Technicoil Corporation
TSX : TEC

Technicoil Corporation

November 08, 2010 17:49 ET

Technicoil Corporation Reported Record Financial and Operating Results for the Three and Nine Month Periods Ended September 30, 2010

CALGARY, ALBERTA--(Marketwire - Nov. 8, 2010) -

NOT FOR DISTRIBUTION INTO THE UNITED STATES OR TO UNITED STATES WIRE SERVICES

Technicoil Corporation ("Technicoil" or the "Corporation") (TSX:TEC) is pleased to report its highest ever third quarter results for the period ended September 30, 2010. Technicoil continued to leverage the diversity of its service offering resulting in record operating hours for the Well Servicing Segment which contributed to the Corporation reporting EBITDA(1) and net income of $6.1 million and $2.8 million, respectively, for the third quarter. At September 30, 2010, the Corporation had no borrowings against its debt facilities and had positive working capital of $10.3 million, including $1.5 million of cash.

Technicoil is an oilfield services company operating in the Western Canadian Sedimentary Basin ("WCSB"). The Corporation's business is conducted through two segments: Well Servicing and Drilling.



SELECT FINANCIAL & OPERATING INFORMATION


----------------------------------------------------------------------------
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($ thousands, Three months ended Nine months ended
except per September 30 September 30
share data)
(unaudited) 2010 2009 % Change 2010 2009 % Change
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Revenue $ 22,995 $10,167 126% $62,732 $ 30,616 105%
Gross margin $ 7,032 $ 2,945 139% $19,031 $ 6,588 189%
Gross margin % 31% 29% 7% 30% 22% 36%
General and
administrative
expenses $ 823 $ 552 49% $ 2,507 $ 2,135 17%
EBITDA(1) $ 6,127 $ 2,210 177% $16,126 $ 3,874 316%
Net income /
(loss) $ 2,799 $ (323) 967% $ 6,547 $ (2,937) 323%
Per share -
basic $ 0.04 $ nil 100% $ 0.09 $ (0.04) 325%
Per share -
diluted $ 0.04 $ nil 100% $ 0.09 $ (0.04) 325%
Funds flow from
operations(1) $ 5,127 $ 1,969 160% $14,891 $ 3,505 325%
Well servicing
operating hours 20,451 10,101 102% 51,668 27,942 85%
Drilling
operating days 67 19 253% 420 257 63%
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As at As at %
September December Change
30, 2010 31, 2009
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Total assets $ 93,401 $ 91,191 2%
Long-term debt
(including
current portion) $ nil $ 8,755 (100%)
Debt to equity
ratio(1) 0.29 0.39 (26%)
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1. Readers are cautioned that EBITDA, funds flow from operations and debt
to equity ratio are considered to be non-GAAP measures that do not have
standardized meanings prescribed by GAAP. See "Definitions of Non-GAAP
Measures" for the Corporation's definitions of these measures.


OVERVIEW OF RESULTS

Technicoil reported its highest ever third quarter results for the period ended September 30, 2010 as a result of leveraging the diversity of its service offering. The Corporation's versatile coil well service rigs and mobile conventional service fleet contributed to the strong results reported during the period. Technicoil's achievements during the third quarter included:



-- Announced a $7 million capital expansion program to provide
complementary pumping services through the Corporation's Well Servicing
Segment;
-- Reported a 126% increase in revenue to $23.0 million, an improvement
from $10.2 million recorded in the third quarter of 2009;
-- Increased utilization across both segments, achieving record quarterly
operating hours by the Well Servicing Segment of 20,451 hours;
-- Improved gross margin and EBITDA by 139% and 177%, respectively in
comparison with the third quarter of the prior year. Gross margin for
the period was $7.0 million (or 31% of revenue) and EBITDA was $6.1
million (or 27% of revenue);
-- Realized net earnings of $2.8 million or $0.04 per share in comparison
with a loss of $0.3 million incurred in the third quarter of 2009.


Revenue generated by the Well Servicing Segment for the nine months ended September 30, 2010 exceed revenues generated by this segment for any complete fiscal year since the Corporation's formation. A significant increase in operating hours generated by the coil well service rigs providing rigless completions to the growing trend of horizontal wells in the WCSB accounts for the majority of the record operating performance for this segment.

Drilling activity in the WCSB improved in the third quarter of 2010 in comparison with the same period of the prior year, with activity increasing primarily in the resource plays and the oil sands. Activity directed towards heavy oil opportunities has also improved as a result of more sustainable oil commodity prices. Wells drilled in the WCSB during the quarter were 3,220 (source: Nickle's Daily Oil Bulletin), an increase from 1,964 for the same period of 2009. While the well count increased by 64%, on a "metres drilled" basis activity increased 79%. The type of well being drilled by operators is becoming more important than the total number of wells drilled. Horizontal drilling and multiple fractures in the lateral section of a well continue to dominate activity in the WCSB, which has influenced the increase in meters drilled. With an increasing trend in the number of fracturing stages in the lateral section, the capital and time required to complete the horizontal wells increases. The ongoing change in the typical well profile towards horizontal wells with multi-stage fracs will benefit service companies, such as Technicoil, with rig fleets that are capable of servicing these wells.

Technicoil's repositioning of its operations to focus on well-servicing opportunities resulted in a significant increase in revenues and profitability during the third quarter of 2010. Not only has the Corporation penetrated the major resource plays in the WCSB, Technicoil has become more leveraged towards oil activity, consistent with the shifting focus of developments in the WCSB. The Corporation's balance sheet is strong, with no debt and a positive working capital position of $10.3 million (including $1.5 million of cash), which is expected to facilitate the complementary pump build program and other corporate expansion opportunities as they arise.

FINANCIAL AND OPERATING RESULTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010

REVENUE

The Corporation reported revenue of $23.0 million in the third quarter of 2010, an increase of 126% compared with revenue of $10.2 million for the same period of the prior year. While revenue improved for both segments, the majority of the increase is attributable to the Well Servicing Segment. Revenue rates during the quarter averaged $1,072 per operating hour for the Well Servicing Segment and $15,925 per operating day for the Drilling Segment, representing increases of 9% and 16%, respectively, in comparison with the third quarter of the prior year.

The Well Servicing Segment achieved record quarterly operating hours of 20,451, surpassing the prior record achieved in the first quarter of 2010, which contributed to the 121% increase in revenue for this segment. These strong results are primarily a result of higher operating hours for both rigless completion and Steam Assisted Gravity Drainage ("SAGD") drilling support operations performed by the coil well service rig fleet across the WCSB including activity in the Bakken, Shaunavon and Cardium oil plays and the Montney gas resource play. Contributing to the increase in operating hours for the Well Servicing Segment was a 10% improvement in the utilization rate of the Corporation's conventional service rigs in the third quarter in comparison with the same period of the prior year. Activity levels improved more modestly for the Drilling Segment, which continues to be impacted by low industry activity for shallow-oriented drilling rigs. Furthermore, wet weather conditions delayed the completion of a number of drilling projects the Corporation was performing. The Drilling Segment recorded 67 operating days in the third quarter of 2010 in comparison with 19 operating days during the same period of the prior year.

GROSS MARGIN

The Corporation recorded a gross margin of $7.0 million in the third quarter of 2010 in comparison with a gross margin of $2.9 million for the same period of the prior year. The improvement in gross margin is primarily a result of higher operating hours by the Well Servicing Segment. As a percentage of revenue, gross margin improved to 31% from 29% in the same period of the prior year.

Technicoil's variable cost structure and focus on efficient cost management enabled the Corporation to maintain consolidated direct costs per operating hour, excluding third-party pass through charges, at levels comparable to the same period of the prior year. The Corporation's fixed overhead costs increased during the quarter in comparison with the same period of the prior year primarily as a result of an increase in the staff complement to support the increased volume and complexity of the Well Servicing Segment's operations. Overhead costs on a per-operating hour basis decreased by 19% in comparison with the third quarter of 2009.

GENERAL AND ADMINISTRATIVE EXPENSE AND STOCK-BASED COMPENSATION

General and administrative ("G&A") expense was $0.8 million for the three months ended September 30, 2010 in comparison with $0.6 million for the comparable period of the prior year. The increase is primarily attributable to higher consulting services and compensation expense. Compensation expense increased as a result of higher activity based variable pay provisions, and incremental staffing levels necessary to support both the growing complexity of work performed and the expanding operational footprint of the Corporation. The impact of the higher compensation and consulting expenditures were partially offset by a reduction in legal fees as a result of settling a litigation matter in the first quarter of 2010. As a percentage of revenue, G&A expense decreased from 5.4% of revenue in the third quarter of 2009 to 3.6% in the current quarter.

The Corporation recorded a stock-based compensation charge of $0.1 million in the third quarter of 2010 as a result of the appreciation of the Corporation's share price. As at September 30, 2010, the Corporation had 3,105,667 options outstanding, of which 896,328 were both vested and in-the-money. No similar charge was recorded during the same period of the prior year as no options were in-the-money as at September 30, 2009.

EBITDA

The impact of the above items resulted in the Corporation achieving EBITDA of $6.1 million for the third quarter of 2010, an increase from $2.2 million for the same period of the prior year.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization expense was $2.1 million in the third quarter of 2010, a decrease from $2.4 million for the same period of the prior year. The decrease is a result of intangible assets becoming fully amortized during the quarter, and lower depreciation expense on older equipment more than offsetting the impact on depreciation of the net capital expenditure programs from 2009 and 2010.

OTHER ITEMS

Interest on long-term debt was $0.1 million in the third quarter of 2010, a decrease of 77% in comparison with the same period of the prior year. The reduction is primarily a result of the Corporation having fully repaid its long-term debt facility in May 2010. The majority of the interest charge relates to standby fees on the unutilized portion of the banking facilities and amortization of the annual facility renewal costs.

The Corporation recorded income tax expense of $1.1 million in the third quarter of 2010 in comparison with a recovery of $0.1 million in the comparable period of the prior year. The effective tax rate for the quarter of 29% is higher than the statutory rate primarily as a result of non-deductible permanent differences.

Technicoil recorded net income of $2.8 million, or $0.04 per share, for the three months ended September 30, 2010 in comparison with a net loss of $0.3 million for the same period of the prior year. The significant improvement in comparison with the same period of the prior year is primarily a result of the record quarterly operating hours achieved by the Well Servicing Segment.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

REVENUE

The Corporation generated revenue of $62.7 million for the nine month period ended September 30, 2010, surpassing the record annual revenue of 2008. In comparison with the same period of the prior year, revenue more than doubled with both segments contributing to the improvement. The Corporation realized average revenue per operating hour of $1,076 for the Well Servicing Segment and $17,007 per operating day for the Drilling Segment, representing improvements from the same period of the prior year of 9% and 3%, respectively.

A significant improvement in operating hours by the Well Servicing Segment to 51,668 hours contributed to the revenue increase. The Corporation's continued expansion of rigless completions for the coil well service rigs in the Horn River, Montney, Cardium, Shaunavon and Bakken resource plays together with SAGD drilling support operations, and an expanded customer base for the conventional service rigs, are the primary drivers of the revenue growth in the Well Servicing Segment. Similarly, activity levels increased significantly for the Drilling Segment which recorded a 63% increase in operating days to 420 days in the period compared to the prior year, primarily as a result of a strong first quarter. The drilling rigs provided surface hole drilling programs for SAGD operations, heavy oil coring, and shallow gas drilling during the period.

GROSS MARGIN

The Corporation recorded a gross margin of $19.0 million, or 30% of revenue, for the nine month period ended September 30, 2010 in comparison with a gross margin of $6.6 million, or 22% of revenue, for the same period of the prior year. The improvement in gross margin is primarily a result of higher rig utilization by both the Well Servicing and Drilling segments and a reduction in per hour operating costs. Per hour operating costs, excluding third party pass-through items, decreased by 10% year over year. The same factors impacting gross margin in the third quarter, together with the impact of lower spring maintenance costs, account for the improvement in gross margin year-to-date.

GENERAL AND ADMINISTRATIVE EXPENSE AND STOCK-BASED COMPENSATION

General and administrative expense was $2.5 million for the nine months ended September 30, 2010, an increase from $2.1 million in comparison with the same period of the prior year. A reduction in legal costs of $0.3 million as a result of the patent and civil litigation settlement in the first quarter of 2010 was more than offset by higher compensation and consulting charges of $0.7 million during the period. The same factors affecting compensation expense in the third quarter impacted year-to-date results. As a percentage of revenue, G&A expense decreased from 7% to 4%.

The Corporation recorded a charge for stock-based compensation of $0.6 million during the nine month period ended September 30, 2010. No similar charge was recorded during the same period of the prior year as no options were in-the-money at September 30, 2009.

EBITDA

The impact of the above items resulted in the Corporation achieving a 316% increase in EBITDA to $16.1 million for the nine month period ended September 30, 2010, surpassing the record annual EBITDA results of $15.7 million recorded in 2008. The primary driver of the improvement in EBITDA is the continued expansion of rigless completions by the coil well service rigs. Improved utilization of both the conventional service rigs and drilling rig fleet also contributed to the improvement.

DEPRECIATION AND AMORTIZATION EXPENSE

Depreciation and amortization expense was $6.6 million for the nine month period ended September 30, 2010 in comparison with $7.2 million for the same period of the prior year. The decrease is a result of intangible assets becoming fully amortized during the third quarter of 2010, and lower depreciation expense on older equipment more than offsetting the impact on depreciation expense of the net capital expenditure programs from 2009 and 2010.

OTHER ITEMS

Interest on long-term debt was $0.4 million for the nine months ended September 30, 2010, a decrease of 35% in comparison with the same period of the prior year. The decrease in interest expense is primarily attributable to the Corporation having fully repaid its long-term debt facility in May 2010. A significant portion of the interest charge relates to standby fees on the unutilized portion of the facility and the amortization of annual renewal fees.

Income tax expense was $2.6 million for the period in comparison with an income tax recovery of $1.0 million for the same period of the prior year. The effective tax rate of 28% is higher than the statutory rate primarily as a result of non-deductible permanent differences.

Technicoil generated $6.5 million, or $0.09 per share, of net income for the nine months ended September 30, 2010 in comparison with a net loss of $2.9 million, or $0.04 per share, for the same period of 2009. The significant improvement is primarily a result of the record well servicing operating hours achieved and higher drilling rig utilization.

SEGMENTED RESULTS

WELL SERVICING SEGMENT

The Well Servicing Segment provides coiled tubing and conventional service rigs to the WCSB. Well Servicing is the largest segment of the Corporation. The key performance indicators for this segment include rig utilization, revenue and gross margin percentage. At September 30, 2010, the Corporation had a modern rig fleet comprised of 17 coil well service rigs and nine conventional service rigs, with an average age of approximately five years. The operational footprint of the Well Servicing Segment spans the key resource plays in the WCSB from northeastern British Columbia to southwestern Manitoba.

The Corporation's coil well service rigs are capable of servicing the horizontal wells that are beginning to dominate activity in the WCSB. This equipment provides services such as "rigless" completions and various other well completion services performed on new oil and gas wells, such as the setting of plugs, perforations and drill outs. The Corporation also deploys its coil well service rigs in SAGD drilling operations in addition to offering the traditional fracturing through coil applications. The Corporation's modern fleet of conventional service rigs provides services such as completions, production work, workovers and abandonments.



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Three months ended September 30
($ thousands except for
revenue per operating
hour)(unaudited) 2010 2009 Variance % Change
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Well servicing revenue $ 21,928 $ 9,906 $ 12,022 121%
Operating expenses 14,673 6,689 7,984 119%
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Gross margin $ 7,255 $ 3,217 $ 4,038 126%
Gross margin % 33% 32% 1% 3%
Operating hours 20,451 10,101 10,350 102%
Revenue per operating hour $ 1,072 $ 981 $ 91 9%
Number of wells serviced
during the period 440 269 171 64%
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Technicoil achieved record quarterly revenue for the Well Servicing Segment of $21.9 million for the three month period ended September 30, 2010 on 20,451 operating hours, in comparison with revenue of $9.9 million on 10,101 operating hours for the third quarter 2009. The Corporation's coil well service rigs continued to expand their exposure to rigless completions in both oil and natural gas plays and SAGD ranging work, resulting in a significant increase in operating hours for this equipment. In addition, a growing proportion of the Corporation's coil well service rigs providing rigless completions and SAGD drilling support operate on a 24 hour per day basis in comparison with the more traditional 10 hour operating day for service rigs. The Corporation's coil well service rigs have displaced rigs in many of the natural gas resource plays as a result of safety and efficiency advantages. Complementing this activity increase was a 10% increase in the utilization of the conventional service rigs despite being hampered by wet weather conditions during the quarter. Revenue rates in the quarter averaged $1,072 per operating hour in comparison with $981 per operating hour in the third quarter of the prior year. The revenue per operating hour includes revenue from services which are pass-through cost items charged to the customer and accounts for the majority of this increase.

The operating footprint of the Well Servicing Segment has expanded from southern Alberta to span the entire WCSB. Activity generated from outside of Alberta accounted for 58% of operating hours during the quarter including 24% in British Columbia and 34% from the combined Saskatchewan and Manitoba regions. Activity has also shifted to become more oil focused, with activity in the Cardium, Shaunavon and Bakken resource plays.

The Well Servicing Segment recorded a gross margin of $7.3 million or 33% of revenue for the quarter ended September 30, 2010 in comparison with a gross margin of $3.2 million of 32% of revenue for the same period of 2009. Increased activity levels account for the improvement in gross margin. Direct operating costs per hour, excluding third party pass-through items, remained consistent with the same period of the prior year.



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Nine months ended
September 30
($ thousands except for
revenue per operating
hour)(unaudited) 2010 2009 Variance % Change
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Well servicing revenue $ 55,589 $ 26,385 $ 29,204 111%
Operating expenses 37,520 19,878 17,642 89%
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Gross margin $ 18,069 $ 6,507 $ 11,562 178%
Gross margin % 33% 25% 8% 32%
Operating hours 51,668 27,943 23,725 85%
Revenue per operating hour $ 1,076 $ 944 $ 132 14%
Number of wells serviced
during the period 1,214 1,028 186 18%
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Revenue for the Well Servicing segment for the nine months ended September 30, 2010 was $55.6 million, which more than doubled the results for the comparable period of the prior year. On a per hour basis, revenue increased by 14% to $1,076, with the majority of the increase attributable to higher pass through cost items.

The growth in revenue is largely attributable to the significant increase in operating hours to 51,668. The expansion of the Corporation's geographic footprint and 24 hour operations for many of the coil well service rigs and one of the Corporation's conventional service rigs contributed to the increase in activity. Year to date operating hours generated from outside of Alberta accounted for 54%, including 25% in British Columbia and 29% from the combined Saskatchewan and Manitoba region. Technicoil's conventional service rig activity also improved year to date in comparison with the same period of the prior year with utilization for this fleet increasing by 13%.

Technicoil recorded a gross margin of $18.1 million or 33% of revenue for the Well Servicing Segment for the first nine months of 2010 in comparison with $6.5 million or 25% for the same period of the prior year. The improvement in the gross margin percentage is a result of a 10% decrease in per hour operating costs, excluding third party pass through items, combined with higher average revenue rates. Operating costs per hour were reduced as a result of more efficient crew staffing and crew changes, which account for the majority of direct variable costs, general cost management, and a higher activity base over which to absorb fixed overhead costs.

DRILLING SEGMENT

The Drilling Segment provides hybrid drilling rigs to the WCSB. Results of the Drilling Segment tend to be more volatile than the Well Servicing Segment due in part to seasonal restrictions on moving equipment and fluctuations in drilling programs of exploration and production companies. The key performance indicators for this segment include rig utilization, revenue and gross margin percentage. At September 30, 2010, the Corporation had five drilling rigs available with an average age of approximately five years. The Corporation's hybrid drilling rigs are capable of drilling with both jointed pipe or coiled tubing. The majority of activity for these rigs is drilling shallow natural gas wells, heavy oil drilling, oil sands coring and shallow directional drilling.




Three months ended
September 30
($ thousands except for
revenue per operating
hour)(unaudited) 2010 2009 Variance % Change
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Drilling revenue $ 1,067 $ 261 $ 806 309%
Operating expenses 1,290 533 757 142%
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Gross margin $ (223)$ (272) $ 49 18%
Gross margin % (21%) (104%) 83% 80%
Utilization % 15% 4% 11% 275%
Operating days 67 19 48 253%
Revenue per operating day $ 15,925 $ 13,737 $ 2,188 16%
Number of wells drilled during
the period 19 12 7 58%
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Drilling rig utilization for the industry as reported by the Canadian Association of Oilwell Drilling Contractors ("CAODC") averaged 41% in the quarter, an increase from 21% in comparison with the third quarter of 2009. Drilling activity during the quarter continued to be focused on deeper resource play developments resulting in only 24% of recorded operating days by CAODC member companies being generated from rigs with a depth capacity of less than 1,850 meters. Activity levels were also hampered by wet weather conditions during the period.

The Drilling Segment recorded revenue of $1.1 million for the third quarter of 2010, an improvement from $0.3 million for the comparable period of the prior year as a result of an increase in operating days and higher revenue per operating day. The improvement in per day revenue is largely attributable to higher pass through cost items as base day rates remained relatively consistent with the prior year averaging $11,531 per day for the quarter. The Corporation incurred a negative gross margin of $0.2 million during the period for the Drilling Segment. Excluding fixed overhead costs, the Drilling Segment generated a positive direct margin as a result of a 25% reduction in per hour operating costs in comparison with the same period of the prior year. During the third quarter of the prior year, the Corporation retained key field personnel despite low activity levels which impacted per hour operating costs. The costs associated with these personnel were absorbed over a higher activity base in the current quarter accounting for the majority of the reduction in per hour operating costs, excluding pass through cost items.



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Nine months ended September 30
($ thousands except for
revenue per operating day)
(unaudited) 2010 2009 Variance % Change
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Drilling revenue $ 7,143 $ 4,231 $ 2,912 69%
Operating expenses 6,181 4,150 2,031 49%
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Gross margin $ 962 $ 81 $ 881 1088%
Gross margin % 13% 2% 11% 550%
Utilization % 31% 19% 12% 63%
Operating days 420 257 163 63%
Revenue per operating day $ 17,007 $ 16,463 $ 544 3%
Number of wells drilled during
the period 195 116 79 68%
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Drilling activity in the WCSB improved over the first nine months of 2010, although an extended seasonal spring break-up and wet weather conditions in the third quarter impacted activity. Drilling rig utilization for the industry as reported by the CAODC averaged 38% in the period, an increase from 22% in comparison with the nine months of 2009, resulting in 8,010 wells drilled (source: Nickle's Daily Oil Bulletin) in the WCSB. Development activity directed towards oil, including heavy oil and oil sands coring programs, are increasing as a result of more sustainable oil commodity prices. These markets are serviced by the Corporation's drilling rigs.

For the nine months ended September 30, 2010, the Corporation recorded $7.1 million in revenue for the Drilling Segment, an increase from $4.2 million for the same period of the prior year. The improvement in revenue is primarily attributable to an increase in operating days. Consistent with the prior year, the majority of year-to-date operating days were recorded in the first quarter. Revenue per operating day increased slightly from $16,463 to $17,007. The Corporation recorded a gross margin of $1.0 million or 13% of revenue cumulatively to September 30, 2010 in comparison with $0.1 million or 2% of revenue for the same period of the prior year. A 63% increase in operating days and a decrease in per hour operating costs contributed to the improvement in gross margin and gross margin percentage.

OUTLOOK

Technicoil is capitalizing on the changing trends in the WCSB. Horizontal drilling and multiple fractures in the lateral section of the well continue to dominate activity in both oil and natural gas resource developments in the WCSB. This changing well profile has resulted in an expanding market for equipment capable of servicing this segment. Technicoil's coil well service rigs have been actively servicing this growing market of horizontal wells, providing a safe and efficient approach to well completions. To complement this rigless completion service provided by the Corporation's coil well service rigs, Technicoil commenced a $7 million capital expansion program to provide pumping equipment. Initially this equipment will provide pumping services required in the setting of plugs, perforations and drill-outs of the lateral section of horizontal wells. The Corporation's modern fleet of mobile free-standing conventional service rigs continue to enjoy utilization rates that exceed industry average as a result of an expanded customer base and targeted markets this equipment services.

The service and drilling rig industry, and Technicoil, has experienced a period of year-over-year improvement in utilization rates. Drilling rig activity in Canada for the first nine months of 2010 was higher than the same period of the prior year. As crude oil commodity prices improved and liquidity returned to the debt and capital markets, the Corporation's customers increased their capital programs resulting in growing demand for the services offered by Technicoil. Natural gas production in Canada and the United States has remained strong. The supply of natural gas has outstripped demand resulting in high storage levels as North America enters the winter heating season. As a result, natural gas prices have remained at relatively low levels. While activity levels have improved, there have only been modest improvements in day rates. The Corporation anticipates future day rates for its equipment may improve as we enter 2011 as a result of increased demand.

Technicoil's financial position is strong. The Corporation will remain focused on running the business efficiently and will continue to be focused on safety and operational excellence. Technicoil's credit facilities and debt-free balance sheet will enable the Corporation to continue to pursue opportunities to diversify and expand its service offering to capitalize on the changing trends in the WCSB.

DEFINITIONS OF NON-GAAP MEASURES

This MD&A contains references to certain financial measures and associated per share data that do not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures presented by other issuers. These measures are computed on a consistent basis for each reporting period and include EBITDA, adjusted net income (loss), funds flow from operations, and debt to equity ratio. These non-GAAP measures are identified and defined as follows:

"EBITDA" is a measure of the Corporation's operating profitability. EBITDA provides an indication of the results generated by the Corporation's principal business activities prior to how these activities are financed, assets are depreciated, amortized or impaired, or how the results are taxed. The Corporation calculates EBITDA as follows:



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Three months ended Nine months ended
September 30 September 30
($ thousands)(unaudited) 2010 2009 2010 2009
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Net income (loss) before
income tax $ 3,939 $ (432) $ 9,153 $ (3,936)
Add: Depreciation and
amortization 2,133 2,401 6,583 7,214
Interest on long-term
debt 55 241 390 596
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EBITDA $ 6,127 $ 2,210 $ 16,126 $ 3,874
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"Adjusted net income" is used by management to analyze net income prior to the after-tax effect of the impairment of property, plant and equipment and goodwill, and is not intended to represent net income as calculated in accordance with Canadian GAAP. For the three and nine months ended September 30, 2010 and 2009, adjusted net income equaled net income as no impairment charges were recorded in the periods.

"Funds flow from operations" is defined as cash from operating activities before changes in non-cash working capital from operating activities. Management believes funds flow from operations is a measure that provides investors additional information regarding the Corporation's liquidity and its ability to generate funds to finance its operations. The Corporation calculates funds flow from operations as follows:



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Three months ended Nine months ended
September 30 September 30
($ thousands)(unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash flow from operating
activities $ 1,647 $ 561 $ 13,311 $ 11,724
Add (deduct):
Net change in non-cash
working capital from
operations 3,480 1,408 1,580 (8,219)
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Funds flow from
operations $ 5,127 $ 1,969 $ 14,891 $ 3,505
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"Debt to equity ratio" is defined as total liabilities, including current liabilities, long-term debt and future income taxes, divided by shareholders' equity. Management believes the debt to equity ratio provides investors additional information regarding how the assets of the Corporation are financed. The Corporation calculates the debt to equity ratio as follows:



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As at September As at December
($ thousands)(unaudited) 30, 2010 31, 2009
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Current liabilities $10,664 $10,122
Long-term debt - 6,201
Future income taxes 10,472 9,155
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Total liabilities $21,136 $25,478
Shareholders' equity $72,265 $65,713
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Debt to equity ratio (total liabilities
divided by shareholders' equity) 0.29:1 0.39:1
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FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements within the meaning of securities laws, including the "safe harbour" provision of Canadian securities legislation. Forward-looking statements or information are often, but not always, identified by the use of words such as "anticipate", "expect", "plan", "forecast", "target", "project", "seek", "may", "intend", "will", "should", "could", "believe", "estimate", "predict" or similar expressions, statements that are based on current expectations and estimates about the markets in which the Corporation operates or statements of the Corporation's belief, intentions and expectations about developments, results and events which will, or may occur in the future. Such forward-looking statements are based on Technicoil's current beliefs, as well as certain assumptions made by, and information currently available to, Technicoil concerning forward-looking statements with respect to oil and gas prices and demand; other development trends of the oil and gas industry; business strategy; expansion and growth of the Corporation's business and operations and other such matters. In addition, other written or oral statements which constitute forward-looking statements may be made from time to time by and on behalf of the Corporation. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect.

By their very nature, such forward-looking statements are subject to important risks and uncertainties that predictions, projections, forecasts and other forward-looking statements will not be achieved. Readers are cautioned not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, without limitation: the impact of general economic conditions; industry conditions, including the adoption of new environmental, tax, royalty and other laws and regulations and changes in how they are interpreted and enforced; volatility of oil and gas prices; oil and gas product supply and demand; inadequate insurance coverage; risks inherent in the Corporation's ability to generate sufficient cash flow from operations to meet its current and future obligations; increases in debt service charges; the Corporation's ability to access external sources of debt and equity capital; increased competition; counterparty risk; the lack of availability of qualified personnel or management; labour unrest; fluctuations in foreign exchange or interest rates; stock market volatility; opportunities available to, or pursued by, the Corporation and other factors, many of which are beyond the control of the Corporation.

Further information regarding these factors may be found under the heading "Risks and Uncertainties" in the MD&A of the Corporation for the year ended December 31, 2009 and in the Corporation's most recent annual information form, information circular, quarterly reports, material change reports and news releases. The Corporation's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, the Corporation will derive therefrom. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Any forward-looking information contained herein is expressly qualified by this cautionary statement. The forward-looking statements in this document are provided for the limited purpose of enabling current and potential investors to evaluate an investment in the Corporation. Readers are cautioned that such statements may not be appropriate, and should not be used for other purposes.



TECHNICOIL CORPORATION
Consolidated Balance Sheets

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September December
(Thousands) (unaudited) 30, 2010 31, 2009
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Assets
Current assets:
Cash $ 1,549 $ -
Accounts receivable 17,083 11,562
Income taxes receivable - 134
Inventory 1,784 2,231
Prepaid expenses and other current assets 579 579
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20,995 14,506
Intangible assets - 369
Property, plant and equipment 72,406 76,316
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$ 93,401 $ 91,191
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Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ - $ 740
Accounts payable and accrued liabilities 9,375 6,828
Income taxes payable 1,289 -
Current portion of long-term debt - 2,554
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10,664 10,122
Long-term debt - 6,201
Future income taxes 10,472 9,155
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21,136 25,478
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Shareholders' equity:
Share capital 51,496 51,491
Contributed surplus 2,197 2,197
Retained earnings 18,572 12,025
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72,265 65,713
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$ 93,401 $ 91,191
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TECHNICOIL CORPORATION
Consolidated Statements of Operations and Retained Earnings

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Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
(Thousands except per share data) September September September September
(unaudited) 30, 2010 30, 2009 30, 2010 30, 2009
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Revenue $22,995 $10,167 $62,732 $30,616
Operating expenses 15,963 7,222 43,701 24,028
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Gross margin 7,032 2,945 19,031 6,588
General and administrative expenses 823 552 2,507 2,135
Bad debt (recovery) expense (36) 171 (41) 405
Stock-based compensation 116 - 566 -
Depreciation and amortization 2,133 2,401 6,583 7,214
Loss (gain) on sale of assets 7 - (122) 127
Interest on long-term debt 55 241 390 596
Other (revenue) expenses (5) 12 (5) 47
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Net income (loss) before income tax 3,939 (432) 9,153 (3,936)
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Income tax expense (recovery):
Current 1,068 - 1,289 (100)
Future 72 (109) 1,317 (899)
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1,140 (109) 2,606 (999)
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Net income (loss) and comprehensive
income (loss) 2,799 (323) 6,547 (2,937)

Retained earnings, beginning of
period 15,773 15,788 12,025 18,402
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Retained earnings, end of period $18,572 $15,465 $18,572 $15,465
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Earnings (loss) per share
Basic $ 0.04 $ 0.00 $ 0.09 $ (0.04)
Diluted $ 0.04 $ 0.00 $ 0.09 $ (0.04)


TECHNICOIL CORPORATION
Consolidated Statements of Cash Flows

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Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
(Thousands) (unaudited) 30, 2010 30, 2009 30, 2010 30, 2009
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Cash provided by (used in):
Operating activities:
Net income (loss) for the period $ 2,799 $ (323) $ 6,547 $ (2,937)
Add (deduct) non-cash items:
Depreciation and amortization 2,133 2,401 6,583 7,214
Loss (gain) on sale of assets 7 - (122) 127
Stock-based compensation 116 - 566 -
Future income tax 72 (109) 1,317 (899)
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5,127 1,969 14,891 3,505
Net change in non-cash working
capital from operations (3,480) (1,408) (1,580) 8,219
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Cash flow from operating activities 1,647 561 13,311 11,724
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Financing activities:
Common shares issued - - 3 -
Net repayment of revolving term loans - - (8,755) (10,200)
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Cash flow from financing activities - - (8,752) (10,200)
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Investing activities:
Acquisition of property, plant and
equipment (1,906) (668) (3,017) (2,298)
Proceeds on sale of property, plant
and equipment 390 - 835 110
Net change in non-cash working
capital from the purchase of
property, plant and equipment 294 72 (88) (753)
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Cash flow from investing activities (1,222) (596) (2,270) (2,941)
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Net increase (decrease) in cash 425 (35) 2,289 (1,417)
Cash (bank indebtedness), beginning
of period 1,124 (184) (740) 1,198
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Cash (bank indebtedness), end of
period $ 1,549 $ (219) $ 1,549 $ (219)
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Cash interest paid $ - $ 153 $ 127 $ 435
Cash income taxes recovered $ 134 $ - $ 134 $ 5
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