Western Lakota Energy Services Inc.
TSX : WLE

Western Lakota Energy Services Inc.

November 03, 2005 08:00 ET

Western Lakota Doubles Earnings per Share in the First Nine Months of 2005 and Announces $125 Million 2006 Capital Expenditure Plan

CALGARY, ALBERTA--(CCNMatthews - Nov. 3, 2005) - Western Lakota Energy Services Inc. (TSX: WLE) reports record revenue and earnings for the nine months ending September 30, 2005.



FINANCIAL HIGHLIGHTS
(Unaudited - stated in thousands of dollars, except per share amounts)
For the three months For the nine months
ended September 30, % ended September 30, %
Operating Results 2005 2004 Change 2005 2004 Change
------------------------------------------------------
------------------------------------------------------
Revenue $ 29,949 $ 11,215 167% $ 64,284 $ 26,369 144%
Operating expenses $ 15,562 $ 6,509 139% $ 31,333 $ 14,050 123%
Gross profit $ 14,387 $ 4,706 206% $ 32,951 $ 12,319 167%
Gross profit % 48% 42% 14% 51% 47% 9%
EBITDAS (1) $ 13,720 $ 4,440 209% $ 30,702 $ 11,090 177%
EBITDAS % (1) 46% 40% 15% 48% 42% 14%
Income from
continuing
operations $ 5,455 $ 2,227 145% $ 13,541 $ 5,020 170%
Net income $ 5,348 $ 2,030 163% $ 13,170 $ 4,745 178%
Earnings per
share from
continuing
operations $ 0.14 $ 0.08 75% $ 0.38 $ 0.19 100%
Earnings per share $ 0.13 $ 0.08 63% $ 0.37 $ 0.18 106%
EBITDAS per share
(1) $ 0.35 $ 0.16 119% $ 0.86 $ 0.41 110%
Diluted earnings
per share from
continuing
operations $ 0.13 $ 0.08 63% $ 0.37 $ 0.19 95%
Diluted earnings
per share $ 0.13 $ 0.07 86% $ 0.36 $ 0.18 100%
Diluted EBITDAS
per share (1) $ 0.33 $ 0.16 106% $ 0.84 $ 0.42 100%

Cash Flow
Funds generated
from continuing
operations (2) $ 11,966 $ 3,090 287% $ 27,051 $ 8,822 207%
Capital
expenditures $ 22,731 $ 7,090 221% $103,978 $ 14,346 625%

September December %
Financial Position 30, 2005 31, 2004 Change
------------------------------
------------------------------
Working capital (excluding long-term debt) $ 4,119 $ 9,854 -58%
Property and equipment $ 154,329 $ 48,177 220%
Total assets $ 190,027 $ 75,838 151%
Long-term debt $ 51,102 $ 28,447 80%
Shareholders' equity $ 105,570 $ 32,465 225%

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


Readers are 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.

2006 CAPITAL EXPENDITURE PLAN AND NEW TERM CONTRACTS

Western Lakota is also pleased to announce its board of directors has approved its 2006 capital expenditure program of $125,000,000 subject to securing appropriate financing. The plan includes the construction of two previously announced telescoping double drilling rigs, six electric triple drilling rigs, eight CBM/oil sands coring/surface casing drilling rigs and other related property and equipment. These rigs will be constructed throughout 2006 with the total program projected to be completed in Q1/07. The two double rigs are contracted for a three year term, as previously announced, and the Company has also just signed five year term contracts with an oil and gas company for the six electric triple rigs. The oil and gas company has committed to advancing $1,000,000 per rig, six months prior to the estimated completion date of each rig. The addition of the above rigs would bring Western Lakota's total rig fleet to 56 (net 50) drilling rigs including 18 CBM/oil sands coring/surface casing drilling rigs.

DRILLING RIG FLEET

The first nine months of 2005 has been a period of unprecedented growth for Western Lakota and its drilling rig fleet. At the end of 2004 the Company 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 300 to 1,200 metres. During the third quarter, the Company's first 1500-metre pipe-arm single rig began working in the field as did the Company's third and fourth 3,600-metre ultra-heavy double rigs. The Company also acquired the Samson Cree Nation's 50% interest in 3 rigs (net 1.5) that were held in a 50/50 limited partnership with Western Lakota, bringing the total rigs operated at September 30, 2005 to 29 (net 23). Early in October, the Company's fifth 3,600-metre ultra-heavy double rig began working in the field and two more surface casing drilling rigs were purchased.



DRILLING STATISTICS

(Net to Western Lakota - excluding non-controlling interest)
For the three For the nine
months ended months ended
September September % September September %
30, 2005 30, 2004 Change 30, 2005 30, 2004 Change
---------------------------------------------------------
Rig utilization,
Western Lakota 78% 49% 66% 51%
Rig utilization,
Industry 63% 46% 56% 50%
Net drilling days 1,422 290 390% 2,485 861 189%
Revenue per
drilling day $ 20,400 $ 17,900 14% $ 20,600 $ 18,700 10%
Operating costs
per drilling
day $ 10,700 $ 10,200 5% $ 10,200 $ 9,700 5%
Gross profit
per drilling
day $ 9,700 $ 7,700 26% $ 10,400 $ 9,000 16%


The increase in rig utilization for the first nine months of 2005 is a result of an increase in industry activity in general and having the rigs working in geographical areas that are typically less affected by spring break-up than in previous years. This resulted in busy second and third quarters despite wet weather through a good part of this period. The winter drilling season looks as though it will continue to be strong, with all of the Company's rigs committed and fully crewed at this time.



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)
September September %
For the three months ended 30, 2005 30, 2004 Change
----------------------------
Revenue (excluding non-controlling
interest of $710) $ 29,049 $ 5,185 460%
Operating expenses (excluding
non-controlling interest of $345) 15,190 2,944 416%
--------------------
Gross profit 13,859 2,241 518%
--------------------
Gross profit % 48% 43%


Contract Drilling
(Stated in thousands of dollars)
September September %
For the nine months ended 30, 2005 30, 2004 Change
----------------------------
Revenue (excluding non-controlling
interest of $3,494) $ 51,271 $ 16,107 218%
Operating expenses (excluding
non-controlling interest of $1,754) 25,455 8,358 205%
--------------------
Gross profit 25,816 7,749 233%
--------------------
Gross profit % 50% 48%


Revenue for Q3/05 showed a very 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 nine 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. Through the first nine months of 2004 the Company was operating an average of 13 rigs (net 6) compared to an average of 22 rigs (net 15) operating through the first nine months of 2005. The average operated in Q3/05 was 29 rigs (net 22) compared to 13 rigs (net 6) in Q3/04, which accounts for the substantial increase from quarter to quarter.



Rig Construction and Sale
(Stated in thousands of dollars)
For the three For the nine
months ended months ended
September September % September September %
30, 2005 30, 2004 Change 30, 2005 30, 2004 Change
---------------------------------------------------------
Revenue $ - $ 6,030 -100% $ 8,982 $ 10,262 -12%
Cost of sales - 4,371 -100% 6,281 7,310 -14%
------------------- -----------------
Gross profit - 1,659 -100% 2,701 2,952 -9%
------------------- -----------------
Gross profit % 28% 30% 29%
Cumulative net
revenue recovery(1) - 806 -100% 2,157 1,618 33%
------------------- -----------------

Gross profit
after net
revenue
recovery - 2,465 -100% 4,858 4,570 6%
------------------- -----------------

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


In the first nine months of 2005, the Company has 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 September 30, 2005
----------------------------------------------------------------
(Stated in thousands of dollars)
Average net rigs 12.8
Contract drilling revenue per net rig $ 4,730
Contract drilling gross profit per net rig $ 2,388
Contract drilling EBITDAS per net rig $ 2,194
Contract drilling net income per net rig $ 884



CHANGE IN ACCOUNTING POLICY

Effective January 1, 2005, the Company adopted CICA accounting guideline 15 (AcG-15), "consolidation of variable interest entities (VIE)", retroactively without restatement of prior periods. The Company had adopted AcG-15 for one of its partnerships; however during the third quarter the Company acquired the other 50% interest in that partnership and as such it is no longer a VIE. The non-controlling interest represents the other partner's proportionate interest in that partnership's revenue and expenses prior to the acquisition of the other partner's 50% interest by the Company.

SELECTED FINANCIAL INFORMATION

Selected financial information relating to the three and nine month periods ended September 30, 2005 and 2004 is included in this press release. This information should be read in conjunction with the unaudited consolidated financial statements of the Company and the attached notes to the consolidated financial statements and management's discussion and analysis to be issued in due course and reproduced in the Company's third quarter report.



Western Lakota Energy Services Inc.
Consolidated Balance Sheets

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

Assets

Current
Cash $ - $ 3,152
Accounts receivable 25,572 12,641
Inventory - 5,228
Deposits and prepaid expenses 965 406
Current portion of notes receivable - 640
Other receivable 500 -
Current assets of discontinued
operations 392 589
-----------------------------
27,429 22,656

Notes receivable 3,615 3,732
Non-current assets of discontinued
operations 662 673
Other receivable - 600
Property and equipment 154,329 48,177
Goodwill and intangibles 3,992 -
-----------------------------
$ 190,027 $ 75,838
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current
Operating loans $ 2,834 $ 1,881
Accounts payable and accrued liabilities 16,970 7,774
Income taxes payable 1,151 2,294
Current portion of deferred net revenue - 300
Current portion of long term debt 13,959 7,514
Current portion of drilling advance 750 -
Current portion of future income taxes 1,577 489
Current liabilities of discontinued
operations 28 64
-----------------------------
37,269 20,316

Drilling advance 4,250 -
Deferred net revenue 1,551 1,410
Long-term debt 37,143 20,933
Future income taxes 4,244 714
-----------------------------
84,457 43,373
-----------------------------

Share capital 78,646 19,171
Contributed surplus 1,825 819
Retained earnings 25,099 12,475
-----------------------------
105,570 32,465
-----------------------------
$ 190,027 $ 75,838
------------------------------------------------------------------------
------------------------------------------------------------------------

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

Three months Nine months
ended ended
September 30, September 30,
2005 2004 2005 2004
------------------------------------------------------------------------
(Unaudited - stated in
thousands of dollars,
except per share amounts)

Revenue $ 29,949 $ 11,215 $ 64,284 $ 26,369
-----------------------------------------
Expenses
Operating 15,562 6,509 31,333 14,050
Administrative 667 266 2,249 1,229
Stock-based compensation 629 162 1,396 421
Depreciation and amortization 3,214 661 5,995 1,969
Interest on long term debt 738 314 1,652 933
-----------------------------------------
20,810 7,912 42,625 18,602
-----------------------------------------

Income from continuing
operations before income
taxes 9,139 3,303 21,659 7,767
-----------------------------------------
Income taxes, continuing
operations
Current 1,016 1,036 1,999 1,335
Future 2,484 40 5,483 1,412
-----------------------------------------
3,500 1,076 7,482 2,747
-----------------------------------------

Income from continuing
operations before non-
controlling interest 5,639 2,227 14,177 5,020
-----------------------------------------
Non-controlling interest,
net of tax (184) - (636) -
Net income from continuing
operations 5,455 2,227 13,541 5,020
-----------------------------------------
Income (loss) from
discontinued operations,
net of future tax benefit (107) (197) (371) (275)
-----------------------------------------
Net income for the period 5,348 2,030 13,170 4,745
-----------------------------------------
Retained earnings, beginning
of the year - as reported 19,751 7,893 12,475 5,178
Change in accounting policy - - (546) -
-----------------------------------------
Retained earnings, beginning
of the year - as restated 19,751 7,893 11,929 5,178
-----------------------------------------
Retained earnings, end of
period $ 25,099 $ 9,923 $ 25,099 $ 9,923
-----------------------------------------
Basic earnings per share
from continuing operations $ 0.14 $ 0.08 $ 0.38 $ 0.19
Basic earnings per share
- net income $ 0.13 $ 0.08 $ 0.37 $ 0.18
Diluted earnings per share
from continuing operations $ 0.13 $ 0.08 $ 0.37 $ 0.19
Diluted earnings per share
- net income $ 0.13 $ 0.07 $ 0.36 $ 0.18
Weighted average number of
shares outstanding (000's) 39,637 26,705 35,628 25,855
Diluted number of shares
outstanding (000's) 40,989 27,494 36,555 26,685
------------------------------------------------------------------------
------------------------------------------------------------------------


Western Lakota Energy Services Inc.
Consolidated Statements of Cash Flows

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

Cash flows from operating
activities
Net income from continuing
operations $ 5,455 $ 2,227 $ 13,541 $ 5,020
Add items not affecting cash:
Depreciation and amortization 3,214 661 5,995 1,969
Stock based compensation 629 162 1,396 421
Future income taxes 2,484 40 5,483 1,412
Non-controlling interest 184 - 636 -
-----------------------------------------
Funds generated from continuing
operations 11,966 3,090 27,051 8,822
Increase (decrease) in working
capital items other than cash (5,694) 2,573 (2,406) 287
-----------------------------------------
Cash flows from continuing
operations 6,272 5,663 24,645 9,109
-----------------------------------------
Net loss from discontinued
operations (107) (197) (371) (275)
Add items not affecting cash 3 31 16 -
Changes in cash of operations
held for disposal (32) (69) (105) (181)
-----------------------------------------
Cash flows from discontinued
operations (136) (235) (460) (456)
-----------------------------------------
6,136 5,428 24,185 8,653
-----------------------------------------
Cash flows from investing
activities
Purchase of property and
equipment (22,731) (7,090) (103,978) (14,346)
Increase (decrease) in working
capital items other than cash 1,551 (195) 3,072 (3,285)
-----------------------------------------
(21,180) (7,285) (100,906) (17,631)
-----------------------------------------
Cash flows from financing
activities
Proceeds (repayment) of
operating loans 2,634 275 433 (675)
Proceeds (repayment) of
long-term debt 3,476 1,079 19,065 2,899
Drilling advance 5,000 - 5,000 -
Issue of shares and warrants,
net of issue costs 753 869 49,071 8,072
-----------------------------------------
11,863 2,223 73,569 10,296
-----------------------------------------

Increase (decrease) in cash (3,181) 366 (3,152) 1,318

Cash, beginning of period 3,181 1,440 3,152 488
-----------------------------------------
Cash, end of period $ - $ 1,806 $ - $ 1,806
------------------------------------------------------------------------
------------------------------------------------------------------------


One of Canada's fastest-growing drilling contractors, Western Lakota is currently operating 32 rigs, including six surface casing/core drilling rigs and has 24 more rigs either planned for or under construction. 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.

Contact Information

  • Western Lakota Energy Services Inc.
    Elson McDougald
    President & CEO
    (403) 214-5953
    Email: elson@westernlakota.com
    or
    Western Lakota Energy Services Inc.
    300, 500 - 4th Avenue S.W.
    Calgary, Alberta T2P 2V6
    (403) 214-5970
    (403) 214-5955 (FAX)
    Website: www.westernlakota.com