Strad" or the "Company") (TSX:SDY), a North American-focused, energy services company, today announced its financial results for the three and nine months ended September 30, 2012. In early 2012, Strad announced the sale of its Production Services business. Comparative results have been restated to reflect the impact of operations that have been classified as discontinued during 2011. Refer to note 15 of the unaudited condensed interim consolidated financial statements of Strad for the three and nine months ended September 30, 2012. All amounts are stated in Canadian dollars unless otherwise noted.

SELECTED FINANCIAL AND OPERATIONAL HIGHLIGHTS:

  • Third quarter revenue from continuing operations of $51.1 million, an 18% decrease compared to $62.7 million for the same period in 2011;
  • Third quarter EBITDA(1) from continuing operations of $12.0 million, a 31% decrease, compared to $17.5 million for the same period in 2011;
  • Capital expenditures of $9.1 million in the third quarter and $55.8 million YTD;
  • Launch of EcoPond™ frac-water storage tanks in Canada during the third quarter and rollout of the product in the U.S. in the fourth quarter. The Company has completed a number of successful deployments with positive initial feedback from customers;
  • Total funded debt(2) to trailing EBITDA ratio of 1.1 to 1 at the end of Q3 2012; and,
  • Third quarter earnings per share from continuing operations of $0.08.
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous Generally Accepted Accounting Principles in Canada ("GAAP"); see "Non-IFRS Measures Reconciliation" in this press release.
(2) Funded debt includes bank indebtedness plus current and long-term portion of debt plus current and long-term obligations under finance lease less cash. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation".

"Industry conditions during the third quarter were significantly more challenging than they were a year ago, as an uncertain global economic landscape and low natural gas prices continued to curtail North American drilling activity and investment," said Andy Pernal, President and CEO of Strad. "We did, however, largely maintain revenue levels in our combined Canada and U.S. operations, excluding Product Sales, despite an overall lover level of rig activity on average across our regions. We have invested substantially in our asset fleet over the last year and believe our greater scale and infrastructure has us well positioned to benefit over the long term as market conditions improve."

"While industry activity on both sides of the border dropped off from the same period a year ago, we continue to maintain a clean balance sheet with modest levels of leverage, which we believe will allow us to weather short term market volatility," said Greg Duerr, Chief Financial Officer of Strad. "Our focus remains on the long-term prospects for Strad and we will continue to invest in a flexible and sustainable capital program as well as product innovation initiatives that are helping to grow our product mix in areas where we foresee the greatest amount of future customer demand."

FINANCIAL REVIEW FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012

With the divestiture of the Production Services business, Strad is reporting operational and financial results for its core well-site infrastructure activation solutions business along geographic lines with a separate segment for Product Sales. Product Sales are comprised of Strad manufactured products sold to external customers, third party equipment sales to existing customers, and sales of equipment from Strad's existing fleet to customers. Results are segmented between Canadian Operations, U.S. Operations and Product Sales to better distinguish between the Company's core operating business and Product Sales, which have different margin and asset base profiles.

Three months ended September 30, Nine months ended September 30,
($000's, except per share amounts) 2012 2011 % chg. 2012 2011 % chg.
Revenue from continuing operations 51,094 62,675 (18 ) 161,699 126,174 28
EBITDA from continuing operations (1) 12,030 17,484 (31 ) 38,896 35,140 11
EBITDA as a % of revenue 24 % 28 % 24 % 28 %
Per share ($), basic 0.33 0.48 (31 ) 1.06 0.96 10
Per share ($), diluted 0.32 0.47 (32 ) 1.03 0.95 8
Net income from continuing operations (2) 2,937 7,325 (60 ) 10,832 12,165 (11 )
Per share ($), basic 0.08 0.20 (60 ) 0.30 0.33 (9 )
Per share ($), diluted 0.08 0.20 (60 ) 0.29 0.33 (12 )
Funds from continuing operations (3) 10,950 16,457 (14 ) 36,722 33,852 22
Per share ($), basic 0.30 0.45 (33 ) 1.00 0.92 9
Per share ($), diluted 0.29 0.44 (34 ) 0.98 0.91 8
Capital Expenditures from continuing operations (4) 9,095 6,632 37 55,756 58,656 (5 )
Total assets(5) 236,327 260,575 (9 ) 236,327 260,575 (9 )
Return on Average Total Assets (6) 20 % 41 % 23 % 33 %
Long-term debt(7) 53,500 31,500 70 53,500 31,500 70
Total long-term liabilities(5) 70,101 61,175 15 70,101 61,175 15
Common Shares - end of period ('000's) 37,251 37,246 37,251 37,246
Weighted average Common Shares
basic 36,623 36,692 36,683 36,692
diluted 37,499 37,018 37,623 37,036

FINANCIAL POSITION AND RATIOS

As at September 30,
($000's except ratios) 2012 2011
Working Capital (5)(8) 24,117 39,275
Funded Debt (5)(9) 62,505 34,477
Cash - 6,000
Total Assets(5) 236,327 260,575
Funded Debt to EBITDA(5)(9) 1.1 0.7
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Net income (loss) from continuing operations excludes income attributable to the non-controlling interests.
(3) Funds from operations is cash flow from operating activities before changes in working capital. Funds from operations is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(4) Includes assets acquired under finance lease and intangible assets. Capital expenditures are net of rental asset disposals.
(5) Includes discontinued operations in 2011 figures.
(6) Return on Average Total Assets is calculated as EBITDA divided by average total assets and is not a recognized measure under IFRS or previous GAAP; see "Non IFRS Measures Reconciliation"
(7) Excluding current portion.
(8) Working capital is calculated as current assets less current liabilities. See "Non-IFRS Measures Reconciliation".
(9) Funded debt includes bank indebtedness plus current and long-term portion of debt plus current and long-term obligations under finance lease less cash. EBITDA is based on trailing twelve months. See "Non-IFRS Measures Reconciliation".

RESULTS OF OPERATIONS

Strad reported a decrease in revenue of 18% during the three months ended September 30, 2012, compared to the same period in 2011. Substantially decreased revenue from Product Sales, lower activity levels in the Marcellus region, as well as dry conditions in the Bakken region which affected matting utilization, were the main reasons for lower revenue year-over-year.

Strad's Canadian Operations reported higher revenue and EBITDA, but slightly lower EBITDA margin percentage during the three months ended September 30, 2012, compared to the same period in 2011. Decreased margins were a result of reduced drilling activity in the Western Canadian Sedimentary Basin ("WCSB") coupled with increased infrastructure costs required to support an expanded asset base. Canadian drilling rig utilization increased at a slower rate after spring breakup in 2012 compared to 2011, and did not return to prior year levels leading to a 25% year-over-year decline in active rigs. Despite this, Strad's Canadian Operations reported higher revenue year-over-year due in large part to successful deployment of an expanded matting fleet.

Third quarter EBITDA results from Strad's U.S. Operations continued to be affected by lower utilization levels in the Marcellus resource play in Pennsylvania. As was the case in the previous quarter, Strad's customer base in the Marcellus continued to reallocate assets to other resource plays in order to focus on oil and higher margin liquids rich natural gas drilling. Overall rig counts in the Marcellus declined 16% from second quarter 2012 levels, resulting in lower utilization rates for Strad's equipment and matting fleet as well as prompting further pricing pressure. Warm and dry weather conditions in North Dakota also continued into the third quarter, resulting in lower utilization rates for Strad's U.S. matting fleet compared to 2011 when North Dakota experienced unusually wet weather conditions. EBITDA was again affected by the increased infrastructure required to support multiple regions and a larger asset base.

During the third quarter, Strad added $3.7 million of capital assets in Canada and $4.3 million in the U.S. For the nine months ended September 30, 2012, Strad has spent $55.8 million of its budgeted $72.0 million capital program. Strad continued to invest in new product initiatives including its frac-water storage solution EcoPond™ as well as solids control and waste management.

Canadian Operations

Three months ended September 30, Nine months ended September 30,
($000's) 2012 2011 % chg. 2012 2011 % chg.
Revenue 19,165 17,425 10 56,616 38,838 46
EBITDA (1) 7,618 7,313 4 19,144 15,173 26
EBITDA % 40 % 42 % 34 % 39 %
Capital Expenditures (2) 3,650 7,412 (51 ) 21,532 22,993 (6 )
Gross Capital Assets 103,322 76,448 35 103,322 76,448 35
Total Assets 104,255 84,678 23 104,255 84,678 23
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease and purchases of intangible assets. Capital expenditures are net of rental asset disposals.

Revenue generated for the three months ended September 30, 2012, increased 10% to $19.2 million versus $17.4 million for the same period in 2011. Third quarter 2012 revenue grew primarily as a result of increased matting deployment from Strad's expanded matting fleet. Surface equipment revenues also increased modestly year-over-year in the third quarter. The increased revenue in these two key product lines was achieved despite a 25% reduction in active drilling rigs during the quarter. This performance was achieved through market share gains as well as revenue generated with non-oil and gas customers.

EBITDA for the three months ended September 30, 2012, of $7.6 million, increased 4% compared to $7.3 million for the same period in 2011. EBITDA as a percentage of revenue for the three months ended September 30, 2012, was 40% compared to 42% for the same period in 2011. This modest decrease is due to the increased infrastructure required to coordinate and manage an expanded equipment fleet in Canada.

U.S. Operations

Three months ended September 30, Nine months ended September 30,
($000's) 2012 2011 % chg. 2012 2011 % chg.
Revenue 16,550 18,813 (12 ) 57,401 41,977 37
EBITDA (1) 2,785 7,686 (64 ) 15,390 15,861 (3 )
EBITDA % 17 % 41 % 27 % 38 %
Capital Expenditures (2) 4,289 (1,424 ) 401 32,373 34,666 (6 )
Gross Capital Assets 105,754 66,790 58 105,754 66,790 58
Total Assets 118,872 106,082 12 118,872 106,082 12
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease and purchases of intangible assets. Capital expenditures are net of rental asset disposals.

Revenue for the three months ended September 30, 2012, decreased 12% to $16.6 million from $18.8 million for the same period in 2011. The decrease was a result of the overall reduction in drilling activity in the U.S., which was most pronounced in Pennsylvania's Marcellus resource play where Strad's U.S. Operations experienced lower utilization rates due to customer shifts towards other oil and natural gas liquids rich resource plays. Rig counts in the Marcellus peaked in the third quarter of 2011 and continued to trend downward. Year-over-year, third quarter rig counts are down 30%. The number of active rigs dropped 16% in the third quarter of 2012 versus the second quarter of 2012. While Strad continues to refocus its operations accordingly, the overall reduction in drilling brought about by continued depressed natural gas prices has impacted third quarter revenue levels. Further impacting third quarter revenue was dry weather in North Dakota that contrasted sharply with the very wet weather experienced in the third quarter of 2011. These conditions represented opposite extremes for seasonal weather patterns and resulted in significantly lower matting utilization on a year-over-year basis.

EBITDA for the three months ended September 30, 2012, decreased 64% to $2.8 million compared to $7.7 million for the same period in 2011. EBITDA as a percentage of revenue for the three months ended September 30, 2012, was 17% compared to 41% for the same period in 2011. The decrease in EBITDA is due to the previously mentioned reduction in overall asset utilization rates in the Marcellus and matting utilization rates in the Bakken, increased infrastructure required to coordinate and manage Strad's recently expanded fleet, as well as a shift in product mix.

Product Sales

Three months ended September 30, Nine months ended September 30,
($000's) 2012 2011 % chg. 2012 2011 % chg.
Revenue 15,379 26,437 (42 ) 47,682 45,359 5
EBITDA (1) 2,357 3,291 (28 ) 6,913 6,498 6
EBITDA % 15 % 12 % 14 % 14 %
Capital Expenditures (2) 208 142 46 855 221 287
Total Assets 8,339 8,061 3 8,339 8,061 3
Notes:
(1) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS or previous GAAP; see "Non-IFRS Measures Reconciliation".
(2) Includes assets acquired under finance lease and purchases of intangible assets.

Revenue for the three months ended September 30, 2012, decreased 42% to $15.4 million from $26.4 million for the same period in 2011 resulting primarily from lower Product Sales in the U.S. This was largely due to one large sale to a customer in 2011 that was not expected to reoccur. Product Sales in Canada were also lower than a year ago due to fewer drill pipe sales, offset with higher matting sales prior to the winter drilling season.

Product Sales are comprised of in-house manufactured products sold to external customers, third party equipment sales to existing customers, and sales of equipment from Strad's existing fleet to customers. Product Sales revenues tend to fluctuate quarter to quarter depending on customer demand and manufacturing capacity dedicated to external sales.

OUTLOOK

Industry conditions during the third quarter deteriorated on a year-over-year basis as a result of the continued shift away from less profitable natural gas plays as well as generally lower capital spending levels on the part of exploration and production ("E&P") companies. In the WCSB, active drilling rigs in the third quarter of 2012 averaged 339 compared to 454 for the same period in 2011, a 25% decline. In the United States, drilling rig activity levels varied by region. The Bakken, Marcellus, and Eagle Ford plays drive the majority of the Company's operating activity in the U.S. In the Marcellus play, the active rig count averaged 93 rigs in the third quarter of 2012, down from 132 in the prior year, a 30% decline. The Bakken's average rig count increased from 180 in the third quarter of 2011 to 210 in the third quarter of 2012, and the Eagle Ford rig count increased from 202 in the comparative period last year to 242 in the third quarter of 2012.

Despite reduced drilling activity in Canada and the Marcellus region, Strad was able to grow revenue and EBITDA in Canada and largely hold its market share of active rigs in the U.S. This achievement, along with the deployment of the Company's capital program, positions Strad well for long-term growth and further market share gains. The expansion of the equipment fleet was also achieved without increasing debt beyond our target leverage range.

The primary cause for the Company's year-over-year decline in EBITDA was the continued impact of low natural gas pricing in North America and dry conditions in the Bakken. Despite significantly lower activity levels in the Marcellus play, Management continues to believe in the play's long-term potential and as such continues to maintain a sustainable presence in this market.

Strad also pushed forward with its EcoPond™ frac-water storage tank initiative during the third quarter. The Company launched the product in Canada in the third quarter and has begun to roll out the product in the fourth quarter in the U.S. Strad has had a number of successful deployments and customers have expressed positive feedback regarding the product and service. Strad sales teams continue to receive strong interest for both composite and steel EcoPond™ designs and the Company expects modest deployment of units during the fourth quarter while service infrastructure is organized to support additional deployments. Sufficient internal and external manufacturing infrastructure remains in place to meet future demand. The Company continues to work with customers to enhance its product offering and services. Strad has also completed a design for a new 45,000 barrel composite EcoPond™, with a targeted launch in 2013.

Capital expenditures for the third quarter were $3.7 million in Canada and $4.3 million in the U.S. This represented a year-over-year decrease of $3.8 million in Canada and a $5.7 million net increase in the U.S. Management continues to allocate capital on a roughly equal basis between its U.S. and Canadian Operations, with the Company having spent 77% of its planned $72 million 2012 capital program. Management continues to believe that establishing a strong presence in its target markets through a disciplined capital program is essential to the long-term success of the Company. In keeping with this, Management intends to proceed with its previously planned capital spending for the fourth quarter.

Management expects that fourth quarter industry conditions will be similar to those of the third quarter. In Canada, the matting business tends to experience seasonal declines in the fourth quarter that can be somewhat offset by seasonal increases in utilization of surface equipment when typical patterns of increased fourth quarter activity emerge. In the current environment, flexibility and the ability to scale operations and manufacturing remain a key focus for the Company. The Company continues to manufacture approximately 25% of its products in-house, providing flexibility to react to changing activity levels. This, in combination with conservative leverage levels and a sales strategy focused on multiple plays, has enabled the Company to remain nimble in the face of uncertainty.

LIQUIDITY AND CAPITAL RESOURCES

($000's) September 30, 2012 June 30, 2012
Current assets 55,238 59,559
Current liabilities 31,121 36,028
Working capital 24,117 23,531
Banking facilities
Operating facility 3,515 5,459
Syndicated revolving facility 53,500 52,500
Total facility borrowings 57,015 57,959
Total available facilities 110,000 100,000
Unused Borrowing capacity 52,985 42,041

At September 30, 2012, working capital was $24.1 million compared to $23.5 million at June 30, 2012. The change in working capital is consistent with the modest change in revenue from the second quarter of 2012 to the third quarter of 2012. Funds from operations for the nine months ended September 30, 2012, increased to $36.7 million compared to $30.2 million for the same period in 2011. During the same period in 2012, Strad spent $55.8 million on capital additions compared to $58.7 million for the same period in 2011. Management monitors funds from operations and the timing of capital additions to ensure adequate capital resources are available to fund Strad's capital program.

On August 25, 2012, the Company amended its syndicated credit facility, increasing the operating facility by $10.0 million USD and decreasing standby rates charged on the undrawn portion of the committed facility and extending the maturity date to July 25, 2015. The Company's syndicated banking facility consists of an operating facility with a maximum principal amount of $15.0 million CAD and $10.0 million USD and an $85.0 million revolving facility, both of which are subject to certain limitations on accounts receivable, inventory and net book value of fixed assets and are secured by a general security agreement over the Company's assets. The syndicated banking facility bears interest at bank prime plus a variable rate, which is dependent on the Company's funded debt to EBITDA ratio. Based on the Company's funded debt to EBITDA ratio of 1.1 to 1 at the end of the third quarter of 2012, the interest rate on the syndicated banking facility is bank prime plus 1.25% on prime rate advances and at the prevailing rate plus a stamping fee of 2.25% on bankers' acceptances. For the three months ended September 30, 2012, the overall effective rate on the operating facility was 4.12% and 3.78% on the revolving facility. As of September 30, 2012, $3.5 million was drawn on the operating facility and $53.5 million was drawn on the revolving facility. Payments on the revolving facility are interest only.

As at September 30, 2012, the Company was in compliance with all of the syndicated banking facility covenants.

NON-IFRS MEASURES RECONCILIATION

Certain supplementary measures in this Press Release do not have any standardized meaning as prescribed under IFRS and previous GAAP and, therefore, are considered non-IFRS measures. These measures are described and presented in order to provide shareholders and potential investors with additional information regarding the Company's financial results, liquidity and its ability to generate funds to finance its operations. These measures are identified and presented, where appropriate, together with reconciliations to the equivalent IFRS or previous GAAP measure. However, they should not be used as an alternative to IFRS or previous GAAP, because they may not be consistent with calculations of other companies. These measures are further explained below.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") is not a recognized measure under IFRS and previous GAAP. Management believes that in addition to net income, EBITDA is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities prior to consideration of how those activities are financed or how the results are taxed. EBITDA is calculated as net income from continuing operations plus interest, finance fees, taxes, depreciation and amortization, non-controlling interest, loss on disposal of property, plant and equipment, loss on foreign exchange, less gain on foreign exchange and gain on disposal of property, plant and equipment. Segmented EBITDA is based upon the same calculation for defined business segments, which are comprised of Canadian Operations, U.S. Operations, Product Sales and Corporate.

Funds from operations are cash flow from operating activities excluding changes in working capital. It is a supplemental measure to gauge performance of the Company before non-cash items. Working capital is calculated as current assets minus current liabilities. Working capital is used by Management to gauge what banking facilities are available for reinvestment in the business.

Annualized return on average total assets for the nine months ended September 30, 2012, is calculated as annualized year to date EBITDA divided by the average of total assets over the fourth quarter of 2011 and first and second quarters of 2012, including a three month lag. The three month lag represents the time between the purchase of capital assets and when they are deployed in the field and earning revenue. In 2011, the return on average total assets calculation was adjusted to include total Company assets, whereas prior calculations included total drilling services assets only.

Funded debt is calculated as bank indebtedness plus current and long-term portion of debt plus current and long-term portion of finance lease obligations, less cash.

Reconciliation of EBITDA and Funds from Operations

($000's)

Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
Net income from continuing operations 2,937 7,325 10,832 12,165
Add:
Depreciation and amortization 7,362 5,214 20,618 13,485
Loss/(gain) on disposal of PP&E 22 52 46 (89 )
Non-controlling interest 22 497 355 830
Share-based payments 218 132 580 493
Deferred income tax expense (528 ) 2,749 2,176 5,792
Financing fees 63 31 179 31
Interest expense 854 457 1,936 1,145
Funds from operations 10,950 16,457 36,722 33,852
Add:
Loss/(gain) on foreign exchange 510 (915 ) 879 (313 )
Current income tax expense 788 2,074 1,875 2,094
Subtotal 12,248 17,616 39,476 35,633
Deduct:
Share-based payments 218 132 580 493
EBITDA 12,030 17,484 38,896 35,140

Reconciliation of quarterly non-IFRS measures

($000's)

Three months ended
(unaudited)
Sep. 30, 2012 Jun. 30, 2012 Mar. 31, 2012 Dec. 31, 2011
Net income from continuing operations 2,937 2,772 5,123 7,661
Add:
Depreciation and amortization 7,362 7,003 6,253 5,713
Loss/(gain) on disposal of PP&E 22 (11 ) 35 (96 )
Loss/(gain) on foreign exchange 510 (32 ) 401 52
Non-controlling interest 22 (187 ) 520 543
Current income tax (recovery)/expense 788 (104 ) 1,191 1,177
Deferred income tax expense (528 ) 748 1,956 1,499
Interest expense 854 638 444 568
Finance fees 63 58 58 52
EBITDA 12,030 10,885 15,981 17,169
Three months ended
(unaudited)
Sep. 30, 2011 Jun. 30, 2011 Mar. 31, 2011 Dec. 31, 2010(1)
Net income from continuing operations 7,325 3,569 1,271 1,818
Add:
Depreciation and amortization 5,214 4,611 3,660 3,010
Gain on disposal of PP&E 52 (119) (22) (5)
(Gain)/loss on foreign exchange (915) 329 273 529
Non-controlling interest 497 (210) 543 76
Current income tax expense/(recovery) 2,074 - 20 (562)
Deferred income tax expense 2,749 1,832 1,211 1,654
Interest expense 457 486 202 535
Finance fees 31 - - 13
EBITDA 17,484 10,498 7,158 7,068
Notes:
(1) 2010 amounts are presented in accordance with IFRS.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS

Certain statements and information contained in this Press Release constitute forward-looking statements. More particularly, this Press Release contains forward-looking statements concerning future capital expenditures of the Company, demand for the Company's products and services, drilling activity in North America, pricing of the Company's products and services, introduction of new products and services, manufacturing capacity to meet anticipated demand for the Company's products, and expected exploration and production industry activity. These statements relate to future events or to the Company's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

The use of any of the words "expect", "plan", "continue", "estimate", "anticipate", "potential", "targeting", "intend", "could", "might", "should", "believe", "may", "predict", or "will" and similar expressions are intended to identify forward-looking information or statements. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this Press Release. The forward-looking information and statements included in this Press Release are not guarantees of future performance and should not be unduly relied upon. Forward-looking statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ materially from those anticipated and described in the forward-looking statements. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements. These factors include, but are not limited to, such things as the impact of general industry conditions, fluctuation of commodity prices, industry competition, availability of qualified personnel and management, stock market volatility and timely and cost effective access to sufficient capital from internal and external sources. The risks outlined above should not be construed as exhaustive. Although management of the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Accordingly, readers should not place undue reliance upon any of the forward-looking information set out in this Press Release. All of the forward-looking statements of the Company contained in this Press Release are expressly qualified, in their entirety, by this cautionary statement. Except as required by law, the Company disclaims any intention or obligation to update or revise any forward-looking information or statements, whether the result of new information, future events or otherwise.

This press release shall not constitute an offer to sell, nor the solicitation of an offer to buy, any securities in the United States, nor shall there be any sale of securities mentioned in this press release in any state in the United States in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

THIRD QUARTER EARNINGS CONFERENCE CALL

Strad Energy Services Ltd. has scheduled a conference call to begin promptly at 9:00 a.m. MST on Friday, November 9, 2012.

The conference call dial in numbers are 1-877-440-9795 or 1-416-340-8530.

The conference call will also be accessible via webcast at:

www.stradenergy.com

A replay of the call will be available approximately one hour after the conference call ends until Friday, November 16th, 2012, at 11:59pm. To access the replay, call 1-800-408-3053, followed by pass code 1822892.

Strad Energy Services Ltd.

Interim Consolidated Statement of Financial Position

(Unaudited)

(in thousands of Canadian dollars)

As at September 30, 2012 As at December 31, 2011
$ $
Assets
Current assets
Trade receivables 42,771 49,466
Inventories 8,444 7,950
Prepaids and deposits 2,749 4,263
Current portion of notes receivable 656 1,352
Income taxes receivable 618 -
55,238 63,031
Assets held for sale 2,094 -
Non-current assets
Property, plant and equipment 157,556 126,439
Intangible assets 2,962 2,752
Notes receivable 898 683
Goodwill 17,277 17,277
Deferred income taxes 302 2,873
236,327 213,055
Assets of disposal group classified as held for sale - 14,056
Total assets 236,327 227,111
Liabilities
Current liabilities
Bank indebtedness 3,515 5,570
Accounts payable and accrued liabilities 21,957 30,812
Deferred revenue 132 2,245
Current portion of obligations under finance lease 2,976 4,383
Current portion of note payable 492 -
Income taxes payable - 3,392
Dividend payable 2,049 -
31,121 46,402
Non-current liabilities
Long-term debt 53,500 23,500
Obligations under finance lease 2,514 3,282
Note payable 984 -
Deferred income tax liabilities 13,103 13,666
101,222 86,850
Liabilities of disposal group classified as held for sale - 6,988
Total liabilities 101,222 93,838
Equity
Equity attributable to owners of the parent
Share capital 117,672 157,042
Contributed surplus 11,813 3,017
Accumulated other comprehensive loss (1,756 ) (585 )
Retained earnings (deficit) 7,172 (28,260 )
134,901 131,214
Non-controlling interests 204 2,059
Total equity 135,105 133,273
Total liabilities and equity 236,327 227,111

Strad Energy Services Ltd.

Interim Consolidated Statement of Income

For the three and nine months ended September 30, 2012 and 2011

(Unaudited)

(in thousands of Canadian dollars)

Three months ended
September 30
Nine months ended
September 30
2012
$
2011
$
2012
$
2011
$
Continuing operations
Revenue 51,094 62,675 161,699 126,174
Expenses
Operating expenses 30,796 36,936 97,655 71,021
Depreciation 6,952 4,822 19,477 12,370
Amortization of intangible assets 410 392 1,141 1,115
Selling, general administration 8,050 8,123 24,568 19,520
Share-based payments 218 132 580 493
Loss (gain) on disposal of property, plant and equipment
22

52

46

(89
)
Foreign exchange loss (gain) 510 (915 ) 879 (313 )
Finance fees 63 31 179 31
Interest expense 854 457 1,936 1,145
Income before income tax from continuing operations
3,219

12,645

15,238

20,881
Income tax 260 4,823 4,051 7,886
Net income from continuing operations for the period 2,959 7,822 11,187 12,995
Income from discontinued operations, net of tax
0

111

437

415
Net income for the period 2,959 7,933 11,624 13,410
Net income attributable to:
Owners of the parent 2,937 7,436 11,269 12,580
Non-controlling interests 22 497 355 830
2,959 7,933 11,624 13,410
Earnings per share from continuing operations attributable to the equity owners of the Company:
Basic $ 0.08 $ 0.20 $ 0.30 $ 0.33
Diluted $ 0.08 $ 0.20 $ 0.29 $ 0.33
Earnings per share from discontinued operations attributable to the equity owners of the Company:
Basic $ 0.00 $ 0.00 $ 0.01 $ 0.01
Diluted $ 0.00 $ 0.00 $ 0.01 $ 0.01
Earnings per share from total operations attributable to the equity owners of the Company:
Basic $ 0.08 $ 0.20 $ 0.31 $ 0.34
Diluted $ 0.08 $ 0.20 $ 0.31 $ 0.34

Strad Energy Services Ltd.

Interim Consolidated Statement of Comprehensive Income

For the three and nine months ended September 30, 2012 and 2011

(Unaudited)

(in thousands of Canadian dollars)

Three months ended
September 30
Nine months ended
September 30
2012
$
2011
$
2012
$
2011
$
Net income for the year 2,959 7,933 11,624 13,410
Other comprehensive income (loss)
Cumulative translation adjustment (1,002 ) 2,320 (1,171 ) 1,257
Total other comprehensive income (loss) (1,002 ) 2,320 (1,171 ) 1,257
Comprehensive income for the year 1,957 10,253 10,453 14,667
Comprehensive income attributable to:
Owners of the parent 1,935 9,524 10,098 13,711
Non-controlling interests 22 729 355 956
1,957 10,253 10,453 14,667

Strad Energy Services Ltd.

Interim Consolidated Statement of Cash Flow

For the nine months ended September 30, 2012 and 2011

(Unaudited)

(in thousands of Canadian dollars)

2012
$
2011
$
Cash flow provided by (used in)
Operating activities
Net income for the period 11,624 13,410
Adjustments for:
Depreciation and amortization 20,618 16,460
Deferred income tax 2,176 5,670
Share-based payments 383 642
Interest expense 1,936 1,227
Finance fees 179 31
Loss (gain) on disposal of property, plant and equipment 46 (94 )
Loss on sale of investment in subsidiary 441 -
Changes in items of non-cash working capital (4,306 ) (8,406 )
Net cash generated from operating activities 33,097 28,940
Investing activities
Purchase of property, plant and equipment (53,451 ) (55,552 )
Proceeds from sale of property, plant and equipment 1,060 826
Purchase of intangible assets (1,355 ) (366 )
Proceeds on sale of subsidiaries 7,129 -
Purchase of assets held for sale (2,094 ) -
Purchase of non-controlling interest (4,627 ) -
Net cash used in investing activities (53,338 ) (55,092 )
Financing activities
Proceeds on issuance of long-term debt 33,000 57,000
Repayment of long-term debt (3,000 ) (25,500 )
Repayment of finance lease obligations (net) (3,199 ) (4,343 )
Share issuance costs - (147 )
Issue of share capital 24 -
Issue of shareholder loan (579 ) -
Repayment of shareholder loan 271 119
Interest paid on debt (1,936 ) (1,227 )
Finance fees (179 ) (31 )
Payment of dividends (2,049 ) -
Net cash generated from financing activities 22,353 25,871
Effect of exchange rate changes on cash and cash equivalents 148 (2,135 )
(Decrease) in cash and cash equivalents 2,260 (2,416 )
Cash and cash equivalents (including bank indebtedness) - beginning of period (5,570 ) 8,416
Cash and cash equivalents included in liabilities of disposal group - beginning of period (205 ) -
Cash and cash equivalents (including bank indebtedness) - end of period (3,515 ) (6,000 )
Cash paid for income tax 5,521 -

ABOUT STRAD ENERGY SERVICES LTD.

Strad is a North American energy services company that focuses on providing well-site infrastructure activation solutions to the oil and natural gas industry. Strad focuses on providing complete customer solutions in well-site-related oilfield equipment for producers active in unconventional resource plays.

Strad is headquartered in Calgary, Alberta, Canada. Strad is listed on the Toronto Stock Exchange under the trading symbol "SDY".

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