Western Lakota Energy Services Inc.
TSX : WLE

Western Lakota Energy Services Inc.

May 06, 2005 18:29 ET

Western Lakota More Than Doubles Revenue and Earnings In First Three Months of 2005

CALGARY, ALBERTA--(CCNMatthews - May 6, 2005) - Western Lakota Energy Services
Inc. (WLE - TSX Venture), reports strong revenue and earnings results for the
three months ending March 31, 2005.

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

For the three months ended March 31, 2005 March 31, 2004 %Change
-------------------------------------------
Operating Results
Revenue $19,687 $8,829 123%
Operating expenses $8,242 $3,838 115%
Gross profit $11,445 $4,991 129%
Gross profit %58% 57% 2%
EBITDAS 1 $10,525 $4,408 139%
EBITDAS % 1 53% 50% 6%
Income from continuing operations $5,164 $1,928 168%
Net income $5,091 $1,847 176%
Earnings per share from
continuing operations $0.17 $0.08 113%
Earnings per share $0.17 $0.08 113%
EBITDAS per share 1 $0.34 $0.18 89%
Diluted earnings per share from
continuing operations $0.16 $0.08 100%
Diluted earnings per share $0.16 $0.07 129%
Diluted EBITDAS per share 1 $0.34 $0.17 100%

Cash Flow
Funds generated from continuing
operations ² $8,881 $4,130 115%
Capital expenditures $12,901 $3,722 247%

As at March 31, 2005 December 31, 2004 % Change
--------------------------------------------
Financial Position
Working capital
(excluding long-term debt) $20,472 9,854 108%
Property and equipment $67,880 $48,177 41%
Total assets $104,511 $75,838 38%
Long-term debt $22,258 $28,447 -22%
Shareholders' equity $62,130 $32,465 91%


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
At the end of 2004 Western Lakota was operating 15 drilling rigs (net 7.5). In
the first quarter of 2005 the Company's second ultra-heavy double telescoping
drilling rig began working in the field, bringing the total operated at March
31, 2005 to 16 (net 8.5). On May 6, 2005, the Company purchased six telescoping
double drilling rigs from Hemsing Drilling Ltd. ("Hemsing"). These new
generation rigs, which are currently operating throughout Alberta, were built
between 1996 and 2003 and range in depth capacity from 2,500 to 3,200 metres.
Construction is also continuing on five 3,600-metre ultra-heavy double rigs and
one 1,500-metre pipe-arm single rig and the Company plans to construct two more
rigs later in 2005, bringing the total number of rigs operated by Western Lakota
to 30 (net 22.5) by the end of the year.

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

For the three months ended March 31, 2005 March 31, 2004 %Change
-------------------------------------------
Rig utilization 78% 86%
(Industry - 71%) (Industry - 73%)
Net drilling days 583 453 29%
Revenue per drilling day $21,900 $19,500 12%
Operating costs per drilling day $9,000 $8,500 6%
Gross profit per drilling day $12,900 $11,000 17%


The primary reason for the decrease in rig utilization for the quarter was the
warmer than usual weather late in Q1/05. This caused spring break-up to begin
earlier in 2005, than it did in 2004. However, the weather remained relatively
dry for the latter part of March and most of April, which means rigs may be back
to work much earlier in Q2 than in previous years.

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 March 31, 2005 March 31, 2004 %Change
--------------------------------------------
Revenue (excluding non-controlling
interest of $2,135) $12,758 $8,829 45%
Operating expenses (excluding non-controlling
interest of $1,037) 5,286 3,838 38%
---------------------------------
Gross profit 7,472 4,991 50%
---------------------------------
Gross profit % 59% 57%

Revenue for the first quarter in 2005 showed a strong increase from the same
period in 2004, despite a lower rig utilization rate, as a result of increasing
the number of rigs operated by the Company and the day rates achieved on those
operated. At the end of Q1/04 the Company was operating 13 rigs (net 6.5), with
two being commissioned in that quarter compared to the 16 rigs (net 8.5)
operating at the end of Q1/05.


Rig Construction and Sale
(Stated in thousands of dollars)
For the three months ended March 31, 2005 March 31, 2004
--------------------------------
Revenue $4,623 $ -
Cost of sales 3,273 -
--------------------------------
Gross profit 1,350 -
--------------------------------
Gross profit % 29% -
Cumulative net revenue recovery* 1,354 -
--------------------------------
Gross profit after net
revenue recovery 2,704 -
--------------------------------


*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.

Financing
During the quarter the Company signed a commitment letter with GE Canada
Commercial Finance for a $30,000,000 credit facility to be used to finance the
construction of its new drilling rigs. Subsequent to the end of the quarter,
that amount was increased to $39,500,000 of which $15,500,000 will be used to
partially finance the acquisition from Hemsing.

On February 8, 2005 the Company closed a $25,300,000 private placement issue of
5,500,000 common shares at a price of $4.60 per share. On May 5, 2005 the
Company closed a $25,200,000 private placement issue of 4,800,000 subscription
receipts at a price of $5.25 per share. Proceeds of these private placements
will be used to partially fund the acquisition of the assets and operations of
Hemsing and to complete the 2005 rig construction program.

Western Lakota Energy Services Inc.
Consolidated Balance Sheets
Unaudited

March 31, December 31,
2005 2004
-------------------------------------------------------------------------
(Stated in thousands of dollars)

Assets

Current
Cash $7,541 $3,152
Accounts receivable 21,132 12,641
Inventory 2,650 5,228
Deposits and prepaid expenses 711 406
Current portion of notes receivable 750 640
Current assets of discontinued operations 562 589
------------------------------
33,346 22,656

Notes receivable 2,015 3,732
Non-current assets of discontinued operations 670 673
Other receivable 600 600
Property and equipment 67,880 48,177
------------------------------
$104,511 $75,838


========================================================================

Liabilities and Shareholders' Equity

Current
Operating loans $1,050 $1,881
Accounts payable and accrued liabilities 8,837 7,774
Income taxes payable 1,776 2,294
Current portion of deferred net revenue 296 300
Current portion of long-term debt 7,241 7,514
Current portion future income taxes 867 489
Current liabilities of discontinued operations 48 64
------------------------------
20,115 20,316

Deferred net revenue 694 1,410
Long-term debt 15,017 20,933
Future income taxes 784 714
------------------------------
36,610 43,373
------------------------------
Non-controlling interest 5,771 -

Share capital 44,208 19,171
Contributed surplus 902 819
Retained earnings 17,020 12,475
------------------------------
62,130 32,465
------------------------------
$104,511 $75,838

========================================================================

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

For the three months ended March 31, 2005 2004
------------------------------------------------------------------------
(Stated in thousands of dollars, except per share amounts)

Revenue $19,687 $8,829
------------------------------
Expenses
Operating 8,242 3,838
Administrative 920 583
Stock-based compensation 221 116
Depreciation of property and equipment 1,393 949
Interest on long-term debt 387 271
------------------------------
11,163 5,757
------------------------------
Income from continuing operations
before income taxes 8,524 3,072
------------------------------
Income taxes, continuing operations
Current 1,257 7
Future 1,693 1,137
------------------------------
2,950 1,144
------------------------------
Income from continuing operations before
non-controlling interest 5,574 1,928
------------------------------
Non-controlling interest, net of tax (410) -
------------------------------
Net income from continuing operations 5,164 1,928
------------------------------
Loss from discontinued operations, net
of future tax benefit (73) (81)
------------------------------
Net income for the period 5,091 1,847

Retained earnings, beginning of the year -
as reported 12,475 5,178
Change in accounting policy (546) -
------------------------------
Retained earnings, beginning of the year -
as restated 11,929 5,178
------------------------------
Retained earnings, end of period $17,020 $7,025



Basic earnings per share from
continuing operations $0.17 $0.08
Basic earnings per share - net income $0.17 $0.08
Diluted earnings per share from
continuing operations $0.16 $0.08
Diluted earnings per share - net income $0.16 $0.07
Weighted average number of
shares outstanding (000's) 30,745 24,581
Diluted number of
shares outstanding (000's) 31,306 25,597

========================================================================


Western Lakota Energy Services Inc.
Consolidated Statements of Cash Flows
Unaudited

For the three months ended March 31, 2005 2004
------------------------------------------------------------------------
(Stated in thousands of dollars)

Cash flows from operating activities
Net income from continuing operations $5,164 $1,928
Add items not affecting cash:
Depreciation of property and equipment 1,393 949
Stock based compensation 221 116
Future income taxes 1,693 1,137
Non-controlling interest 410
------------------------------
Funds generated from continuing operations 8,881 4,130
Decrease in working capital items
other than cash (3,158) (3,871)
------------------------------
Cash flows from continuing operations 5,723 259
------------------------------
Net loss from discontinued operations (73) (81)
Add items not affecting cash 4 (52)
Loss on sale of discontinued operations - -
Changes in cash of operations held for disposal 41 (230)
Cash flows from discontinued operations (28) (363)
------------------------------
5,695 (104)
------------------------------
Cash flows from investing activities
Purchase of property and equipment (12,901) (3,722)
Increase in working capital items
other than cash (1,629) (2,647)
------------------------------
(14,530) (6,369)
------------------------------
Cash flows from financing activities
Repayment of operating loans (1,351) (1,225)
Proceeds (repayment) of long-term debt (9,779) 5,305
Issue of shares and warrants,
net of issue costs 24,354 6,752
------------------------------
13,224 10,832
------------------------------
Increase in cash 4,389 4,359

Cash, beginning of period 3,152 488
------------------------------
Cash, end of period $7,541 $4,847

========================================================================

One of Canada's fastest-growing drilling contractors, Western Lakota currently
operates 16 rigs and plans to grow its fleet to 30 rigs by the end of 2005,
increasing the Company's net ownership to 22.5 rigs. The additional 14 rigs
would include the eight new builds previously announced, as well as the proposed
six from the Hemsing transaction. 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 partners.


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

Contact Information

  • Western Lakota Energy Services Inc.
    Elson McDougald
    President and C.E.O.
    (403) 214-5953
    Email: elson@westernlakota.com
    Website: www.westernlakota.com
    or
    Western Lakota Energy Services Inc.
    1050, 400 - 5th Avenue SW,
    Calgary, Alberta T2P 0L6
    (403) 214-5970
    (403) 214-5955 (FAX)