Western Lakota Energy Services Inc.
TSX : WLE

Western Lakota Energy Services Inc.

July 28, 2005 08:15 ET

Western Lakota Achieves Record Revenues, Earnings and Growth in the Second Quarter of 2005 and Announces Appointment of New Director

CALGARY, ALBERTA--(CCNMatthews - July 28, 2005) - Western Lakota Energy Services Inc. (TSX:WLE) reports strong revenue and earnings results for the six months ending June 30, 2005.



FINANCIAL HIGHLIGHTS
(Stated in thousands of dollars, except per share amounts)

For the three months For the six months
ended June 30, ended June 30,
% %
Operating Results 2005 2004 Change 2005 2004 Change
--------------------------------------------------------
Revenue $ 14,648 $ 6,326 132% $ 34,335 $ 15,155 127%
Operating
expenses $ 7,529 $ 3,702 103% $ 15,771 $ 7,540 109%
Gross profit $ 7,119 $ 2,624 171% $ 18,564 $ 7,615 144%
Gross profit % 49% 41% 20% 54% 50% 8%
EBITDAS (1) $ 6,457 $ 2,245 188% $ 16,982 $ 6,653 155%
EBITDAS % (1) 44% 35% 26% 49% 44% 11%
Income from
continuing
operations $ 2,922 $ 866 237% $ 8,086 $ 2,794 189%
Net income $ 2,731 $ 868 215% $ 7,822 $ 2,715 188%
Earnings per
share from
continuing
operations $ 0.08 $ 0.03 167% $ 0.24 $ 0.11 118%
Earnings per
share $ 0.08 $ 0.03 167% $ 0.23 $ 0.11 109%
EBITDAS per
share (1) $ 0.18 $ 0.09 100% $ 0.51 $ 0.26 96%
Diluted
earnings per
share from
continuing
operations $ 0.08 $ 0.03 167% $ 0.23 $ 0.11 109%
Diluted
earnings
per share $ 0.07 $ 0.03 133% $ 0.23 $ 0.10 130%
Diluted EBITDAS
per share (1) $ 0.17 $ 0.08 113% $ 0.49 $ 0.25 96%

Cash Flow
Funds generated
from continuing
operations (2) $ 6,120 $ 1,603 282% $ 15,085 $ 5,733 163%
Capital
expenditures $ 68,352 $ 3,539 1831% $ 81,247 $ 7,268 1018%


Financial Position June 30, 2005 December 31, 2004 % Change
-------------------------------------------
Working capital
(excluding long-term debt) $ 6,920 $ 9,854 -30%
Property and equipment $ 134,039 $ 48,177 178%
Total assets $ 162,460 $ 75,838 114%
Long-term debt $ 47,626 $ 28,447 67%
Shareholders' equity $ 92,477 $ 32,465 185%


Non-GAAP Measures

(1) EBITDAS means earnings from continuing operations before interest, taxes, depreciation, amortization and stock-based compensation. Readers are cautioned that EBITDAS does not have a standardized meaning under GAAP. However, EBITDAS is generally regarded as an indirect measure of operating cash flow and, as such, the Company believes it is a significant indicator of success of any business and is particularly relevant to readers within the investment community.

(2) Cash flow from continuing operations is operating cash flow before net changes in non-cash operating working capital. Readers are cautioned that cash flow from continuing operations does not have a standardized meaning under GAAP. However, management utilizes cash flow from continuing operations as a key measure to assess the ability of the Company to finance operating activities and capital expenditures.

Readers should be cautioned that these measures should not be construed as an alternative to measures determined in accordance with GAAP as an indicator of the Company's performance. The Company's method of calculating these measures may differ from other companies and accordingly, these measures may not be comparable to measures used by other companies.

CHANGE IN ACCOUNTING POLICY

Effective January 1, 2005, the Company adopted CICA accounting guideline 15 (AcG-15), "consolidation of variable interest entities", retroactively without restatement of prior periods. This resulted in the full consolidation of one of the Company's limited partnerships that was previously proportionately consolidated.

DRILLING RIG FLEET

The first half of 2005 has been a period of unprecedented growth for Western Lakota and its drilling rig fleet. At the end of 2004 Western Lakota was operating 15 drilling rigs. In the first quarter of 2005 the Company's second 3,600-metre ultra-heavy double telescoping drilling rig began working in the field. During the second quarter, the Company purchased six telescoping double drilling rigs that range in depth capacity from 2,500 to 3,200 metres and four surface casing/core drilling rigs that range in depth capacity from 350 to 1,000 metres, bringing the total operated at June 30, 2005 to 26 (net 18.5). Early in July of 2005, the Company's first 1500-metre pipe-arm single rig began working in the field as did the Company's third 3,600-metre ultra-heavy double rig.



DRILLING STATISTICS
(Net to Western Lakota - excluding non-controlling interest)

For the three months ended For the six months ended
June 30, June 30, % June 30, June 30, %
2005 2004 Change 2005 2004 Change
--------------------------------------------------------
Rig utilization,
Western Lakota 41% 21% 56% 53%
Net drilling days 480 119 303% 1,063 571 86%
Revenue per
drilling day $ 19,700 $ 17,600 12% $ 20,900 $ 19,100 9%
Operating costs
per drilling
day $ 10,400 $ 13,200 -21% $ 9,700 $ 9,500 2%
Gross profit
per drilling
day $ 9,300 $ 4,400 111% $ 11,200 $ 9,600 17%


The increase in rig utilization for the first six months of 2005 is a result of moving rigs into geographical areas that were less affected by spring break-up than in previous years. This allowed the Company to have our most successful second quarter in history despite wet weather through a good part of the second quarter and an early start to spring break-up which affected the later part of Q1/05. The summer drilling season looks as though it will continue to be strong, with nearly all of the rigs working in July.

REVENUE AND OPERATING COSTS

The total revenue and operating costs are a result of two separate operating segments: (i) contract drilling and (ii) rig construction and sale.



Contract Drilling
(Stated in thousands of dollars)
For the three months ended June 30, 2005 June 30, 2004 % Change
-------------------------------------------
Revenue (excluding
non-controlling
interest of $651) $ 9,463 $ 2,094 352%
Operating expenses
(excluding
non-controlling
interest of $373) 4,980 1,575 216%
---------------------------------
Gross profit 4,483 519 764%
---------------------------------
Gross profit % 47% 25%


For the six months ended June 30, 2005 June 30, 2004 % Change
-------------------------------------------
Revenue (excluding
non-controlling
interest of $2,785) $ 22,221 $ 10,923 103%
Operating expenses
(excluding
non-controlling
interest of $1,409) 10,266 5,413 90%
---------------------------------
Gross profit 11,955 5,510 117%
---------------------------------
Gross profit % 54% 50%


Revenue for Q2/05 showed a strong increase from the same period in 2004 as a result of increasing the number of rigs operated by the Company, and the utilization and day rates achieved on those operated. The increase for the first six months of 2005 is also significant and can again be attributed to increasing the number of rigs and the utilization and day rates achieved on those rigs. At the end of Q2/04 the Company was operating 13 rigs (net 6) compared to the 22 rigs (net 14.5) operating for most of the second quarter. The four coring rigs were not purchased until June 27, 2005 and therefore did not have a material effect on the contract drilling segment.



Rig Construction and Sale
(Stated in
thousands of
dollars) For the three months ended For the six months ended
June 30, June 30, % June 30, June 30, %
2005 2004 Change 2005 2004 Change
--------------------------------------------------------
Revenue $ 4,358 $ 4,232 3% $ 8,982 $ 4,232 112%
Cost of sales 2,993 2,939 2% 6,254 2,939 113%
------------------- -------------------
Gross profit 1,365 1,293 6% 2,728 1,293 111%
------------------- -------------------
Gross profit % 31% 31% 30% 31%
Cumulative net
revenue
recovery (1) 817 812 1% 2,158 812 166%
------------------- -------------------

Gross profit
after net
revenue
recovery 2,182 2,105 4% 4,886 2,105 132%
------------------- -------------------

(1) Cumulative net revenue recovery is the portion of revenue less
operating costs allocated to the interests in drilling rigs that
were sold from the time the rig began working in the field until the
sale of that interest occurred.


In the first six months of 2005, the Company sold 50% interests in three drilling rigs.

Annual Net Rig Performance

The following represents the average contribution, excluding non-controlling interest, each net rig has made to the contract drilling segment over the last twelve months:



For the twelve months ended June 30, 2005
--------------
(Stated in thousands of dollars)
Average net rigs 8.4
Contract drilling revenue per net rig $ 4,500
Contract drilling gross profit per net rig $ 2,326
Contract drilling EBITDAS per net rig $ 2,078
Contract drilling net income per net rig $ 800


APPOINTMENT OF NEW DIRECTOR

The Company is pleased to announce that Chief Victor Buffalo has been appointed as a Director. Chief Buffalo has been Chief of the Samson Cree Nation of Alberta for five terms. He was instrumental in the establishment and successful operation of the Peace Hills Trust Company, Canada's first and largest Aboriginal owned financial institution established in 1980. Among Chief Buffalo's many achievements has been the development of sustainable economic ventures for the Samson Cree Nation, including Peace Hills Trust Company, Peace Hills General Insurance, Samson Lake Louise Mall and various on-reserve businesses. He currently sits as a trustee of the Samson Education Trust Fund and as a director of Samson Oil & Gas Inc., the Alberta Indian Investment Corporation and Peace Hills Trust Company. We are fortunate to have Chief Buffalo join our Board of Directors.



Western Lakota Energy Services Inc.
Consolidated Balance Sheets

June 30, December 31,
2005 2004
------------------------------------------------------------------------
(Stated in thousands of dollars) (Unaudited) (Audited)

Assets

Current
Cash $ 3,181 $ 3,152
Accounts receivable 15,545 12,641
Inventory - 5,228
Deposits and prepaid expenses 935 406
Current portion of notes receivable - 640
Current assets of discontinued operations 476 589
------------------------
20,137 22,656

Notes receivable 3,615 3,732
Non-current assets of discontinued operations 664 673
Other receivable 600 600
Property and equipment 134,039 48,177
Goodwill and intangibles 3,405 -
------------------------

$ 162,460 $ 75,838
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current
Operating loans $ 200 $ 1,881
Accounts payable and accrued liabilities 11,696 7,774
Income taxes payable 589 2,294
Current portion of deferred net revenue - 300
Current portion of long term debt 11,892 7,514
Current portion of future income taxes 676 489
Current liabilities of discontinued operations 56 64
------------------------
25,109 20,316

Deferred net revenue 1,551 1,410
Long term debt 35,734 20,933
Future income taxes 1,754 714
------------------------
64,148 43,373
------------------------

Non-controlling interest 5,835 -
------------------------

Share capital 71,340 19,171
Contributed surplus 1,386 819
Retained earnings 19,751 12,475
------------------------
92,477 32,465
------------------------

$ 162,460 $ 75,838
------------------------------------------------------------------------
------------------------------------------------------------------------


Western Lakota Energy Services Inc.
Consolidated Statements of Income and Retained Earnings

Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
------------------------------------------------------------------------
(Unaudited - stated in
thousands of dollars, except
per share amounts)
Revenue $ 14,648 $ 6,326 $ 34,335 $ 15,155
-----------------------------------------
Expenses
Operating 7,529 3,702 15,771 7,540
Administrative 662 379 1,582 962
Stock-based compensation 546 143 767 259
Depreciation of property and
equipment 1,388 359 2,781 1,308
Interest on long term debt 527 349 914 620
-----------------------------------------
10,652 4,932 21,815 10,689
-----------------------------------------

Income from continuing
operations before income
taxes 3,996 1,394 12,520 4,466
-----------------------------------------
Income taxes, continuing
operations
Current (274) 293 983 300
Future 1,306 235 2,999 1,372
-----------------------------------------
1,032 528 3,982 1,672
-----------------------------------------
Income from continuing
operations before non-
controlling interest 2,964 866 8,538 2,794
-----------------------------------------
Non-controlling interest,
net of tax (42) - (452) -
-----------------------------------------
Net income from continuing
operations 2,922 866 8,086 2,794
-----------------------------------------
Income (loss) from
discontinued operations, net
of future tax
benefit (191) 2 (264) (79)
-----------------------------------------
Net income for the period 2,731 868 7,822 2,715
-----------------------------------------
Retained earnings, beginning
of the year - as reported 17,020 7,025 12,475 5,178
Change in accounting policy - - (546) -
-----------------------------------------
Retained earnings, beginning
of the year - as restated 17,020 7,025 11,929 5,178
-----------------------------------------
Retained earnings, end of
period $ 19,751 $ 7,893 $ 19,751 $ 7,893
-----------------------------------------
Basic earnings per share
from continuing operations $ 0.08 $ 0.03 $ 0.24 $ 0.11
Basic earnings per share -
net income $ 0.08 $ 0.03 $ 0.23 $ 0.11
Diluted earnings per share
from continuing operations $ 0.08 $ 0.03 $ 0.23 $ 0.11
Diluted earnings per share -
net income $ 0.07 $ 0.03 $ 0.23 $ 0.10
Weighted average number of
shares outstanding (000's) 36,405 26,271 33,590 25,426
Diluted number of shares
outstanding (000's) 37,583 27,134 34,638 26,352
------------------------------------------------------------------------
------------------------------------------------------------------------


Western Lakota Energy Services Inc.
Consolidated Statements of Cash Flows

Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
------------------------------------------------------------------------
(Unaudited - stated in
thousands of dollars)

Cash flows from operating
activities
Net income from continuing
operations $ 2,922 $ 866 $ 8,086 $ 2,794
Add items not affecting
cash:
Depreciation of property and
equipment 1,388 359 2,781 1,308
Stock based compensation 546 143 767 259
Future income taxes 1,306 235 2,999 1,372
Non-controlling interest (42) - 452 -
-----------------------------------------
Funds generated from
continuing operations 6,120 1,603 15,085 5,733
Decrease in working capital
items other than cash 6,536 1,584 3,288 (2,287)
-----------------------------------------
Cash flows from continuing
operations 12,656 3,187 18,373 3,446
-----------------------------------------
Net loss from discontinued
operations (191) 2 (264) (79)
Add items not affecting cash 9 26 13 (19)
Changes in cash of
operations held for disposal (114) 118 (73) (112)
-----------------------------------------
Cash flows from discontinued
operations (296) 146 (324) (210)
-----------------------------------------
12,360 3,333 18,049 3,236
-----------------------------------------
Cash flows from investing
activities
Purchase of property and
equipment (68,352) (3,539) (81,247) (7,268)
Increase in working capital
items other than cash 3,150 (443) 1,521 (3,090)
-----------------------------------------
(65,202) (3,982) (79,726) (10,358)
-----------------------------------------
Cash flows from financing
activities
Proceeds (repayment) of
operating loans (850) 275 (2,201) (950)
Proceeds (repayment) of long
term debt 25,368 (3,484) 15,589 1,821
Issue of shares and
warrants, net of issue costs 23,964 451 48,318 7,203
-----------------------------------------
48,482 (2,758) 61,706 8,074
-----------------------------------------
Increase in cash (4,360) (3,407) 29 952
Cash, beginning of period 7,541 4,847 3,152 488
-----------------------------------------
Cash, end of period $ 3,181 $ 1,440 $ 3,181 $ 1,440
------------------------------------------------------------------------
------------------------------------------------------------------------


One of Canada's fastest-growing drilling contractors, Western Lakota currently operates 28 rigs including four surface casing/coring rigs and plans to build 6 more rigs by the end of 2005. Western Lakota continues to provide one of the newest fleets of safe and efficient drilling rigs in Canada while delivering strong results for shareholders, customers and Aboriginal partners.

The TSX does not accept responsibility for the adequacy or accuracy of this release.

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