Technicoil Corporation

Technicoil Corporation

March 15, 2005 06:00 ET

Technicoil Corporation Announces Financial and Operating Results for the Fourth Quarter and Year Ended December 31, 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: TECHNICOIL CORPORATION

TSX VENTURE SYMBOL: TEC

MARCH 15, 2005 - 06:00 ET

Technicoil Corporation Announces Financial and
Operating Results for the Fourth Quarter and Year
Ended December 31, 2004

CALGARY, ALBERTA--(CCNMatthews - March 15, 2005) - Technicoil
Corporation (TSX VENTURE:TEC) -



2004 Fourth Quarter Results
------------------------------------------------------------------------
For the three months ended
Dec. 31 ($) (unaudited) 2004 2003 04/03 Change
------------------------------------------------------------------------
Coil tubing service and
drilling revenue 8,685,577 4,877,232 3,808,345 78%
Expenses:
Operating 4,867,112 2,960,876 1,906,236 64%
General and administrative 740,093 395,951 344,142 87%
Depreciation 562,760 470,019 92,741 20%
Gain on sale of
capital assets - (21,109) 21,109 100%
Interest on long-term debt - 76,865 (76,865) (100%)
Other interest (48,292) (2,649) (45,643) 1723%
Foreign exchange
(gain) loss (23,922) 25,973 (49,895) (192%)
------------------------------------------------------------------------
6,097,751 3,905,926 2,191,825 56%
------------------------------------------------------------------------
Net income before
income taxes 2,587,826 971,306 1,616,520 166%
Income tax expense:
Current 743,602 47,708 695,894 1459%
Future 215,194 335,851 (120,657) (36%)
------------------------------------------------------------------------
958,796 383,559 575,237 150%
------------------------------------------------------------------------
Net income for the quarter 1,629,030 587,747 1,041,283 177%
------------------------------------------------------------------------
------------------------------------------------------------------------


Our fourth quarter of 2004 was our best quarter of the year as we earned
net income of $1.6 million or $0.03/share. Our $8.7 million of revenue
was the highest of any quarter in our history thanks to the combination
of high demand and co-operative weather. Above average profitability
from our field operations offset higher than normal overhead costs to
produce a gross margin percentage in line with the 2004 year to date
average, and much improved over the 2003 fourth quarter results.

Fracturing Operations

Our fracturing revenue increased by 68% over the fourth quarter of 2003
to $6.3 million as moderate weather throughout November and December
allowed us to continue working right until the year end. The increase
was also achieved with one fewer fracturing rig available in 2004 than
in 2003. Throughout the year we began providing additional related
services to our clients, increasing the amount of revenue we are able to
earn per well. This was especially evident in the fourth quarter as
several of our ancillary services were operational at that time.

Our fourth quarter fracturing gross margin at 50% of revenue is
comparable to the 2003 fourth quarter gross margin of 51% of revenue and
the year to date gross margin of 49% of revenue in spite of higher than
normal direct labour and operations overhead costs. We started to over
staff our fracturing crews in the fourth quarter in order to train
additional personnel in preparation for our new rigs coming into service
in 2005. A large portion of the operations management bonus accruals
were booked in the fourth quarter as the company's performance improved
throughout the year and in comparison to the prior year. A $0.1 million
stock based compensation expense was booked into operations overhead
during the quarter. Our overhead also increased as we continued to ramp
up our personnel and systems in preparation for our fleet expansion. The
increased profits from our ancillary fracturing services offset the
higher than normal operating costs in order to hold our gross margin
comparable to the 2003 fourth quarter and the 2004 year to date average.

Drilling Operations

Our drilling revenue increased by 111% over the fourth quarter of 2003
to $2.4 million due to having two rigs operational in the fourth quarter
of 2004 compared to only one rig available for most of the fourth
quarter of 2003. Once normalized for rig count, the actual revenue
increase is 23%.

The drilling gross margin improved from 1% of revenue in the fourth
quarter of 2003 to 27% of revenue in the fourth quarter of 2004. The 27%
margin was consistent with the 2004 year to date gross margin of 27%.
Similar to the fracturing operations, our drilling gross margin was
negatively affected by higher than normal operations overhead costs for
the quarter relating to bonus accruals, stock-based compensation expense
and costs incurred in preparation for our fleet expansion. Operations
overhead also included a $0.1 million charge relating to some equipment
that was ordered for our new rigs and later cancelled when we were able
to source a better piece of equipment for a comparable net cost. The
cost of the newly sourced equipment plus the cancellation charge was
comparable in price to cost of the original equipment ordered, but was
superior in terms of quality and performance in relation to our rig
design. Boiler revenue helped to offset the high overhead costs this
quarter to hold our gross margin at the 2004 year to date average.

General and Administrative Expenses

Like operations overhead, our general and administrative expenses were
high for the fourth quarter of 2004, increasing by 87% over the fourth
quarter of 2003. A large portion of the management bonus accruals were
booked in the fourth quarter of 2004 as the company's performance
improved over the year. Our stock-based compensation expense was also
heavily weighted to the fourth quarter as we issued 637,000 stock
options in November 2004.

Interest and Foreign Currency

In November 2004, we completed a private placement of 5.65 million
shares for gross proceeds of $11.0 million. These proceeds, along with
strong operating cash flow, resulted in $15.8 million in cash at year
end and allowed us to earn interest income during the quarter.

We also realized a foreign currency gain during the fourth quarter as
some U.S. dollar denominated payables for equipment purchases were met
with a favourable decline in the exchange rate.

The M D & A

The following discussion is management's assessment of Technicoil's
financial condition and operating results for the year ended December
31, 2004 and has been prepared with information available up to and as
at March 14, 2005. The reader should be aware that historical results
are not necessarily indicative of future performance. This discussion
contains forward-looking statements that involve risks and
uncertainties. Such information, although considered reasonable by
Technicoil at the time of preparation, may prove to be incorrect and
actual results may differ, possibly materially, from expectations.
Unless otherwise disclosed, all financial information in this section
has been prepared in accordance with Canadian Generally Accepted
Accounting Principles (GAAP) and is presented in Canadian dollars. The
discussion should be read with reference to our consolidated financial
statements and notes. Additional information relating to Technicoil
Corporation can be found on SEDAR at www.sedar.com.



Highlights
------------------------------------------------------------------------
($ except as noted) 2004 2003 2002(i)
------------------------------------------------------------------------
Number of rigs owned at
end of year 9 9 14
Average number of rigs
available during the year 7.9 9.3 12.9
Revenue 25,897,488 18,659,099 22,562,550
EBITDA(1) 9,364,990 5,525,321 3,995,867
Net income 4,729,448 1,307,332 (1,610,747)
Earnings per share, basic
and diluted 0.10 0.03 (0.04)
Cash flow from operations(2) 7,795,079 4,514,458 4,382,622
Total assets 56,937,729 30,506,266 37,708,584
Total long-term financial
liabilities(3) - 3,069,649 6,685,962
Debt to equity ratio(4) .21 .47 .95
------------------------------------------------------------------------
------------------------------------------------------------------------
(i) Restated for change in inventory accounting policy.


Our 2004 financial results are a reflection of high industry demand
combined with improved operational performance from both our drilling
and fracturing operations. Our net income more than tripled from 2003,
reaching $4.7 million in 2004 or $0.10 per share. Revenue increased by
39% over 2003 to $25.9 million due to high utilization rates for both
drilling and fracturing operations along with expanded services on our
fracturing side. Fracturing revenue continued to be our primary business
and provided 71% of consolidated revenue in 2004 compared to 77% in
2003. In February 2004, we renewed an operating agreement with one of
our customers to provide six fracturing rigs on a first call basis for
the next three years. This agreement was then revised in early 2005 to
give our customer the right of first refusal on twelve of our fracturing
rigs by the end of 2005. This agreement should help to facilitate high
utilization for our fracturing operations over the term of the agreement.

(1) EBITDA, or earnings before interest, taxes, depreciation and
amortization, is calculated by adding back these items to reported net
income. Currency losses and impairment and losses on capital assets are
also added back as these are not considered operating costs. EBITDA is
considered to be a non-GAAP (Generally Accepted Accounting Principles)
measure that does not have a standardized meaning prescribed by GAAP,
and therefore may not be comparable to similar measures presented by
other issuers. Management believes EBITDA is useful for providing
investors with a measure of results generated by the company's principal
business activities prior to consideration of how these activities are
financed or taxed.

(2) Cash flow from operations is defined as net income before
amortization, impairment of assets, loss on sale of assets, stock-based
compensation expense and future income tax. Cash flow from operations is
a non-GAAP measure that does not have a standardized meaning prescribed
by GAAP, and therefore may not be comparable to similar measures
presented by other issuers. Management believes cash flow from
operations is useful for providing investors an indication of cash
available for capital commitments, debt repayments and other obligations.

(3) For 2002, total long-term financial liabilities includes equipment
loans with negotiated payments that are not due within twelve months
even though the loans are legally demand in nature and are shown as
current liabilities in the consolidated financial statements.

(4) Debt to equity ratio is defined as total liabilities divided by
shareholders' equity. Debt to equity ratio is a non-GAAP measure that
does not have a standardized meaning prescribed in GAAP, and therefore
may not be comparable to similar measures presented by other issuers.

Our gross margin increased from 36% of revenue in 2003 to 43% of revenue
in 2004 due to an improvement in our drilling profitability and
comparatively low margins in the first half of 2003. Net income was also
aided by lower interest payments in 2004 as we had no outstanding debt
for the second half of the year after raising $22 million through two
private placements. The private placements were completed in order to
fund a portion of our over $50 million capital expansion to build eleven
new coil fracturing rigs and four new coil drilling rigs in response to
customer demand. At December 31, 2004 our $12.7 million of capital
assets in progress and $15.8 million in cash were the majority of the
increase in total assets to $56.9 million from $30.5 million at December
31, 2003.

Results of Operations



Fracturing Operations
------------------------------------------------------------------------
Year ended Dec. 31 2004 2003 04/03 Change
------------------------------------------------------------------------
Fracturing Revenue 18,334,164 14,380,261 3,953,903 27%
Operating Expenses 9,315,694 7,727,778 1,587,916 21%
------------------------------------------------------------------------
Gross Margin 9,018,470 6,652,483 2,365,987 36%
Utilization % 57% 44% 13% 30%
Average number of rigs
available during the year 5.9 8.0 (2.1) (26%)
Number of wells completed 1,983 1,614 369 23%
------------------------------------------------------------------------
------------------------------------------------------------------------


Revenue from our fracturing operations increased by 27% over 2003 to
$18.3 million. This $4.0 million increase in fracturing revenue over
2003 was achieved with an average of six available service rigs in 2004
compared to eight available service rigs in 2003. Two of our service
rigs completed major structural conversions to tractor/trailer style
units during the year, with a third unit in progress at year end. The
sale of five service rigs early in 2003 also accounted for the decrease
in available rigs for 2004. Revenue per available rig increased by 73%
from 2003 to 2004.

The growth in our fracturing revenue is attributed to higher utilization
and rate increases from providing additional services to our customers.
Our long-term operating agreement with one of our customers, along with
high industry demand, facilitated high utilization levels in 2004. The
operating agreement is expected to provide an important source of work
for our new fleet of 11 service rigs currently under construction. The
growth of coal bed methane (CBM) is also a promising area for our
service operations, with two of our service rigs working almost
exclusively on CBM wells during the year. Over a quarter of our wells
fractured this year were CBM wells.

Our fracturing utilization percentage and revenue increased in every
quarter of 2004, including realizing an increase from the first to the
second quarter when spring breakup would normally limit operations. We
were able to keep several service rigs working on the Suffield Block in
Southern Alberta throughout the spring breakup period when road bans
were in effect for the rest of the province. Two of our rigs also
operated 16 to 24 hours per day for most of the second quarter which
resulted in April having the second highest fracturing hours of any
month this year. Our strong second quarter and mild weather in the
fourth quarter were the main reasons for our 57% utilization rate in
2004 compared to 44% in 2003.

We began to provide additional related services to our clients this year
which increased the amount of revenue we earned per well. We benefited
from rate increases arising from use of our tractor/trailer style units
and from providing our own fracturing iron to most customers.

Our fracturing gross margin increased from 46% of revenue in 2003 to 49%
of revenue in 2004 due to a 30% increase in utilization over the same
period. The higher utilization allowed us to spread our fixed overhead
costs over a greater number of hours, thus improving our gross margin as
a percentage. However, the economies of scale achieved from higher
utilization rates were offset by increased labour costs in the fourth
quarter of 2004 as we overstaffed our crews in order to train additional
personnel in preparation for our 11 new fracturing rigs coming into
service. We also spent over $0.3 million during the year on equipment
upgrades and major maintenance.

Our fracturing operations were also affected by high operating overhead
costs in 2004, especially in the fourth quarter. Operations overhead in
2004 included a stock-based compensation expense of $0.1 million, most
of which was allocated to the fracturing operations, with no comparative
amount recorded in 2003. The stock-based compensation expense relates to
stock options issued during 2004 to operations management. Bonus
accruals for operations management were also higher in 2004 than in 2003
as the management bonus plan is partially based on company performance,
which improved over the prior year. We also realized a continual
increase in operations overhead in preparation for our fleet expansion.



Drilling Operations
------------------------------------------------------------------------
Year ended Dec. 31 2004 2003 04/03 Change
------------------------------------------------------------------------
Drilling Revenue 7,563,324 4,278,838 3,284,486 77%
Operating Expenses 5,514,741 4,152,693 1,362,048 33%
------------------------------------------------------------------------
Gross Margin 2,048,583 126,145 1,922,438 1524%
Utilization % 65% 27% 38% 141%
Average number of rigs
available during the year 2.0 1.3 0.7 54%
Number of wells completed 257 197 60 30%
------------------------------------------------------------------------
------------------------------------------------------------------------


Our drilling revenue increased 77% to $7.6 million in 2004 compared to
2003. This $3.3 million increase is partially attributable to operating
an average of two drilling rigs during 2004 compared to only 1.3 during
2003 when both of our drilling rigs were undergoing a major retrofit
process. Revenue per available rig increased by 15% over the same period
as utilization rates increased from 27% in 2003 to 65% in 2004. Despite
improved utilization rates over a year ago, rain hindered operations for
a large portion of the second and third quarters as parts of Southern
Alberta, our main operating area, recorded their wettest year in over
half a century. Both of our drilling rigs were fully contracted for the
year as we worked for six different customers. Our customer list
included both large, international companies and smaller junior resource
companies.

Our drilling gross margin was 27% of revenue in 2004 compared to 3% of
revenue in 2003. Our drilling margin has improved steadily since the
completion of our retrofits in 2003. Our gross margin was -8% in the
first half of 2003 prior to the retrofits and improved to 14% in the
second half of 2003 before climbing to 27% in 2004. The higher gross
margin is due to a combination of higher utilization rates, more
experienced crews, less downtime and lower repair costs resulting from
the more reliable retrofitted rigs.

Our drilling gross margin is partially offset by higher operating
overhead costs in 2004, especially in the fourth quarter. Similar to the
fracturing operations overhead, the drilling operations overhead was
negatively affected by stock-based compensation expense, higher bonus
accruals for operations management than in 2003 and a continual increase
in overhead in preparation for our fleet expansion.

General and Administrative Expenses

General and administrative expenses increased from $1.2 million in 2003
to $1.8 million in 2004. Bonus accruals for management were higher in
2004 than in 2003 as the management bonus plan is partially based on
company performance, which improved over the prior year. Stock-based
compensation expense is another reason for the increase as we recorded a
$0.25 million expense in general and administrative expenses in 2004
compared to less than $0.1 million in 2003.

The 52% increase in general and administrative expenses, although large
on a percentage basis, is in line with our revenue growth. General and
administrative expenses represented 6.9% of revenue in 2004 compared to
6.3% in 2003.

Our recovery of bad debt relates to a U.S. receivable that had been
fully reserved for in prior years. Early in 2004 we reached an agreement
with the debtor to recover the majority of the reserved balance. All
scheduled payments were received by the end of the third quarter.

Depreciation, Impairment and Loss on Sale of Assets

Depreciation expense for 2004 increased by 9% over 2003 to $2.1 million,
consistent with the 8% increase in gross assets (excluding capital
assets in progress which are not subject to depreciation) over the same
period. Significant capital items being depreciated in 2004 that were
not depreciated in 2003 include the conversion costs for two fracturing
rigs and the drilling rig retrofits which were only depreciated for a
portion of 2003.

A $0.1 million loss on the sale of assets was realized in 2004 as
several pieces of customized equipment related to drilling operations
were sold. We determined that we no longer had a use for these assets
after deciding upon the design of our new drilling rigs and related
equipment. There were no asset writedowns in 2004.

A $0.3 million writedown was made in the first quarter of 2003 related
to the five rigs and ancillary equipment held for sale at that time. An
additional $0.3 million loss was realized on the eventual sale.

Interest, Foreign Currency and Taxes

Our interest on long-term debt decreased by 63% over 2003 as we paid out
all outstanding long-term debt by the end of June 2004 using a portion
of the proceeds from our June private placement. We were able to earn
$0.1 million in interest income from investing our excess funds during
the year as our payment terms for the newly ordered capital equipment
did not necessitate an immediate use of the funds.

We realized a foreign currency gain of $0.1 million this year as some
unhedged U.S. dollar denominated payables for equipment purchases were
met with a favourable decline in the exchange rate. Our exposure to
foreign currency risk has been reduced significantly now that we no
longer operate in the U.S.

Our tax expense increased by $1.5 million over the prior year to $2.4
million due to an increase in profitability from 2003 to 2004. Our
effective tax rate during 2004 decreased to 34.0% from the prior year's
effective tax rate of 41.2%. Higher non-deductible expenses in 2004,
including our $0.3 million stock-based compensation expense, and a
reduction in both federal and Alberta provincial tax rates helped to
reduce our effective rate below the statutory tax rate. Our current tax
expense also benefited this year from reduced federal and provincial tax
rates and the deductibility of our recent share issue costs.

Summary of Quarterly Results



2004
------------------------------------------------------------------------
($) (unaudited) Q1 Q2 Q3 Q4 Total
------------------------------------------------------------------------
Revenue 5,593,094 5,020,651 6,598,166 8,685,577 25,897,488
Net income 958,972 781,356 1,360,090 1,629,030 4,729,448
Basic earnings
per share $0.02 $0.02 $0.03 $0.03 $0.10
Diluted earnings
per share $0.02 $0.02 $0.03 $0.03 $0.10
------------------------------------------------------------------------
------------------------------------------------------------------------

2003(i)
------------------------------------------------------------------------
($) (unaudited) Q1 Q2 Q3 Q4 Total
------------------------------------------------------------------------
Revenue 5,864,483 2,330,845 5,586,539 4,877,232 18,659,099
Net income 70,073 (607,149) 1,256,661 587,747 1,307,332
Basic earnings
per share $0.00 $(0.02) $0.03 $0.01 $0.03
Diluted earnings
per share $0.00 $(0.02) $0.03 $0.01 $0.03
------------------------------------------------------------------------
------------------------------------------------------------------------
(i) Restated for change in inventory accounting policy.


As an oilfield services company, we are dependent on the capital
spending of our customers, with the whole industry dependent on the
current and anticipated future crude oil and natural gas prices.

We are also subject to seasonality throughout the year, as are all
companies in the oil and gas industry, due to restrictive weather
conditions. Our third quarter is normally our busiest quarter for
fracturing and drilling operations due to historically favourable
weather conditions in Alberta, our primary operating area. Many wells
are fractured with water-based fluid carrying sand that limits the
ability to perform fracturing work in temperatures below approximately
-25§C. As a result, our fracturing revenue can often vary from
year-to-year in the first and fourth quarters depending on the
favourability of weather conditions. Coal bed methane wells, however,
are fractured with nitrogen instead of water, which does not freeze in
cold weather. We expect that the growth of CBM production will help to
mitigate the seasonality of our fracturing operations in the future.

Both our drilling and fracturing rigs are subject to road bans during
the spring. As the warmer weather returns in the spring, the winter's
frost comes out of the ground rendering many secondary roads incapable
of supporting the weight of heavy equipment until they have thoroughly
dried out. The duration of the road bans during "spring breakup" impacts
our, and industry activity levels each spring. This causes our second
quarter revenue to often be our lowest quarter of the year. Despite
lower revenue, the second quarter does not always see a corresponding
decrease in costs as we use the spring breakup period to perform major
repairs and maintenance to our equipment and to train our field
employees.

Summary of 2004 quarterly results

The 2004 year was impacted by record high crude prices, resulting in
very strong industry demand. Our rigs were in high demand by our
customers throughout the year, with weather acting as the main lever
affecting our financial results.

The year 2004 started with fairly typical winter weather for January and
February. Spring break-up arrived in early March, shutting down our
drilling operations in the second week of March until the last week of
April. Our fracturing operations were not shut down entirely during this
period as several of our fracturing rigs were able to work on the
Suffield Block in Southern Alberta throughout the breakup period
resulting in above average results for April. Despite the early end to
spring breakup, bouts of rain continued throughout May and June causing
sporadic work stoppages for both drilling and fracturing rigs and lower
than anticipated utilization. The rain continued into the third quarter,
with parts of Southern Alberta experiencing their wettest year in over
half a century. The rain limited both the drilling and fracturing
activity for parts of July, most of August and the first half of
September. Nevertheless, our third quarter results were still better
than the prior year as only one drilling rig was working at any time in
the third quarter of 2003 due to the ongoing retrofits. The sun returned
in the fourth quarter producing ideal weather conditions for both
drilling and fracturing operations. Moderate winter weather allowed our
fracturing rigs to work throughout November and December, resulting in a
strong fourth quarter.

Summary of 2003 quarterly results

Industry demand was also high in 2003 although our rigs were still in
the process of proving themselves to our customers. Our rigs did not
operate at their full capacity during 2003 as a result.

The year 2003 followed the normal seasonality pattern, taking into
consideration the decline in our rig fleet after the first quarter.
Although revenue was high in the first quarter of 2003, losses from the
drilling rigs resulted in only a small net income. A decision was made
at that time to retrofit the drilling rigs in order to correct some of
the design issues that were contributing to the low margins. We were
also challenged with the sale of five rigs and with repatriating all
remaining rigs from the United States during the first quarter. Our
second quarter of 2003 was our lowest quarter of the year due to a
combination of a long spring breakup, the ongoing drilling rig retrofits
and the impairment of capital assets. The third quarter was our best
quarter of the year as a reduced infrastructure combined with high
utilization and high margins from both the drilling and fracturing rigs
for positive results. Our encouraging results continued into the fourth
quarter of 2003 as our margins remained high but were affected by lower
utilization than the third quarter.

Liquidity and Capital Resources

Cash flow from operations

We ended 2004 with $15.8 million in cash compared to $2.6 million at the
end of 2003. Cash flow from operations (including the net change in
working capital) provided $10.4 million of cash in 2004 compared to $6.4
million in 2003. The 62% increase from 2003 to 2004 is in line with the
64% increase in our gross margin over the same period. A large portion
of our accounts payable at December 31, 2004 related to capital
projects. The net change in accounts payable and other working capital
items that related to the purchase of capital assets were separated and
reported under investing activities.

Cash flow from financing activities

Net cash from financing activities was $16.7 million in 2004 compared to
a net outflow of $6.8 million in 2003. The significant increase in our
cash balance over the prior year is primarily due to raising $20.5
million ($22.0 million net of $1.5 million in share issue costs) through
two private placements completed during 2004. On June 28, 2004 we closed
a private placement issuance of 11 million common shares at $1.00 per
share for gross proceeds of $11.0 million. On November 22, 2004 we
closed a second private placement issuance for an additional 5.65
million shares at $1.95 per share for gross proceeds of just over $11.0
million. The private placements were completed in order to finance a
portion of our $50 million plus capital expansion. A portion of the
proceeds from the June private placement were used to retire our
remaining long-term debt since favourable payment terms for most of our
capital equipment did not require an immediate use of the funds. In
total, our long term debt was reduced by $4.2 million in 2004 after a
$6.9 million reduction in 2003.

Proceeds from the exercise of stock options also provided $0.3 million
of cash in 2004 compared to $0.1 million in 2003. As at December 31,
2004, we had 56,657,021 common shares issued and outstanding. We also
had 2,855,134 stock options issued and outstanding of which 1,232,561
were vested. We have not issued any new stock options subsequent to
December 31, 2004.

Cash flow from investing activities

Capital expenditures for 2004 were $15.4 million compared to $2.6
million in 2003. Over 80% of our capital expenditures in 2004 relate to
progress payments on our fifteen new rigs currently under construction.
We also spent $1.8 million converting three of our fracturing units to
tractor/trailer style units. The first two converted units were
completed in the summer months and have been in high demand from our
customers due to their increased maneuverability resulting from design
changes and reduced weight. A third unit underwent the conversion
process starting in August after incurring significant damage during
transport by a third party carrier. After assessing the damage, a
decision was made to convert the unit to the new tractor/trailer style
rather than repairing it to its original condition. Insurance proceeds
should be sufficient to cover the repair portion of the costs.

Cash Requirements and Resources

Our growth capital program, totaling over $50 million, to build fifteen
new rigs in by the end of 2005 is our predominant cash need. Cash flow
from operations and proceeds from our two private placements have been
sufficient to finance any required capital payments to date. These
sources of cash, however, will not be sufficient to finance the entire
capital expansion.

We plan to arrange new credit facilities within the next few months to
finance our remaining capital expenditures. Preliminary discussions with
our bank have not indicated any issues in accessing our anticipated
required debt level, which is not expected to exceed $20 million in
2005. We also have a $0.2 million operating line of credit with our bank.

Our only contractual obligations at this time relate to operating leases
for vehicles and office premises and are as follows:



------------------------------------------------------------------------
Less than After
Payments due by period ($) Total 1 Year 1-3 Years 4-5 Years 5 Years
Operating leases 866,227 298,373 268,838 168,296 130,720
------------------------------------------------------------------------


Most of the $50 million in capital expenditures for our new rigs has
also been committed under contracts and agreements to suppliers. The
amounts were not included in the table above as payment is dependent on
delivery of the equipment ordered. We believe that we have sufficient
liquidity to operate our business and execute our strategic plan for the
foreseeable future.



Consolidated Balance Sheets
------------------------------------------------------------------------
As at December 31, 2004 2003
------------------------------------------------------------------------

Assets

Current assets:
Cash and cash equivalents $ 15,807,019 $ 2,640,536
Accounts receivable 3,744,809 3,433,194
Income taxes receivable - 1,758
Inventory 292,096 343,023
Prepaid expenses 201,324 241,007
------------------------------------------------------------------------
20,045,248 6,659,518
Capital assets under construction 12,659,255 28,300
Capital assets 24,233,226 23,818,448
------------------------------------------------------------------------
$ 56,937,729 $ 30,506,266
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable and accrued liabilities $ 4,649,352 $ 2,164,119
Income taxes payable 1,768,984 106,052
Current portion of long-term debt - 1,131,180
------------------------------------------------------------------------
6,418,336 3,401,351
Long-term debt - 3,069,649
Future income taxes 3,291,473 3,242,798
Shareholders' equity:
Share capital 37,572,585 16,122,005
Contributed surplus 317,849 62,425
Retained earnings 9,337,486 4,608,038
------------------------------------------------------------------------
47,227,920 20,792,468
------------------------------------------------------------------------
$ 56,937,729 $ 30,506,266
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statements of Operations and Retained Earnings
------------------------------------------------------------------------
Years ended December 31, 2004 2003
------------------------------------------------------------------------

Coil tubing service and drilling revenue $ 25,897,488 $ 18,659,099

Expenses:
Operating 14,830,435 11,880,471
General and administrative 1,791,283 1,179,563
Bad debt (recovery) expense (89,220) 73,744
Depreciation 2,093,936 1,916,233
Impairment of capital assets - 269,310
Loss on sale of capital assets 115,618 315,491
Interest on long-term debt 143,345 387,656
Other interest (income) expense (97,051) 34,793
Foreign exchange (gain) loss (55,163) 378,011
------------------------------------------------------------------------
18,733,183 16,435,272
------------------------------------------------------------------------

Net income before income tax 7,164,305 2,223,827

Income tax expense
Current 1,891,094 272,828
Future 543,763 643,667
------------------------------------------------------------------------
2,434,857 916,495
------------------------------------------------------------------------
Net income for the year 4,729,448 1,307,332
Retained earnings, beginning of year 4,608,038 3,300,706
------------------------------------------------------------------------
Retained earnings, end of year $ 9,337,486 $ 4,608,038
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per share - basic and diluted $ 0.10 $ 0.03
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statements of Cash Flows
------------------------------------------------------------------------
Years ended December 31, 2004 2003
------------------------------------------------------------------------

Cash provided by (used in):

Operating activities:
Net income for the year $ 4,729,448 $ 1,307,332
Add non-cash items:
Depreciation 2,093,936 1,916,233
Impairment of capital assets - 269,310
Loss on sale of capital assets 115,618 315,491
Stock-based compensation expense 312,314 62,425
Future income tax 543,763 643,667
------------------------------------------------------------------------
Cash flow from operations before net
change in non-cash working capital 7,795,079 4,514,458
Net change in non-cash working capital
from operations 2,588,983 1,895,114
------------------------------------------------------------------------
10,384,062 6,409,572

Financing activities:
Private placements 22,017,500 -
Share issue costs (1,461,730) -
Common shares issued 342,832 85,000
Repayment of long-term debt (4,200,829) (6,933,383)
------------------------------------------------------------------------
16,697,773 (6,848,383)
Investing activities:
Acquisition of capital assets (15,368,631) (2,563,000)
Proceeds on sale of capital assets 113,344 7,065,600
Net change in non-cash working capital
from the purchase of capital assets 1,339,935 338,223
------------------------------------------------------------------------
(13,915,352) 4,840,823
------------------------------------------------------------------------
Net increase in cash and cash equivalents 13,166,483 4,402,012
Cash and cash equivalents, beginning of year 2,640,536 (1,761,476)
------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 15,807,019 $ 2,640,536
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash income taxes paid (received) $ 226,292 $ (1,089,404)
Cash interest paid $ 99,889 $ 404,286
------------------------------------------------------------------------
------------------------------------------------------------------------


Note

Segmented information

The Company operates in two areas in the oil and gas service industry -
well fracturing (servicing) and drilling. The same accounting procedures
and policies are applied to the well fracturing and drilling segments.

------------------------------------------------------------------------
Year ended December 31, 2004
Servicing Drilling Total
------------------------------------------------------------------------
Revenue $18,334,164 $7,563,324 $25,897,488
Operating Expenses 9,315,694 5,514,741 14,830,435
------------------------------------------------------------------------
Gross Margin 9,018,470 2,048,583 11,067,053
Non-operating costs 6,337,605
------------------------------------------------------------------------
Net income $4,729,448
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital assets under construction 5,696,202 6,963,053 12,659,255
Capital assets:
Rigs and equipment 10,035,571 12,766,955 22,802,526
Shared assets 1,430,700
------------------------------------------------------------------------
$36,892,481
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Year ended December 31, 2003
Servicing Drilling Total
------------------------------------------------------------------------
Revenue $14,380,261 $4,278,838 $18,659,099
Operating Expenses 7,727,778 4,152,693 11,880,471
------------------------------------------------------------------------
Gross Margin 6,652,483 126,145 6,778,628
Non-operating costs 5,471,296
------------------------------------------------------------------------
Net income $1,307,332
------------------------------------------------------------------------
------------------------------------------------------------------------
Capital assets under construction 28,300 - 28,300
Capital assets:
Rigs and equipment 9,632,741 12,945,321 22,578,062
Shared assets 1,240,386
------------------------------------------------------------------------
$23,846,748
------------------------------------------------------------------------
------------------------------------------------------------------------


Technicoil Corporation
Suite 1550, 633 - 6th Avenue SW, Calgary, Alberta, Canada T2P 2Y5
Tel: (403) 509-0700 - Fax: (403) 509-0701
Email: info@technicoilcorp.com - Website: www.technicoilcorp.com


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Technicoil Corporation
    Arthur E. Dumont
    Chairman & Chief Executive Officer
    (403) 509-0705